Wrap Text
Interim Results for the six months ended 30 September 2014
Tongaat Hulett Limited
Registration No: 1892/000610/06
JSE share code: TON
ISIN: ZAE000096541
Interim Results for the six months ended 30 September 2014
- Revenue of R8,073 billion (2013: R7,854 billion) +2,8%
- Operating profit of R1,510 billion (2013: R1,381 billion) +9,3%
- Operating cash flow of R2,413 billion (2013: R2,402 billion) +0,5%
- Headline earnings of R773 million (2013: R663 million) +16,6%
- Interim dividend of 170 cents per share (2013: 150 cps) +13,3%
COMMENTARY
The encouraging results for the half-year ended 30 September 2014
were achieved with various improvements in the sugar operations at
a time when revenue is being negatively affected by lower
international sugar prices. The starch operations delivered a
strong performance. Land conversion and development activities
continue to unlock substantial value, albeit with operating profit
recognised in this half-year being below that reported in the same
period last year. Overall, revenue increased by 3% to more than
R8 billion and operating profit reflected a 9% increase to
exceed R1,5 billion.
The starch operation increased operating profit to R264 million
(2013: R232 million). Domestic sales volumes grew 5%, with increases
in the coffee/creamer, confectionary and paper making sectors.
Starch and glucose processing margins were in line with the prior
year as the operation continued to benefit from competitive local
maize costs and good co-product recoveries. Improved operational
efficiencies and a focus on costs have remained key drivers.
Operating profit from the various sugar operations totalled
R864 million (2013: R684 million). As expected, there has been
less of an impact of lower cane valuations at this half-year
compared to last year. Operating profit before cane valuations was
at a similar level to that of the same period last year. Total
sugar revenue increased by 3%, while sugar production is below
last year - a year in which there was a substantial increase. Sugar
producers worldwide that are exposed to the current low world price
are under pressure when one considers the substantial input cost
increases over the past decade. The various protection measures
implemented in each country of operation to improve local market
sales volumes are starting to produce some benefits. The business
experienced the impact on revenue of lower international prices,
particularly for exports into the European Union (EU). At the same
time, there has been a continued drive to reduce the costs of sugar
production across all the operations, retaining the substantial
reductions achieved in the 2013/14 year, including off-crop
expenditure, while having to absorb input price increases.
The South African sugar operations, including the agriculture,
milling, refining and various downstream activities recorded
operating profit of R259 million (2013: R248 million). These
operations, which grew sugar production substantially last year
to 634 000 tons, are expecting sugar production this season to
be between 525 000 tons and 595 000 tons due to low rainfall
in KwaZulu-Natal (KZN). Production for the season is still
expected to be well above the level of two seasons prior. The
impact of the dry conditions has been partially mitigated by
11 554 hectares of new cane developments that are being harvested
for the first time this year. The overall increase in the
reference price used in the import duty calculation, to protect
the local market against unfair import competition, has had a
limited impact over the last six months. Local market sales were
depressed by an estimated 120 000 tons of sugar that were imported
before the adjustment to the reference price in April 2014. The
two week industry-wide strike impacted on export sales volumes in
the first half of the year. All the available cane is expected to
be milled by the end of the season.
The Zimbabwe sugar operations’ operating profit for the half-year
amounted to R344 million (US$32 million) compared to the
R232 million (US$23 million) in the same period last year. This
period has seen higher sales volumes, mainly due to improved local
market protection (tariffs and import licences) implemented in
April 2014. Export prices into the EU are lower than those earned
last year. The negative effect of cane valuations at the half-year
was lower than that experienced last year. The movement in the
Rand/US dollar exchange rate impacted positively on the conversion
of US dollar profits into Rands on consolidation. The Zimbabwe
sugar operations are expecting a decrease in sugar production to
between 440 000 tons and 475 000 tons for the full year
(prior year: 488 000 tons) mainly as a consequence of no cane being
diverted from the independent ethanol plant at Chisumbanje
(39 000 tons sugar equivalent in the prior year) and after
experiencing the impact of low dam levels for irrigation at the
end of 2013, which only recovered in early 2014.
The Mozambique sugar operations grew operating profit to
R226 million (2013: R151 million). An increase in sugar production
is expected for the full year to between 265 000 tons and
280 000 tons (prior year: 249 000 tons). In the half-year, sales
volumes increased by 5% while average selling prices have remained
constant year on year, with improved local market prices and
reductions in export prices to the EU. The movement in the
Rand/Metical exchange rate had a positive impact on the
consolidation of the Mozambique profits into Rands. The negative
effect of cane valuations at the half-year was lower than that
experienced last year.
