Introduction to Tongaat-Hulett

The Group has its roots as far back as the nineteenth century and is the largest listed corporate headquartered in KwaZulu-Natal. It has a proud Southern African history and employs some 27 000 people in the region. The changes and actions that are currently underway are typical of the pioneering spirit evident in Tongaat-Hulett's history.

Tongaat-Hulett's corporate centre is not defined by locality but by the expertise that is drawn from and applied on a Group wide basis. The small corporate centre endeavours to act swiftly, particularly on tough issues, where required. This includes interventions when there is a need to raise performance, to benefit more from existing linkages, to optimise synergies, to draw on experience that exists Group wide or to change paradigms through value creating insights. This is further enhanced by the cohesiveness of the top management team which is strengthened through managing directors of operating companies playing a significant role at the corporate centre, particularly on issues that have a Group wide impact and in areas where there are synergies, linkages and overlaps in the Group's activities and business models.

Capacity and competency building in the Group is practical. Leading change and transition remains an important responsibility of the leadership team. The Group's ability to capitalise on capabilities and synergies in an action orientated, task based manner is illustrated by the developing of a new business model at African Products, the transforming of Tongaat-Hulett Sugar for future success, accelerating earnings off the solid platform at Moreland and Hulett Aluminium emerging as a successful aluminium rolling business.

Tongaat-Hulett is growing earnings in its operating companies from its recently expanded asset base. The past two years have seen the business adapting to a stronger Rand. The Group is now well positioned to advance its growth and investment opportunities.

CHALLENGING THE PARADIGMS

The Tongaat-Hulett Group has been the guiding force behind Hulett Aluminium for over thirty years. It has played a significant role in the development of Hulett Aluminium's unique business model and in the investment in the state of the art facilities at Hulett Aluminium. This has enabled the company to successfully compete in the world market for high quality, technically demanding, and more profitable aluminium semi-fabricated products, such as heat treated plate, can end stock, lithographic sheet, bright treadplate, thin gauge foil, superior finish painted products and clad products for automotive heat exchangers.

The global aluminium rolled products market is being increasingly dominated by the three major multinationals. This has limited the number of producers who have the capability to manufacture the higher quality, more technically demanding products which Hulett Aluminium is able to produce. Hulett Aluminium's independence from the dominant competitors and its positioning in Tongaat-Hulett has enabled it to gain the confidence of its growing global customer base and to target its selected products and markets. With installed capacity equalling less than 2 percent of world demand for aluminium semi-fabricated products, and being sought after as an independent supplier, market opportunities are well in excess of available capacity. This allows the on-going optimisation of the allocation of available capacity to the most profitable market opportunities.

Capitalising on the low regional cost base and being well positioned on international shipping routes, Hulett Aluminium delivers high quality, technically demanding products to more than 50 countries around the world, on flexible and demanding delivery schedules. The rolled products plant located in Pietermaritzburg constitutes the major activity and includes a number of hot and cold rolling mills together with foil mills, remelt facilities, coating lines and other precision finishing equipment.

As testimony to a proven product development, market positioning and capacity optimisation capability, sales of rolled products have grown from a base of 85 000 tons in 2000 to 144 000 tons in 2004, and are targeted to reach 200 000 tons beyond 2006.

The company is also the leading producer of extruded aluminium products in Africa with four plants in the region servicing a wide range of markets and with a particular capability to produce large and complex extruded sections. It also owns a number of strategically positioned downstream operations involved in the distribution of aluminium products and the manufacture of a diverse range of products which include rigid foil containers, high pressure aluminium cylinders and cladding products for the building industry.

Founded in 1949, Hulett Aluminium has been a cornerstone of the aluminium industry in South Africa and provides a critical link between the regional aluminium smelting industry and further job creating downstream fabrication for local and international markets. Exports of downstream products fabricated by customers of Hulett Aluminium have grown by close to 40 percent in 2004 and are expected to double in 2005.

