Tongaat-Hulett takes action to counter effects of strenghthening rand

27 Nov 2003

Peter Staude, Chief Executive of Tongaat-Hulett said today that all the Group’s businesses have substantial future earnings improvement opportunities to be unlocked by management actions. The focus is on accelerating the execution of these actions to counter the effects of current conditions. These actions include volume growth initiatives, restructuring and cost reductions, rationalisation of facilities and optimisation of capacity utilisation.

Staude was commenting on Tongaat-Hulett’s trading statement released on SENS. Conditions for the year to date are such that the Group expects both earnings per share and headline earnings per share for the year ending 31 December 2003 to be substantially below those of the year ended 31 December 2002. At the current exchange rate and maize price, Tongaat-Hulett expects to report a headline loss for the year to 31 December 2003.

Tongaat-Hulett has previously advised shareholders of factors that impact on its results and it has distinguished between underlying operating profit and valuation items in the income statement. The interim results to 30 June 2003 included valuation adjustments that exceeded underlying operating profit and a headline loss of R190 million was reported. The exchange rate has moved well below the level of R7,50 per US dollar, which prevailed at 30 June 2003. The underlying operating profits earned by the Group for the year continue to be countered by substantial negative valuation adjustments, which arose predominantly in the first half.

At 30 June 2003, negative valuation adjustments of R375 million were reported for the first half of the year. At current exchange rates, there are further negative valuation adjustments mainly on offshore cash holdings and export debtors. At the current maize price, the charge in the income statement to 30 June 2003 in respect of the valuation of maize procurement contracts has not changed significantly. The maize futures position is being shortened in the second half of 2003 as the procurement contracts are managed for physical delivery during 2004.

Staude commented further that revenue is benefiting from sales volume growth. This is being offset by the negative impact of the movement in the exchange rate on export revenue, as well as by reduced domestic selling prices in the face of import threats. The low rainfall and the resultant reduced sugar production in South Africa, as well as a low world sugar price are negatively impacting underlying operating profit. The recently announced Moreland – IFA property transaction has boosted operating profit. Hulett Aluminium has achieved record sales volumes in the past quarter. A dividend of US dollar 2,75 million has been received and brought to account from Triangle Sugar Zimbabwe.

Tongaat-Hulett’s annual results for the year ending 31 December 2003 are expected to be released on 23 February 2004.