TIDMTHL
RNS Number : 9493G
Tongaat Hulett Limited
09 November 2018
Tongaat Hulett Limited
Registration No: 1892/000610/06
JSE share code: TON
ISIN: ZAE000096541
INTERIM RESULTS FOR THE SIX MONTHSED 30 SEPTEMBER 2018
SALIENT FEATURES
-- Revenue increased 9% to R8,808 billion (2017: R8,118 billion)
-- Operating profit decreased 64% to R530 million (2017: R1,471 billion)
-- Sugar production increased by 13% to 954 000 tons (2017: 848 000 tons)
-- Major land transactions remain under negotiation
-- Sugar imports into South Africa declining after increased
duty protection implemented in August 2018
-- Headline loss of R87 million (2017: headline earnings of R661 million)
-- Operating cash inflow after working capital of R183 million (2017: R53 million outflow)
COMMENTARY
Tongaat Hulett encountered significant challenges during the six
months ended 30 September 2018. Operating profit for the period of
R530 million was 64% below the R1,471 billion earned in the six
months ended 30 September 2017 ("the comparative period"). In the
land conversion and development activities, the major transactions
under negotiation for the period were not concluded by 30 September
2018. Operating profit from the starch and glucose operation
benefitted from lower maize costs. The difficult local market
conditions experienced by the sugar operations in South Africa and
Mozambique during the second half of 2017/18 continued into the
first half of 2018/19, with a resultant negative impact on both
revenue and cane valuations.
The sugar operations recorded a combined operating profit of
R1,138 billion (2017: R1,308 billion), before cane valuations.
Sugar production for the six month period increased to 954 000 tons
(2017: 848 000 tons), including the raw sugar equivalent production
in Eswatini (formerly Swaziland). Revenue from the higher
production was offset by the lower world market raw sugar price,
which was on average 22% below the comparative period. The charge
against operating profit of R796 million (2017: R473 million) in
respect of cane valuations was R323 million higher than the
comparative period, to which Mozambique and South Africa
contributed R172 million and R130 million respectively. In
Mozambique, the movement in cane valuations was attributable to
lower domestic prices and a reduction in the business' cane area
due to the expiry of some lease arrangements with private farmers.
In South Africa, the movement in cane valuations arose from lower
domestic prices and a lower cane age profile as the harvest
programme was further advanced than the comparative period. After
adjusting for the impact of cane valuations, operating profit
amounted to R342 million (2017: R835 million).
The Zimbabwe sugar operations generated operating profit of R537
million (2017: R580 million), before cane valuations. Increased
water availability and the accelerated sugarcane root replanting
programme have improved cane yields and resulted in sugar
production of 306 000 tons (2017: 280 000 tons). Strong growth in
local market sugar sales continued. Liquidity constraints in the
local market have resulted in considerable cost-push inflationary
pressure. After adjusting for cane valuations, operating profit was
R319 million (2017: R358 million).
The South African sugar operations recorded operating profit of
R205 million (2017: R273 million), before cane valuations.
Improvements in cane yields, quality and milling performance
increased sugar production to 431 000 tons (2017: 380 000 tons). In
response to competition from imported sugar, local prices were
reduced both in July 2017 and March 2018 by a cumulative 22%,
resulting in lower margins relative to the comparative period.
After extensive engagement with the International Trade
Administration Commission and the South African government, the US
dollar-based reference price, used in the calculation of the import
duty, was increased in August 2018 from US$566 to US$680 per ton.
In addition to the higher duty protection, subsequent reviews and
adjustments to the tariff have been implemented timeously. The
above interventions resulted in a decline in the volume of imported
sugar entering the local market over the past six months to 112 000
tons (2017: 301 000 tons). Local prices increased in September 2018
returning to pre-July 2017 levels. Local sales volumes were
negatively affected by the continued availability of imported sugar
in the market. In August 2018 a sizeable "buy-in" ahead of the
price increase occurred. After adjusting for cane valuations,
operating profit was R13 million (2017: R211 million).