AFRICA'S MAJOR PRODUCER OF STARCH AND GLUCOSE

Operating five wet-milling plants, including the ultra-modern Kliprivier facility, and an independent sorbitol plant, African Products converts some 600 000 tons per annum of maize into starch and starch-based products. It manufactures products of world-class quality and is a major beneficiator of one of South Africa's key agricultural products.

Starch, one of nature's most versatile raw materials, has already been established as a starting point for a large number of downstream products. With rising oil prices, the attractiveness of starch as a raw material has increased and research efforts are ongoing worldwide to develop new and innovative products based on this fascinating molecule.

African Products continues to monitor many of these developments with an eye to incorporating them in its product portfolio where appropriate. As a result of this drive, a number of new products have been successfully introduced to the South African market, and further developments are being planned.

At the same time African Products continues to focus on its established base business to ensure that opportunities for growth are exploited. Many of these products, which range from unmodified corn starch to highly refined glucose products, are key ingredients for local manufacturers of foodstuffs, beverages and a variety of industrial products. Growth in the South African economy will provide good growth prospects for these base product lines.

African Products, together with Tongaat-Hulett Sugar, is assessing opportunities to harness the joint agro-processing skills base which exists within the two companies. The Group is exploring areas where greater value can be extracted from the synergies between these businesses.

OPPORTUNITIES COMMON TO BOTH SUGAR AND STARCH AND GLUCOSE

Between Tongaat-Hulett Sugar and African Products, the Group produces almost half of the refined carbohydrates manufactured in South Africa. Tongaat-Hulett has built up considerable expertise in adding value to agricultural products, an area which requires specific knowledge and skills. This can provide a powerful base for the Group to expand its activities into adding value to other agricultural crops.

A WORLD LEADER IN SUGAR

Tongaat-Hulett Sugar is well positioned in Southern Africa. In the KwaZulu-Natal North Coast and Zululand region it has four sugar mills with installed capacity to crush 9 million tons of cane per annum. In an average rainfall year this region produces 12 million tons of cane and Tongaat-Hulett Sugar is strategically positioned to further leverage efficiencies and economies as sugar milling in the region moves to improve its cost competitiveness. The matching of milling capacity to available cane supplies remains a key driver of low cost sugar production. Triangle Sugar in Zimbabwe is well positioned to enter a growth phase once the economic and socio-political climate in Zimbabwe is conducive to further investment. More recently, Tongaat-Hulett Sugar has grown in Swaziland and Mozambique, providing further opportunity to realise value in the years to come.

A key factor for future investment and profitability will be the effect on world market prices of changes to subsidies (both domestic and export), market protection and preferential market access through liberalisation of world trade. Furthermore, the expanding market for fuel ethanol produced from sugar cane as an environmentally friendly alternative to fossil fuels will underpin world sugar market prices. Tongaat-Hulett is increasing its focus away from the narrow sugar definition to a much broader sweetener and bio-fuels approach.

With the long term trend of decreasing costs of sugar production internationally, Tongaat-Hulett Sugar is striving to maintain an internationally competitive cane growing and manufacturing base by the identification and elimination of all non-value adding processes and activities. A key to achieving this competitiveness has been in the establishment of leaner and flatter structures where people at operating level are being empowered to assume greater responsibility and accountability for performance.

The management of existing and new sugar manufacturing technologies will facilitate the effective execution of the business objectives. Technology management is a key element of Tongaat-Hulett Sugar's ‘lean' manufacturing strategy and will stimulate, support and leverage the continuous improvement of its operations. Work on Tongaat-Hulett Sugar's ground breaking refining technology is intensifying with 20 percent of the Felixton sugar mill's capacity being converted to the new technology enabling white sugar production directly from raw cane juice. A pilot plant using the new technology has been successfully deployed in Brazil for trials at two sugar mills.

