Wrap Text
Interim Results for the six months ended 30 September 2018
Tongaat Hulett Limited
Registration No: 1892/000610/06
JSE share code: TON
ISIN: ZAE000096541
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018
SALIENT FEATURES
- Revenue increased 9% to R8,808 billion (2017: R8,118 billion)
- Operating profit decreased 64% to R530 million
(2017: R1,471 billion)
- Sugar production increased by 13% to 954 000 tons
(2017: 848 000 tons)
- Major land transactions remain under negotiation
- Sugar imports into South Africa declining after increased
duty protection implemented in August 2018
- Headline loss of R87 million (2017: headline earnings
of R661 million)
- Operating cash inflow after working capital of R183 million
(2017: R53 million outflow)
COMMENTARY
Tongaat Hulett encountered significant challenges during the six
months ended 30 September 2018. Operating profit for the period
of R530 million was 64% below the R1,471 billion earned in the
six months ended 30 September 2017 (the comparative period).
In the land conversion and development activities, the major
transactions under negotiation for the period were not concluded
by 30 September 2018. Operating profit from the starch and
glucose operation benefitted from lower maize costs. The
difficult local market conditions experienced by the sugar
operations in South Africa and Mozambique during the second
half of 2017/18 continued into the first half of 2018/19, with
a resultant negative impact on both revenue and cane valuations.
The sugar operations recorded a combined operating profit of
R1,138 billion (2017: R1,308 billion), before cane valuations.
Sugar production for the six month period increased to
954 000 tons (2017: 848 000 tons), including the raw sugar
equivalent production in Eswatini (formerly Swaziland). Revenue
from the higher production was offset by the lower world market
raw sugar price, which was on average 22% below the comparative
period. The charge against operating profit of R796 million
(2017: R473 million) in respect of cane valuations was
R323 million higher than the comparative period, to which
Mozambique and South Africa contributed R172 million and
R130 mïllion respectively. In Mozambique, the movement in
cane valuations was attributable to lower domestic prices and
a reduction in the business cane area due to the expiry of
some lease arrangements with private farmers. In South Africa,
the movement in cane valuations arose from lower domestic
prices and a lower cane age profile as the harvest programme
was further advanced than the comparative period. After
adjusting for the impact of cane valuations, operating profit
amounted to R342 million (2017: R835 million).
The Zimbabwe sugar operations generated operating profit of
R537 million (2017: R580 million), before cane valuations.
Increased water availability and the accelerated sugarcane
root replanting programme have improved cane yields and
resulted in sugar production of 306 000 tons (2017: 280 000 tons).
Strong growth in local market sugar sales continued. Liquidity
constraints in the local market have resulted in considerable
cost-push inflationary pressure. After adjusting for cane
valuations, operating profit was R319 million (2017: R358 million).
The South African sugar operations recorded operating profit of
R205 million (2017: R273 million), before cane valuations.
Improvements in cane yields, quality and milling performance
increased sugar production to 431 000 tons (2017: 380 000 tons).
In response to competition from imported sugar, local prices were
reduced both in July 2017 and March 2018 by a cumulative 22%,
resulting in lower margins relative to the comparative period.
After extensive engagement with the International Trade
Administration Commission and the South African government, the
US dollar-based reference price, used in the calculation of the
import duty, was increased in August 2018 from US$566 to US$680
per ton. In addition to the higher duty protection, subsequent
reviews and adjustments to the tariff have been implemented
timeously. The above interventions resulted in a decline in the
volume of imported sugar entering the local market over the past
six months to 112 000 tons (2017: 301 000 tons). Local prices
increased in September 2018 returning to pre-July 2017 levels.
Local sales volumes were negatively affected by the continued
availability of imported sugar in the market. In August 2018 a
sizeable "buy-in" ahead of the price increase occurred. After
adjusting for cane valuations, operating profit was R13 million
(2017: R211 million).