The Mozambique sugar operations recorded operating profit of
R341 million (2017: R394 million), before cane valuations. Sugar
production increased to 176 000 tons (2017: 153 000 tons) due to
the earlier commencement of the milling season. The stronger
Metical resulted in a higher local price of sugar in Mozambique
than in neighbouring markets in US dollar terms, creating price
arbitrage opportunities. Local market sales volumes were below the
comparative period. Realisations from export sales, which represent
more than 50% of the industry's production, were impacted by low
international prices and the stronger currency. The construction of
the 90 000 ton sugar refinery at the Xinavane sugar mill was
completed within budget. After adjusting for cane valuations,
operating profit was R7 million (2017: R232 million).
The starch and glucose operation achieved an operating profit of
R300 million (2017: R240 million). Margins continued to benefit
from lower maize prices that traded closer to export parity levels
after the prior season record crop and a surplus crop in the
current season reflecting a recovery from the drought-affected
maize prices experienced in the comparative period. Increased
co-product realisations also contributed to improved margins. The
benefit of new market development initiatives and the ongoing
success in displacing imports, was masked by weaker local demand,
particularly in the alcoholic beverage sector, and by customer
production constraints within the coffee creamer sector. Overall,
domestic volumes declined by 7% relative to the comparative period.
The improved competitiveness of local maize prices supported an
increase in export volumes. The ongoing focus on reducing costs and
improving operational efficiencies continued to yield positive
results.
Land conversion and development activities recorded an operating
loss of R30 million (2017: operating profit of R441 million).
Negotiations around some transactions in the period were not
concluded and substantial commercial engagements are continuing
with a number of prospects. Revenue for the period was generated
from the sale of 0,6 developable hectares in Bridge City (2017: 68
developable hectares across various areas).
Tongaat Hulett's operating cash flow after working capital
improved by R236 million to R183 million (2017: R53 million
outflow). Proceeds from previous land sales totalling R112 million
were collected by 30 September 2018, with a further R630 million
being received in October 2018. Tongaat Hulett's working capital
requirements reduced by R705 million, with the South African sugar
operations benefitting from the sizeable "buy-in" ahead of the
September 2018 price increase. New capital expenditure of R343
million comprised R325 million in respect of the refinery project
in Mozambique and R18 million on completing the energy efficiency
project at the refinery in Durban. Expenditure on ongoing capital
requirements and sugarcane root replanting totalled R595 million
(2017: R709 million). During the period, capital expenditure was
limited to essential replacement items only. The sugarcane root
replanting programme, aside from normalising after the drought,
took into account current market fundamentals in determining the
required pace of replanting. Finance costs of R477 million (2017:
R413 million) were commensurate with the level of borrowings over
the period. Overall, the period reflected a net cash outflow after
dividends of R1,601 billion (2017: R1,683 billion).
Tongaat Hulett's net debt at 30 September 2018 was R7,754
billion (2017: R6,514 billion) with headroom on its borrowings
facilities of R1,8 billion. The capital structure of each business
continues to be reviewed and over the past six months, the South
African borrowings benefitted from the receipt of R362 million from
the Mozambique sugar operations. A dividend payment of R114 million
was received from Triangle in Zimbabwe, bringing the total dividend
received since the beginning of September 2017 to R372 million. A
process to remit a further dividend from Zimbabwe is currently
underway.
Taking the above into account, Tongaat Hulett recorded a
headline loss for the period of R87 million, being a decrease of
113% against the comparative period. After consideration of Tongaat
Hulett's current financial position, the Board has deemed it
appropriate to not declare an interim dividend (2017: 100 cents per
share).
OUTLOOK
Sugar - To focus on generating cash flow and increasing returns
on capital employed
The challenges facing the South African and Mozambique sugar
operations are receiving urgent attention.
Tongaat Hulett's existing sugarcane footprint, under normal
growing conditions and on completion of foreseeable planting
partnerships, has the potential to produce 1 600 000 tons of sugar.
Total sugar production in 2018/19 is estimated to be between 1 311
000 tons and 1 352 000 tons, compared to the 1 171 000 tons
produced in 2017/18. Sugar production in 2019/20 is expected to
exceed 1 400 000 tons, underpinned by the prospect of normal summer
rainfall and improvements in cane yields. All sugar operations
continue to focus on reducing operating costs through increased
production efficiency.
