Tongaat Hulett warns of 120% drop in profits
Tongaat Hulett, the sugar producer in the middle of a critical and controversial capital-raising exercise, has warned the market that its results for the year to March are likely to be 120% below the previous year and that it will need to raise R5bn, about R1bn more than anticipated.
In an announcement on the Stock Exchange News Service (Sens) late on Tuesday, Tongaat Hulett shareholders were advised that the quantum of the envisaged rights offer is expected to increase to between R4-billion and R5-billion as a consequence of a combination of issues.
These issues were, in particular, problems relating to the South African sugar operations, challenging property market conditions, the extended timelines to conclude the equity capital raise and the higher level of borrowings within the group.
“Shareholders are advised that a reasonable degree of certainty exists that Tongaat Hulett’s earnings per share for the year ended 31 March 2022 is expected to be at least 120% below the earnings per share for the prior corresponding period (31 March 2021: 1,794 cents).”
The company pointed out that disposals of its starch, Namibian and Eswatini operations took place during the year, which would have had the effect of reducing its earnings per share.
The company’s shareholders have approved a rights issue, but the matter is being investigated by the Takeover Regulation Panel after it was discovered that shareholders associated with the prospective takeover might have bought shares during the prohibited period.
A group of minority shareholders are fighting the prospective takeover of the company by the controversial Rudland family of Zimbabwe.
In its Sens statement, Tongaat said a 9% reduction in its overall sugar production — “together with a challenging commercial environment faced by the South African sugar operation during the last quarter of the financial year” — put considerable pressure on revenue generation.
“The impact of lower sugar production on profits is amplified given the high proportion of fixed costs applicable to sugar production, and profitability was further impacted by higher costs for commodities, maintenance and labour.
“Restructuring-related activities and the recapitalisation of the business also contributed to a notable increase in corporate office costs,” the company said.
Tongaat said the damage caused by the recent floods in KZN was a matter of keen interest for investors.
“Tongaat Hulett is in the process of assessing the impact of the storms and flooding on our operations, but can confirm that there has been no significant damage to our sugar milling infrastructure.” BM/DM