One of the foundations of Tongaat-Hulett Sugar's success remains the powerful Huletts^® brand. In 2004 it was voted by an independent survey as the fourth most admired food brand in South Africa and sixth favourite brand overall, measured in terms of awareness as well as trust and confidence. The brand offers a total sweetener solution including a range of high intensity sweeteners.

Tongaat-Hulett Sugar is increasingly seeing opportunities in environmentally sustainable energy generation from sugar cane. It continues to explore the co-generation of electricity and the expansion of ethanol production for use as a bio-fuel. These initiatives are certain to grow in significance given sugar cane's sustainable and renewable properties.

Having pioneered the production of bagasse and molasses-based animal feeds under the Voermol brand, this operation continues to be a leader with its range of energy and supplementary feeds, amongst others, as the cornerstone of its offerings to the livestock farming community.

PROPERTY DEVELOPMENT PLATFORM FOR GROWTH

Tongaat-Hulett owns 23 000 hectares of land in South Africa of which 11 600 hectares are potentially under urban or tourism development demand. The Group has the expertise and competence to manage the dynamics of optimising cane supplies when conditions favour sugar production and unlocking substantial value from its land holdings when circumstances support property development. This value creation is currently occurring on the KwaZulu-Natal coast north of Durban, with Moreland's established position being a key success factor.

Moreland's projects include residential, industrial, commercial and resort developments located in the prime coastal strip north of the Umgeni River in Durban, mainly concentrated in the La Lucia and Umhlanga Ridge/Mount Edgecombe node, where the major developments are the Mount Edgecombe Country Club Estates, La Lucia Ridge Office and Residential Estates and the Umhlanga Ridge New Town Centre. Moreland is developing a balanced community, providing places to live, work, learn, shop, play and pray, all within easy commuting distance. This is resulting in substantial cross-portfolio synergies and the successful development of Southern Africa's most sought after, internationally benchmarked, quality of life environment. Moreland's other flagship projects are the Zimbali Coastal Resort and the RiverHorse Valley Business Estate.

Moreland has planned and developed approximately 1 000 hectares of land since 1990 at a cost in excess of R1 billion, which has facilitated the construction by its customers of more than 100 office and factory buildings, 5 000 residential units, Gateway and Crescent shopping centres (+ 160 000 square metres), the Sibaya Casino and Entertainment World, four hotels, Umhlanga Hospital, Crawford and Umhlanga Colleges and places of worship serving a wide range of religions. This constitutes total investment by Moreland's customers in excess of R10 billion and has resulted in Moreland's territory being one of Southern Africa's leading new property investment nodes.

Being focused on land development – and effectively creating the environment in which its customers construct their buildings within pre-determined architectural guidelines – Moreland has adopted a partnership approach to development. This includes private public partnerships (PPPs) primarily with the eThekwini Municipality and the resort development joint venture with Kuwaiti-based International Financial Advisers (IFA), the latter having substantially improved the business' access to international customers. With its professional, multi-disciplinary team, supplemented by the effective management of outsourced property consultants and contractors, Moreland continues to provide a sound foundation for growth, economic investment, entrepreneurial empowerment and job creation.

Whilst continuing to realise the considerable future potential remaining in the current nodes, Moreland is keenly focused on enhancing and unlocking the value of more than 11 600 hectares of the Group's prime property which is under pressure for urban and tourism expansion situated at Shongweni, Umdloti, Tongaat/La Mercy, Tinley Manor and Nonoti/Zinkwazi/Thukela Mouth. Once developed by Moreland, this has an estimated value in excess of R2 billion.

SUSTAINABLE BUSINESS DEVELOPMENT

The Group has a holistic approach to the achievement of a balanced and integrated economic, social and environmental performance, underpinned by strong corporate governance. Tongaat-Hulett has a long history of sustainable business development and is committed to realising value for all stakeholders. The Group continues to build momentum with its broad based black economic empowerment and safety, health and environment achievements. Government relationships in the Southern African region continue to grow from strength to strength.