Wrap Text
Interim results for the six months ended 30 September 2013
Tongaat Hulett Limited
Registration No: 1892/000610/06
JSE share code: TON
ISIN: ZAE000096541
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2013
- Revenue of R7,854 billion (2012: R7,398 billion) +6,2%
- Operating profit of R1,381 billion (2012: R1,290 billion) +7,1%
- Headline earnings of R663 million (2012: R655 million) +1,2%
- Interim dividend of 150 cents per share (2012: 150 cents per share)
COMMENTARY
Revenue increased by 6% to R7,854 billion and operating
profit grew by 7% to R1,381 billion for the half-year to
September 2013. The results reflect the combination of a
number of factors with differing impacts. These six months
have seen a record performance from both the land conversion
and starch operations. Land conversion and developments
generated sales from 174 developable hectares and the
starch operation benefitted from competitive maize costs
and favourable co-product realisations. The sugar
operations are experiencing the pressure of significantly
lower international sugar prices, particularly for exports
into the European Union, as well as experiencing the impact
of increased imports into Southern African markets,
impacting adversely on both revenue earned and the
valuation of standing cane. The pricing pressures have added
impetus to the drive to reduce costs of sugar production,
with substantial reductions being achieved in the current
season. Unit costs of production are further benefitting
from volume growth. Tongaat Huletts overall sugar
production is continuing to increase this season and
is expected to be at the highest level in the past 10 years.
Operating profit in the first half of the year from the
various sugar operations totalled R684 million
(2012: R967 million). Tongaat Huletts total sugar
production is well on track to increase from
1,254 million tons (raw sugar equivalent) last year to
between 1,366 and 1,408 million tons this season, with
the increase this year coming from South Africa. Downward
pressure on sugar prices is being experienced internationally.
In real terms, the world sugar price has been at its lowest
level in many years. In the regional markets, local
market sales are being lost to imports as a result of
the current low world price, leading to increased export
volumes at lower prices.
The South African agriculture, sugar milling and refining
operations recorded operating profit of R133 million
(2012: R99 million). The benefit of substantially
increased sugar production has been offset by the
current revenue dynamics and the impact of imports.
The various downstream sugar value added activities
contributed R115 million (2012: R122 million), with lower
local volumes as a result of imports. In total, operating
profit from the SA sugar operations including the downstream
sugar value added activities amounted to R248 million
(2012: R221 million) for the half-year.
With the changing dynamics in the European Union, the
price levels that the business is achieving for sales
from Mozambique and Zimbabwe into the EU this season,
from its multiple commercial arrangements and channels,
are averaging some 6 US cents per pound lower than the
levels in the last two years. Operating profit from the
Mozambique sugar operations reduced to R151 million
(2012: R270 million) for the half-year. In Zimbabwe,
the first six months have seen lower sales invoicing
levels (193 000 tons) than the first half of last year
(248 000 tons), which is a result of lower local market
sales (mainly due to substantially increased imports in
the market) and a timing difference on export shipments.
Cane valuations have been impacted by lower prices and
the effect of curtailed root replanting as a consequence
of the current water dynamics. The operating profit from
the Zimbabwe sugar operations for the half-year amounted
to R232 million (US$23 million) compared to the same
period last year of R435 million (US$53 million).
The Swaziland sugar cane growing operations have
reported increased operating profit of R53 million
(2012: R41 million) as a result of an improved sucrose
price in the current season compared to the lower export
pricing levels contracted by the Swaziland industry in
the prior year.
The starch operation grew operating profit to R232 million
(2012: R147 million). Starch and glucose processing margins
were favourably influenced by local maize costs that were
close to international prices, favourable exchange rates
and good co-product realisations. Total sales volumes
grew by 5%, driven by increased exports and growth in
the coffee/creamer and alcoholic beverage sectors which
offset declines in other local sectors. Manufacturing
plant performance has continued to improve.
Land conversion and developments generated profit of
R512 million (2012: R246 million). A total of
174 developable hectares was sold in the half-year.