The Swaziland sugar operations reported operating profit of
R35 million (2013: R53 million) as a result of the lower sucrose
price as a consequence of a reduction in export prices into the EU.
Land conversion and development activities generated operating
profit of R435 million (2013: R512 million) from the sale of
49 developable hectares. Sales came largely from Cornubia
(industrial, business and retail) with an average profit of
R9,0 million per developable hectare. Sales in Izinga/Kindlewood
averaged profit of R6,7 million per developable hectare and
Umhlanga Ridge Town Centre averaged R29,4 million per developable
hectare.
The centrally accounted and consolidation items amounted to
R42 million (2013: R37 million). Finance costs amounted to
R297 million (2013: R298 million) and were commensurate with the
lower borrowing levels and higher interest rates.
Operating cash flow generated was R2,4 billion for the six months.
Cash flow from operations after working capital was R576 million,
an improvement of some R250 million compared to the same period
last year. The cash absorbed in working capital was some
R1,8 billion (2013: R2,1 billion) at the half-year, being the middle
of the sugar season when sugar stocks and debtor levels are usually
higher than at the end of the year. Net debt at the end of September
has reduced to R4,9 billion (2013: R5,4 billion).
Headline earnings for the half-year grew by 17% to R773 million
(2013: R663 million). An interim dividend of 170 cents per share
has been declared (2013: 150 cents per share).
OUTLOOK
The momentum in unlocking value from land conversion and development
continues, with 8 150 developable hectares ultimately earmarked for
development. Over the next 5 years, sales are expected to come
primarily out of 3 661 developable hectares prioritised in key
focus areas comprising the urban expansion north of Durban in the
Umhlanga and Cornubia areas, coastal lifestyle areas of Zimbali and
Sibaya, business and residential development around the airport,
coastal development north of Ballito in Tinley Manor and in the
Ntshongweni area west of Durban. An increasingly larger area is
benefitting from planning activities and infrastructural investment
at key points. Tongaat Hulett continues to work together with
Government, related organisations and key stakeholders in the
property industry to capture the synergy of each other’s unique
capabilities and to maximise the value for all stakeholders that
can be derived from the region. Global markets will be further
assessed through the international launch of Sibaya during the
second half of the 2014/15 year. The development of urban
residential areas for lower income earners is being accelerated.
The potential sale of 42 developable hectares of the prime land in
Ridgeside is progressing well. Further sales in the second half of
the 2014/15 year are likely to come from Cornubia, Izinga/Kindlewood,
Umhlanga Ridge Town Centre and possibly from Sibaya, Compensation
and land adjacent to the airport.
The starch operations are well positioned to continue to perform
strongly, with sales volume growth underpinned by improved capacity
utilisation, enhanced product mix and customer growth prospects
into Africa. The business will benefit from the recent large maize
crop harvested in South Africa.
Sugar prices remain under pressure with the current low world price.
In South Africa, Zimbabwe and Mozambique there is an increasing
understanding, up to senior Government levels, of the importance
to better protect local markets (especially to secure rural jobs)
against imports from other surplus sugar producing countries,
confirmed by the upcoming reforms to the EU sugar market. Better
import protection would lead to lower exports.
The likely dynamics in the EU market beyond the October 2017
reforms remain uncertain. The average sugar prices earned by the
business in 2014/15 for exports into the EU market are expected to
be some Euro 25 per ton below those earned in 2013/14, during
which year there was a reduction of Euro 155 per ton in the
prices achieved.
Tongaat Hulett’s sugar production is targeted to grow by some
400 000 tons over the next 4 years. Agricultural improvement
programs are now well entrenched and these programs, together
with better weather conditions, should lead to higher cane yields
and higher sucrose content in the cane, with the marginal cost of
this sugar production being some 30% of the current low world
sugar price. In South Africa, a 12 000 hectare project for cane
development and job creation in rural KZN is an integral part of
the growth and development of cane farming in Tongaat Hulett’s
cane supply areas. The financing of this project includes a Jobs
Fund grant for R150 million allocated over some three years, with
the first R40 million already received.
Encouraging progress is being made towards establishing
regulatory frameworks to turn a portion of South Africa’s export
sugar into ethanol and to generate more electricity from the fibre
component of sugar cane.
