Tongaat Plunges on Bitter Update
Tongaat Hulett's shares tumbled by 20% on Friday after it warned shareholders it would report a significant loss for the year to end-March due to weakness in its sugar business and limited land sales over the past year. A strategic and financial review under new CEO Gavin Hudson has also unearthed bigger problems at the sugar producer and landowner.
The review, initiated when Hudson took over on 1 February, is aimed at stabilising the business, addressing its debt levels and setting it on a path that will deliver acceptable returns for shareholders.
Tongaat said while production of white sugar for the season had increased, SA sales across the industry remained under pressure due to an overhang of excess sugar bought in prior to the price increase. The introduction of the sugar tax had also had a bigger impact on demand than expected. As a result of all this, it's had to rebase the value of its sugar cane.
In Mozambique, sales were impacted by high volumes of imported sugar, which resulted in additional sugar sales into export markets at low world prices. Cane valuations in Mozambique have also had to be rebased.
Tongaat kept pricing in Zimbabwe in line with inflationary increases in the economy and demand for local market sugar remained strong. It said the operation earned enough export proceeds to cover its foreign input cost and it could be ring-fended with no requirement to draw funds from elsewhere in the group.
Tongaat said it hadn't been able to conclude any further land sales since the end of the first half of its financial year when it only generated revenue from the sale of 0.6 developable hectares in Bridge City, north of Durban. Last year it sold 68 hectares across various areas for development. It said a thorough review of its land portfolio was also underway.
Its shares closed 20.4% down at R37.01