Tongaat Hulett Limited · JSE:TON
Tongaat Hulett — H1 2005 Earnings Presentation
79 slides from Tongaat Hulett's earnings presentation, June 2005
Slide 1: Tongaat-Hulett
Tongaat-Hulett
Slide 2: 2005 Interim Financial Results
2005 Interim Financial Results 2
Slide 3: Half-year to 30 June 2005
Half-year to 30 June 2005 • Revenue of R3,1 billion (2004: R3,0 billion) • Average R/$ rate 7% stronger • Operating profit R319 million (2004: R157 million) • Headline earnings of R208 million (2004: R53 million) • Dividends 3
Slide 4: IFRS – Key Issues
IFRS – Key Issues • Reporting in terms of IFRS in 2005 • Triangle Sugar Zimbabwe • Continue to dividend account • Share based payments – income statement charges • H1 2005: R7 million • Goodwill R2 million income statement effect • Classifications within equity 4
Slide 5: Operating Profit H1 2005 H1 2004 FY 2004
Operating Profit H1 2005 H1 2004 FY 2004 Hulett Aluminium (50%) 90 44 74 African Products 32 7 43 Maize procurement contracts valuation - 18 18 Tongaat-Hulett Sugar 83 29 111 Triangle dividend - 21 51 Moreland 77 117 181 Restructure costs (3) (23) (29) Corporate (11) (30) (52) Exchange rate translat
Slide 6: Hulett Aluminium
HULETT ALUMINIUM H1 2005 H1 2004 FY 2004 Operating profit (Rm) 180 88 148 • Volume growth • Sales 172 000 tons annualised +20% • Production 168 000 tons annualised • Substantial growth in higher value, more demanding exports • Can end stock +37% • Closure sheet +25% • Heat treated plate +15% • Benef
Slide 7: African Products
AFRICAN PRODUCTS H1 2005 H1 2004 FY 2004 Operating profit (Rm) 32 7 43 • Earnings volatility from maize valuations eliminated • Maize priced at import parity for sales January to April • Benefit of export parity priced maize started in May • Co-product prices • Sales of prime domestic products incre
Slide 8: Tongaat-Hulett Sugar
TONGAAT-HULETT SUGAR H1 2005 H1 2004 FY 2004 Operating profit (Rm) 83 29 111 • 2004 crop effect on H1 2005 • Volumes increasing • Cost per ton reducing • Export realisations improving • Earnings enhancing actions – benefits beginning to be realised • Triangle dividends brought to account – nil (2004
Slide 9: Moreland
MORELAND H1 2005 H1 2004 FY 2004 Operating profit (Rm) 77 117 181 • Period of replenishing stock • Strong performance from industrial & commercial portfolios • Resorts portfolio benefited in June from stock replenishment • Residential portfolio – delay in development approvals % of H1 2005 profit %
Slide 10: Creating Value
Creating Value • Building earnings momentum from the established asset and business base • Well positioned, with an appropriate balance sheet, to capitalise on growth opportunities 10
Slide 11: Going Forward
Tongaat-Hulett Going Forward
Slide 12: Hulett Aluminium
Hulett Aluminium
Slide 13: Impact of Achieving Targets
Impact of Achieving Targets At R6,60/US$ and current market conditions • Achieving full capacity utilisation Total rolling margin earned • 172 000 tons => 210 000 tons R1 878m • Enhanced sales mix • $1 355 per ton • Reduced conversion costs • Total costs of R988m R988m • Depreciation, admin and othe
Slide 14: Hulett Aluminium – Past and Present
Hulett Aluminium – Past and Present Targeted position from Base Current current investment Sales volume (tons) 54 000 175 000 >210 000 Direct exports (tons) 13 000 120 000 145 000 Export margin per ton ($) 400 1 150 1 300 Indirect exports (tons) 1 000 15 000 23 000 Capital employed (Rm) 520 4 700 4
Slide 15: Moving up the Product Profitability Curve
Moving up the Product Profitability Curve High Profitability Low Easier to manufacture Products Tougher to manufacture Limited capital investment Larger capital investment Lower technology requirements Higher technology requirements Many competitors Fewer competitors Less competition from substitute
Slide 16: Heat Treated Plate
Heat Treated Plate Current • Plant commissioned November 1998 • Output • 1999 141 tons • 2000 5 601 tons • Current 13 000 tons (13% of global market) • Rolling margin >$2 000 (vs average $1 355) • Alcoa lost anti-dumping case 16
Slide 17: Heat Treated Plate
Heat Treated Plate 2006 - 2010 • R54 million expansion project • Start up within 17 months • After tax payback <2 years • Target 20% of global market • Covers full interest, depreciation and operating costs at 14% of incremental capacity 17
Slide 18: 2006 Onwards
