• Operating profit R1,278 billion, up from R315 million

• EBITDA at R1,586 billion, up from R703 million

• Headline loss improves to R314 million

• Revenue -1.5% to R8,085 billion

Tongaat Hulett today released its interim results for the six months to end September 2019, which showed a headline loss to R314 million against a restated loss of R354 million for the previous comparable six-month period. Gross revenue decreased 1.5% to R8,085 billion from R8,207 billion, while operating profit improved significantly to R1,278 billion from R315 million in the comparable period. No dividend was declared.

Tongaat CEO, Gavin Hudson, said: “The results reflect the decisive steps we have taken to stabilise our business, and we are starting to see encouraging signs of progress on a number of fronts. We still face significant challenges and there is a lot of hard work ahead of us, but we have a robust strategy, a committed management team, and a supportive and engaged Board, all of which bode well for the future. We are moving strongly in the right direction.”

Operational performance in the South African sugar operations continued to be affected by subdued local sales and competition from low margin sugar imports. The worsening financial performance reported masks a significantly improved operation from a productivity, cost management and production perspective, with sugar production increasing by 10%. Management is of a view that the financial performance will improve going forward. Cash flow generation has improved notably.

Mozambican operations experienced a notable turnaround, benefiting from higher local sales on the back of beneficial pricing and promotions, as well as from cost containment measures. This, together with the positive impact of the Xinavane refinery coming on stream in the six months, returned the operations to profitability. Operational performance improved in Zimbabwe, with Tongaat Hulett having to apply hyperinflation accounting to its Zimbabwean operations for the first time. If the effect of hyperinflation were removed, the performance was largely consistent with the prior period.

The Starch and Glucose operations delivered a stable performance and generated good profits.  although higher maize prices affected margins.

There was a marked improvement in land conversion and development profits due mainly to a revised revenue recognition policy and an additional transaction in the review period. Sales agreements in respect of ten transactions are in the process of being finalised (worth R422m) while five deals are under negotiation (worth R259m).

During 2019, a forensic investigation was undertaken regarding certain past practices, and the key findings were released towards the end of the year. The new Board and Executive Management team is actively engaging in responding to the recommendations in the review to ensure those responsible for these practices are held accountable.

As part of a refinancing arrangement with its lenders, Tongaat Hulett has committed to reducing its debt in SA by at least R8,1 billion by March 2021. The debt burden will be reduced through a combination of cost savings and cash flow initiatives, the sale of certain non-core assets, as well as an equity capital raise and/or the disposal of core assets or majority stakes in core assets.

Tongaat Hulett is considering multiple options, with its main priority to protect shareholder value while we honour standstill agreements in a responsible way. Disposals will only be considered at the right price and right time.

In terms of the turnaround plan, Hudson said good progress had been made to streamline and rationalise operations as well as improve the performance of the business.

“Tongaat is generating decent cash flow with strong margins, and we are on track to meet our first year target of improving cash flow by R1 billion. We have also met and exceeded our first debt reduction target, which was agreed with our lenders, and we are at an advanced stage of assessing assets which may be suitable for disposal,” he said.

In addition, a number of strategic business partnerships were being implemented to raise cash and/or step-change the company’s transformation initiatives and build strong partnerships. During the review period, the following was undertaken:

• Within our SA farming operations an initiative was launched, through which Tongaat is exiting its direct sugarcane farming activities in SA. As part of this initiative, Uzinzo Sugar Farming, a large-scale black-owned sugarcane farming enterprise was created to farm this land.

• Within our SA milling operations we are creating an initiative aimed at establishing a well-structured competitive sugar business on the KwaZulu-Natal North Coast that mills, refines and sells sugar and associated products, with equity held by, amongst others, farmers.

• In the property and land portfolio, a special purpose vehicle is being created to facilitate diverse investment partnership opportunities to deliver a stable and sustainable long-term earnings platform.

• We officially launched project Kilimanjaro with the Zimbabwe government in November 2019. The project aims to increase productivity of land through the development of 4,000 hectares of new land for sugarcane farming for the benefit of 200 farmers.

Hudson said the Board and Executive Management Team had considerably strengthened governance and financial structures, and the new vision and strategy, underpinned by key values, was being rolled out. “The board and Exco are working together extremely well, and at pace.”

“While growth in 2020 will continue to be under pressure, we are now focused on the opportunities that have been identified to create value for shareholders. We are confident that we have the right platform, the right strategy, the right business plan and the right people in place.” he said.

The JSE has agreed to lift the suspension with effect from Monday, 3 February 2020 to enable investors to absorb the financial information that is now available,