Tongaat Hulett suffers equity reduction to the value of R11.89 billion
DURBAN – Tongaat Hulett suffered a reduction of equity to the value of R11.89 billion as a result of impairments of R4bn, including the derecognition of expropriated land in Zimbabwe and R3bn of deferred tax assets that have not been taken into account in the past.
The agriculture and agri-processing company was forced to restate its financials after a PricewaterhouseCoopers (PwC) forensic investigation begun in March confirmed that senior group executives, including chief executive Peter Staude and nine others, had overstated assets and profits by using “undesirable accounting practices”.
The R11.89bn reduction in equity was restated from the anticipated reduction of between R3.5bn and R4.5bn the agriculture and agri-processing company estimated in May as a result of overstatement in its revenue and profits.
Tongaat said the process has been encouraging and its core business remains strong with positive cash flows from operating activities and strong margins at an operational profit level.
“Our investment case is supported by our lenders, with whom we have signed debt refinancing agreements,” the group said.
The group reported a headline loss of R923 million compared to a restated loss of R947m and revenue declined by 2 percent to R17.07bn compared to a restated R17.51bn reported last year.
Its earnings before interest, tax, depreciation and amortisation shot up to R1.86bn compared to the restated R727m in which its basic loss a share amounted to 948 cents a share compared to a loss of 1 054c.
“The results are better than anticipated given the turmoil of the past year, and importantly, an accurate accounting of our financial position allows us to reset the baseline. The closure of this chapter will free up management to focus on delivering on our strategy and begin to build a sustainable and long-term future,” said chief executive Gavin Hudson.
The group is aiming to exit some non-core assets and reduce its debt by R8.1bn by March 2021.
It is also engaged with the JSE to have the suspension of its share price lifted by the bourse after it was suspended in June.
Hudson said a significant focus on cost efficiencies, working capital improvement, interest savings and reduction in capital expenditure will lead to a R3bn cash flow improvement and debt reduction.
“Strategic business partnerships relating to the milling and property operations will aim to yield a further R1bn to R2bn while the company will approach its shareholders to raise R4bn in equity,” Hudson said.
Nesan Nair, a senior portfolio manager at Sasfin Securities, said the group would have to earn the trust of investors again, especially as its auditors have expressed concern on whether it could be categorised as a going concern.
“But they are certainly looking like they have come clean, having written off the Zimbabwe expropriated land and the deferred assets – so the balance sheet is much cleaner now.
"Operationally, they are still a good business but we will need time before considering it as an investment,” Nair said.