2006 Onwards • The last 20% of capacity growth to 210 000 tons yielding significantly higher levels of profitability • Established reputation as an independent producer capable of producing high value, demanding products that is an attractive alternative to the major multinationals • Incremental opp
Slide 19: African Products
African Products
Slide 20: Maize Procurement
Maize Procurement • Physical maize secured until June 2006 • High proportion of the back-to-back deals for H1 2005 were done at close to import parity price (R900 – R1 000/ton) • GM free continues to be successfully managed • Focus on reducing the storage, identity preservation, handling, finance an
Slide 21: African Products Favoured by Maize Prices Approaching Export Parity
African Products Favoured by Maize Prices Approaching Export Parity Update on RSA Maize Surplus: Opening Stock (end May 05) 3 170 Current Crop 12 000 Maize available: 15 170 Estimated demand 8 000 Exports 1 500 Total consumption: 9 500 Estimated Stock (end May 06) 5 670 21
Slide 22: Co-Product Pricing
Co-Product Pricing % of Co-Product H1 2005 Major Price Drivers Revenue 50%: International edible oil price Germ 4,3 50%: Local maize International protein (soya, Gluten-60 5,7 fishmeal) prices Gluten-20 4,6 Local maize price 22
Slide 23: Re-energising the Business
Re-energising the Business Far Reaching Restructuring at all sites: • New structures designed to be leaner and more focused on key issues • 290 out of 730 posts made redundant, 200 new posts defined • Direct savings of R15 million annualised • Reduced level of contract work 23
Slide 24: Re-energising the Business
Re-energising the Business • Reduction in the number of directors • Reduction in top management layers • Creation of shared financial services function • Creation of central production planning function • Centralisation of procurement • Consolidation of operations support functions (technical suppor
Slide 25: New Business Development Based on Core Products
New Business Development Based on Core Products • Mining - Ongoing development work of Mining Depressants, particularly for Platinum and Base Metals Volume growth of 31% for 2005 • Adhesives - Development of starch-based Adhesive Formulations 3 000 t.p.a. plant erected at Meyerton in 2004 • Carboxym
Slide 26: Longer Term Opportunities
Longer Term Opportunities • Hydropolymers - High water-absorbing starch-based Polymer for Agricultural applications. • Nutritional / - Conducting a number of pre- Healthcare feasibility studies Products • Starch in - Re-opening investigations into Plastics starch-based Plastics for specialised appli
Slide 27: Tongaat-Hulett Sugar
Tongaat-Hulett Sugar
Slide 28: EU Sugar Reform
EU Sugar Reform • Rationale • Enhance competitiveness of EU sugar sector • Strengthen EU’s negotiating position in WTO • Keep EU sugar regime in line with WTO commitments • Proposals • Applicable from 2006/07 to 2014/15 • 39% price cut beginning 2006/07 • Voluntary restructuring payments to encourag
Slide 29: EU Sugar Reform
EU Sugar Reform Impact Profit from % of THS Markets on THS Operations Production 39% reduction in ACP price (R18 m) 1% to 2% (Swaziland and Mozambique) US preferential market - 1% to 2% (Swaziland, Mozambique and South Africa) 39% reduction in EBA price – greater R13 m 3% to 4% volumes (Mozambique)
Slide 30: Earnings Enhancements
Earnings Enhancements H1 2005 Annualised impact of • World price – 7,96 USc/lb • 9,75 US c/lb R41m • SA production – 723 000 tons • 945 000 tons R78m • Moz production – 85 000 tons • 156 000 tons plus R40m • Refining value chain initiatives • Unrealised benefits R36m • Lower overhead/milling costs •
Slide 31: Milling Capacity Utilisation and Cane Supply Initiatives
Milling Capacity Utilisation and Cane Supply Initiatives South Africa and Mozambique Tons Installed Actual Actual Forecast Rainfall Future Further 347 000 tons cane capacity crush crush crush effect loss of cane committed, (000) 2003 2004 2005 on 2005 cane supply progress on a crush initiatives furt
Slide 32: Progress in Mozambique
Progress in Mozambique 2001 2004 Future Turnover R 155m R 271m R 600m Sugar Production – tons (installed capacity) 35 996 84 547 156 000 Sugar Production – tons (including further 35 996 84 547 246 000 expansion) Domestic market volumes – total industry 35 211 127 719 192 000 Preferential market vol
