Results for the year ended 31 December 2008

23 February 2009

  • Revenue of R7,1 billion (2007: R6,4 billion)
  • Profit from operations of R1,132 billion (2007: R838 million)
  • Headline earnings of R583 million (2007: R61 million)
  • Annual dividend of 310 cents per share (2007: 310 cents per share)
Commentary by Peter Staude, CEO of Tongaat Hulett:

Revenue increased by 11% to R7,1 billion in 2008 and profit from operations grew by 35% to R1,132 billion. Headline earnings improved to R583 million (2007: R61 million which were affected by corporate structuring transactions).

Profit from the starch and glucose operations grew to R240 million (2007: R105 million), as margins recovered in improved market conditions. The South African maize crop increased to 12 million tons (2007: 7 million tons), with the larger area planted and good weather conditions, resulting in local maize prices trading close to world prices from April 2008. Prices in the international starch and glucose markets improved as demand for agricultural commodities increased with changing dietary habits. Sales volumes in the domestic market grew by 1% through the successful recovery of volumes in the coffee creamer sector previously supplied by imported product and good growth in the confectionary sector. This was offset by declines in the alcoholic beverage sector due to the increased competition from imported product and declines in the papermaking sector.

Profit from the various sugar operations grew to R606 million (2007: R360 million), with the Zimbabwean operations being accounted for on a dividend received basis.

In Swaziland, Tambankulu Estates produced a raw sugar equivalent of 56 000 tons (2007: 58 000 tons) and has benefited from higher realisations within the Swaziland sugar industry. Operating profit increased by 26% to R44 million.

Dividends of R35 million (2007: R53 million) were received from Triangle Sugar in Zimbabwe. In the 2008 season, under extremely difficult circumstances, sugar production was 298 000 tons compared to the 349 000 tons produced in 2007. The business has had to contend, inter alia, with the extreme effects of hyperinflation, exchange rate movements, foreign currency shortages and price controls.

In the Mozambique expansion projects, 8 150 hectares have been planted-up to date and the cane is growing well. The Xinavane mill expansion is far advanced, with project activities taking place simultaneously with the ongoing sugar production processes. Sugar production at Xinavane was 63 000 tons (2007: 67 000 tons). In addition 64 000 tons of cane representing approximately 8 000 tons of sugar was used as seed cane in the plant-up process. Mafambisse’s sugar production was 45 000 tons (2007: 41 000). At Mafambisse, following the completion of the agriculture expansion plant-up, Tongaat Hulett’s shareholding increased from 75% to 85%. At both Mafambisse and Xinavane, as the plant-up areas of the agriculture expansion reached completion, shareholder loans have been converted to equity and the benefit of currency gains realised. The Mozambique operations’ contribution to profit increased to R250 million (2007: R88 million).

The South African agriculture, sugar milling and refining operations contributed R73 million to profit (2007: R46 million). In 2008, 644 000 tons of sugar were produced (2007: 604 000 tons). The low 2007 and 2008 crops resulted in lower raw sugar exports and continued upward pressure on costs per ton. Export volumes from South Africa were 210 000 tons (2007: 245 000 tons) and were sold at an effective world sugar price of 12,1 US c/lb (2007: 11,8 US c/lb) at an average exchange rate of R8,05/US$ (2007: R7,12/US$). South African domestic sales increased to 466 000 tons (2007: 460 000 tons).

The downstream sugar value added activities contributed R204 million to profit (2007: R138 million). The South African refined exports, domestic marketing, sales and distribution activities delivered another good performance, as did the Botswana and Namibian sugar packing and distribution operations. Voermol, the downstream animal feeds operation increased profits, with improved margins.

