Substantial earnings recovery
20 January 2005
Tongaat-Hulett published an announcement today on SENS indicating that headline earnings for the year ended 31 December 2004 were expected to be between R205 million and R218 million, a substantial recovery from the loss of R93 million in 2003.
“The multiple management actions being taken throughout the Group to unlock substantial future earnings growth are beginning to take effect. These actions are countering the negative effect of the strengthening currency and the small sugar crops harvested in 2003 and 2004,” commented Peter Staude, Chief Executive of Tongaat-Hulett.
“The challenging past two years have helped us to further mould Tongaat-Hulett into a cohesive, action orientated group with a corporate centre not defined by locality, but by capability and expertise drawn from and applied throughout the Group. A review of the underlying business models of all operations has been undertaken, resulting in significant actions to optimise capacity utilisation, enhance sales mix, improve raw material procurement, grow volumes and reduce costs. Considerable value is being unlocked in the Group with its earnings momentum, its balanced profile of four sizeable, strategically placed and focused operating companies and its improving investment rating.”
Staude further highlighted the following major actions being undertaken in specific areas of the operations:
Hulett Aluminium continues to grow volumes, improve the sales mix and reduce costs, on the way to ensuring that the objectives of the Group’s major investment in aluminium rolled products are realised. The business enjoys strong demand for its available production as one of the few independent rolled products plants with the ability to manufacture high quality, higher profitability and technically demanding niche products. Hulett Aluminium started benefiting late in 2004 from rising US dollar rolling margins, especially in North America and Asia.
African Products has moved to a new maize procurement and product pricing model that will have a positive impact going forward. The maize from the previous procurement approach was utilised by the end of October 2004 and thereafter a back-to-back pricing model has been applied, under which maize is priced only when price and tonnage are agreed with the customer. A large proportion of the volumes lost to direct imports as a result of the strengthening currency are being regained.
Tongaat-Hulett Sugar’s actions that have been completed include the closure of the Entumeni mill with the diversion of cane to the Amatikulu mill, the closure of the sugar head office, downsizing of centralised services, the reorganisation of the South African milling operations from five mill structures to two regional business units and the conclusion of a benchmarking exercise to increase the benefit from the refining value chain. The expected turnaround in Mozambique is progressing well, including the reorganisation of funding structures. The benefits of these and the further substantial actions being taken will flow in future periods.
Moreland continues to capitalise on the solid platform of its leading property developments and the prime land previously under sugar cane. The buoyant property market, especially on the KwaZulu-Natal North Coast, is contributing to Moreland unlocking extensive value from its world class developments. The Group continues to proactively manage the balancing of value creation between sugar and property development. The major road developments completed and nearing completion, in the areas where Moreland operates, are opening up new development nodes for substantial future growth.
Downsizing at the Group’s head office created the space for the small Tongaat-Hulett Sugar leadership team to join the Amanzimnyama offices in Tongaat, following the closure and restructure of the 180 people sugar head office in 2004. Head office costs relating to offices in London and Maputo have also been eliminated.
“The Group has a solid asset and business base and, with its strong balance sheet, is ideally positioned to capitalise on significant growth and investment opportunities and to deliver substantial earnings growth. The progress made in 2004 has boosted our confidence going into 2005,” said Staude.