In Zimbabwe, the Tugwi-Mukosi dam has secured the availability
of bulk water for irrigation for the next two years. The additional
production will support higher export sales into regional deficit
markets at premium prices. Recently, a favourable outcome was
reached with the government providing Tongaat Hulett with security
of tenure over its assets in Zimbabwe. Tongaat Hulett's outlook on
its Zimbabwe operations remains positive.
In South Africa, indications are that imported sugar is working
itself out of the market although the extent of the "buy-in" at the
lower price may slow sales volumes in the second half of the year.
Consequently, export sales into world price related markets will
increase. A return to the sugar industry's normalised local sales
levels of 1 650 000 tons is expected in 2019/20. The higher duty
protection will assist in rebuilding margins of both growers and
millers, the full benefit of which, together with further growth in
sugar production, will be reflected in the 2019/20 financial
results.
In Mozambique, robust measures are being taken to stem the flow
of illegal sugar imports from the region in order to recover local
market share. The commissioning of the Xinavane refinery will be
completed by mid-November 2018 and will deliver a step-change
improvement to the sales mix in Mozambique. The refined sugar will
replace imported white sugar, satisfy the country's growing
industrial demand and enhance returns from the domestic price
premium relative to the realisations from export markets. An
estimated 7 000 tons of refined sugar will be produced in the
second half of 2018/19, with the full year benefit to be realised
in 2019/20. Good progress continues to be made with sales volumes
into regional deficit markets.
Starch and Glucose - Favourable maize outlook and sustained
profit margins
The starch and glucose operation remains well positioned to grow
sales volumes and enhance its product and market mix, underpinned
by available production capacity, ongoing improvements in operating
efficiencies and continued market development.
In the current economic conditions, some recovery in consumer
demand is expected in the second half of the financial year. Sales
volumes will benefit from the resolution of a major customer's
production constraints in the coffee creamer sector, the
commissioning of increased capacity in powdered glucose, the
continuation of the import replacement strategy and new business
development initiatives. Further growth in export markets is
anticipated, supported by a competitive maize price and a weaker
currency.
The current season maize crop of 12,9 million tons, combined
with 3,7 million tons of carry-over stock from the previous season,
should see maize prices remain competitive and close to export
parity levels, thereby sustaining margins. Co-product revenue is
expected to increase in the second half of the year, supported by
market fundamentals.
Land Conversion and Development - Set to unlock further value
from a solid platform
Tongaat Hulett has a unique portfolio of prime land located
around Durban, which is one of South Africa's primary growth
corridors. The land conversion and development activities have
transitioned this portfolio into a solid platform for value
creation for many stakeholders.
The registration of transfer of land already sold will generate
considerable cash inflows. Proceeds totalling R630 million were
collected during October 2018, leaving land debtors of R1,934
billion, most of which is expected to be collected over the next
twelve months, as administrative, planning and other conditions are
fulfilled.
The opening of new development areas around King Shaka
International Airport, Ballito and Ntshongweni (west of Durban), is
expanding the geographic market spread beyond the currently
dominant greater Umhlanga region.
Land released from agriculture totals 3 566 developable
hectares. Development and commercial focus is concentrated on 621
developable hectares, representing 2,8 million square metres of new
building floor area, of which 189 hectares are shovel ready and can
accommodate 1,3 million square metres of new building floor
area.
Conclusion
Tongaat Hulett recognises the imperative to restore returns for
its shareholders to an acceptable level, improve cash generation
and reduce debt levels. Therefore, the business is accelerating a
review process across all its operations with the objective of
unlocking value.
In light of the current debt levels, tight cash flow management
will continue to receive focussed attention across the business.
Various initiatives are in progress to reduce working capital
requirements, limit capital expenditure and improve operating cash
flows. Tongaat Hulett expects an improved cash flow performance in
the second half of the financial year. The unwinding of Tongaat
Hulett's black economic empowerment structure is expected to be
completed by 31 January 2019.
Tongaat Hulett remains focussed on improving its financial
performance, notwithstanding the current operating environment,
with progress on establishing a platform for earnings growth beyond
2018/19.
