Tongaat Hulett pivots towards future growth as earnings show strong turnaround

CFO Rob Aitken explains that growth is due to increased sales as people started baking during lockdown.

Tongaat Hulett has released its results for the six months ended September 2020, reporting a sharp turnaround in total headline earnings as it increased by 156 percent from a loss of R315 million to a profit of R175 million. The group also reported a 37 percent growth in revenue to R8.2 billion and a 95 percent increase in operating profit to R1.9 billion.

Tongaat CFO Rob Aitken said that the application of IAS 29, or hyperinflation accounting, for the sugar producer’s Zimbabwe operation contributed to the reported growth in revenue. “If the Zimbabwe operations are excluded, we still saw growth of 19 percent in our South African and Mozambican sugar operations.”

He added that local sugar sales in South Africa were buoyant over the lockdown with volumes growing 24 percent as more households began consuming sugar for baking. “We have also joined the Proudly South African movement and saw some of the wholesalers and retailers switching their private label sugar to South African produced sugar.”

The group posted an improved headline loss of R6 million against a previous loss of R517 million. It also made good progress in achieving its debt reduction milestone, with transactions totaling R6.4 billion concluded to date, of which R5.76 billion was applied towards the group’s debt reduction target of R8.1 billion by 30 September 2021. This includes the sale of the starch business to Barloworld in October.

“While most companies experienced a rise in borrowings, we were able to reduce debt from R11.9 billion to R10.8 billion,” said Rob. “The major contribution was the proceeds from the sale of our starch and glucose operation, which included the successful defence of a dispute as to whether the Covid-19 pandemic had caused a material adverse change to the business or not.”

Covid-19 impact
Rob explained that the majority of Tongaat Hulett’s businesses were classified as essential services and were able to continue to operate during the government-imposed lockdown restrictions. “The restructuring and reinvigoration of our group over the past two years has permitted us to weather this challenging environment.”

The financial impact of the pandemic on the company’s sugar operations has been limited. Tongaat’s starch and glucose operation generated a steady performance, despite a 39 percent reduction in sales to the alcoholic beverage sector during the lockdown. “The property operation was hardest hit by the Covid-19 lockdown measures. Property transfers were delayed due to the closure of deeds offices and poorer economic conditions have triggered some deal cancellations,” Rob said.

According to the results statement, despite the impact of Covid-19, Tongaat is well placed to pivot and look towards future growth.