Operating profit from agricultural land conversion and developments amounted to R263 million (2007: R428 million) with a further R22 million in capital profits (2007: R48 million) being realised. Market conditions for property development in the prime residential, resorts and commercial sectors were depressed during the year, while the demand for land for affordable housing and industrial property in the Durban area remained positive. The shortage of established industrial logistics, support and service locations continues to delay development north of Durban. During the year 181 developable hectares (368 gross hectares) were sold, comprising 21 hectares in prime locations, mainly Umhlanga Ridgeside and Umhlanga Ridge Town Centre, and 160 hectares for affordable housing in the Cornubia area. Approval for the 260 hectare Zimbali Lakes development was secured late in 2008.

The centrally accounted and consolidation items include an R86 million gain on the recognition of an unconditional entitlement, in 2008, to an employer surplus account in respect of the 2001 surplus apportionment in the Tongaat Hulett pension fund.

Cash inflow from operations increased to R965 million for 2008 (2007: R502 million). Tongaat Hulett’s net debt has increased to R2,356 billion from R991 million at the end of 2007 with significant capital expenditure, mainly on the Mozambique expansion and investment in sugar cane growing crops. Finance costs increased to R280 million, with the higher interest rates and the increased borrowings in the business.

The 2007 financial results included the main effects of the completed corporate structuring transactions – the listing and unbundling of Hulamin, a share buy-back and the 25% BEE equity participation transactions. The 2008 results include the ongoing amortisation of the employee BEE equity transactions’ IFRS2 charge to the income statement and the consolidation of the BEE special purpose vehicles, as required by International Financial Reporting Standards (IFRS). The balance sheet reflects the consolidation of the debt in the BEE equity participation entities, which is independent of the Tongaat Hulett net debt and is to be effectively equity settled.

The Board has declared a final dividend of 150 cents per share. This brings the total annual dividend to 310 cents per share.

Tongaat Hulett has the advantage, in the prevailing global economic turbulence, of operating in a number of less affected market sectors, having specific opportunities in its operations and being favoured by a weaker Rand.

Land and property development sales in the short term are expected to come from the growth corridor north of Durban that commences inland of Umhlanga/Umdloti, extends around the new international airport at La Mercy and includes the greater Tongaat region. Tongaat Hulett owns 6 086 gross hectares in this corridor. Given the housing backlog and Government’s commitment to infrastructure spend, there is both opportunity and socio-economic urgency to establish communities with affordable housing in this area and to accelerate land conversion for airport services and support logistics, niche industrial, health care, education and social facilities. In the present economic conditions, few hectares are likely to be converted to development in the high value, prime locations on the coastline (Tongaat Hulett’s 6 006 hectares) and to the west of eThekwini (2 050 hectares) and the focus is on securing infrastructure and development rights, for conversion at the appropriate time.

Current developments in Zimbabwe are encouraging. In normalised conditions the Zimbabwean sugar operations would have twice the capacity of the expanded Mozambique operations, with similar market access and lower costs. The South African sugar milling, agriculture and refining operations will be influenced by the size of the current crop and the cane supply dynamics in northern KwaZulu-Natal. In Mozambique, sugar production in 2009 is targeted to be more than double the production in 2008, as the expansions come on stream, moving towards the 300 000 ton per annum level and benefiting from preferential access to the European Union market at premium prices. Following the anticipated cash absorption in the Mozambique expansion continuing into 2009, cash inflow is expected to commence in the latter part of 2009 and early 2010.

The starch operations have the prospect of a full year with maize prices close to the world price. Approximately 70% of the operation’s maize requirements for 2009 have already been procured on this basis and there are good weather and planting indications for the current maize season.

Peter Staude
Chief Executive Officer

About Tongaat Hulett
Tongaat Hulett is an agri-processing business which includes integrated components of land management, property development and agriculture. Through its sugar and starch operations in Southern Africa, Tongaat Hulett produces a range of refined carbohydrate products from sugar cane and maize. It has considerable expertise in downstream agricultural products, biofuel production and electricity cogeneration. Competition for alternative land usages is increasing. Tongaat Hulett balances the operational requirement for cane supplies to its sugar cane processing operations with the transition to property development at the appropriate time.

Tongaat, KwaZulu-Natal

23 February 2009