Slide 33: Leveraging THS’s Technology Leadership
Leveraging THS’s Technology Leadership • World’s first white sugar mill (WSM) up and running at Felixton by November 2005 – on time and within budget • 15% of Felixton’s cane juice resulting in 36 000 tons of white sugar • New WSM co-product development well advanced • Commercialisation possible in
Slide 34: Moreland
Moreland
Slide 35: Sustainable Business Model for Optimising Land Values
Sustainable Business Model for Optimising Land Values •11 600 hectares prime, well-located land •Tongaat-Hulett Sugar/ Moreland synergies – operational / balance sheet •Bulk land value R1,5 bn+ •Moreland added value R1,5 bn+ •66 employees 35
Slide 36: Development Pipeline
Development Pipeline • Sound platform established • 3 catalyst roads now open • 6 new prime pipeline projects - planning approvals within 9 months - stock for 06/07 and beyond • 3 baseline feasibilities completed for longer term 36
Slide 37: Extension of Umhlanga Ridge New Town Centre
Extension of Umhlanga Ridge New Town Centre • Mixed use – new urban concepts • 1 000+ apartments under development • Launch of residential apartments precinct in H2 2005 • Customers constructing 100 000m2 bulk in 2005 – including further Gateway expansion • Phase 1 commercial sold out • Phase 2 comm
Slide 38: Executive Village La Lucia Ridge
Executive Village La Lucia Ridge • Last bulk site in La Lucia Ridge - 18 hectares • 350 potential residential units • Anticipated H2 2005 • Operating profit >R30m 38
Slide 39: Sibaya Node
Sibaya Node • Umdloti Beach and Umhlanga River frontage • N2 and M4 direct access • 800 hectares • R800m Afrisun Sibaya Entertainment World catalyst - performing above projections/ 2nd Hotel (110 rooms) under construction • 5 prime hotel sites / EIA / planning approval 2005 • H2 2005 operating profi
Slide 40: Umhlanga Triangle
Umhlanga Triangle • 140 hectares, four precincts • Planning, design and layout being finalised • 3 000+ potential residential units • Hotels/Offices - bulk 250 000m2 • Large conditional hotel deal signed – possible end 2005 early 2006 40
Slide 41: Information Pack
Tongaat-Hulett Information Pack
Slide 42: Hulett Aluminium
Hulett Aluminium
Slide 43: Operating profit growth reflects progress being made
• Operating profit growth reflects progress being made in growing volumes, improving the sales mix and reducing costs • Increased demand favours Hulett Aluminum - independent from the multinational producers with strong product range • Optimum allocation of capacity to excess sales opportunities an
Slide 44: Hulett Aluminium
Hulett Aluminium H1 2005 H1 2004 FY 2004 Average R/US$ 6,21 6,67 6,44 Sales volumes – Rolled Products (t) 85 300 70 800 144 000 - Other 9 050 8 800 18 200 - Total 94 350 79 600 162 200 Revenue (Rm) 2 010 1 638 3 343 Operating profit (Rm) 180 88 148 44
Slide 45: Rolled Products Sales Growth
Rolled Products Sales Growth Sales Volumes (000 tons) % Increase 2000 85 7 2001 91 7 2002 105 15 2003 130 24 2004 144 10 H1 2005 * 172 19 • *Annualised • All products developed for specific customers and applications 45
Slide 46: Enhanced Sales Mix
Enhanced Sales Mix • Increased value-added exports by customers contributed to local market sales growing by 24% • From a zero base, clad sales grew to 12% of local sales in 2004, are expected to double in 2005, and then double again by 2007 • Sustained growth in direct export sales of high value, m
Slide 47: Reduce Conversion Costs
Reduce Conversion Costs • Increase in total rolled products conversion costs limited to less than 3%. Conversion costs per ton reduced by 15% as output grows. • Total energy cost increases limited to 11% despite the 34% increase in gas prices and 20% volume increase • Metal premium and recycling cos
Slide 48: Industry Climate
Industry Climate • North American and Asian markets bouyant, with improved rolling margins • European market still quiet • Competitor dynamics • Alcoa consolidating recent acquisitions and upgrading loss-making Russian mills • Novelis provides focus on rolled products profitability • Chinese demand
Slide 49: African Products
African Products
Slide 50: Africa’s largest manufacturer of starch and glucose
• Africa’s largest manufacturer of starch and glucose • Strong Southern African market position • Starch is one of nature’s most versatile raw materials • Leads to new product development opportunities 50
