Chris Logan: Tongaat’s turnaround tale turns sour

Tongaat’s results were highly anticipated given it announced a proposed rights issue only weeks ago. Tongaat also issued earnings guidance with suggested large losses owing to operational mishaps that have since been dealt with. Despite this, the share price has lost more ground, down as much as 15% intraday. The size of the rights issue, which is going to be in the region of R4bn, will be around four times the size of the current business. The capital raise will be extremely dilutive and may provide an opportunity for new investors once the dust settles. Opportune Investments founder Chris Logan – one of the few analysts on the JSE who covers Tongaat in any detail following their accounting irregularities – said that results did not paint a pretty picture. The operational issues have supposedly been sorted out and have cost the sugar refiner hundreds of millions in lost sales. Tongaat’s land, valued at billions of rands on its books, cannot entice buyers. It has been a recurring issue over the last few years and puts in question whether the value attributed to the land on Tongaat’s books is an accurate reflection of the market value. – Justin Rowe-Roberts

Tongaat Media Statement: 

Salient features

  • Continued progress with the business turnaround strategy
  • Strong local sugar demand across all geographies and market share gains
  • Ongoing improvements in ESG
  • Net finance costs down 50% on reduced debt and favourable exchange rate movements
  • Debt refinancing agreements concluded in South Africa and Mozambique
  • Up to R4bn equity capital raise initiated and partial underwriting of R2bn for rights offer secured
  • Dividends and management fees of R140m received from Zimbabwe

The financial results have been impacted by the following:

– Lower raw sugar production

– Land sales delayed by civil riots

– Zimbabwe hyperinflation dynamics

– Restatements arising from correction of prior period errors

– R158m impact of civil unrest on profits of the South African sugar operation

– Group taxation at an effective 97% tax rate due to deferred tax on losses not recognised

– Partial contribution from the disposed of starch and glucose, Namibia and Eswatini operations in the comparative period

Group financial results (including the discontinued starch and glucose operation)

  • Basic loss per share of 174c (September 2020: earnings per share of 214c)
  • Headline loss per share of 188c (September 2020: headline earnings per share of 178c)

Group financial results from continuing operations

  • Revenue up 5% to R8.5bn (September 2020: R8.1bn)
  • Operating profit down 23% to R1.3bn (September 2020: R1.7 bn)
  • Hyperinflationary net monetary loss of R110m (September 2020: loss of R71m)
  • Basic loss of R234m (September 2020: earnings of R108m)
  • Basic loss per share of 174c (September 2020: earnings per share of 80c)
  • Headline loss of R254m (September 2020: earnings of R59m)
  • Headline loss per share of 188c (September 2020: headline earnings per share of 44c)
  • Segmental cash flows of R958m (September 2020: R1.4bn)
  • No dividend was declared in the current period (September 2020: Rnil)

Steady progress continues to be made in the implementation of the turnaround strategy and in restoring the Group to a sustainable growth path. In addition to the implementation of a range of initiatives to improve operational performance and strengthen governance, the Group has substantially reduced its debt burden and improved cash flow, successfully repatriated dividends from Zimbabwe, invested in people and processes and strengthened its focus on ESG over the past two years. A 5-year capital programme has also been initiated to sustain and improve all operations. More recently, the refinance of the South African debt facilities has been concluded, an equity capital raise was initiated and a partial underwriting of R2bn for the rights offer was secured.

The Mozambique sugar operations delivered an excellent result, with strong growth in operating profit on the back of robust local sales. The Zimbabwe sugar operations benefitted from buoyant local sales but were materially impacted by the effects of hyperinflation. The South African sugar operations experienced a very challenging six months compounded by breakdowns at the three raw sugar mills, the unrest in KwaZulu-Natal during July 2021 and the challenges experienced in processing sugarcane that arose from the unrest-related arson. Covid-19 related impacts, civil riots and a weak economy continue to weigh on the revenue and profits of the property business.

Financial performance in the current period is notably skewed by hyperinflation, the disposal of the Namibian and Eswatini operations, which contribute to the comparative results, as well as restatements of certain prior year numbers.


We will continue to firmly re-establish a culture of operational excellence, reduce debt, and restore confidence in Tongaat Hulett. In the short term, this will involve targeting the conclusion of a successful rights offer, which is a key step in securing the future of the Group.

With the sugar season drawing to a close, full year sugar production for the Group is expected to be between 8% and 10% below that of the prior year. Our focus for the remainder of the year will be to ensure a good crop for the next season, closing out the current season and preparing for the next season from a milling perspective, and continuing with the improvements to restore the South African refinery to historic production levels.

In Zimbabwe and Mozambique, water security for multiple seasons arising from the full dam levels will support improved sugarcane yields and increased cane supply to the mills, thereby increasing operating efficiencies and cost competitiveness in these regions. In South Africa, there is an intensified drive to reinvest in the asset base of the sugar business to improve the operational performance and maximise both efficiencies and economies of scale. We believe that the property portfolio continues to hold considerable value for the Group. Efforts to close out legacy land development projects, finalise historic land sales and deal with legacy infrastructure commitments continue to gain traction.

We expect that lower debt levels will further benefit finance costs in 2022. Cash generation, reducing debt to a sustainable level, liquidity management, and the ongoing review of the Group’s capital structure, remain as priorities.

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