The Mozambique sugar operations recorded operating profit of
R341 million (2017: R394 million), before cane valuations. Sugar
production increased to 176 000 tons (2017: 153 000 tons) due to
the earlier commencement of the milling season. The stronger
Metical resulted in a higher local price of sugar in Mozambique
than in neighbouring markets in US dollar terms, creating price
arbitrage opportunities. Local market sales volumes were below
the comparative period. Realisations from export sales, which
represent more than 50% of the industry's production, were
impacted by low international prices and the stronger currency.
The construction of the 90 000 ton sugar refinery at the Xinavane
sugar mill was completed within budget. After adjusting for cane
valuations, operating profit was R7 million (2017: R232 million).
The starch and glucose operation achieved an operating profit of
R300 million (2017: R240 million). Margins continued to benefit
from lower maize prices that traded closer to export parity levels
after the prior season record crop and a surplus crop in the
current season reflecting a recovery from the drought-affected
maize prices experienced in the comparative period. Increased
co-product realisations also contributed to improved margins.
The benefit of new market development initiatives and the ongoing
success in displacing imports, was masked by weaker local demand,
particularly in the alcoholic beverage sector, and by customer
production constraints within the coffee creamer sector. Overall,
domestic volumes declined by 7% relative to the comparative period.
The improved competitiveness of local maize prices supported an
increase in export volumes. The ongoing focus on reducing costs
and improving operational efficiencies continued to yield positive
results.
Land conversion and development activities recorded an operating
loss of R30 million (2017: operating profit of R441 million).
Negotiations around some transactions in the period were not
concluded and substantial commercial engagements are continuing
with a number of prospects. Revenue for the period was generated
from the sale of 0,6 developable hectares in Bridge City
(2017: 68 developable hectares across various areas).
Tongaat Hulett's operating cash flow after working capital
improved by R236 million to R183 million (2017: R53 million
outflow). Proceeds from previous land sales totalling R112 million
were collected by 30 September 2018, with a further R630 million
being received in October 2018. Tongaat Hulett's working capital
requirements reduced by R705 million, with the South African
sugar operations benefitting from the sizeable "buy-in" ahead
of the September 2018 price increase. New capital expenditure of
R343 million comprised R325 million in respect of the refinery
project in Mozambique and R18 million on completing the energy
efficiency project at the refinery in Durban. Expenditure on
ongoing capital requirements and sugarcane root replanting
totalled R595 million (2017: R709 million). During the period,
capital expenditure was limited to essential replacement items
only. The sugarcane root replanting programme, aside from
normalising after the drought, took into account current market
fundamentals in determining the required pace of replanting.
Finance costs of R477 million (2017: R413 million) were
commensurate with the level of borrowings over the period.
Overall, the period reflected a net cash outflow after dividends
of R1,601 billion (2017: R1,683 billion).
Tongaat Hulett's net debt at 30 September 2018 was R7,754 billion
(2017: R6,514 billion) with headroom on its borrowings facilities
of R1,8 billion. The capital structure of each business continues
to be reviewed and over the past six months, the South African
borrowings benefitted from the receipt of R362 million from the
Mozambique sugar operations. A dividend payment of R114 million
was received from Triangle in Zimbabwe, bringing the total
dividend received since the beginning of September 2017 to
R372 million. A process to remit a further dividend from Zimbabwe
is currently underway.
Taking the above into account, Tongaat Hulett recorded a headline
loss for the period of R87 million, being a decrease of 113%
against the comparative period. After consideration of Tongaat
Hulett's current financial position, the Board has deemed it
appropriate to not declare an interim dividend (2017: 100 cents
per share).
OUTLOOK
Sugar - To focus on generating cash flow and increasing returns on
capital employed
The challenges facing the South African and Mozambique sugar
operations are receiving urgent attention.
Tongaat Hulett's existing sugarcane footprint, under normal
growing conditions and on completion of foreseeable planting
partnerships, has the potential to produce 1 600 000 tons of
sugar. Total sugar production in 2018/19 is estimated to be
between 1 311 000 tons and 1 352 000 tons, compared to the
1 171 000 tons produced in 2017/18. Sugar production in 2019/20
is expected to exceed 1 400 000 tons, underpinned by the prospect
of normal summer rainfall and improvements in cane yields. All
sugar operations continue to focus on reducing operating costs
through increased production efficiency.