A sale to Dube Tradeport was concluded of
151 developable hectares that is not yet shovel ready,
near the international airport, north of Durban,
generating a profit of R350 million. Tongaat Hulett
and Dube Tradeport are working together to capture the
synergy of each others unique capabilities. Sales in
the Umhlanga area featured a transaction with the highest
price thus far per square meter, equating to net cash profit
of R34 million per developable hectare in Umhlanga Ridgeside.
Sales were also concluded in the Umhlanga Ridge Town Centre,
Izinga, Kindlewood and Cornubia areas.
The centrally accounted and consolidation items together
with lower BEE IFRS2 charges amounted to R47 million
(2012: R70 million). Finance costs amounted to R298 million
(2012: R281 million) and were commensurate with the
borrowing levels.
Operating cash flow improved to R2,4 billion
(2012: R1,8 billion) before working capital. Operating
cash flow exceeded operating profit as the latter
includes the non-cash reduction in the fair value of
sugar cane in the half-year to September 2013. The
higher working capital cash absorption in the current
period is particularly as a consequence of higher sugar
stock levels in Zimbabwe and South Africa. The cash
absorbed in working capital was some R2,1 billion
(2012: R1,4 billion) at the half-year, being the middle
of the sugar season when inventories and debtor levels
are usually higher than at the end of the year. Capital
expenditure has been consciously restricted in the past six
months. In total for the half-year, net cash out flow before
dividends was R450 million, which is similar to last year.
Net debt at the end of September amounted to R5,4 billion
(2012: R5,1 billion).
Total net profit before the deduction of minority
interests was R764 million (2012: R735 million)
for the half-year and headline earnings attributable
to Tongaat Hulett shareholders amounted to R663 million
compared to R655 million in the same period last year.
An interim dividend of 150 cents per share has been
declared (2012: 150 cents per share) in the form of
a scrip distribution with a cash alternative. There is
a separate detailed announcement on the scrip
distribution and the related circular will be posted
to shareholders.
OUTLOOK
Tongaat Hulett is in a good position to benefit from
multiple actions taken across a wide front, with its
footprint in six SADC countries, its ability to process
both sugar cane and maize, renewable energy opportunities
and increased momentum in land conversion.
Sugar Operations
A period of unsustainably low international prices has
been experienced following two seasons of exceptionally
good weather conditions for sugar cane growing globally
and low Government controlled ethanol prices in Brazil.
The changes in the EU are on-going, with some fundamentals
remaining in place, including duty free access for
Mozambique, Zimbabwe and Swaziland. At present, this
benefit is being eroded by the EU allowing additional
imports at reduced duty and the low world price. The
business is focusing a great deal of attention in multiple
areas on achieving the best possible outcome in terms of
sugar prices, the mix of sugar flow destinations and
combatting unfair import competition. The sugar industries
in both Mozambique and Zimbabwe are in a receptive
engagement with their Governments to restrict imports.
In South Africa, the current duty application is to
increase the price level below which duty applies.
Taking the SA sugar industry as a whole, imports into
South Africa in October 2013 were equivalent, on an
annualised basis, to the production of approximately
three sugar mills. Generally, the most vulnerable to
these dynamics are rural communities and emerging farmers.
The drive to reduce costs is gathering momentum.
Initially, action is being taken to eliminate, reduce
or postpone costs wherever possible, to be followed by
a structured review of quantum, value add, in house
or outsource and possible longer term procurement
arrangements. Cost reduction actions are yielding
substantial savings this year. The seasons total
costs, excluding off-crop expenditure in the mills,
in Zimbabwe are expected to be R290 million (US$29 million)
lower than last year and in Mozambique, R49 million lower,
after absorbing annual cost increases. In South Africa,
with production volumes increasing by some 25%, milling
costs alone are expected to be R24 million below last year.
Unit costs of sugar production will also continue to benefit
from further growth in volumes and better yields, as milling
costs and many of the agricultural costs per hectare
are mostly fixed.