For and on behalf of the Board
Bahle Sibisi Sydney Mtsambiwa
Chairman Interim Chief Executive Officer
Amanzimnyama
Tongaat, KwaZulu-Natal
9 November 2018
Income Statement
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
30 September 30 September 31 March
Rmillion 2018 2017 2018
-------------------------------------------------- ------------------------------ ------------------------------ ----------
Revenue 8 808 8 118 16 982
------------------------------ ------------------------------ ----------
Operating profit 530 1 471 1 958
Net financing costs (note
1) (477) (413) (878)
Profit before tax 53 1 058 1 080
Tax (note 2) (57) (267) (249)
(Loss)/profit for the period (4) 791 831
------------------------------ ------------------------------ ----------
(Loss)/profit attributable
to:
Shareholders of Tongaat
Hulett (110) 724 713
Non-controlling interests 106 67 118
(4) 791 831
------------------------------ ------------------------------ ----------
(Loss)/earnings per share
(cents)
Basic (93.7) 628.5 618.0
Diluted (93.7) 628.5 618.0
---------------------------------------------------------------------------
Headline (loss)/earnings
attributable to
Tongaat Hulett shareholders
(note 3) (87) 661 617
------------------------------ ------------------------------ ----------
Headline (loss)/earnings
per share (cents)
Basic (74.1) 573.8 534.8
Diluted (74.1) 573.8 534.8
Dividend per share (cents) 0.0 100.0 160.0
Currency conversion
Rand/US dollar closing 14.21 13.46 11.89
Rand/US dollar average 13.39 13.21 13.00
Rand/Metical average 0.22 0.21 0.21
Rand/Euro average 15.73 15.03 15.15
US dollar/Euro average 1.18 1.14 1.17
Segmental Analysis
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
30 September 30 September 31 March
Rmillion 2018 2017 2018
--------------------------------------- ------------- ------------- ----------
REVENUE
Sugar
Zimbabwe 2 584 2 063 3 918
Eswatini 170 162 210
Mozambique 1 108 1 191 1 584
South Africa 3 046 2 004 6 332
------------- ------------- ----------
Sugar operations - total 6 908 5 420 12 044
Starch operations 1 872 1 993 3 913
Land Conversion and Developments 28 705 1 025
Consolidated total 8 808 8 118 16 982
------------- ------------- ----------
The adoption of IFRS 15 Revenue from Contracts with
Customers in the current period has resulted in a net
increase in revenue of R558 million. In the sugar operations,
revenue in South Africa increased by R621 million, in
Mozambique by R12 million and decreased by R101 million
in Zimbabwe and in the land conversion and development
operations it increased by R26 million. The prior periods
were prepared under the previous revenue recognition
standard, IAS 18 Revenue.
OPERATING PROFIT
Sugar
Zimbabwe 319 358 563
Eswatini 3 34 29
Mozambique 7 232 159
South Africa 13 211 86
------------- ------------- ----------
Sugar operations - total 342 835 837
Starch operations 300 240 572
Land Conversion and Developments (30) 441 661
Centrally accounted and consolidation
items (46) (39) (59)
Other capital items (31) (39)
BEE IFRS 2 charge and transaction
costs (5) (6) (14)
Consolidated total 530 1 471 1 958
------------- ------------- ----------
ANALYSIS OF SUGAR OPERATING
PROFIT
Sugar operations - before
cane valuations 1 138 1 308 467
Zimbabwe 537 580 363
Eswatini 55 61 4
Mozambique 341 394 71
South Africa 205 273 29
------------- ------------- ----------
Cane valuations - income statement
effect (796) (473) 370
Zimbabwe (218) (222) 200
Eswatini (52) (27) 25
Mozambique (334) (162) 88
South Africa (192) (62) 57
------------- ------------- ----------
Sugar operations - after cane
valuations 342 835 837
Zimbabwe 319 358 563
Eswatini 3 34 29
Mozambique 7 232 159
South Africa 13 211 86
------------- ------------- ----------
Statement of Financial Position
Condensed consolidated Unaudited Unaudited Audited
30 September 30 September 31 March
Rmillion 2018 2017 2018
------------------------------- ------------- ------------- ---------
ASSETS
Non-current assets
Property, plant and equipment 15 906 14 184 13 922
Long-term receivable 693 649 681
Goodwill 407 388 346
Intangible assets 476 409 447
Investments 25 30 25
------------- ------------- ---------
17 507 15 660 15 421
Current assets 17 218 17 002 13 694