In Zimbabwe, the Tugwi-Mukosi dam has secured the availability
of bulk water for irrigation for the next two years. The
additional production will support higher export sales into
regional deficit markets at premium prices. Recently, a
favourable outcome was reached with the government providing
Tongaat Hulett with security of tenure over its assets in
Zimbabwe. Tongaat Hulett's outlook on its Zimbabwe operations
remains positive.
In South Africa, indications are that imported sugar is working
itself out of the market although the extent of the "buy-in" at
the lower price may slow sales volumes in the second half of the
year. Consequently, export sales into world price related markets
will increase. A return to the sugar industry's normalised local
sales levels of 1 650 000 tons is expected in 2019/20. The higher
duty protection will assist in rebuilding margins of both growers
and millers, the full benefit of which, together with further
growth in sugar production, will be reflected in the 2019/20
financial results.
In Mozambique, robust measures are being taken to stem the flow
of illegal sugar imports from the region in order to recover
local market share. The commissioning of the Xinavane refinery
will be completed by mid-November 2018 and will deliver a
step-change improvement to the sales mix in Mozambique. The
refined sugar will replace imported white sugar, satisfy the
country's growing industrial demand and enhance returns from the
domestic price premium relative to the realisations from export
markets. An estimated 7 000 tons of refined sugar will be produced
in the second half of 2018/19, with the full year benefit to be
realised in 2019/20. Good progress continues to be made with
sales volumes into regional deficit markets.
Starch and Glucose - Favourable maize outlook and sustained
profit margins
The starch and glucose operation remains well positioned to grow
sales volumes and enhance its product and market mix, underpinned
by available production capacity, ongoing improvements in
operating efficiencies and continued market development.
In the current economic conditions, some recovery in consumer
demand is expected in the second half of the financial year.
Sales volumes will benefit from the resolution of a major
customer's production constraints in the coffee creamer sector,
the commissioning of increased capacity in powdered glucose, the
continuation of the import replacement strategy and new business
development initiatives. Further growth in export markets is
anticipated, supported by a competitive maize price and a weaker
currency.
The current season maize crop of 12,9 million tons, combined
with 3,7 million tons of carry-over stock from the previous season,
should see maize prices remain competitive and close to export
parity levels, thereby sustaining margins. Co-product revenue is
expected to increase in the second half of the year, supported by
market fundamentals.
Land Conversion and Development - Set to unlock further value
from a solid platform
Tongaat Hulett has a unique portfolio of prime land located around
Durban, which is one of South Africa's primary growth corridors.
The land conversion and development activities have transitioned
this portfolio into a solid platform for value creation for many
stakeholders.
The registration of transfer of land already sold will generate
considerable cash inflows. Proceeds totalling R630 million were
collected during October 2018, leaving land debtors of
R1,934 billion, most of which is expected to be collected over
the next twelve months, as administrative, planning and other
conditions are fulfilled.
The opening of new development areas around King Shaka
International Airport, Ballito and Ntshongweni (west of Durban),
is expanding the geographic market spread beyond the currently
dominant greater Umhlanga region.
Land released from agriculture totals 3 566 developable hectares.
Development and commercial focus is concentrated on 621 developable
hectares, representing 2,8 million square metres of new building
floor area, of which 189 hectares are shovel ready and can
accommodate 1,3 million square metres of new building floor area.
Conclusion
Tongaat Hulett recognises the imperative to restore returns for
its shareholders to an acceptable level, improve cash generation
and reduce debt levels. Therefore, the business is accelerating
a review process across all its operations with the objective of
unlocking value.
In light of the current debt levels, tight cash flow management
will continue to receive focussed attention across the business.
Various initiatives are in progress to reduce working capital
requirements, limit capital expenditure and improve operating
cash flows. Tongaat Hulett expects an improved cash flow
performance in the second half of the financial year. The
unwinding of Tongaat Hulett's black economic empowerment
structure is expected to be completed by 31 January 2019.
