Tongaat Hulett Year End Results.
Tongaat Hulett today released its results for the year ended 31 March 2021
Tongaat Hulett today released its results for the year ended 31 March 2021, which showed continued progress in the turnaround strategy notwithstanding some headwinds along the way and a challenging trading environment arising from the COVID-19 pandemic.
PROGRESS ON TURNAROUND DESPITE HEADWINDS
• Continued progress with the business turnaround strategy
• Successful conclusion of disposals to the value of R6.566 billion
• Successful refinancing of existing debt in South Africa and Mozambique
• Unfavourable impact of COVID-19 on property business
• Market share gains in the sugar operations
• R323 million in dividends from the Zimbabwean sugar operations
• Lower raw sugar production and a once-off refinery sugar loss in South Africa
• A 42% reduction in debt from disposals, reduced costs and improvements to the working capital cycle
Revenue from continuing operations (i.e. excluding the starch operation) decreased by 3% to R14 918 million (2020: R15 382 million) whilst operating profit from continuing operations declined by 44% to R1 819 million (2020: R3 257 million). The group’s continuing operations reported an Adjusted EBITDA (excluding fair value adjustments to biological assets) of R2 497 million (2020: R3 010 million).
There were a few dominant causes for the reduction in headline earnings, with two thirds of the impact arising from hyperinflation in Zimbabwe and the reduction in property sales, with the refinery loss and others making up the remaining third.
Strategic highlights for the year Included:
Mozambique sugar operations delivered an exceptional performance:
• Significant revenue growth on the back of 10-year high local sugar sales;
• 49% increase in output at the Xinavane refinery to near capacity;
• The Mafambisse mill moved from a serial loss-making entity to achieving break-even at the EBITDA level; and
• Low yield sugarcane fields have been converted to rice planting, providing an additional revenue stream and local food security.
Zimbabwean operations continued performing well:
• Received R323 million dividends from Zimbabwe during the year;
• Ethanol production increased by 10%, which also supplemented the demand for sanitiser in our countries of operation; and
• Secured in-country milling licences to 2040 and received institutional offer letters for 99-year leases.
• Partnered with government to support food security through our winter maize project
South African operations delivered a strong performance:
• Sales volume grew 15%;
• Revenue grew 3%;
• Refining production increased 39%;
• 44% reduction in average working capital management;
• Strengthening market share
Property operations were most impacted by the COVID-19 pandemic:
• R215m deals successfully concluded
• Continued fulfilling legacy infrastructure obligations.
• COVID-19 resulted in Deeds office delays and delayed or cancelled deals due to market uncertainty.
The South African sugar operation’s performance was however marred by a once off Refinery loss. Tongaat Hulett made a decision to ramp up the local refinery output in response to significantly higher demand. This decision increased our local sugar production by 39% over the annual plan, to exceed some 450 000 tons.
While this improved local supply and mitigated potential deep-sea imports, this extra throughput unduly pressured the refinery, leading to increased production costs and process inefficiencies that resulted in a loss of some 27 000 ton of sugar. Steps have been taken to rectify and enhance the refinery processes and prevent a reoccurrence and the learnings have been taken throughout our operations.
The business made significant progress in its efforts to reduce debt, decreasing net debt by 42% from R11.354 billion to R6.570 billion, through the successful conclusion of several asset disposals, as well as reduced costs and improvements to the working capital cycle. Tongaat Hulett also finalised the refinancing of its South African debt and signed credit-approved term sheets to conclude its Mozambican debt restructure, creating greater certainty on funding.
Tongaat Hulett remains committed to large and small-scale empowerment farming. Our sugar operations in SA, source 43% of their sugarcane from a total of 15 704 black farmers and cooperative members, who were collectively paid R585.2 million in the past year. Our successful transformational partnership, Uzinzo Sugar Farming, is the largest black grower in the South African sugar industry and is growing from strength to strength.
We have intensified our focus on ESG, fundamentally reviewing and restructuring our ESG framework, improving monitoring, measurement and environmental risk management. We are strengthening governance across the group, and are well-advanced in implementing a group-wide governance risk and compliance management program.
Focused efforts on safety have resulted in a 13% reduction in the lost time injury frequency rate (LTIFR) and lost time injury rate (LTI). Our environmental efforts have shown ongoing improvements in key metrics including reducing hazardous waste, while we continue to maximise the use of alternative fuels to reduce carbon emissions.
The company has submitted all relevant information and continues to co-operate with regulators in South Africa and Zimbabwe to assist with the criminal investigations and civil claims against former executives with regards to the PwC forensic investigation. We remain true to our undertaking to act on the findings of the forensic investigations.
While the majority of Tongaat Hulett’s businesses continued operations during the various lockdowns, the protection of our employees and support for our communities was a priority. Apart from shortages of critical spare parts due to border closures, and an impact on production as employees had to self-isolate, the impact of the pandemic on the sugar operations was relatively limited.
For the property business, however, the COVID-19 lockdown delayed planning approvals and infrastructure installation and restrained public participation in the various processes required to secure land development rights. Deals under negotiation were also halted or abandoned due to the uncertain economic environment, resulting in a material reduction in revenue and profit from the operation.
The pandemic highlighted the need to continue our support within society despite our own financial challenges, particularly in light of our rural operating locations. Tongaat Hulett contributed more than R84 million in COVID-related expenditure including the refurbishment of medical facilities, contributions to both medical and food requirements, the donation of over 740 000 litres of sanitiser, the testing of more than 18 000 employees for comorbidities in addition to daily screening, the administration of more than 4 900 vaccine doses in Zimbabwe to employees and their families, and the preparation for the vaccine roll-out programmes in South Africa and Mozambique.
The implementation of safety protocols limited the spread of COVID-19 within the group. Regrettably, 20 employees have lost their lives due to COVID-19 and our heartfelt condolences go out to their families.
Commenting on the results, Tongaat Hulett CEO Gavin Hudson said:
“Our turnaround plan commenced just under two years ago, and our efforts continue to yield positive results, despite some headwinds along the way. The results are presented against a backdrop of unprecedented and challenging times triggered by the COVID-19 pandemic. Our focus has been on continuing operations and the safety of our people. “
“Although tangible progress has been made, we continue repairing and rebuilding what was a fragile organisation, with remnants of substantial debt, constrained cash flows, and a legacy of poor operational and cultural practises which has been challenging to navigate.”
“We remain confident that the ongoing execution of our strategy will enable the achievement of our business objectives. We are proud of the progress we have made in the past two years in fixing the fundaments of the business and positioning Tongaat Hulett for a sustainable future.”
“The employees of Tongaat Hulett have gone above and beyond in their contribution to our progress in this turnaround environment and during a global pandemic. Their hard work and dedication are truly commendable.