Shares in SA's biggest sugar producer, Tongaat Hulett, plunged more than 20% on Friday after the company warned that full-year earnings would fall as much as 250% because of low global sugar prices, the impact of the sugar tax and falling property sales.
It's the KwaZulu-Natal-based company's biggest one-day collapse in more than 22 years. The share price ended trade at its lowest level in about 14 years.
The 127-year-old sugar producer has a number of issues crippling its operations and says it is undergoing a "comprehensive strategic and financial review with the view to stabilising the business".
At the core of Tongaat's falling sales are a number of supply-side challenges. The global market is oversupplied with sugar, leading to a drop in the sugar price.
Locally, the problem has been exacerbated by the recently introduced sugar tax that has had a negative impact on sugar sales in SA.
In Mozambique, where Tongaat has operations, cheap imports are affecting demand for its products.
This week, finance minister Tito Mboweni added to Tongaat's pain by increasing the sugar tax by 10% from R2.01 to R2.21 per gram in excess of four grams of sugar per 100ml.
Executive changes over the past year have put the company's leadership at the fore for investors.
Last year, long-serving CEO Peter Staude was hounded out by Investec analyst Anthony Geard. Staude left the company last October, much earlier than his expected April 2019 retirement.
He was replaced by the former head of Tongaat's Zimbabwe business, Sydney Mtsambiwa, who was himself replaced this month by Gavin Hudson. The company has also confirmed acting CFO Rob David Aitken in that position.
Last year, Tongaat faced tough questions from its shareholders on the pay and performance of its executives.
On the executive changes, Wayne McCurrie, of FNB Wealth and Investments, said there was a lot out of the company's control.
"Unfortunately, as with any agricultural company and as with just about any mining company, a lot of their future is not in their hands.
"It's not in their control, it's the sugar price, it's government tax, it's the weather. These are very cyclical companies, so I don't think it's a reflection on the management of the company that's caused this."
In Zimbabwe, the company faces uncertainty as the Reserve Bank of Zimbabwe this week announced its monetary policy for the year, which could have an impact on how companies account for revenues and ease of repatriating dividends to SA.
In SA, property sales have dropped significantly since September 2018, adding to pressure on the company's revenue.
Tongaat has a substantial property division, which in previous years has bolstered the company's bottom line.
Tongaat has operations in a number of SADC countries, but its South African business in particular has seen an over-reliance on land valuations that have since declined, sending the balance sheet into disarray.
One of the biggest issues facing the company in SA is an inability to focus on its core business of producing sugar.
The company, which will release its results in May, will also likely revalue its sugar-cane assets, taking into account the lower sugar price and weak demand.
McCurrie said the land sales issue and the impact of the sugar tax were the main reasons for Tongaat Hulett's performance and the resultant share-price drop.
"The land sales disappointed the market and then the impact of the sugar tax on consumption and stock levels and imports of sugar.
"It was, quite frankly, a tale of woe and hence the share price is down 20%," McCurrie said.
Tongaat shares, which peaked at R174 in September 2014, ended trade on the JSE on Friday at R37.01, the lowest trading price since September 2004.
The All Share index was up 0.9%.
McCurrie said Tongaat should have said something to prepare the market before releasing the trading update.
"At least prime the market so it doesn't come as a shock because, believe me, when your share falls 20%, it's a shock. The market was not expecting that," he said.
gavazam@sundaytimes.co.za
Additional reporting by Penelope Mashego..