Tongaat Hulett remains focussed on improving its financial
performance, notwithstanding the current operating environment,
with progress on establishing a platform for earnings growth
beyond 2018/19.
For and on behalf of the Board
Bahle Sibisi Sydney Mtsambiwa
Chairman Interim Chief Executive Officer
Amanzimnyama
Tongaat, KwaZulu-Natal
8 November 2018
INCOME STATEMENT
Condensed consolidated Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 September 30 September 31 March
Rmillion 2018 2017 2018
Revenue 8 808 8 118 16 982
Operating profit 530 1 471 1 958
Net financing
costs (note 1) (477) (413) (878)
Profit before tax 53 1 058 1 080
Tax (note 2) (57) (267) (249)
(Loss)/profit for
the period (4) 791 831
(Loss)/profit
attributable to:
Shareholders of
Tongaat Hulett (110) 724 713
Non-controlling interests 106 67 118
(4) 791 831
(Loss)/earnings
per share (cents)
Basic (93,7) 628,5 618,0
Diluted (93,7) 628,5 618,0
Condensed consolidated Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 September 30 September 31 March
Rmillion 2018 2017 2018
Headline (loss)/
earnings attributable to
Tongaat Hulett
shareholders (note 3) (87) 661 617
Headline (loss)/
earnings per share (cents)
Basic (74,1) 573,8 534,8
Diluted (74,1) 573,8 534,8
Dividend per share (cents) 0 100,0 160,0
Currency conversion
Rand/US dollar closing 14,21 13,46 11,89
Rand/US dollar average 13,39 13,21 13,00
Rand/Metical average 0,22 0,21 0,21
Rand/Euro average 15,73 15,03 15,15
US dollar/Euro average 1,18 1,14 1,17
SEGMENTAL ANALYSIS
Condensed consolidated Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 September 30 September 31 March
Rmillion 2018 2017 2018
REVENUE
Sugar
Zimbabwe 2 584 2 063 3 918
Eswatini 170 162 210
Mozambique 1 108 1 191 1 584
South Africa 3 046 2 004 6 332
Sugar operations - total 6 908 5 420 12 044
Starch operations 1 872 1 993 3 913
Land Conversion and
Developments 28 705 1 025
Consolidated total 8 808 8 118 16 982
The adoption of IFRS 15 Revenue from Contracts with Customers in the
current period has resulted in a net increase in revenue of
R558 million. In the sugar operations, revenue in South Africa
increased by R621 million, in Mozambique by R12 million and decreased
by R101 million in Zimbabwe and in the land conversion and
development operations it increased by R26 million. The prior
periods were prepared under the previous revenue recognition
standard, IAS 18 Revenue.
OPERATING PROFIT
Sugar
Zimbabwe 319 358 563
Eswatini 3 34 29
Mozambique 7 232 159
South Africa 13 211 86
Sugar operations - total 342 835 837
Starch operations 300 240 572
Land Conversion and
Developments (30) 441 661
Centrally accounted and
consolidation items (46) (39) (59)
Other capital items (31) (39)
BEE IFRS 2 charge and
transaction costs (5) (6) (14)
Consolidated total 530 1 471 1 958
ANALYSIS OF SUGAR OPERATING PROFIT
Sugar operations -
before cane valuations 1 138 1 308 467
Zimbabwe 537 580 363
Eswatini 55 61 4
Mozambique 341 394 71
South Africa 205 273 29
Cane valuations -
income statement effect (796) (473) 370
Zimbabwe (218) (222) 200
Eswatini (52) (27) 25
Mozambique (334) (162) 88
South Africa (192) (62) 57
Sugar operations -
after cane valuations 342 835 837
Zimbabwe 319 358 563
Eswatini 3 34 29
Mozambique 7 232 159
South Africa 13 211 86
STATEMENT OF FINANCIAL POSITION
Condensed consolidated Unaudited Unaudited Audited
30 September 30 September 31 March
Rmillion 2018 2017 2018
ASSETS
Non-current assets
Property, plant
and equipment 15 906 14 184 13 922
Long-term receivable 693 649 681
Goodwill 407 388 346
Intangible assets 476 409 447
Investments 25 30 25
17 507 15 660 15 421
Current assets 17 218 17 002 13 694
Inventories 6 886 6 139 3 072