Tongaat Hulett is in the fortunate position, in a world of
sugar consumption growth of 2% per annum, new sugar milling
capacity being costly and very few new mills being
constructed, to still have more than 700 000 tons per
annum of existing unutilised sugar milling capacity,
with good electricity and ethanol prospects, after the
growth of sugar production of between 9% and 12%
expected in the current year and 14% and 9% in the past
two years respectively.
The on-going strategy to increase cane supply in South
Africa is focused on improving yields and getting more
hectares under cane. The greatest potential for
additional hectares lies with community / small scale
farmers, with support from Government. A co-operation
agreement is in place with the Ingonyama Trust, which
covers some 2,7 million hectares of land in KwaZulu-Natal.
Tongaat Hulett is making good progress to facilitate
attractive funding for community / small scale growers.
An additional 8 000 hectares of new cane land supplying
Tongaat Huletts mills are expected to be planted in
the current year.
In Zimbabwe, with the low dam levels and the corresponding
mitigating actions related to irrigation to protect the
substantial current investment in sugar cane roots, cane
expansion and root replanting for both private growers
and own estates have been curtailed, to be resumed once
the dam levels recover. For the first time in many years,
the rainfall forecast in the catchment area of the dams
is for La Nina (wetter weather pattern) compared to the
dry El Nino of the past number of years. Should the water
inflow in the coming summer be similar to the lower inflow
periods during the last 8 years then it would necessitate
a reduction of irrigation to some 50% of normal levels,
which would substantially reduce cane yields and sugar
production.
Tongaat Huletts two operations in Zimbabwe continue to
develop their positive socio-economic impact on the
country. These operations employ 18 000 people and are
in an important recovery, growth and expansion phase,
which should create sustainable value for all
stakeholders. A central part of this recovery is
the development of indigenous private cane farmers.
As at the end of the 2012/13 season, at least 670
active indigenous private farmers, farming some
11 200 hectares and employing more than 5 600 people,
supplied 850 000 tons of cane which generated
US$56 million in annual revenue for them. Zimbabwe,
with Tongaat Hulett as a partner, has the potential to
further develop indigenous private cane farmers
substantially. This potential is linked to how much
annual production can be achieved from the existing
sugar mills. Based on Tongaat Huletts view of its
existing mills, a further 600 farmers on 12 700 hectares
could supply an additional 1,4 million tons of cane
per annum. As part of its on-going objective to
economically empower communities around its operations
in Zimbabwe, Tongaat Hulett is on a socio-economic
upliftment drive to create value for relevant
entrepreneurs, by developing sustainable new business
enterprises and outsourced services within its value
chain, with particular focus on employment creation
for the youth.
The drive to optimise revenue earned from sugar cane
is one of the most important strategic positioning
issues. It is pleasing that a Request for Information
and Registration (RFIR), issued by the SA Department
of Energy, was completed and submitted in June 2013
to register Tongaat Huletts position relating to
new electricity generation. Tongaat Hulett now awaits
the opportunity to submit a bid for the first 80MW
power station following the Ministerial Determination
for 800MW issued in December 2012. Planning for the
project, including the environmental impact assessments
and plant construction contracting processes,
is well advanced.
Starch Operation
The starch operation is currently well positioned
with the large majority of its maize priced for
the current year and margins are expected to remain
at levels in line with those achieved in the last
year. New season maize prices are trading close to
international prices with initial planting intentions
being slightly below the prior season. An increasing
proportion of local market volumes is being sold on
long term contracting principles. Starch and glucose
volumes are expected to show growth with local market
demand being driven by increased volumes in the
coffee/creamer and alcoholic beverage sectors and
good growth in export volumes. Continued improvements
in manufacturing performance are expected.
