Tongaat Hulett releases results after financial management overhaul
CFO Rob Aitken: These past 18 months have been the most challenging in Tongaat's recent history.
As a food and food ingredient producer and essential service, Tongaat Hulett has been fully operational throughout the Covid-19 lockdown period. As a result, the annual financial results ended 31 March 2020 were not materially impacted by the lockdown.
“In the new financial year since 1 April 2020, the financial impact on the sugar operations has been limited while the starch operation has seen a reduction in volumes related to alcoholic beverage demand in South Africa,” says Tongaat Hulett CFO Rob Aitken.
He adds that, although the full extent of the impact of the lockdown on the economy and sales remains uncertain, Tongaat is actively monitoring the effect on the business operations and on liquidity, while ensuring the protection of its employees, customers and other stakeholders.
In light of the impact of Covid-19 on macroeconomics, the group undertook the following measures to ensure that its assets are held at appropriate carrying amounts:
Comprehensive impairment testing was carried out to reassess the valuations of the underlying businesses using a number of potential outcomes.
To address the risk that the carrying amount of the group’s landholding inventory may exceed its net realisable value as a result of the impact of the economic downturn caused by the pandemic on the property operation, extensive testing was performed.
In the context of the pandemic and the economic disruption resulting from lockdown, Tongaat has tightened its already robust credit process to ensure its financial assets are appropriately safeguarded.
“Overall, the group is well-positioned to withstand the impact of the Covid-19 pandemic,” Rob adds.
The group’s gross revenue from continuing operations increased by 18 percent to R15.382 billion. Operating profit from continuing operations increased by 491 percent to R3.257 billion compared to R551 million in 2019.
“The group has already met and exceeded the first debt repayment milestone agreed with South African lenders of R500 million,” Rob says. “Successful conclusion of these transactions will allow Tongaat to effectively reduce its debt by almost 50 percent and achieve the second and the majority of the third milestones.”
He adds that cash flow and liquidity are monitored on a daily basis by management with oversight by the board. “While Tongaat Hulett generated positive cash flow from operations after working capital in 2020, the majority of the improved operational cash flow was used to service the interest on the group’s borrowings.”
Focus for next year
“The past 18 months have certainly been the most challenging in Tongaat Hulett’s recent history,” Rob says. “Financial management required a total overhaul, which required extensive restatements, adoption of new policies and procedures, improving financial discipline and reporting, retrenchments and resourcing challenges.”
He explains that the company has moved on from that now, having stabilised the business and implemented all the required initiatives to both normalise and formalise the finance function.
“A key focus of the year ahead is to improve the internal controls over financial reporting, including those within the information technology environment. To this regard, a control self-assessment tool has been implemented to establish the baseline from which improvements will be measured,” Rob adds.
The company has also built a small team of skilled contracted resources looking towards how to do things better, bring the information forward faster and more efficiently and how Tongaat can formalise and document all its processes, which will continue in the new year.