Growing crops (note 4) 2 290 2 137 2 755
Trade and other receivables 5 092 5 137 5 183
Tax 42 22
Cash and cash equivalents 2 908 3 589 2 662
TOTAL ASSETS 34 725 32 662 29 115
EQUITY AND LIABILITIES
Capital and reserves
Share capital 135 135 135
Share premium 1 544 1 544 1 544
BEE held
consolidation shares (635) (621) (623)
Retained income 9 064 9 525 9 401
Other reserves 1 763 1 095 (286)
Shareholders' interest 11 871 11 678 10 171
Non-controlling interests 2 197 2 038 1 838
Equity 14 068 13 716 12 009
Non-current liabilities 8 190 8 408 8 215
Deferred tax 2 324 2 483 2 376
Long-term borrowings 5 023 5 127 5 048
Provisions 843 798 791
Current liabilities 12 467 10 538 8 891
Trade and other
payables (note 5) 6 099 4 682 4 165
Short-term borrowings 5 639 4 976 4 077
Non-recourse equity-settled
BEE borrowings 615 602 603
Tax 114 278 46
TOTAL EQUITY AND LIABILITIES 34 725 32 662 29 115
STATEMENT OF OTHER COMPREHENSIVE INCOME
Condensed consolidated Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 September 30 September 31 March
Rmillion 2018 2017 2018
(Loss)/profit for the period (4) 791 831
Other comprehensive
income/(loss) 2 357 463 (1 163)
Items that will not
be reclassified to
profit or loss:
Foreign currency
translation 2 347 469 (1 155)
Actuarial loss on
post-retirement
benefits (10)
Tax on actuarial loss 2
Items that may be
reclassified
subsequently to
profit or loss:
Hedging reserve 13 (8)
Tax on movement in
hedging reserve (3) 2
Total comprehensive
income/(loss) for
the period 2 353 1 254 (332)
Total comprehensive
income/(loss) attributable to:
Shareholders of
Tongaat Hulett 1 924 1 161 (237)
Non-controlling interests 429 93 (95)
2 353 1 254 (332)
STATEMENT OF CHANGES IN EQUITY
Condensed consolidated Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 September 30 September 31 March
Rmillion 2018 2017 2018
Balance at beginning
of period 10 171 10 781 10 781
Adjustment on initial
adoption of IFRS 15
(note 11) (159)
Total comprehensive
income/(loss) for the period 1 924 1 161 (237)
(Loss)/profit for
the period (110) 724 706
Movement in
hedging reserve 10 (6)
Foreign currency translation 2 024 443 (943)
Dividends paid (66) (220) (330)
BEE share-based payment charge 2 5 12
Share-based payment charge 26 8 10
Settlement of share-based
payment awards (27) (57) (65)
Shareholders' interest 11 871 11 678 10 171
Non-controlling interests 2 197 2 038 1 838
Balance at beginning
of period 1 838 1 957 1 957
Adjustment on initial
adoption of IFRS 15
(note 11) (23)
Total comprehensive
income/(loss) for
the period 429 93 (95)
Profit for the period 106 67 117
Foreign currency
translation 323 26 (212)
Dividends accrued (26)
Dividends paid (21) (12) (24)
Equity 14 068 13 716 12 009
STATEMENT OF CASH FLOWS
Condensed consolidated Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 September 30 September 31 March
Rmillion 2018 2017 2018
Operating profit 530 1 471 1 958
Loss/(surplus) on
disposal of property,
plant and equipment 32 (51) (106)
Depreciation 550 517 1 001
Growing crops valuation
and other non-cash items 866 510 (271)
Operating cash flow 1 978 2 447 2 582
Change in working capital (1 795) (2 500) (307)
Cash flow from operations 183 (53) 2 275
Tax payments (282) (218) (354)
Net financing costs (477) (413) (878)
Cash flow from operating
activities (576) (684) 1 043
Expenditure on property,
plant and equipment:
New (343) (109) (876)
Replacement (355) (218) (298)
Cane roots (226) (348) (887)
Major plant overhaul
cost changes (90) (1)
Intangible assets (14) (53) (106)
Proceeds on disposal of
property, plant and
equipment 51 155
Net cash flow before
dividends and
financing activities (1 514) (1 451) (970)
Dividends paid (87) (232) (354)
Net cash flow before
