Tongaat Hulett leadership hopeful of turnaround amidst liquidity uncertainty

Tongaat Hulett faces material liquidity uncertainty, but its board and management team are hopeful they can steer the business back to sustainability.

At its annual results presentation in Cape Town on Tuesday, the agri business with a focus on sugar production said it has a target of reducing its debt by R8.1bn by March 2021.

It is also focussing on cost efficiencies, working capital improvement, interest savings and reduction in capex, which it expects will lead to a R3bn cash flow improvement and debt reduction. Strategic business partnerships relating to the milling and property operations, meanwhile, will aim to yield a further R1bn to R2bn. The company will, furthermore, approach its shareholders to raise R4bn in equity.

In addition, there are initiatives in place to dispose of non-core assets, and announcements on this will be made in due course,

Its CEO Gavin Hudson said the group was looking at disposing of non-core assets, and announcements on this will be made in due course.

"We are entertaining all proposals. Everything is on the table," said Hudson, who was appointed in February this year to replace Peter Staude, who retired in October 2018.

At the briefing chief financial officer Rob Aitken, who was appointed in March this year to replace Murray Munro who stepped down as CFO in August 2018, said the group has set itself milestones for debt reductions, and had already achieved the first one.

PwC probe 

Tongaat announced in May this year that its audited consolidated financial statements for the year ended March 31, 2018 would need to be restated. A resulting financial and strategic review of its business included a forensic probe into accounting irregularities carried out by PwC.

Its leadership received the results of the six-month probe in late November.  The report found that some senior executives initiated or participated in "undesirable accounting practices" that ultimately resulted in the overstatement of profits and certain assets in the 2018 financial year.

After receiving the report - which it says is confidential - Tongaat said it intends to institute civil claims against former top executives, including its ex-CEO Staude, and has been in contact with the National Prosecuting Authority and the police over misstatements in its 2018 financial reports. 

The group suspended its listing on the JSE in June and subsequently cancelled its London Stock Exchange listing in an effort to further reduce costs and complexity.

With the publishing of its 2019 financial statements, the board will now be requesting the JSE to lift the suspension of its shares "in due course", according to Louis von Zeuner, who joined the board in December 2018 and assumed the role of chair in October this year.

The group's results for the financial year to the end of March 2019 showed a headline loss of R923m against a restated loss of R947m the previous year. The group recorded revenue of R17.069bn from R17.505bn in the restated 2018 financial year, while EBITDA was R1.860bn against R727m in the restated previous year. No dividend was declared.

The operational performance decline was mainly due to the "overhang" of surplus sugar arising from excessive sugar imports in SA and Mozambique, a significant reduction in the demand for sugar in SA as a result of the sugar tax and low world sugar prices. There was a sustained good performance from the starch operation, while the land business benefitted from the revised revenue recognition policy.

'On our knees'

"Many suggest we are in our current situation - on our knees - due to (changes in the) sugar industry, but that was just the final straw that broke the camel's back," Hudson said at the briefing.

"Due to inadequate governance we could not deliver top line results. Our debt doubled in the last 4 to 6 years. It has been a challenging year. I was not aware of the challenges when I took up the job earlier this year."

Hudson and Von Zeuner indicated at the briefing that the group's core business remains strong. The board is of the view that, given what it regards as significant headroom in the fair value of the assets over the fair value of the liabilities, the group and company are solvent as at March 31, 2019 and to date.

According to Hudson, a total of about 8 000 people would eventually "exit" the group as part of its sustainability plan. He said the head count reduction is spread across operations in SA, Zimbabwe and Mozambique and is probably about 60% to 75% complete by now. It was mostly voluntary retirement or packages taken and very few actual retrenchments.

Von Zeuner said, in his view, it is now time to "stop with what is in the past and take this business forward".

"We need to get our debt down to manageable levels and pursue all options. There is an opportunity to turn the business around and we will give it our best shot," he said.

"The board wants to protect shareholder value, which took a knock through unfortunate events, and we want to make a contribution in agriculture and also protect jobs, which the country needs."

UPDATE: UPDATE: The board clarified in a Sens statement on Wednesday that, even though its 2019 financial statements have now been released, it will request the JSE to only lift the suspension of trading in its shares once the group has released its trading statement for the six month period ended September 30, 2019.

The board believes that greater visibility on its financial performance over the interim period is important given the extent and complexity of remedial actions, internal cost-cutting plans and other restructuring initiatives undertaken since March 32, 2019. It is expected that a trading statement on the interim results will likely be released in the second half of January 2020.

Tongaat