Slide 51: Implementation of New Maize Procurement and Product Pricing Model Completed
Implementation of New Maize Procurement and Product Pricing Model Completed • All procurement in H1 2005 undertaken on new back- to-back pricing model • Earnings volatility from maize valuations has been eliminated • The maize price moving towards export parity, as a result of the maize surplus in S
Slide 52: Reduce Costs
Reduce Costs • Major restructuring exercise underway at all sites relating to manning levels and skills, with expected savings of R15 million per annum from 2006 • Alternative storage systems for maize being investigated with 25 000 tons currently in progress • Projected savings of R5 million per an
Slide 53: Grow Volumes
Grow Volumes • Good progress in retaining and regaining volumes lost to imports has continued in 2005 • Local market volumes grew 3,6% to 183 500 tons in H1 2005 • Pre-feasibility studies for new products produced from agricultural raw materials have been concluded • Good progress in adhesives and m
Slide 54: Volume Data
Volume Data Volume H1 2005 H1 2004 FY 2004 Local Starch 40 874 40 751 83 705 Local Glucose 142 642 136 335 290 881 Total Local 183 516 177 086 374 586 Export Starch 16 034 14 118 35 116 Export Glucose 10 841 12 633 17 806 Total Exports 26 875 26 751 52 922 Co-Products 73 045 73 945 148 428 Total 283
Slide 55: Financial Data
Financial Data Rmillion H1 2005 H1 2004 FY 2004 Revenue: 617 652 1 347 Domestic 467 466 983 Exports 60 65 126 Co-Products 90 121 238 Operating Profit 32 7 43 Maize procurement contracts valuation - 18 18 55
Slide 56: Tongaat-Hulett Sugar
Tongaat-Hulett Sugar
Slide 57: Powerful Huletts and other leading SADC sugar brands
• Powerful Huletts and other leading SADC sugar brands • World leader in process design and technology • Installed capacity for 1,5 million tons raw sugar production • Year round refining and packing capability of 700 000 tons p.a. • Well positioned value-added animal feeds business 57
Slide 58: Move to a leaner and more decentralised management approach
Move to a leaner and more decentralised management approach and reduce head office overheads by 50% • Flatter management structure achieved throughout the organisation, with levels of management removed • Closure of the sugar head office completed and La Lucia building sold • Downsizing of centralis
Slide 59: Milling costs targeted to be reduced by 10%
Milling costs targeted to be reduced by 10% • Reorganisation of the South African milling operations from five mill structures to two regional business units completed • Service and operating functions rationalised • Savings for H1 2005 of R7 million vs H1 2004 • Estimated 2005 savings of R25 millio
Slide 60: Increase benefits from refining value chain
Increase benefits from refining value chain • Benchmarking exercise concluded and action plans developed • Multiple manufacturing improvement projects currently underway • Restructure of central refinery taking place in 2005 • 118 posts made redundant • More value realised from the Huletts® brand an
Slide 61: Leverage technology base and improve its commercial capabilities
Leverage technology base and improve its commercial capabilities, focusing on future growth opportunities • World’s first white sugar mill (WSM) at Felixton mill to be commissioned in November 2005 with expected benefits of R14 million per annum • Technology piloted successfully in Brazil • Targetin
Slide 62: Optimise capacity utilisation at all mills through cane supply initiatives
Optimise capacity utilisation at all mills through cane supply initiatives in South Africa • Closure of the Entumeni mill with the diversion of cane to the Amatikulu mill completed • Additional cane supplies of 662 000 tons per annum contracted • 315 000 tons to be crushed in 2005 • 347 000 tons con
Slide 63: Achieve a turnaround in Mozambique; manage Triangle in Zimbabwe
Achieve a turnaround in Mozambique • Improvement of R12 million in H1 2005 headline earnings vs H1 2004 • Reorganisation of funding structures successfully completed • Production of 109 000 tons sugar targeted for 2005, an increase of 28% over 2004, towards full capacity of 156 000 tons by 2008 Proa
Slide 64: Sugar Production