Inventories 6 886 6 139 3 072
Growing crops (note 4) 2 290 2 137 2 755
Trade and other receivables 5 092 5 137 5 183
Tax 42 22
Cash and cash equivalents 2 908 3 589 2 662
------------- ------------- ---------
TOTAL ASSETS 34 725 32 662 29 115
------------- ------------- ---------
EQUITY AND LIABILITIES
Capital and reserves
Share capital 135 135 135
Share premium 1 544 1 544 1 544
BEE held consolidation shares (635) (621) (623)
Retained income 9 064 9 525 9 401
Other reserves 1 763 1 095 (286)
------------- ------------- ---------
Shareholders' interest 11 871 11 678 10 171
Non-controlling interests 2 197 2 038 1 838
------------- ------------- ---------
Equity 14 068 13 716 12 009
Non-current liabilities 8 190 8 408 8 215
Deferred tax 2 324 2 483 2 376
Long-term borrowings 5 023 5 127 5 048
Provisions 843 798 791
------------- ------------- ---------
Current liabilities 12 467 10 538 8 891
Trade and other payables
(note 5) 6 099 4 682 4 165
Short-term borrowings 5 639 4 976 4 077
Non-recourse equity-settled
BEE borrowings 615 602 603
Tax 114 278 46
------------- ------------- ---------
TOTAL EQUITY AND LIABILITIES 34 725 32 662 29 115
------------- ------------- ---------
Statement of Other Comprehensive Income
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
30 September 30 September 31 March
Rmillion 2018 2017 2018
--------------------------------------- ------------- ------------- ----------
(Loss)/profit for the period (4) 791 831
Other comprehensive income/(loss) 2 357 463 (1 163)
Items that will not be reclassified
to profit or loss:
Foreign currency translation 2 347 469 (1 155)
Actuarial loss on post-retirement
benefits (10)
Tax on actuarial loss 2
Items that may be reclassified
subsequently to profit or loss:
Hedging reserve 13 (8)
Tax on movement in hedging
reserve (3) 2
Total comprehensive income/(loss)
for the period 2 353 1 254 (332)
------------- ------------- ----------
Total comprehensive income/(loss)
attributable to:
Shareholders of Tongaat Hulett 1 924 1 161 (237)
Non-controlling interests 429 93 (95)
2 353 1 254 (332)
------------- ------------- ----------
Statement of Changes in Equity
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
30 September 30 September 31 March
Rmillion 2018 2017 2018
------------------------------------ ------------- ------------- ----------
Balance at beginning of period 10 171 10 781 10 781
Adjustment on initial adoption
of IFRS 15 (note 11) (159)
Total comprehensive income/(loss)
for the period 1 924 1 161 (237)
(Loss)/profit for the period (110) 724 706
Movement in hedging reserve 10 (6)
Foreign currency translation 2 024 443 (943)
------------- ------------- ----------
Dividends paid (66) (220) (330)
BEE share-based payment charge 2 5 12
Share-based payment charge 26 8 10
Settlement of share-based payment
awards (27) (57) (65)
Shareholders' interest 11 871 11 678 10 171
Non-controlling interests 2 197 2 038 1 838
Balance at beginning of period 1 838 1 957 1 957
Adjustment on initial adoption
of IFRS 15 (note 11) (23)
Total comprehensive income/(loss)
for the period 429 93 (95)
Profit for the period 106 67 117
Foreign currency translation 323 26 (212)
============= ============= ==========
Dividends accrued (26)
Dividends paid (21) (12) (24)
------------- ------------- ----------
Equity 14 068 13 716 12 009
------------- ------------- ----------
Statement of Cash Flows
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
30 September 30 September 31 March
Rmillion 2018 2017 2018
------------------------------------- ------------- ------------- ----------
Operating profit 530 1 471 1 958
Loss/(surplus) on disposal of
property, plant and equipment 32 (51) (106)
Depreciation 550 517 1 001
Growing crops valuation and
other non-cash items 866 510 (271)
Operating cash flow 1 978 2 447 2 582
Change in working capital (1 795) (2 500) (307)
Cash flow from operations 183 (53) 2 275
Tax payments (282) (218) (354)
Net financing costs (477) (413) (878)
Cash flow from operating activities (576) (684) 1 043
Expenditure on property, plant
and equipment:
New (343) (109) (876)
Replacement (355) (218) (298)
Cane roots (226) (348) (887)
Major plant overhaul cost changes (90) (1)
Intangible assets (14) (53) (106)