Land Conversion Activities
In South Africa, Tongaat Hulett is building on its
good progress to date to accelerate land conversion
and is targeting a further 8 300 developable hectares
(13 100 gross hectares) for development. There are
on-going processes on most of the targeted land to
enhance its usage and value to all stakeholders. The
extent and pace of planning, in collaboration with
Government, has increased substantially and
infrastructure investment is unfolding rapidly. The
next two year period should be rewarding in unlocking
value from Tongaat Huletts land holdings. Currently,
active developments available for sale total
467 developable hectares, which is three times the
level that existed in 2005. They should realise net
cash profits in excess of R3 billion. A further
1 387 developable hectares are well advanced towards
becoming shovel ready. Land conversion to housing
development for poorer communities is also gaining
momentum. Demand for the upmarket housing sites in
Izinga is high. In the Cornubia industrial area,
with 33 developable hectares remaining available for
sale, interest is high and offers were turned down in
the first half of the year as negotiations are
continuing. At the same time, the Cornubia
retail / town centre sites are rapidly evolving as
an extension of the Umhlanga / Gateway area. In
Umhlanga, Ridgeside - precinct 2 and the unsold
remainder of precinct 1 - comprising 42 developable
hectares (485 000 square meters of bulk) is arguably
the best real estate opportunity in South Africa at
present. The above ground developments in this
Ridgeside area are expected to exceed R12 billion
over a period of time. Over the next few weeks, a
wide spread campaign will elicit expressions of
interest from all prospective purchasers of this
42 hectare piece of real estate. Interest in land
that is not yet shovel ready is at an all-time high
and is continuing to increase.
For and on behalf of the Board
J B Magwaza Peter Staude
Chairman Chief Executive Officer
Amanzimnyama
Tongaat, KwaZulu-Natal
7 November 2013
INCOME STATEMENT
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 March
2013 2012 2013
Rmillion (note 8) (note 8)
Revenue 7 854 7 398 14 373
Operating profit 1 381 1 290 2 131
Net financing costs (note 1) (298) (281) (560)
Profit before tax 1 083 1 009 1 571
Tax (note 2) (319) (274) (392)
Net profit for the period 764 735 1 179
Profit attributable to:
Shareholders of Tongaat Hulett 708 656 1 079
Minority (non-controlling)
interest 56 79 100
764 735 1 179
Headline earnings attributable
to Tongaat Hulett shareholders
(note 3) 663 655 1 067
Earnings per share (cents)
Net profit per share
Basic 632,3 606,2 978,9
Diluted 625,9 594,9 961,0
Headline earnings per share
Basic 592,1 605,2 968,0
Diluted 586,2 594,0 950,3
Dividend per share (cents) 150,0 150,0 340,0
Currency conversion
Rand/US dollar closing 10,08 8,27 9,21
Rand/US dollar average 9,78 8,18 8,48
Rand/Metical average 0,33 0,30 0,30
Rand/Euro average 12,87 10,40 10,95
US dollar/Euro average 1,32 1,27 1,29
SEGMENTAL ANALYSIS
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 March
2013 2012 2013
Rmillion (note 8) (note 8)
REVENUE
Sugar
Zimbabwe operations 1 324 1 633 3 222
Swaziland operations 173 135 207
Mozambique operations 1 402 1 286 1 688
SA agriculture, milling and
refining 1 762 1 509 3 920
Downstream value added
activities 978 1 004 1 819
Sugar operations total 5 639 5 567 10 856
Starch operations 1 594 1 401 2 859
Land Conversion and Developments 621 430 658
Consolidated total 7 854 7 398 14 373
OPERATING PROFIT
Sugar
Zimbabwe operations 232 435 625
Swaziland operations 53 41 76
Mozambique operations 151 270 421
SA agriculture, milling and
refining 133 99 52
Downstream value added activities 115 122 256
Sugar operations total 684 967 1 430
Starch operations 232 147 388
Land Conversion and Developments 512 246 366
Centrally accounted and
consolidation items (37) (42) (9)
BEE IFRS 2 charge and transaction
costs (10) (28) (44)
Consolidated total 1 381 1 290 2 131