financing activities (1 601) (1 683) (1 324)
Borrowings raised 1 473 2 568 1 611
Non-recourse equity-settled
BEE borrowings 12 (21) (19)
Settlement of
share-based payment awards (27) (57) (65)
Net (decrease)/increase in
cash and cash equivalents (143) 807 203
Balance at beginning
of period 2 662 2 741 2 741
Currency alignment 389 41 (282)
Cash and cash equivalents
at end of period 2 908 3 589 2 662
NOTES
Condensed consolidated Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 September 30 September 31 March
Rmillion 2018 2017 2018
1. Net financing costs
Interest paid (546) (497) (1 049)
Interest capitalised 21 21 45
Interest received 48 63 126
(477) (413) (878)
2. Tax
Normal (317) (386) (199)
Deferred 296 129 (25)
Withholding tax (11) (10) (25)
Rate change (25)
(57) (267) (249)
During the period, the agricultural tax rate in Mozambique
increased from 10% to 32% due to a concession previously granted
not being extended. Representations are being made to government
to reinstate the 10% tax rate for agriculture.
3. Headline (loss)/earnings
(Loss)/profit attributable
to shareholders (110) 724 713
Adjusted for:
Capital loss/(surplus)
on disposal of land,
cane roots and buildings 32 (52) (27)
Loss on disposal
of plant and equipment 3
Tax on the above items (9) (11) (71)
Non-controlling interests (1)
87 661 617
4. Number of shares (000)
In issue 135 113 135 113 135 113
Weighted average (basic) 117 441 115 189 115 372
Weighted average (diluted) 117 441 115 189 115 372
5. Growing crops
Growing crops, comprising standing cane, is measured at fair value which
is determined using an estimate of cane yields and prices which are
unobservable inputs and, in accordance with IFRS, categorised as
level 3 under the fair value hierarchy. Changes in fair value are
recognised in profit or loss. A change in yield of one ton per
hectare on the estimated yield of 80 tons cane per hectare
(30 September 2017: 75 tons per hectare and
31 March 2018: 81 tons per hectare) would result in a
R28 million (30 September 2017: R28 million and
31 March 2018: R34 million) change in fair value while a change
of one percent in the cane price would result in a R23 million
(30 September 2017: R25 million and 31 March 2018: R28 million)
change in fair value.
6. Trade and other payables
Trade and other payables includes an interest bearing maize obligation
of R603 million (30 September 2017: R687 million and
31 March 2018: R486 million).
7. Capital expenditure commitments
Contracted 129 282 398
Approved 101 708 240
230 990 638
8. Operating lease commitments 66 82 60
9. Guarantees and
contingent liabilities 142 79 91
10. Basis of preparation
The condensed consolidated financial statements for the six months
ended 30 September 2018 have been prepared in accordance with and
containing the information required by IAS 34 Interim Financial
Reporting, the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee, the Financial Pronouncements as
issued by the Financial Reporting Standards Council, and comply
with the Companies Act of South Africa and the JSE Limited Listing
Requirements. These condensed consolidated financial statements
do not include the fair value disclosures for financial instruments
as required by IAS 34 paragraph 16A(j), which are available on the
company's website, at the registered office or on request. The
directors take full responsibility for these condensed consolidated
financial statements, which have been prepared under the supervision
of the Interim Chief Financial Officer, Mr RD Aitken CA(SA). The
results have not been audited, and any reference to future
financial performance has not been reviewed or reported on, by the
company's auditor.
