Tongaat Hulett Limited · JSE:TON
Tongaat Hulett — FY2019 Earnings Presentation
48 slides from Tongaat Hulett's earnings presentation, December 2019
Slide 1: Annual Results for the Year Ended 31 March 2019
Annual Results for the Year Ended 31 March 2019
Slide 2: Agenda
Agenda 1. Introduction and Strategic Update 3 Gavin Hudson 2. Financial Results 18 Rob Aitken 3. Focus on the Group’s Divisions 31 Rob Aitken 4. 2020 and Beyond 42 Gavin Hudson 2
Slide 3: Tongaat Hulett Update
Tongaat Hulett Update m TongaatHulett: 3
Slide 4: The Tongaat Hulett Group at a Glance
The Tongaat Hulett Group at a Glance Group Highlights Starch 4 R4.0bn >850k Plants In FY19 Revenue Tons of maize per annum processing capacity Leading Agri Business in Africa 13 R12.8bn ~45k Production facilities(1) In FY19 Revenue Hectares farmed(2) A Leader in the Starch & Sugar Glucose, Sugar, Et
Slide 5: The Past Year
The Past Year m TongaatHulett: 5
Slide 6: Why We Find Ourselves in Our Current Predicament
Why We Find Ourselves in Our Current Predicament 1 Poorly Managed and Underperforming Business Debt has Doubled over the Last 6 Years (Debt in Rbn) 2 11.4 11.3 Inadequate Governance 10.0 3 Financial Mismanagement and Misrepresentation 4 Weak Relationship with Stakeholders 5 Historic Business Plan Re
Slide 7: Our Timeline to Date
Our Timeline to Date Aug 2018 Mar 2019 Forensic investigation Oct 2019 Dec 2019 CEO and CFO Appointment of PwC completed within 7 months PwC Forensic Presentation to investors on announced as forensic auditor Report completed the Company’s turnaround resignation plan, new strategy and Governance Fra
Slide 8: Key Findings of the PwC Forensic Investigation
Key Findings of the PwC Forensic Investigation The PwC and management’s internal investigation uncovered a culture of deference and weak governance Categories of Financial Misstatements 1 2 3 4 Early Recognition of Overstatement of Cane Overstatement of Value: Overstatement of Revenue from Land Sale
Slide 9: Where Are We Now?
Where Are We Now? m TongaatHulett: 9
Slide 10: Experienced New Team to Lead and Implement the Strategy
Experienced New Team to Lead and Implement the Strategy New Management Team Gavin Hudson Rob Aitken Dan Marokane Garth Macpherson Chief Executive Officer Chief Financial Officer Strategy and Business MD Starch CEO since February CFO since March 2019 Transformation Executive MD Starch since 2010 2019
Slide 11: New Board with a Strong Focus on Governance and Accountability
New Board with a Strong Focus on Governance and Accountability Non-Executive Board Members Louis von Zeuner Stephen Beesley Jean Nel Andile Sangqu Chairman of the Board & Chairman Social & Chairman Risk, Capital & Chairman Remuneration & Nomination Committee Ethics Committee Investment Committee HR
Slide 12: Addressing the Governance and Process Challenges
Addressing the Governance and Process Challenges Board and Governance Management Business • Established or • Extensive Review of • Formalisation of Reconstituted Board Management Skill Base Accounting Policies and Committees and Procedures • Re-establishment of • Creation of Centralised • Implementa
Slide 13: Building a Business for the Future
Building a Business for the Future P Focused on Our • Vision: To be the most trusted partner in all that we do Vision and • Mission: Build our future by creating sustainable value for all our stakeholders Mission • Right size and fix the fundamentals of our business With a Strategy to Deliver • Driv
Slide 14: Key Pillars of Our New Strategy
Key Pillars of Our New Strategy Right size and Drive efficiencies within Create a platform Build capability fix the fundamentals our business to truly for sustainable in our people of our business leverage our asset base profitable growth and processes • Resource and headcount • Infrastructure optim
Slide 15: We Are Delivering on Our Strategy
We Are Delivering on Our Strategy 1. Completed 2. Short to Medium-Term 3. Long-Term New Exco and defined strategy • Absolute focus on growing core business • Sustainable, fit for purpose business – disposal of non-core assets model New board and governance structure PwC forensic investigation
Slide 16: Our Path to Cash Flow Improvement and Debt Reduction
Our Path to Cash Flow Improvement and Debt Reduction 1 2 3 4 Self Help – Cash Strategic Business Equity Capital Asset Disposals Flow Improvement Partnerships Raise ~R3bn c. R1 – 2bn c. R4bn Initiatives in Place • Cost efficiencies • MillCo: Milling operations • Shareholders • Core • Working capital