STATEMENT OF FINANCIAL POSITION
Condensed consolidated Unaudited Unaudited Audited
30 Sept 30 Sept 31 March
2013 2012 2013
Rmillion (note 8) (note 8)
ASSETS
Non-current assets
Property, plant and equipment 11 173 9 559 10 287
Growing crops 4 191 3 540 4 583
Long-term receivables 475 379 455
Goodwill 326 276 300
Intangible assets 73 69 78
Investments 17 10 14
16 255 13 833 15 717
Current assets 8 781 7 502 5 584
Inventories 4 345 3 255 1 858
Trade and other receivables 3 344 3 147 2 809
Derivative instruments 3 1
Cash and cash equivalents 1 089 1 099 917
TOTAL ASSETS 25 036 21 335 21 301
EQUITY AND LIABILITIES
Capital and reserves
Share capital 134 134 134
Share premium 1 539 1 535 1 539
BEE held consolidation shares (724) (775) (747)
Retained income 7 026 6 328 6 541
Other reserves 1 889 353 865
Shareholders interest 9 864 7 575 8 332
Minority interest in subsidiaries 1 555 1 235 1 373
Equity 11 419 8 810 9 705
Non-current liabilities 6 988 6 656 6 855
Deferred tax 2 086 1 746 1 930
Long-term borrowings 3 489 3 534 3 481
Non-recourse equity-settled
BEE borrowings 707 737 722
Provisions 706 639 722
Current liabilities 6 629 5 869 4 741
Trade and other payables
(note 4) 3 395 2 984 2 572
Short-term borrowings 3 006 2 653 2 078
Derivative instruments 8 8 16
Tax 220 224 75
TOTAL EQUITY AND LIABILITIES 25 036 21 335 21 301
Number of shares (000)
in issue 108 648 108 501 108 648
weighted average (basic) 111 966 108 220 110 225
weighted average (diluted) 113 110 110 274 112 274
STATEMENT OF CHANGES IN EQUITY
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 March
2013 2012 2013
Rmillion (note 8) (note 8)
Balance at beginning of period 8 332 6 678 6 678
Total comprehensive income for
the period 1 704 1 074 1 996
Retained earnings 708 656 1 046
Movement in hedge reserve 1 (5)
Foreign currency translation 995 418 955
Dividends paid (206) (184) (347)
Share capital issued ordinary 5
BEE held consolidation shares 8 24 37
Share-based payment charge 34 26 57
Settlement of share-based payment
awards (8) (43) (94)
Shareholders interest 9 864 7 575 8 332
Minority interest in subsidiaries 1 555 1 235 1 373
Balance at beginning of period 1 373 1 088 1 088
Total comprehensive income for
the period 190 155 295
Retained earnings 56 79 101
Foreign currency translation 134 76 194
Dividends paid to minorities (8) (8) (10)
Equity 11 419 8 810 9 705
STATEMENT OF OTHER COMPREHENSIVE INCOME
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 March
2013 2012 2013
Rmillion (note 8) (note 8)
Net profit for the period 764 735 1 179
Other comprehensive income 1 130 494 1 112
Items that will not be
reclassified to profit or loss:
Foreign currency translation 1 129 494 1 149
Actuarial loss (44)
Tax on actuarial loss 12
Items that may be reclassified
subsequently to profit or loss:
Hedge reserve 2 (6)
Tax on movement on hedge reserve (1) 1
Total comprehensive income for
the period 1 894 1 229 2 291
Total comprehensive income
attributable to:
Shareholders of Tongaat Hulett 1 704 1 074 1 996
Minority (non-controlling)
interest 190 155 295
1 894 1 229 2 291
STATEMENT OF CASH FLOWS
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 March
2013 2012 2013
Rmillion (note 8) (note 8)
Operating profit 1 381 1 290 2 131
Profit on disposal of property,
plant and equipment (49) (5) (24)
Depreciation 283 231 472
Growing crops and other non-cash
items 787 278 (397)
Operating cash flow 2 402 1 794 2 182
Change in working capital (2 075) (1 390) (56)
Cash flow from operations 327 404 2 126
Tax payments (141) (47) (239)
Net financing costs (298) (281) (560)
Cash flow from operating activities (112) 76 1 327
Expenditure on property, plant
and equipment:
New (86) (61) (447)
Replacement (270) (338) (477)
Major plant overhaul costs (7) (97) (93)
Capital expenditure on growing crops (39) (36) (157)
Other capital items 64 1 24
Net cash flow before dividends
and financing activities (450) (455) 177
Dividends paid (214) (192) (357)
Net cash flow before financing
activities (664) (647) (180)
Borrowings raised 865 1 160 503