11. Accounting policies
The accounting policies applied in the preparation of the financial
statements for the six months ended 30 September 2018 comply with
International Financial Reporting Standards ("IFRS") and are
consistent, in all material respects, with those applied for the
financial year ended 31 March 2018, except for the adoption of
IFRS 9 Financial Instruments ("IFRS 9") and IFRS 15 Revenue from
Contracts with Customers ("IFRS 15") as detailed below. The other
new and revised accounting pronouncements, effective from
1 April 2018, were adopted by Tongaat Hulett with no impact
on the financial results.
Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial
Instruments: Recognition and Measurement ("IAS 39") and sets out
the new requirements for the classification and measurement of
financial instruments, introduces an expected credit loss model
for the measurement of impairment losses and establishes a closer
alignment between hedge accounting and risk management practices.
The application of the requirements of IFRS 9 to Tongaat Hulett
is as follows:
- Classification and measurement requirements: There is no impact
on Tongaat Hulett.
- Impairment requirements:
In terms of IAS 39, financial assets (e.g. trade receivables,
contract assets, lease receivables, loan commitments) were impaired
using an incurred loss model when there was objective evidence of
default. Under IFRS 9, an impairment is based on an expected credit
loss ("ECL") model which takes into account historical credit loss
experience adjusted for current and future economic conditions.
The ECL to be recognised is based on the expected losses that may
arise within the next twelve months. If there is a significant increase
in credit risk, or if the company elects to do so, the ECL is based on
the lifetime of the financial asset.
As Tongaat Hulett's sugar and starch operations are short term in
nature (e.g. terms of 14 days in the South African sugar operations
and 30 days in the starch operation) the impact of IFRS 9 is
insignificant. In the developments operation, the financial assets
are mainly secured by the value of the serviced land as reflected in
the transaction price. The registration of the property is delayed
as a protection mechanism for the recovery of the full amount due.
Based on the above, no impairment adjustments have been processed
for the period.
- Hedge accounting requirements:
Hedge accounting is applied in the starch operation to account for
maize futures. Tongaat Hulett has elected to adopt the transitional
provisions of IFRS 9 which allow a choice to continue with the hedge
accounting requirements of IAS 39 rather than adopting the new IFRS 9
requirements.
The adoption of IFRS 9 has had no material impact on Tongaat Hulett's
earnings and no retrospective adjustments have been made to the
financial statements.
Revenue Recognition
IFRS 15: Revenue from Contracts with Customers replaces
all existing IFRS revenue requirements and establishes a single,
principles-based model to account for revenue arising from contracts
with customers. Under IFRS 15, revenue is recognised as Tongaat Hulett
satisfies performance obligations and transfers control of goods or
services to its customers, compared with the previous accounting
standard that recognised revenue based on an assessment of the risks
and rewards of ownership.
The measurement of revenue is determined based on the amount to which
Tongaat Hulett expects to be entitled in the exchange for the goods
or services and is allocated to each specific performance obligation
in the contract. Depending on whether certain criteria are met, revenue
is recognised either over time or at a point in time, as and when the
performance obligations are met, and control of the goods or services
is transferred to the customer.
IFRS 15 affects Tongaat Hulett's commercial transactions within its
land conversion and development activities as well as certain of the
customary transactions within the sugar operations where sugar is
sold to industry (or similar) bodies. The impact of adopting IFRS 15
is detailed below:
- Land Conversion and Development:
A commercial land transaction involves the conclusion of an
unconditional, binding contract which transfers the risks and rewards
of ownership of the land to the purchaser and conveys on Tongaat Hulett
an obligation to provide the necessary services infrastructure to the
site. In terms of the previous accounting standard, revenue on a
commercial land transaction was recognised as a single transaction at
the time the contract became unconditional.
Under IFRS 15, the commercial land transaction is split into two
distinct performance obligations with revenue being apportioned
between them.
- Sale of the land:
The revenue attributed to the sale of land is recognised at the point
in time when the relevant agreement becomes unconditional and binding
on the purchaser and the purchaser can exercise effective control
over the land.