Proceeds on disposal of property,
plant and equipment 51 155
Net cash flow before dividends
and financing activities (1 514) (1 451) (970)
Dividends paid (87) (232) (354)
Net cash flow before financing
activities (1 601) (1 683) (1 324)
Borrowings raised 1 473 2 568 1 611
Non-recourse equity-settled
BEE borrowings 12 (21) (19)
Settlement of share-based payment
awards (27) (57) (65)
Net (decrease)/increase in
cash and cash equivalents (143) 807 203
Balance at beginning of period 2 662 2 741 2 741
Currency alignment 389 41 (282)
Cash and cash equivalents at
end of period 2 908 3 589 2 662
------------- ------------- ----------
Notes
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
30 September 30 September 31 March
Rmillion 2018 2017 2018
--------------------------------- ------------- ------------- ----------
1. Net financing costs
Interest paid (546) (497) (1 049)
Interest capitalised 21 21 45
Interest received 48 63 126
(477) (413) (878)
------------- ------------- ----------
2. Tax
Normal (317) (386) (199)
Deferred 296 129 (25)
Withholding tax (11) (10) (25)
Rate change (25)
(57) (267) (249)
------------- ------------- ----------
During the period, the agricultural tax rate in Mozambique
increased from 10% to 32% due to a concession previously
granted not being extended. Representations are being
made to government to reinstate the 10% tax rate for
agriculture.
3. Headline (loss)/earnings
(Loss)/profit attributable
to shareholders (110) 724 713
Adjusted for:
Capital loss/(surplus)
on disposal of land, cane
roots and buildings 32 (52) (27)
Loss on disposal of plant
and equipment 3
Tax on the above items (9) (11) (71)
Non-controlling interests (1)
(87) 661 617
------------- ------------- ----------
4. Number of shares (000)
In issue 135 113 135 113 135 113
Weighted average (basic) 117 441 115 189 115 372
Weighted average (diluted) 117 441 115 189 115 372
5. Growing crops
Growing crops, comprising standing cane, is measured
at fair value which is determined using an estimate
of cane yields and prices which are unobservable inputs
and, in accordance with IFRS, categorised as level
3 under the fair value hierarchy. Changes in fair value
are recognised in profit or loss. A change in yield
of one ton per hectare on the estimated yield of 80
tons cane per hectare (30 September 2017: 75 tons per
hectare and 31 March 2018: 81 tons per hectare) would
result in a R28 million (30 September 2017: R28 million
and 31 March 2018: R34 million) change in fair value
while a change of one percent in the cane price would
result in a R23 million (30 September 2017: R25 million
and 31 March 2018: R28 million) change in fair value.
6. Trade and other payables
Trade and other payables includes an interest bearing
maize obligation of R603 million (30 September 2017:
R687 million and 31 March 2018: R486 million).
7. Capital expenditure
commitments
Contracted 129 282 398
Approved 101 708 240
230 990 638
------------- ------------- ----------
8. Operating lease commitments 66 82 60
------------- ------------- ----------
9. Guarantees and contingent
liabilities 142 79 91
------------- ------------- ----------
10. Basis of preparation
The condensed consolidated financial statements for
the six months ended 30 September 2018 have been prepared
in accordance with and containing the information required
by IAS 34 Interim Financial Reporting, the SAICA Financial
Reporting Guides as issued by the Accounting Practices
Committee, the Financial Pronouncements as issued by
the Financial Reporting Standards Council, and comply
with the Companies Act of South Africa and the JSE
Limited Listing Requirements. These condensed consolidated
financial statements do not include the fair value
disclosures for financial instruments as required by
IAS 34 paragraph 16A(j), which are available on the
company's website, at the registered office or on request.
The directors take full responsibility for these condensed
consolidated financial statements, which have been
prepared under the supervision of the Interim Chief
Financial Officer, Mr RD Aitken CA(SA). The results
have not been audited, and any reference to future
financial performance has not been reviewed or reported
on, by the company's auditor.