Sugar Production Installed Tons ‘000 2000 2001 2002 2003 2004 2005 capacity South Africa 969 755 860 652 723 802 974 Mozambique 39 36 71 82 85 109 156 Swaziland RSE 41 45 50 54 50 52 55 Zimbabwe 282 264 296 264 222 250 315 Total 1 331 1 100 1 277 1 052 1 080 1 213 1 500 % of Capacity 89% 73% 85% 70%
Slide 65: SA Sugar Production
SA Sugar Production 3 Tons Sugar - Millions Industry: 2 516 000 tons THS: 802 000 tons 2.5 31,9% (2004: 32,5%) share of industry 2 1.5 THS 1 Industry 0.5 0 THS 2003 and 2004 crops 1999 2000 2001 2002 2003 2004 2005 lowest in 9 years as a consequence of low rainfall Year 65
Slide 66: Total Volumes THS (SA)
Total Volumes THS (SA) Tons sugar H1 2005 H1 2004 FY 2004 Opening stock 333 361 276 598 276 598 Production 231 866 166 001 723 686 Prior season adjustment (540) (455) (455) Sugar purchased in 14 110 49 554 89 819 Sales (388 110) (332 112) (756 287) Closing stock 190 687 159 586 333 361 66
Slide 67: Domestic Volumes THS (SA)
Domestic Volumes THS (SA) Tons sugar H1 2005 H1 2004 FY 2004 Opening stock 194 581 175 607 175 607 Production 111 743 87 446 394 979 Prior season adjustment (2 010) (1 459) (1 459) Sugar purchased in 14 110 49 554 89 819 Sales (215 430) (211 767) (464 365) Closing stock 102 994 99 381 194 581 67
Slide 68: Export Volumes THS (SA)
Export Volumes THS (SA) Tons sugar H1 2005 H1 2004 FY 2004 Opening stock 138 780 100 991 100 991 Production 120 123 78 555 328 707 Prior season adjustment 1 470 1 004 1 044 Sales (172 680) (120 345) (291 922) Closing stock 87 693 60 205 138 780 68
Slide 69: Raw Sugar Export Realisations
Raw Sugar Export Realisations South Africa H1 H1 FY Raw Sugar 2005 2004 2004 Price in US c/lb* 7,96 6,87 7,27 Average Rand/US$ R6,61 R7,64 R7,01 Average Rand realisations per ton R1 316 R1 243 R1 231 • Table includes raw sugar for refined exports • *Excludes preferential markets and premiums 69
Slide 70: Value-adding activities
Value-adding activities • Animal Feeds in South Africa and Zimbabwe • Retail packing operations in South Africa, Mozambique, Zimbabwe, Namibia and Botswana • Refined and direct consumption raw sugar exports from South Africa and Zimbabwe • Speciality sugars and high intensity sweeteners in South Afr
Slide 71: Moreland
Moreland
Slide 72: Capitalising on the solid platform of globally benchmarked developments
• Capitalising on the solid platform of globally benchmarked developments in strong property market • Critical mass with co-ordinated planning, quality developments and marketing benefits • Good track record of delivery, including partnerships • Niche and world-class projects • Continuing property m
Slide 73: Property market dynamics
Property market dynamics • KZN / Durban economy unshackled from Cinderella status • Low interest rates • Strong growth potential • Increasing government infrastructural spend – 2010 World Cup • Continuing market demand – broadening • Rising prices – 04/05 at 24% (03/04 at 35%) 73
Slide 74: Unlocking development pipeline to sustain earnings
Unlocking development pipeline to sustain earnings • Unlocking the Sibaya node, La Lucia Ridge Executive Village, Umhlanga Triangle, Umhlanga Ridge New Town Centre residential precinct, Kindlewood (Mt Edgecombe South) in 2005 • Good stock levels for 2005 H2, 2006 and beyond • Baseline feasibilities
Slide 75: Expanding the business model
Expanding the business model • Further expanding international customer base • Strong earnings growth in Afrisun KZN (Sibaya Entertainment World – 4,5% equity) and Zimbali estate agency • New large deals include options to participate in downstream development opportunities. • Several joint ventures
Slide 76: Izinga Ridge Umhlanga
Izinga Ridge Umhlanga • 405 hectares (gross) • 2 000+ residential units: • New phases being unlocked in 2005 to 2007 76
Slide 77: RiverHorse Valley Business Estate
RiverHorse Valley Business Estate • Development: 100 ha • Straddling N2 at Effingham • Total investment: R1,6 billion • eThekwini Municipality’s link road now open • First phase sold out / new stock being created • Excellent H1 2005 PPP with eThekwini Municipality 77
Slide 78: Zimbali
Zimbali • Approximately 400 hectares unsold • M4 highway moved on time/within budget • Oceanview Hotel (125 rooms) – under construction - to open mid 2006 • IFA’s 200 room, 5-star hotel and signature golf course in Zimbali Lakes operational by 12/07 78
Slide 79: Tongaat-Hulett
Tongaat-Hulett