Outlook for Tongaat Hulett is sweeter this year

TONGAAT Hulett share price surged by more than 27 percent on the JSE yesterday after the agriculture and agri-processing company said it expected to return to profitability in the six months to end September, boosted by the performance from all sugar operations and its turnaround strategy.

The group said in a trading update that it expected to report headline earnings per share of between 117 cents a share and 140c, improving by between 150 and 160 percent compared to a loss of 233c reported last year.

Its headline earnings was expected to be between R158 million and R189m, also improving by between 150 and 160 percent compared to last year’s loss of R315m, while operating profit was expected to increase by approximately 70 percent compared to last year’s amount of R1.3 billion.

“This result is due to an excellent performance from all the sugar operations and good overall business momentum, which reflects continued progress with the business turnaround strategy,” the group said.

Chief executive Gavin Hudson implemented a turnaround strategy for the group last year after financial mismanagement was uncovered in early 2019.

The strategy was evident in its fullyear results for the year to end March when Tongaat Hulett narrowed its losses by 79 percent to R285m, down from R1.4bn reported a year earlier.

Tongaat Hulett said while the impact of hyperinflation in Zimbabwe continued to have a significant bearing on the reported growth, it is the turnaround in the South African operations and continued solid performance from the Zimbabwean and Mozambican sugar operations that were the highlights of this set of results and that most clearly demonstrate the improvements that had been made in recent times.

“Operating profit in the South African operations reflect a turnaround of more than R500m period-on-period. The starch and glucose operation performed well, despite challenges faced from the government-imposed ban on the production and sale of alcoholic beverages during the Covid19 lockdown,” the group said.

In the Zimbabwean operations, operating profit increased by more than 60 percent, benefiting from ongoing improvements to operations as well as the effects of hyperinflation. Tongaat Hulett said its total net borrowings, excluding the trade finance facilities of the starch and glucose operation, reduced by roughly R900m from R11.8bn last year to R10.9bn at the end of September.

In South Africa, net borrowings decreased by R600m to R10.4bn, while net debt in Mozambique decreased from R1.06bn in September last year to R750m, assisted by a weaker metical exchange rate against the rand.

The group said on October 31, post period-end, an amount of R4.54bn of the proceeds of the starch and glucose transaction were applied towards reduction of debt in South Africa.

Tongaat Hulett share price closed 17.32 percent higher at R9.01 on the JSE yesterday.