11. Accounting policies
The accounting policies applied in the preparation of the
financial statements for the six months ended 30 September 2018
comply with International Financial Reporting Standards ("IFRS")
and are consistent, in all material respects, with those applied
for the financial year ended 31 March 2018, except for the adoption
of IFRS 9 Financial Instruments ("IFRS 9") and IFRS 15 Revenue from
Contracts with Customers ("IFRS 15") as detailed below. The other
new and revised accounting pronouncements, effective from 1 April
2018, were adopted by Tongaat Hulett with no impact on the
financial results.
Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial
Instruments: Recognition and Measurement ("IAS 39") and sets out
the new requirements for the classification and measurement of
financial instruments, introduces an expected credit loss model for
the measurement of impairment losses and establishes a closer
alignment between hedge accounting and risk management
practices.
The application of the requirements of IFRS 9 to Tongaat Hulett
is as follows:
- Classification and measurement requirements: There is no impact on Tongaat Hulett.
- Impairment requirements:
In terms of IAS 39, financial assets (e.g. trade receivables,
contract assets, lease receivables, loan commitments) were impaired
using an incurred loss model when there was objective evidence of
default. Under IFRS 9, an impairment is based on an expected credit
loss ("ECL") model which takes into account historical credit loss
experience adjusted for current and future economic conditions. The
ECL to be recognised is based on the expected losses that may arise
within the next twelve months. If there is a significant increase
in credit risk, or if the company elects to do so, the ECL is based
on the lifetime of the financial asset.
As Tongaat Hulett's sugar and starch operations are short term
in nature (e.g. terms of 14 days in the South African sugar
operations and 30 days in the starch operation) the impact of IFRS
9 is insignificant. In the developments operation, the financial
assets are mainly secured by the value of the serviced land as
reflected in the transaction price. The registration of the
property is delayed as a protection mechanism for the recovery of
the full amount due. Based on the above, no impairment adjustments
have been processed for the period.
- Hedge accounting requirements:
Hedge accounting is applied in the starch operation to account
for maize futures. Tongaat Hulett has elected to adopt the
transitional provisions of IFRS 9 which allow a choice to continue
with the hedge accounting requirements of IAS 39 rather than
adopting the new IFRS 9 requirements.
The adoption of IFRS 9 has had no material impact on Tongaat
Hulett's earnings and no retrospective adjustments have been made
to the financial statements.
Revenue Recognition
IFRS 15: Revenue from Contracts with Customers replaces all
existing IFRS revenue requirements and establishes a single,
principles-based model to account for revenue arising from
contracts with customers. Under IFRS 15, revenue is recognised as
Tongaat Hulett satisfies performance obligations and transfers
control of goods or services to its customers, compared with the
previous accounting standard that recognised revenue based on an
assessment of the risks and rewards of ownership.
The measurement of revenue is determined based on the amount to
which Tongaat Hulett expects to be entitled in the exchange for the
goods or services and is allocated to each specific performance
obligation in the contract. Depending on whether certain criteria
are met, revenue is recognised either over time or at a point in
time, as and when the performance obligations are met, and control
of the goods or services is transferred to the customer.
IFRS 15 affects Tongaat Hulett's commercial transactions within
its land conversion and development activities as well as certain
of the customary transactions within the sugar operations where
sugar is sold to industry (or similar) bodies. The impact of
adopting IFRS 15 is detailed below:
- Land Conversion and Development:
A commercial land transaction involves the conclusion of an
unconditional, binding contract which transfers the risks and
rewards of ownership of the land to the purchaser and conveys on
Tongaat Hulett an obligation to provide the necessary services
infrastructure to the site. In terms of the previous accounting
standard, revenue on a commercial land transaction was recognised
as a single transaction at the time the contract became
unconditional.
Under IFRS 15, the commercial land transaction is split into two
distinct performance obligations with revenue being apportioned
between them.
- Sale of the land:
The revenue attributed to the sale of land is recognised at the
point in time when the relevant agreement becomes unconditional and
binding on the purchaser and the purchaser can exercise effective
control over the land.