Further substantial reductions in the cost of sugar production are
targeted for 2015/16, after the consolidation in the current
season, which follows the reductions in cost per ton achieved in
2013/14 of 14% in Mozambique, 16% in South Africa and 23% in
Zimbabwe.
Tongaat Hulett continues to focus on value creation for all
stakeholders through an all-inclusive approach to growth and
development. In KZN there are established collaborations with
Provincial and Local authorities in the inextricably linked areas
of sugar and cane activities (the planting of 24 979 hectares in
the previous three years has created some 6 250 direct jobs in
rural areas), the development of urban areas (including Cornubia)
and maximising the future benefit of renewable energy. In Zimbabwe,
Tongaat Hulett, the Government and Local communities are working
together on socio-economic initiatives in the south-eastern Lowveld
region of the country. One of the key focus areas remains the
on-going orderly development of sustainable private sugar cane
farmers and at the end of the 2013/14 season, some 813 active
indigenous private farmers, farming some 14 000 hectares, employing
more than 6 700 people, generated US$58 million in annual revenue. In
Mozambique, an estimated 381 000 tons of cane will be delivered
from 4 170 hectares in the 2014/15 season, supporting 1 898
indigenous private farmers.
The business is in a good position to benefit from multiple actions
across all of its well-grounded strategic thrusts, with its
footprint in six SADC countries, its ability to process both sugar
cane and maize, electricity generation and ethanol opportunities
and increased momentum in land conversion.
Profits and cash flows for the full year are expected to reflect
further growth over the 2013/14 year.
For and on behalf of the Board
Bahle Sibisi Peter Staude
Chairman Chief Executive Officer
Amanzimnyama
Tongaat, KwaZulu-Natal
6 November 2014
DIVIDEND DECLARATION
Notice is hereby given that the Board has declared an interim
gross cash dividend (number 174) of 170 cents per share for the
half-year ended 30 September 2014 to shareholders recorded in the
register at the close of business on Friday 30 January 2015.
The salient dates of the declaration and payment of this interim
dividend are as follows:
Last date to trade ordinary shares
“CUM” dividend Friday 23 January 2015
Ordinary shares trade “EX” dividend Monday 26 January 2015
Record date Friday 30 January 2015
Payment date Thursday 5 February 2015
Share certificates may not be dematerialised or re-materialised,
nor may transfers between registers take place between Monday
26 January 2015 and Friday 30 January 2015, both days inclusive
The dividend is declared in the currency of the Republic of South
Africa. Dividends paid by the United Kingdom transfer secretaries
will be paid in British currency at the rate of exchange ruling at
the close of business on Friday 23 January 2015.
The dividend has been declared from income reserves. A net
dividend of 144,5 cents per share will apply to shareholders liable
for the local 15% dividend withholding tax and 170 cents per share
to shareholders exempt from paying the dividend tax. There are no
STC credits available for utilisation. The issued ordinary share
capital as at 6 November 2014 is 135 112 506 shares. The company’s
income tax reference number is 9306/101/20/6.
