Tongaat Hulett CFO Rob Aitken: Refinancing debt facilities was critical to release a clean audit

Rob explains that it took extraordinary effort from the finance teams to refinance the debt facilities.

Tongaat Hulett has announced its results for the year ended 31 March 2021, showing continued progress in its turnaround strategy. The business made significant progress in its efforts to reduce debt, decreasing net debt by 42 percent 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. The sugar producer 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.

According to CFO Rob Aitken, the highlight of the results is the agreements Tongaat Hulett reached with its lenders in South Africa and Mozambique to refinance the debt facilities. “It took an extraordinary effort from the finance teams to do this in conjunction with the year-end process,” he says.

He explains that credit approved term sheets were signed on 26 June and 12 July, with the sugar producer releasing its results the next day. “Without this agreement, and with our existing facilities expiring on 30 September, this became a critical factor to allow the release of our results with a clean audit report,” Rob says.

He adds that, in South Africa, the principle underpinning the debt refinance was to negotiate a sustainable debt solution with longer dated facilities to create stability for the company and allocate the remaining debt to two separate payment-in-kind instruments. “The new facilities expire on 30 June 2024 and we can also provide our shareholders with some clarity around the quantum of the excess debt that we need to repay and the options available to us.”

Rob is also pleased with the receipt of R426 million from Tongaat Hulett’s various African investments. In South Africa, sales volumes increased by 22 percent and there was an increase in market share supported by a refresh of the Huletts® brand. In Mozambique, local market sales were at the highest in the past 10 years. “It was very pleasing to see a more favourable commercial environment in our South African and Mozambican sugar operations,” he says.

Covid-19 impact
“Covid-19 definitely continues to pose challenges to the business,” Rob says. Tongaat Hulett’s revenue for the year decreased by three percent to R13.9 billion.

Rob explains that the biggest impact on the revenue was seen in the group’s property business, which had a particularly challenging year under the pandemic conditions. “This was seen in the property results, where the drop in revenue resulted in a 91 percent drop in operating profit from R658 million to R58 million.”

“The pandemic negatively impacted all aspects of the business value chain, including delaying planning approvals and undoing various deals which were being negotiated,” Rob says, adding that approximately R480 million worth of deals in progress were delayed or cancelled during the financial year.

Fortunately, Tongaat Hulett’s sugar businesses were able to operate during the various lockdowns. However, Rob explains that they still experienced shortages of critical spare parts due to border closures. “In South Africa, the start of the season was delayed as well as the commissioning of an important capital project that resulted in our sugar production being lower than the previous year.”

Forward-looking focus ares
Rob explains that finance costs remain an important focus area for the business going forward. Net finance costs for the year were significant, at R1.58 billion, and represent roughly 85 percent of the group’s operating profit. “We concluded R6.6 billion of asset disposals to reduce debt, so this will result in an annualised saving in the coming financial year.”

Embedded in finance costs were R245 million of exchange losses caused by currency volatility in Zimbabwe and Mozambique. “We need to look at ways to reduce or hedge these foreign exchange exposures, but there are limited formal hedging options available in those countries,” Rob says.

He adds that hyperinflation accounting does create some financial dynamics that are difficult for shareholders and others to understand.

According to the results, Tongaat Hulett has intensified its focus on ESG, fundamentally reviewing and restructuring its ESG framework, improving monitoring, measurement and environmental risk management. “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 sugar producer is also strengthening governance across the group, and is well-advanced in implementing a group-wide governance risk and compliance management programme.