- Provision of services infrastructure:
The revenue attributed to the necessary services infrastructure,
is deferred and recognised over the period the obligation is
fulfilled, using the percentage completion method with reference to
the services costs incurred relative to the total estimated
services costs.
- South African sugar operations:
In March each year, in terms of the sugar industry agreement,
the South African Sugar Association ("SASA") is obliged to purchase
all unsold sugar stocks designated for the local market to
determine the final sucrose price for the season. Revenue was
previously recognised at that point in time as ownership of the
sugar had legally transferred to SASA and payment had been
received.
Applying the IFRS 15 transfer of control requirements, since the
South African sugar operations retain control over the physical
sugar stocks and have the responsibility to market and sell the
sugar on behalf of SASA, revenue is not recognised under IFRS 15
until the sugar is delivered to the end-customer.
- Zimbabwe sugar operations
In September and March each year, a third-party commodity trader
purchases a bulk volume of sugar designated for the local market.
Revenue was previously recognised at those points in time as
ownership of the sugar had legally transferred to the commodity
trader and payment had been received.
Applying the IFRS 15 transfer of control requirements, the
Zimbabwe sugar operations retain control over the physical sugar
stocks and have the responsibility to market and sell the sugar on
behalf of the commodity trader, revenue is not recognised under
IFRS 15 until the sugar is delivered to the end customer.
- Mozambique sugar operations
As sugar is produced by the Mozambique sugar operations, it is
sold to the Distribuidora Nacional de Acucar Limitada ("DNA"), a
body established to market, sell and distribute the industry's
sugar production into local and certain preferential export
markets. Sugar that is surplus to the DNA's requirements is
repurchased by the Mozambique sugar operations, in proportion to
their share of industry, for sale to other export markets. Revenue
was previously recognised at the date of sale to the DNA as
ownership of the sugar had legally transferred to the DNA and
payment had been received.
Applying the IFRS 15 transfer of control requirements, since the
Mozambique sugar operations retain responsibility to market, sell
and distribute the surplus sugar, revenue from the sale of such
surplus sugar is no longer recognised at the time of sale to the
DNA, but rather when the sugar has subsequently been exported to
the end-customer.
Tongaat Hulett has elected not to restate comparative
information and, in terms of the transitional requirements of IFRS
15, has adopted the modified retrospective approach whereby the
cumulative effect of initially applying the new standard has been
recorded as an adjustment to the opening balance of equity at the
date of initial application, being 1 April 2018. Comparative
information has not been restated and is reported under the
previous standard.
The effect of the adoption of IFRS 15 at 31 March 2018 on the
statement of financial position would have been a decrease in
equity of R182 million (Tongaat Hulett: R159 million and
non-controlling interests: R23 million) comprising of an increase
in inventory (i.e. sugar stocks) of R1,068 billion, an increase in
trade and other payables (i.e. deferred revenue) of R1,195 billion,
a decrease in trade and other receivables of R122 million and a
decrease of R67 million in the deferred tax liability.
12. Subsequent events
There were no material events between 30 September 2018 and the
date of this report.
CORPORATE INFORMATION
Tongaat Hulett Limited
Registration No: 1892/000610/06
JSE share code: TON
ISIN: ZAE000096541
Directorate:
C B Sibisi (Chairman), S M Beesley, F Jakoet, J John, R P
Kupara^, T N Mgoduso,
N Mjoli-Mncube, S G Pretorius, T A Salomão+
Company secretary:
M A C Mahlari
Executive:
S D Mtsambiwa^ (Interim Chief Executive Officer), R D Aitken
(Interim Chief Financial Officer)
+ Mozambican ^ Zimbabwean
Registered office:
Amanzimnyama Hill Road, Tongaat, KwaZulu-Natal
P O Box 3, Tongaat 4400
Telephone: +27 32 439 4019
Transfer secretaries:
South Africa:
Computershare Investor Services (Pty) Limited
Telephone: +27 11 370 7700
United Kingdom:
Link Asset Services
Telephone: +44 203 7285540
Sponsor:
Investec Bank Limited
Telephone: +27 11 286 7000
www.tongaat.com
e-mail: info@tongaat.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR UGGCWGUPRGCB
(END) Dow Jones Newswires
November 09, 2018 09:42 ET (14:42 GMT)
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