Market punishes Tongaat for ‘disaster’
Shares in Tongaat Hulett, the sugar producer that drew sharp criticism earlier in 2018 after reporting profits well short of its own guidance, lost as much as 6.1% on Friday after it reported an interim headline loss.
The group’s shares slumped almost 12% in early trade before recovering slightly to close at R61.30. In November 2014 the stock was trading above R170.
Despite a 9% increase in revenue to R8.8bn, Tongaat said it made a headline loss of R87m in the six months to end-September, from headline earnings of R661m a year before. Operating profits fell 64% to R530m.
Tongaat said major transactions in its land conversion and development business were not concluded during the period, while earnings were affected by “difficult local market conditions experienced by the sugar operations in SA and Mozambique”.
Opportune Investments CEO Chris Logan said the weak result “makes a mockery of the statement in the annual report that earnings are expected to increase”. Tongaat’s debt continued to escalate “alarmingly” in the period, Logan said.
Total borrowings increased to R10.7bn from R9.1bn at the end of March.
“With its superb land holdings and very good starch operation, Tongaat should be a winner, but exceptionally poor capital allocation, and a skills-deficient board, has turned it into disaster for long-suffering shareholders,” Logan said.
Tongaat said that based on its financial position, it has decided not to declare an interim dividend. It paid an interim dividend of 100c per share in 2017.
In May Investec analyst Anthony Geard wrote a report calling for then CEO Peter Staude to step down. While Investec later apologised for the report, Staude retired in October. Sydney Mtsambiwa has taken over in an acting capacity.
Tongaat said it “recognises the imperative to restore returns for shareholders to an acceptable level, improve cash generation and reduce debt levels”.
The business is “accelerating” a review of operations “with the objective of unlocking value”.