For and on behalf of the Board
M A C Mahlari
Company Secretary
Amanzimnyama
Tongaat, KwaZulu-Natal
6 November 2014
INCOME STATEMENT
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 March
Rmillion 2014 2013 2014
Revenue 8 073 7 854 15 716
Operating profit 1 510 1 381 2 374
Net financing costs (note 1) (297) (298) (609)
Profit before tax 1 213 1 083 1 765
Tax (note 2) (336) (319) (538)
Net profit for the period 877 764 1 227
Profit attributable to:
Shareholders of
Tongaat Hulett 800 708 1 155
Minority (non-controlling)
interest 77 56 72
877 764 1 227
Headline earnings attributable to
Tongaat Hulett shareholders
(note 3) 773 663 1 106
Earnings per share (cents)
Net profit per share
Basic 700,9 632,3 1 034,4
Diluted 700,9 625,9 1 022,3
Headline earnings per share
Basic 677,2 592,1 990,5
Diluted 677,2 586,2 978,9
Dividend per share (cents) 170,0 150,0 360,0
Currency conversion
Rand/US dollar closing 11,26 10,08 10,56
Rand/US dollar average 10,64 9,78 10,13
Rand/Metical average 0,35 0,33 0,34
Rand/Euro average 14,35 12,87 13,59
US dollar/Euro average 1,35 1,32 1,34
SEGMENTAL ANALYSIS
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 March
Rmillion 2014 2013 2014
Revenue
Sugar
Zimbabwe 1 824 1 324 2 896
Swaziland 146 173 211
Mozambique 1 482 1 402 1 704
South Africa 2 365 2 740 6 224
Sugar operations – total 5 817 5 639 11 035
Starch operations 1 740 1 594 3 210
Land Conversion and
Developments 516 621 1 471
Consolidated total 8 073 7 854 15 716
Operating profit
Sugar
Zimbabwe 344 232 330
Swaziland 35 53 70
Mozambique 226 151 168
South Africa 259 248 340
Sugar operations – total 864 684 908
Starch operations 264 232 482
Land Conversion and
Developments 435 512 1 080
Centrally accounted and
consolidation items (42) (37) (75)
BEE IFRS 2 charge and
transaction costs (11) (10) (21)
Consolidated total 1 510 1 381 2 374
FURTHER ANALYSIS OF SUGAR OPERATING PROFIT
Sugar operations - before
cane valuations 1 454 1 458 1 061
Zimbabwe 609 642 572
Swaziland 64 86 56
Mozambique 556 528 272
South Africa 225 202 161
Cane valuations – income
statement effect (590) (774) (153)
Zimbabwe (265) (410) (242)
Swaziland (29) (33) 14
Mozambique (330) (377) (104)
South Africa 34 46 179
Sugar operations – after
cane valuations 864 684 908
Zimbabwe 344 232 330
Swaziland 35 53 70
Mozambique 226 151 168
South Africa 259 248 340
STATEMENT OF FINANCIAL POSITION
Condensed consolidated Unaudited Unaudited Audited
30 Sept 30 Sept 31 March
Rmillion 2014 2013 2014
ASSETS
Non-current assets
Property, plant and equipment 11 737 11 173 11 279
Growing crops (note 4) 4 623 4 191 5 005
Long-term receivable 502 475 485
Goodwill 358 326 338
Intangible assets 65 73 70
Investments 20 17 18
17 305 16 255 17 195
Current assets 10 176 8 781 6 781
Inventories 4 503 4 345 2 416
Trade and other receivables 3 935 3 347 3 298
Cash and cash equivalents 1 738 1 089 1 067
TOTAL ASSETS 27 481 25 036 23 976
EQUITY AND LIABILITIES
Capital and reserves
Share capital 135 134 135
Share premium 1 544 1 539 1 543
BEE held consolidation shares (695) (724) (700)
Retained income 7 983 7 026 7 412
Other reserves 2 764 1 889 2 172
Shareholders' interest 11 731 9 864 10 562
Minority interest in
subsidiaries 1 808 1 555 1 628
Equity 13 539 11 419 12 190
Non-current liabilities 7 098 6 988 7 612
Deferred tax 2 289 2 086 2 131
Long-term borrowings 3 449 3 489 4 094
Non-recourse equity-settled
BEE borrowings 667 707 691
Provisions 693 706 696
Current liabilities 6 844 6 629 4 174
Trade and other payables
(note 5) 3 454 3 403 2 742
Short-term borrowings 3 193 3 006 1 293
Tax 197 220 139
TOTAL EQUITY AND LIABILITIES 27 481 25 036 23 976
Number of shares (000)
– in issue 135 113 108 648 109 967
– weighted average (basic) 114 139 111 966 111 655
– weighted average (diluted) 114 139 113 110 112 980
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
Rmillion 2014 2013 2014
Balance at beginning of
period 10 562 8 332 8 332
Total comprehensive income
for the period 1 492 1 704 2 397
Retained earnings 800 708 1 142
Movement in hedge reserve (9) 1 4
Foreign currency translation 701 995 1 251
Dividends paid (231) (206) (240)
Share capital issued – ordinary 1 5
BEE held consolidation shares 8 8 16
Share-based payment charge 48 34 67
Settlement of share-based
payment awards (149) (8) (15)
Shareholders' interest 11 731 9 864 10 562
Minority interest in
subsidiaries 1 808 1 555 1 628
Balance at beginning
of period 1 628 1 373 1 373
Total comprehensive income
for the period 186 190 268
Retained earnings 77 56 73
Foreign currency translation 109 134 195
Dividends paid to minorities (6) (8) (13)
