Tongaat-Hulett Group reports strong growth for financial year

19 February 2003

The Tongaat-Hulett Group reported strong growth in volumes, revenue and operating earnings for the year to 31 December 2002, assisted by the weak rand which prevailed generally throughout the year but which had strengthened significantly by year end.

Speaking from Amanzimyama, the Group’s headquarters at Tongaat in KwaZulu-Natal, CEO Peter Staude said revenue from continuing operations rose by 22 percent to R6,1 billion and operating earnings were 24 percent higher at R738 million. The year-end valuation of underlying reserves of GBP 42 million pertaining to offshore cash resources resulted in an unrealised translation loss of R151 million, compared with a corresponding gain of R255 million last year. This has resulted in headline earnings per share declining by 36 percent. Excluding the translation adjustment, headline earnings per share increased by 30 percent to 523,4 cents.

The Group was in a net cash positive position for the first time since the commencement of the major investments in African Products and Hulett Aluminium. Over the past two years, the Group has approved some R550 million for investment in projects all focussed on unlocking more value from existing businesses. The board has declared a final dividend of 190 cents per share, which, together with the interim dividend of 80 cents per share, amounts to an unchanged total dividend for the year of 270 cents per share. The balance sheet remains healthy with a further increase in shareholders’ equity to R4,6 billion. Net borrowings have declined from R377 million at the start of the year to a closing net cash position of R7 million.

African Products, delivered a strong performance in 2002, overall volumes grew from 578 000 tons in 2001 to 616 000 tons driven by a 10 percent growth in domestic sales. A drop in export volumes from 71 000 tons in 2001 to 64 000 tons, precipitated by the high maize price and a strong rand was offset by an improved product mix that realized higher margins. Operating earnings for the year before interest grew to R220 million.

In a year in which the international aluminium market has seen depressed demand and pressure on margins, Hulett Aluminium increased revenue by 28 percent to R3,2 billion showing a 35 percent compound annual growth rate over the past three years. Rolled products sales volumes in the last quarter improved significantly and were 23 percent ahead of average sales in the first nine months of the year. Operating earnings before interest grew by two percent to R272 million, the Group’s 50 percent share of which amounted to R136 million (2001 – R134 million).

Moreland, widely acknowledged as having created one of South Africa’s leading property growth nodes in Durban, achieved a strong cash flow performance in 2002 and increased revenue by eight percent to R146 million in spite of four interest rate hikes and high property rates on vacant land in Durban.

Tongaat-Hulett Sugar delivered particularly impressive performance increasing operating earnings by 49 percent to 420 million for 2002. This was achieved through higher cane and sugar production, improved export realizations as well as higher returns and restructuring in Swaziland and Mozambique.;

Triangle Sugar, in Zimbabwe, which is accounted for to the extent that dividends are received, continues to operate resiliently in a demanding environment. In 2002, dividends received from Triangle totalled R71 million (2001 – R76 million) net of withholding tax, representing a seven percent reduction on last year. Difficult trading conditions are likely to persist in 2003, underpinned by concerns over the future remitability of dividends from Zimbabwe.

The Group has adopted AC 137 (Agriculture) and as a consequence no longer accounts for its sugar operations on a seasonal basis. In addition, maize futures and option contracts are accounted for as derivatives or cash flow hedges where the requirements for hedge accounting have been met. Comparative figures have been restated for the accounting policy changes, where applicable. The adoption of AC 137 and the change in accounting policies in relation to the sugar operations, maize futures and option contracts has resulted in comparative figures being adjusted where applicable and had a R9 million favourable effect on the prior year’s earnings after tax and resulted in equity reducing by R18 million, property, plant and equipment by R84 million, working capital by R89 million and deferred tax by R14 million with increases in growing crops of R132 million and financial assets of R9 million. Current year earnings after tax have increased by R9 million as a result of the change in accounting policies.;

Staude is confident that the Group is well positioned to continue to deliver strong growth in revenues while at the same time reduce its cost base. He pointed out that the Group’s results are increasingly impacted by changes in the value of the rand. Should the rand remain at current levels, earnings for 2003 will be lower than those for 2002.