Headline earnings increased by 126% to R466 million in 2005, compared to R206;million in 2004. The benefits of the multiple management actions underway are increasingly reflected in the financial results. The past three years have seen the businesses adapting to a stronger Rand. The Group’s operating profit in 2005 increased to R730 million (2004: R358 million).
African Products continued its earnings recovery with operating profit improving to R112 million (2004: R61 million). This was achieved through an increase in domestic volumes and lower maize prices, offset by low co-product prices. Domestic sales volumes were 3,9% above those of 2004 due to growth in the local market and the successful recovery of business previously lost to imports. Export sales volumes were 5,5% above those of 2004. An organisational restructuring was undertaken during the year, as part of the ongoing process to ensure operations are able to respond to the competitive environment, the benefits of which will be realised from 2006. The maize price, after reaching low levels early in 2005, rose strongly to levels close to import parity late in the year. Continuing with its back-to-back pricing model, African Products has priced 33% of its maize requirements for 2006.
Tongaat-Hulett Sugar’s operating profit increased by 183% to R232 million (2004: R82 million), before dividends from Triangle Sugar in Zimbabwe. Sales volumes in South Africa increased to 474 000 tons (2004: 464 000 tons) and raw sugar export volumes grew by 33% to 387 000 tons (2004: 292 000 tons). The improved sales volumes, higher export realisations and lower costs per ton led to increased margins. The 2005 results include an effective world sugar price of 8,98 US c/lb (2004: 7,27 US c/lb), which is well below the current price of 17 US;c/lb. The benefits of actions taken to enhance earnings are increasingly being realised. These include optimisation of milling capacity, reduction in milling costs, cane procurement initiatives, head office closure, the new white sugar milling technology, leveraging the Huletts brand and other refining value chain initiatives. A dividend of R19 million (2004: R51 million) was received from Triangle Sugar in Zimbabwe, which continues to operate profitably in a difficult environment.
The South African crop harvested in 2005 was larger than the 2004 crop although still below the longer-term average. Production from the South African operations increased to 753 000 tons (2004: 723 000 tons). In Swaziland, Tambankulu produced a record raw sugar equivalent of 56 000 tons (2004: 50 000 tons). Triangle Sugar in Zimbabwe produced 236 000 tons (2004: 222;000;tons). In Mozambique, the rehabilitation and expansion of the sugar estates continued with production rising by 35% to 115 000 tons (2004: 85;000;tons). Total sugar production for the 2005 year thus improved to 1,160 million tons from 1,080 million tons in 2004.
Moreland continued to accelerate its development of the Group’s prime land holdings, capitalising on its platform comprising resort, residential, commercial and industrial portfolios, in a favourable property market. Operating profit increased by 28% to R231 million (2004: R181 million). Strong contributions were achieved from developments at Zimbali Coastal Resort, RiverHorse Valley Business Estate, La Lucia Ridge residential and the Umhlanga Ridge New Town Centre. Substantial progress has been made towards securing approvals for several key developments, which are expected to be launched in 2006, including Sibaya at Umdloti, Umhlanga Triangle, Izinga, Umhlanga Ridge New Town Centre residential precincts, Cornubia at Mount Edgecombe North, Kindlewood at Mount Edgecombe South and Shongweni.
Hulett Aluminium (Hulamin) more than doubled its operating profit to R319 million (2004: R148 million), with 50% thereof being the Group’s share. The rolled products operation succeeded in growing volumes, improving product mix and reducing unit costs. Sales volumes of rolled products increased by 20% to 173 000 tons, despite disruptions in the supply of rolling ingot in the second half of the year. Output of more than 180 000 tons annualised was attained for several periods of 2005. Rolled product conversion costs per ton were reduced by 8%. Sales mix improvements included increased local market sales and growth in exports of Treadbright and Can End Stock of 27% and 33% respectively. The plate plant expansion, which will increase high margin heat-treated plate capacity by 50%, is progressing well and will come on stream in the second half of 2006. The extrusion operation again performed well. Local market growth in both extruded and rolled products was driven by increased local consumption and customers’ exports.
The Board has declared a final dividend of 280 cents per share, which brings the total annual dividend to 400 cents per share (2004: 170 cents per share).
A POSITIVE OUTLOOK
Considerable earnings growth is expected in the year ahead. Earnings enhancing actions are underway throughout Tongaat-Hulett. The changing global sugar fundamentals and the rising world sugar price are positive developments. Continued growth is expected in aluminium rolled product volumes, together with sales mix optimisation and conversion cost per ton reductions.
UNLOCKING FURTHER VALUE FOR SHAREHOLDERS
An extensive strategic review to further enhance shareholder value, building on the achievements of the last two years and the ongoing actions to increase earnings in all operating companies, has been completed. This resulted in a Board decision to embark on the unbundling of the Group’s 50% interest in Hulamin to Tongaat-Hulett shareholders, the listing of Hulamin and the simultaneous introduction of Black Economic Empowerment equity participation in both Tongaat-Hulett and Hulamin.
Tongaat-Hulett has made significant strides in the areas of employment equity, preferential procurement, skills development, enterprise development and community involvement. The unbundling will create the opportunity to attract value-add BEE equity partners into Tongaat-Hulett and Hulamin.
The unbundling of Hulamin will increase Tongaat-Hulett’s focus on its core businesses, thereby creating further opportunities to enhance operating performance, increase benefits from the overlaps and synergies, improve delivery on growth opportunities and taking advantage of the changing global sugar dynamics. Tongaat-Hulett has developed the Hulamin business over the past 30 years, transforming it into a successful independent niche aluminium rolled products and extrusion company. The business now has the requisite critical mass to prosper on a focused, stand-alone basis, with numerous growth opportunities. The unbundling will provide direct access to two attractive investment vehicles, with clear information on these two entities and their prospects.
Significant preparatory work, including the relevant approvals and regulatory compliance, will be required to implement the aforementioned initiatives. Further announcements with progress in this regard will be made in due course.
Peter StaudeChief Executive OfficerAmanzimnyama, Tongaat17 February 2006