Tongaat weans off Zim unit
Financial Gazette
6/3/2019
Omega Ukama Business Reporter
SOUTH Africa’s Tongaat Hulett (Tongaat) says it is now in a position to wean off its Zimbabwean operations, which are now self-sustaining.
Tongaat has over the years injected millions of dollars into its Zimbabwean operations, which comprise the wholly owned Triangle Sugar operation and its 50,3 percent holding in Hippo Valley Estates.
“The operations earn sufficient export proceeds to cover its foreign input costs, and sugar as a commodity is able to maintain its value in US dollar terms. The Zimbabwe operation can thus be ring-fenced with no requirement to draw funds from elsewhere in the group,” the company said in a trading update last week.
“The business has kept its pricing in line with inflationary increases in the economy and demand for local market sugar remains strong,” the company said.
The group says the anticipated negative impact of translation at a weaker exchange rate, following the announcement of a free float of the currency in Zimbabwe recently, “has been offset by a corresponding uplift in cane valuations”.
The Triangle and Hippo Valley Estates sugar mills have a combined installed milling capacity to crush more than 4,8 million tonnes of cane annually and produce over 640 000 tonnes of sugar.
The Zimbabwe operations reported a decline in operating performance in the first six months ended September 30,
2018 after generating an operating profit of $38 million before cane revaluations, down from $42 million realised in the same period in 2017.
Tongaat is currently in a precarious position as it faces a negative cash flow in the current trading period, partly due to its inability to receive dividends from its Zimbabwean and Mozambique operations.
This comes as the group is also facing various funding constraints due to a number of factors.
The group’s woes intensified last week after the value of its shares fell 14 percent on a negative profit forecast.
“Shareholders are advised that a reasonable degree of certainty exists that Tongaat Hulett’s headline earnings are expected to reflect a decrease of at least 250 percent compared to the 12 months ended March 31, 2018.
“Consequently, headline earnings per share and earnings per share are both expected to reflect a reduction of at least 250 percent,” the company said.
Meanwhile, Gavin Hudson commenced his duties on February 1, 2019 as the new chief executive of the group.
The company says his mandate is to “expedite an immediate and comprehensive strategic and financial review with the view to stabilising the business, address the debt levels and set the path towards accept able returns for shareholders”.
Hudson took over from Sydney Mtsambiwa, who had served as chief executive office in an interim capacity since Peter Staude’s stepped down in October last year. [email protected]