Slide 17: Tongaat Hulett Going Forward
Tongaat Hulett Going Forward It’s a new dawn, it’s a new day, it’s the Tongaat Hulett way 17
Slide 18: 2019 Financial Results
2019 Financial Results m TongaatHulett: 18
Slide 19: Introduction - Re-Establishing Financial Rigour
Introduction - Re-Establishing Financial Rigour Strengthened Policies and Financial Results: Areas of Focus Areas Frameworks Restatement • Determining the true financial • Existing accounting policies • Revenue recognition position of the group thoroughly reviewed, revised, approved and applied (wit
Slide 20: Our New Starting Point - Restated Financial Status
Our New Starting Point - Restated Financial Status 2018 2018 Restated(1) Published Revenue R17,505m R16,982m Operating profit(2) R142m R1,956m Total assets R18,686m R29,115m Equity R62m R12,009m Borrowings R11,303m R9,125m The outcome of the restatements is a reduction in the amount reflected in the
Slide 21: Financial Features
Financial Features Key Impacts Revenue Operating profit EBITDA R17.1bn R1.2bn R1.9bn (FY18: R17.5bn) (FY18: R142m) (FY18: R0.7bn) Wide Ranging Restatements to Set a Representative Base Interest paid Headline loss(1) HEPS(2) Finance Costs as a Key R1.5bn R(0.9)bn (823) cents (FY18: R1.3bn) (FY18: R(0
Slide 22: Revenue
Revenue Revenue YoY Commentary #% FY18 FY19 (in Rbn) Change • Group gross revenue marginally lower than prior year 3.0% (0.4%) (43.6%) 93.0% 2.4% (2.5%) • South African sugar production up 16% with underlying sales 17.5 mix shift towards exports due to reduced local demand 17.1 • Steady local demand
Slide 23: EBITDA
EBITDA EBITDA(1) #% Change YoY Commentary FY18 FY19 (in Rm) n/m 126.5% n/m 105.1% 15.3% 155.8% • Increase in sugar operating profits mainly attributable to a fair value gain as well as foreign currency translation benefits in 1,860 the Zimbabwean operations 1,429 674 777 727 • Zimbabwean operations
Slide 24: Operating Profit
Operating Profit Operating Profit #% Change YoY Commentary FY18 FY19 (in Rm) n/m 182.6% n/m 102.2% 15.5% 750.0% • Operating profit increase driven by: 1,201 1,207 o An 11% decline in cost of sales 656 425 568 o A fair value adjustment on biological assets of R470m 273 135 142 compared to the R47m in
Slide 25: FY19 Loss Driven by Finance Costs and FX
FY19 Loss Driven by Finance Costs and FX Bridge from Operating Profit to Comprehensive Loss (in Rm, FY19) 1,207 2 (1,361) (640) (792) (2,728) (29) (3,549) Operating profit Share of profits Net finance costs Income tax Net loss FX translation losses Other Total comprehensive from associates comprehen
Slide 26: Capex
Capex Capex Commentary (in Rm) FY18 FY19 • Capital expenditure, and specifically the replanting of roots has 1,258 been curtailed in consideration of the group’s cash flow constraints • Mozambique includes the following in relation to the Xinavane 1,089 Refinery which was budgeted to cost R548m • FY
Slide 27: Group Tax Profile
Group Tax Profile Consolidated Income Tax Expense Commentary 2019 2018 • The statutory rate of tax in South Africa in 2019 was -28% (the Restated group made a loss in 2019). The group effective tax rate was % % 415.5%. The main drivers for the difference are: (Loss)/profit before tax (154) (952) o T
Slide 28: Debt Refinancing
Debt Refinancing South Africa Refinancing Commentary Type Total (Rm) • As at 31 March 2019, Tongaat Hulett group had outstanding borrowings of R11,438m • Entered into Refinancing Agreements with South African lending group which will be Facility A Term Loan Facility 9,092 used to refinance and repla
Slide 29: Cash Flow Highlights
Cash Flow Highlights 2019 2018 Commentary Rm Restated • Cash generated from operations positively impacted by Cash generated from operations 1 720 1 876 improvements in working capital Additions to property, plant and equipment incl intangibles (1 089) (1 258) • Cash flow benefitted from the decisio
Slide 30: Going Concern
Going Concern Confirmation as Going Concern The Board is of the view that given the significant headroom in the fair value of the assets over the fair value of the liabilities, the group and company are solvent as at 31 March 2019 and at the date of this report. The ability of the entities to repay
Slide 31: Focus on the Group's Divisions
Focus on the Group’s Divisions 31
Slide 32: Starch and Glucose