Non-recourse equity-settled
BEE borrowings (15) (15)
Shares issued 5
Settlement of share-based payment
awards (8) (43) (94)
Net increase in cash and cash
equivalents 178 470 219
Balance at beginning of period 917 592 592
Foreign exchange adjustment (6) 37 106
Cash and cash equivalents at end
of period 1 089 1 099 917
NOTES
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 March
2013 2012 2013
Rmillion (note 8) (note 8)
1. Net financing costs
Interest paid (317) (295) (596)
Interest received 19 14 36
(298) (281) (560)
2. Tax
Normal (282) (251) (294)
Deferred (37) (18) (93)
Rate change adjustment deferred (5) (5)
(319) (274) (392)
3. Headline earnings
Profit attributable to
shareholders 708 656 1 079
Adjusted for:
Capital profit on disposal
of land (46) (2) (16)
Capital loss on other items (2) 1 1
Tax effect of the above items 3 3
663 655 1 067
4. Trade and other payables
Included in trade and other payables is the maize obligation
(interest bearing) of R493 million (30 September 2012:
R407 million and 31 March 2013: R216 million).
5. Capital expenditure commitments
Contracted 83 127 175
Approved 77 162 312
160 289 487
6. Operating lease commitments 106 81 104
7. Guarantees and contingent
liabilities 48 30 38
8. Basis of preparation, accounting policies and comparative figures
The condensed consolidated unaudited results for the half-year
ended 30 September 2013 have been prepared in accordance with
the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards
(IFRS), the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee, the information as required by
International Accounting Standard 34 Interim Financial
Reporting and the requirements of the Companies Act of South
Africa. Except as described below, the report has been prepared
using accounting policies that comply with IFRS which are
consistent with those applied in the financial statements for
the year ended 31 March 2013 and were prepared under the
supervision of the Chief Financial Officer, M H Munro CA (SA).
Tongaat Hulett has adopted all the new or revised accounting
pronouncements as issued by the IASB which were effective for
Tongaat Hulett from 1 January 2013. The adoption of these
standards had no recognition and measurement impact on the
financial results, other than for the adoption of the revised
IAS 19 which requires that post-retirement benefit accounting
actuarial gains and losses be recognised immediately in other
comprehensive income and no longer be amortised through profit
or loss.
Comparative figures have been restated, with the effect of the
compulsory adoption of the revised IAS 19 on profit or loss
for the year ended 31 March 2013 (with the 6 months ended
30 September 2012 in brackets) being an increase in operating
profit of R12 million (2012: R2 million), a corresponding tax
charge of R3 million (2012: R1 million) and net profit for the
period of R9 million (2012: R1 million). Other comprehensive
income decreased by R26 million (2012: increase of R3 million)
after tax. The effect on the statement of financial position at
31 March 2013 was an increase in provisions for retirement
benefits of R68 million (2012: R38 million) and decreases in
equity and deferred tax of R47 million (2012: R26 million) and
R21 million (2012: R12 million) respectively.
CORPORATE INFORMATION
Directorate: J B Magwaza (Chairman), P H Staude (Chief Executive
Officer)*, F Jakoet, J John, R P Kupara^, A A Maleiane+,
T N Mgoduso, N Mjoli-Mncube, M H Munro*, S G Pretorius,
C B Sibisi.
* Executive directors ^ Zimbabwean +Mozambican
Registered office: Amanzimnyama Hill Road, Tongaat, KwaZulu-Natal
P O Box 3, Tongaat 4400
Telephone: +27 32 439 4019 Facsimile: +27 31 570 1055
Transfer secretaries: Computershare Investor Services (Pty) Limited
Telephone: +27 11 370 7700
Sponsor: Investec Bank Limited
Telephone +27 11 286 7000
www.tongaat.com
e-mail: info@tongaat.com
Date: 11/11/2013 07:06:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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