Equity 13 539 11 419 12 190
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
Rmillion 2014 2013 2014
Net profit for the period 877 764 1 227
Other comprehensive income 801 1 130 1 438
Items that will not be
reclassified to profit or loss:
Foreign currency translation 810 1 129 1 446
Actuarial loss (17)
Tax on actuarial loss 5
Items that may be reclassified
subsequently to profit or loss:
Hedge reserve (13) 2 6
Tax on movement in hedge
reserve 4 (1) (2)
Total comprehensive income for
the period 1 678 1 894 2 665
Total comprehensive income
attributable to:
Shareholders of
Tongaat Hulett 1 492 1 704 2 397
Minority (non-controlling)
Interest 186 190 268
1 678 1 894 2 665
STATEMENT OF CASH FLOWS
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 March
Rmillion 2014 2013 2014
Operating profit 1 510 1 381 2 374
Profit on disposal of
property, plant and equipment (29) (49) (75)
Depreciation 309 283 571
Growing crops and other
non-cash items 623 787 64
Operating cash flow 2 413 2 402 2 934
Change in working capital (1 837) (2 075) (761)
Cash flow from operations 576 327 2 173
Tax payments (214) (141) (452)
Net financing costs (297) (298) (609)
Cash flow from operating
activities 65 (112) 1 112
Expenditure on property,
plant and equipment:
Consolidated total
New (75) (86) (117)
Replacement (143) (270) (429)
Major plant overhaul
cost changes (38) (7) 18
Capital expenditure on
growing crops (10) (39) (118)
Other capital items 30 64 87
Net cash flow before dividends
and financing activities (171) (450) 553
Dividends paid (237) (214) (253)
Net cash flow before
financing activities (408) (664) 300
Borrowings raised/(repaid) 1 210 865 (258)
Non-recourse equity-settled
BEE borrowings (24) (15) (31)
Shares issued 1 5
Settlement of share-based
payment awards (149) (8) (15)
Net increase in cash and
cash equivalents 630 178 1
Balance at beginning of period 1 067 917 917
Foreign currency translation 41 (6) 149
Cash and cash equivalents at
end of period 1 738 1 089 1 067
NOTES
Condensed consolidated Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 March
Rmillion 2014 2013 2014
1. Net financing costs
Interest paid (331) (317) (646)
Interest received 34 19 37
(297) (298) (609)
2. Tax
Normal (267) (282) (513)
Deferred (69) (37) (29)
Rate change adjustment
- deferred 4
(336) (319) (538)
3. Headline earnings
Profit attributable to
shareholders 800 708 1 155
Adjusted for:
Capital profit on disposal
of land and buildings (21) (46) (66)
Capital profit on other items (2)
Profit on disposal of plant
and equipment (6) (2) (1)
Tax on the above items 2 3 18
773 663 1 106
4. Growing crops
Growing crops, comprising roots and standing cane, are measured
at fair value which is determined using an estimate of cane
yields and prices. Changes in fair value are recognised in
profit or loss. A change in yield of 1 ton per hectare on
the estimated yield of 86 tons cane per hectare would result in
a R22 million change in fair value while a change of one
percent in the cane price would result in a R20 million change
in fair value.
5. Trade and other payables
Included in trade and other payables in the maize obligation
(interest bearing) of R 494 million (30 September 2013:
R493 million and 31 March 2014: R334 million)
6. Capital expenditure commitments
Contracted 192 83 74
Approved 238 77 152
430 160 226
7. Operating lease commitments 88 106 128
8. Guarantees and contingent
liabilities 42 48 116
9 Basis of preparation and accounting policies
The condensed consolidated unaudited results for the half-year
ended 30 September 2014 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, Financial Reporting
Pronouncements as issued by the Financial Reporting Standards
Council, the information as required by International
Accounting Standard 34 Interim Financial Reporting and the
requirements of the Companies Act of South Africa. 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 2014 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 2014. The adoption of these
standards had no recognition and measurement impact on the
financial results.
CORPORATE INFORMATION
Directorate: C B Sibisi (Chairman), P H Staude (Chief Executive
Officer)*, S M Beesley, F Jakoet, J John, R P Kupara^, A A Maleiane+,
T N Mgoduso, N Mjoli-Mncube, M H Munro* S G Pretorius
* Executive directors + Mozambican ^ Zimbabwean
Registered office: Amanzimnyama Hill Road, Tongaat, KwaZulu-Natal
PO 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: 10/11/2014 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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