Starch and Glucose m TongaatHulett: 32
Slide 33: Starch Division at a Glance
Starch Division at a Glance Overview Revenue and EBITDA Performance FY19 (in Rm) Revenue EBITDA growth One of Africa's largest starch and glucose producers with >100- year history 3,913 4,008 2.4% Largest South African manufacturer of starch and glucose in 777 South Africa, with a capacity of >850,0
Slide 34: Key Strategic Initiatives
Key Strategic Initiatives Targeted Medium-Term Initiatives EBITDA Impact Spare Capacity for Growth ~15% Wet-Milling Capacity Available Spare Capacity for Cost Base Improvement R15 20m Enhanced Production Flexibility Replace Starch & Glucose Imports Utilising Wet-Milling and Finishing Capacity Expa
Slide 35: Sugar
Sugar m TongaatHulett: 35
Slide 36: Local Sugar Dynamics (Southern Africa)
Local Sugar Dynamics (Southern Africa) Overview African sugar consumption totals 19.5m ton(1) p.a. with growth opportunities 1.7m tons opportunity in deficit markets(2) Significant scope for growth in per capita consumption Growth Opportunity in Key Regional Deficit Markets… … Complemented by Furthe
Slide 37: Sugar Division at a Glance
Sugar Division at a Glance Overview Revenue performance (in Rm) Portfolio of leading sugar brands 13,689 12,830 Government support complemented with mutual interest alignment Strong asset base in the local markets with additional access to new markets Step change in transformation FY18 (restated) FY
Slide 38: Key Strategic Initiatives
Key Strategic Initiatives 1. Streamlining Operations 5. Transformation Step 2. Asset Optimisation Change and Alignment with Governments 4. Revenue Diversification 3. Commercial Opportunities Clear Initiatives to Build a Sustainable and Profitable Sugar Business 38
Slide 39: Land Portfolio and Property Development
Land Portfolio and Property Development 39
Slide 40: Our Current Property Portfolio Has a Developed Potential Value of c. R35bn
Our Current Property Portfolio Has a Developed Potential Value of c. R35bn Key Highlights Revenue and EBITDA performance FY19 Revenue EBITDA growth ~11.7k ha of well-located land available for development with a fair 940 value of ~R11bn(1) 93%% Supports a comprehensive social and economic program ac
Slide 41: Property Division at a Glance
Property Division at a Glance Geographic Diversification Ambitions for Inclusive Value Creation Honour our obligations to stakeholders arising from commercial Durban Aerotropolis Smart City Region (57% of land) development commitments Coastal Resorts, Lifestyle and Tourism (30% of land) Shift st
Slide 42: 2020 and Beyond
2020 and Beyond m TongaatHulett: 42
Slide 43: Incremental Cash Flows of R3.0bn
Incremental Cash Flows of R3.0bn How Do We Expect to Achieve This? Capex ~R100m Working Capital ~R600m Costs R1,400 — R1,650m Interest R500 — R600m Revenue Opportunities R200 — R350m Notes: Includes forward-looking financial data, please refer to disclaimer on forward-looking statements. Includes ne
Slide 44: Strategic Initiatives to Drive Profitable Growth in the Medium-Term
Strategic Initiatives to Drive Profitable Growth in the Medium-Term EBITDA Run-Rate Improvements by Initiatives (in Rm) Group EBITDA Initiative impact 500 — 850 2,800 — 3,800 (150) — (100) 300 — 550 800 — 1,100 1,860 1,383 (477) (1) FY19 EBITDA Adjustments, Adjusted EBITDA Streamlining Asset Optimis
Slide 45: Strong Focus on Each of Our Business Units
Strong Focus on Each of Our Business Units Target Medium-Term EBITDA Run-Rate by Division (in Rm) 300 — 350 2,800 — 3,800 850 — 950 (150) — (100) 250 — 500 1,100 — 1,500 400 — 650 (2) South Africa Zimbabwe Mozambique Starch Property Non-Core Disposal Group FY19 Adjusted (321) 646 (36) 777 279 106 1,
Slide 46: Why Tongaat Hulett Is an Attractive Investment as a Group
Why Tongaat Hulett Is an Attractive Investment as a Group Starch Sugar Property • Stable and predictable free cash • Meaningful short-term upside from • Prime commercial land bank in key flow cost cutting initiatives growth nodes • Strong market position • Future growth opportunities from: • Signifi
Slide 47: We Are Focused on Building a Sustainable and Long-Term Future
We Are Focused on Building a Sustainable and Long-Term Future Good Progress on Our Turnaround Strategy P + Fit for Purpose P + Attractive Group Proposition P + Require a c. R4bn Capital Raise = Sustainable and Long-Term Future 47
Slide 48: Questions
Questions m TongaatHulett: 48