- Provision of services infrastructure:
The revenue attributed to the necessary services infrastructure, is
deferred and recognised over the period the obligation is fulfilled,
using the percentage completion method with reference to the services
costs incurred relative to the total estimated services costs.
- South African sugar operations:
In March each year, in terms of the sugar industry agreement, the
South African Sugar Association ("SASA") is obliged to purchase all
unsold sugar stocks designated for the local market to determine the
final sucrose price for the season. Revenue was previously recognised
at that point in time as ownership of the sugar had legally transferred
to SASA and payment had been received.
Applying the IFRS 15 transfer of control requirements, since the South
African sugar operations retain control over the physical sugar stocks
and have the responsibility to market and sell the sugar on behalf of SASA,
revenue is not recognised under IFRS 15 until the sugar is delivered to
the end-customer.
- Zimbabwe sugar operations
In September and March each year, a third-party commodity trader purchases
a bulk volume of sugar designated for the local market. Revenue was
previously recognised at those points in time as ownership of the sugar
had legally transferred to the commodity trader and payment had been received.
Applying the IFRS 15 transfer of control requirements, the Zimbabwe sugar
operations retain control over the physical sugar stocks and have the
responsibility to market and sell the sugar on behalf of the commodity
trader, revenue is not recognised under IFRS 15 until the sugar is
delivered to the end customer.
- Mozambique sugar operations
As sugar is produced by the Mozambique sugar operations, it is sold to
the Distribuidora Nacional de Acucar Limitada ("DNA"), a body
established to market, sell and distribute the industry's sugar
production into local and certain preferential export markets. Sugar
that is surplus to the DNA's requirements is repurchased by the
Mozambique sugar operations, in proportion to their share of
industry, for sale to other export markets. Revenue was previously
recognised at the date of sale to the DNA as ownership of the sugar
had legally transferred to the DNA and payment had been received.
Applying the IFRS 15 transfer of control requirements, since the
Mozambique sugar operations retain responsibility to market, sell
and distribute the surplus sugar, revenue from the sale of such surplus
sugar is no longer recognised at the time of sale to the DNA, but
rather when the sugar has subsequently been exported to the end-customer.
Tongaat Hulett has elected not to restate comparative information and,
in terms of the transitional requirements of IFRS 15, has adopted the
modified retrospective approach whereby the cumulative effect of
initially applying the new standard has been recorded as an adjustment
to the opening balance of equity at the date of initial application,
being 1 April 2018. Comparative information has not been restated and
is reported under the previous standard.
The effect of the adoption of IFRS 15 at 31 March 2018 on the
statement of financial position would have been a decrease in
equity of R182 million (Tongaat Hulett: R159 million and non-controlling
interests: R23 million) comprising of an increase in inventory
(i.e. sugar stocks) of R1,068 billion, an increase in trade and
other payables (i.e. deferred revenue) of R1,195 billion, a decrease
in trade and other receivables of R122 million and a decrease of
R67 million in the deferred tax liability.
12. Subsequent events
There were no material events between 30 September 2018 and the date
of this report.
CORPORATE INFORMATION
Directorate:
C B Sibisi (Chairman), S M Beesley, F Jakoet, J John,
R P Kupara (Zimbabwean), T N Mgoduso, N Mjoli-Mncube,
S G Pretorius, T A Salomao (Mozambican)
Company Secretary:
M A C Mahlari
Executive:
S D Mtsambiwa (Zimbabwean) (Interim Chief Executive Officer)
and R D Aitken (Interim Chief Financial Officer)
Registered office:
Amanzimnyama Hill Road, Tongaat, KwaZulu-Natal
P O Box 3, Tongaat 4400
Telephone: +27 32 439 4019
Transfer secretaries:
Computershare Investor Services (Pty) Limited
Telephone: +27 11 370 7700
Sponsor:
Investec Bank Limited
Telephone: +27 11 286 7000
www.tongaat.com
e-mail: info@tongaat.com
9 November 2018
Date: 09/11/2018 03:58:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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