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TONGAAT HULETT LIMITED - Trading Statement and operational update for the six months ended 30 september 2020

Release Date: 02/12/2020 09:20
Code(s): TON     PDF:  
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Trading Statement and operational update 
for the six months ended 30 september 2020

Tongaat Hulett Limited
(Registration number 1892/000610/06)
Share code: TON
ISIN ZAE000096541
("Tongaat Hulett" or "the Group" or “the Company”)


The following trading statement is issued in terms of Section 3.4 (b) of the JSE Limited (“JSE”)
Listings Requirements.

Tongaat Hulett is pleased to announce an increase of approximately 70% in operating profit for
the six months ended 30 September 2020, relative to the R1.3 billion generated in the previous
comparable period. 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. In assessing these interim results, it should be noted that the sugar and
starch operations have strong seasonal traits associated with both the operational and financial
results. In addition, the Group’s results for a six-month period for both the current and previous
interim period include the financial results of the starch and glucose operation.

Whilst the impact of hyperinflation in Zimbabwe continues 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 are the highlights of
this set of results and that most clearly demonstrate the improvements that have been made in
recent times. Operating profit in the South African operations reflect a turnaround of more than
R500 million 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
beverage during the COVID-19 lockdown.

Higher finance costs, together with a net monetary loss arising from hyperinflation accounting
in Zimbabwe, countered some of the improvements in operating profit of the Group, leading to
the earnings outcomes depicted in the table below.

Shareholders are advised that a reasonable degree of certainty exists that Tongaat Hulett's
headline earnings for the period ended 30 September 2020 will show a substantial improvement
compared to the headline loss of R315 million for the prior comparable period. Consequently,
earnings per share (“EPS”) and headline earnings per share (“HEPS”) for the period ended 30
September 2020 are expected to be within the ranges reflected in the table below.

                                       September          September             September
                                       2019               2020                  2020
                                       As                 Expected              Expected
                                       Reported           Range                 % change
 Weighted average number of shares     135,1 million      134,8 million         0% to -1%
                                                          R204 million to
 Earnings/(loss) for the period        (R318 million)                           +164% to +174%
                                                          R235 million
                                                          151 cents to
 Earnings/(loss) per share             (235 cents)                              +164% to +174%
                                                          174 cents
 Headline earnings/(loss) for the                         R158 million to
                                       (R315 million)                           +150% to +160%
 period                                                   R189 million
                                                          117 cents
 Headline earnings/(loss) per share    (233 cents)                              +150% to +160%
                                                          to 140 cents

As the financial results of the starch and glucose operation are included in the Group’s results
for a six-month period for both the current and previous interim period, the Board concluded that
the guidance provided above was the most relevant and meaningful for shareholders. The
disposal of the starch business was finalised and settled on 31 October 2020 and full disclosure
concerning the classification of the starch and glucose operation as a discontinued operation,
together with further details on the contribution of the Zimbabwe sugar operation to Tongaat
Hulett’s results, will be provided in the interim financial statements.

The Mozambican sugar operations performed well, with increased sugar production across both
operations and production at the Xinavane refinery that almost doubled. The business also
benefited from an improved local market sales mix and better export pricing. Ongoing cost
containment initiatives contributed further to this positive result. The benefit of improved profits
was impacted by a reduction in the fair value of biological assets, as leased-in farms were
returned to private growers as part of a long-standing supplier development initiative.

The South African sugar operations generated a significantly enhanced financial performance.
Improvements in production and productivity were further supported by notably stronger local
market sales, while export sales benefitted from the weaker exchange rate and improved
pricing, particularly in refined sugar markets. Together with a variety of successful cost saving
initiatives, this culminated in a convincing profit for the current six months, relative to a loss in
the prior period.

Operating profit in the Zimbabwean operations increased by more than 60%, benefitting from
ongoing improvements to operations as well as the effects of hyperinflation. Sugar production
was stable and local sales volumes and pricing were managed carefully to prevent sales
arbitrage to surrounding markets, particularly during the period in which a price freeze was
recommended by the Government. Ethanol production and sales grew by double digits and the
focus on generating foreign currency gained further impetus with the relative contribution from
exports increasing from 21% to 30%, period-on-period. Dividends from surplus export proceeds
of R192 million were repatriated to South Africa during the six month period, with a further                                                                                                   
R63 million received post-period end, bringing the total dividend received to date to
R255 million.

The Government-imposed lockdown restrictions had a notable effect on starch and glucose
sales to the alcoholic beverage sector, and sales to non-essential services such as
confectionary and papermaking were similarly impacted. Coffee Creamer sales volumes,
however, grew by more than 30%. The higher maize price placed margins under pressure,
which was partially offset by higher co-product realisations. This, combined with cost reduction
initiatives and the accounting requirement to not depreciate assets classified as held-for-sale,
resulted in a modest reduction in operating profit in the starch and glucose operation.

The property operation sustained an operating loss in the period. While two large land sales
were concluded, township property sales experienced delays in transfers due to the deeds office
being closed as well as some cancellations.

Cash flow generated from operating activities increased almost threefold, despite September
being the annual peak of the working capital cycle for the sugar businesses. Prudent investment
continued, with capital expenditure increasing to approximately R230 million, compared to
R120 million incurred in the prior period.

The Group’s total net borrowings (excluding the trade finance facilities of the starch and glucose
operation) reduced by approximately R900 million, from R11.8 billion at 30 September 2019 to
R10.9 billion. In South Africa, net borrowings decreased by R600 million to R10.4 billion, while
net debt in Mozambique decreased from R1.06 billion at September 2019 to R750 million with
some assistance from a weaker Metical exchange rate against the Rand.

Post period-end, on 31 October 2020, R4.536 billion of the proceeds of the starch and glucose
transaction were applied towards the reduction of debt in South Africa. The initial proceeds on
disposal of the Tambankulu sugarcane estate in Eswatini of R375 million were received on
1 December 2020.

To date, cumulative debt reduction transactions concluded total R6.4 billion, with debt reduction
proceeds of R5.6 billion received and applied towards the Company’s debt reduction target of
R8.1 billion by September 2021.

Tongaat Hulett has made pleasing progress in recent times to elevate governance and
accountability within the business and to shift the culture. The Group has also strengthened
financial discipline, oversight and assurance with the appointment of key positions such as a
Chief Audit Executive, Chief Risk Officer, Chief Information Officer, Human Resource Executive
and Group Legal Counsel.

Interim results

The interim results for the six months ended 30 September 2020 are expected to be released
on or around 11 December 2020.

The financial information contained in this trading statement has not been reviewed or reported
on by Tongaat Hulett's auditors.

2 December 2020

Investec Bank Limited


Date: 02-12-2020 09:20:00
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