Tongaat Hulett returns to profitability, cites “improvement” in Zimbabwe currency challenges

Tongaat Hullett CEO Gavin Hudson. Image: Supplied
  • Revenue up 37% to R8.2 billion
  • Headline loss improved by 101% to R6 million
  • No dividend was declared in the current period

HARARE – Hippo Valley Estates parent, Tongaat Hulett delivered an impressive set of results for the half year period ended 30 September 2020, as it embarks on a recovery road from an embattled spell which involved corporate accounting scandal and a debt mountain that forced it to sell assets.

The Group introduced board changes which saw Gavin Hudson coming in as new CEO. It seems the turnaround plan is bearing fruits.

Despite the impact of COVID-19 during the course of the year, Tongaat Hulett’s revenue was up 37% to R8.2 billion and operating profit surged 95% to R1.9 billion.

“Total headline earnings recorded a sharp turnaround, increasing 156% to a profit of R175 million from a loss of R315 million previously, while cash flow from operating activities improved by R1.9 billion,” the group said in a statement.

This led to “an improved headline loss of R6 million against a previous loss of R517 million” Tongaat Hulett noted.

Commenting on Zimbabwe operations, the Group acknowledged that “While the interbank exchange rate is impacted by limited foreign currency liquidity within the Zimbabwean economy, the situation has improved somewhat with the reintroduction of a market driven foreign exchange auction system in June 2020.”

Meanwhile, the impact of hyperinflation in Zimbabwe continued to have a significant bearing on the reported profits and resulted in a non-taxable net monetary loss arising from hyperinflation accounting of R301 million compared to R329 million recorded in the prior comparable period.

The Group also reported a 23% increase in net finance costs to R1.053 billion (September 2019: R855 million), largely due to an increased exchange loss of R116 million on foreign currency borrowings (non-cash in nature) and the impact of extending leases in Mozambique.

“The net effect of all of the above factors is a profit after tax of R491 million, which reflects a significant turnaround from the loss of R199 million in the comparable prior year period,” the group said.

The Group’s various sugar operations recorded an operating profit of R2.126 billion, relative to R855 million in the prior period. The increase was attributable to a strong turnaround in the South African operations, a good operational performance in Mozambique, steady operations and hyperinflation in Zimbabwe, as well as the profit on the disposal of the Namibian packaging operation.

The Zimbabwe sugar operations generated Adjusted EBITDA of R1.926 billion against R717 million in the previous period, benefitting from ongoing improvements to operations and the effects of hyperinflation.

However, local sales volumes declined by 13% from 181 590 tons to 158 439 tons, as supply and pricing into the market were responsibly managed to prevent arbitrage into surrounding regional markets, particularly during the period in which a price freeze was recommended by the Government.

“Low household disposable incomes added to the subdued demand,” Tongaat noted.

In a forward looking statement, Hudson said that “Tongaat Hulett is a solid business with significant assets. Now is the time to pivot and look towards future growth. We are well placed to do so, given that our sugar business is a leading agri-business in SADC [the Southern African Development Community] and our property business has one of the largest portfolios of premier commercial land in KwaZulu-Natal and indeed South Africa.”

He stressed that the group’s board and team are fully focused on the turnaround, by “delivering on its strategic plan”. This includes driving efficiencies, building capability in people and processes and continuing to fix the fundamentals to create a platform for sustainable, profitable growth.

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