Tongaat Hulett Limited · JSE:TON
Tongaat Hulett — FY2004 Earnings Presentation
72 slides from Tongaat Hulett's earnings presentation, February 2005
Slide 1: Tongaat-Hulett
Tongaat-Hulett
Slide 2: Building Earnings Momentum
Building Earnings Momentum • R307 million improvement in headline earnings • Mix of businesses again a strength • Culture of making things happen • Return on Capital Employed 2
Slide 3: 2004 Financial Results
2004 Financial Results 3
Slide 4: 2004 Financial Results
2004 Financial Results • Revenue of R6,3 billion (2003: R6,6 billion) • Rand strengthened • 15% vs USD • 10% vs GBP • Operating profit up R284 million • Associate company profit up R51 million • Headline earnings of R214 million • Dividends 4
Slide 5: Salient Features
Salient Features • Operating profit • Actions for earnings growth and increased competitiveness counter the impact of strengthening currency, high maize costs and two successive small sugar crops • Benefits only beginning to flow • Valuation charges • Maize procurement model changed • Offshore cash:
Slide 6: African Products
African Products Operating profit R63 million (2003: loss of R104 million) • Import competition in 2004 – volume and price • Volumes regained by end of 2004 • High priced maize utilised by end Oct 2004 • 2003 large valuation adjustment on certain contracts • 2004 high priced maize charged to cost of
Slide 7: Hulett Aluminium
Hulett Aluminium Operating profit R150 million (2003: R5 million) • Volume growth, mix improvement and 5% reduction in conversion cost per ton • Benefit of R450 million in past 2 years largely offset currency strength • International market: US dollar rolling margin increase – only at the end of 200
Slide 8: Moreland
Moreland Operating profit R182 million (2003: R90 million) • Strong performance in all portfolios Profit growth in 2004 % of 2004 total Residential 113% 39% Commercial/Industrial 101% 19% Resorts 81% 42% • Major project contributor: Zimbali R65 million • Increased pace of developments 8
Slide 9: Tongaat-Hulett Sugar
Tongaat-Hulett Sugar Profit from operations before interest R184 million (2003: R202 million) • Operating profit in South Africa • 2003 and 2004 small crops both impact 2004 results • R/$ strength – export realisations • Domestic price reduction from late 2003 • Triangle dividends • Xinavane (associ
Slide 10: The Group’s Solid Base
The Group’s Solid Base • Established asset base • R8 billion • Improving cash flow • R300 million better in 2004 • Strong balance sheet • Net debt/equity 13,2% 10
Slide 11: Going Forward
Tongaat-Hulett Going Forward
Slide 12: New Business Model Effective 2005
New Business Model Effective 2005 12
Slide 13: New Business Model Effective in 2005
New Business Model Effective in 2005 • Maize and prime product pricing now on one of three back-to-back approaches: • “Toll” basis, where price is based on a longer term conversion margin • Contracts up to 1 year, where product price, volume and maize price are set in tandem • Small-end volumes, whe
Slide 14: African Products Favoured by Maize Prices Moving Towards Export Parity
African Products Favoured by Maize Prices Moving Towards Export Parity South African maize surplus • Carry over surplus of previous crop 3,5 million tons • Usage 8,0 million tons • Projected current crop >9,0 million tons • Surplus seems set to continue 14
Slide 15: 2005 Turnaround
2005 Turnaround • Maize pricing • Maize for all sales since November 2004 was priced when product prices were agreed with customers • 54% of maize/non-toll sales for the rest of 2005 is unpriced • Volume growth • African Products has capacity to benefit from expected volume growth • Further cost red
Slide 16: Growing Volumes, Enhancing Sales Mix, and Reducing Costs
Growing Volumes, Enhancing Sales Mix, and Reducing Costs 16
Slide 17: Volumes / Costs
Volumes / Costs • Volume growth • Not market constrained • Last 4 months: >160 000 tons annualised • 2005 target: 175 000 tons • Beyond 2006: > 200 000 tons • Conversion cost • Current conversion cost R860 million per annum • Target conversion cost at full capacity R945 million per annum • Further o
Slide 18: More Profitable Sales
More Profitable Sales • 60% of 2005 exports secured at higher US$ rolling margins than 2004 • Novelis • More profitable sales mix – progress in 2004 • Exports by local customers up 37%, with clad products up 263% • Can stock exports up 25% • Building & Painted exports up 34% • Closure sheet exports
Slide 19: Full Capacity Utilisation
Full Capacity Utilisation Today’s market conditions and R6/US$ • 144 000 Æ 210 000 tons Total rolling margin • Enhanced sales mix R1 710m • $1 355 per ton • Reduced conversion costs • Total costs of R945m R945m • Depreciation, admin and other R110m operations Operating profit R655m 19
Slide 20: Established Base for Significant Earnings Growth
Established Base for Significant Earnings Growth • Focus on unlocking full value from Hulett Aluminium through its earnings • The last 25% of production capacity to be utilised at significantly higher levels of profitability • Tongaat-Hulett is well positioned to potentially exercise its right of la
Slide 21: Accelerating Earnings
Moreland Accelerating Earnings
Slide 22: Property Market
Property Market Sustainable market strength • KZN/Durban strong growth potential • Significant international investor interest • Emerging market customers 22
Slide 23: Unlocking the Development Pipeline
Unlocking the Development Pipeline • Extensive prime land holdings: 11 600 hectares • Major road developments opening up new development nodes for future growth – Zimbali/Sibaya/RiverHorse • Increased momentum in sales and value creation • 100 hectares Æ 250 hectares in 2004 • Expanding internationa
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Slide 25: Executive Village La Lucia Ridge
Executive Village La Lucia Ridge • 18 hectares • Up to 350 residential units • Anticipated mid 2005 • 2005 operating profit >R30m • Last bulk site in La Lucia Ridge 25
Slide 26: Sibaya Node
Sibaya Node • 800 hectares • R800m Afrisun Sibaya Entertainment World catalyst • N2 and M4 direct access • Beach and river frontage • 5 prime hotel sites • EIA / planning approval 2005 • 2005 operating profit from 3 deals >R61m 26
Slide 27: Umhlanga Triangle
Umhlanga Triangle • 140 hectares • Planning and design substantially complete • 2 000+ potential residential units • Hotels/Offices • 10 hectares 27
Slide 28: Zimbali
Zimbali • Approximately 400 hectares unsold • M4 realignment complete: unlocking value and Zimbali Lakes • IFA’s 200 room, 5-star hotel and 2nd golf course at Zimbali Lakes to commence in 2006 • Operating profit 2004: R65m 28
Slide 29: Geared for Success
Tongaat-Hulett Sugar Be Geared for Success
Slide 30: Milling Capacity Utilisation and Cane Supply Initiatives
Milling Capacity Utilisation and Cane Supply Initiatives South Africa and Mozambique Cane Installed Average Rainfall Cane 618 000 tons Tons (000) capacity crush in effect supply confirmed, 267 000 tons for 2003/04 initiatives harvesting in 2005. Additional 214 000 S.A. 8 685 6 142 1 327 832 tons ide
Slide 31: Cost Reduction Initiatives
Cost Reduction Initiatives • 50% reduction in overhead costs • 2005 benefit >R26 million • Reduction in milling costs • Leverage move from 5 milling structures to 2 regional structures in South Africa • Mozambique • 2005 benefit >R30 million • Reduction in refining costs • Restructuring exercise to
Slide 32: Leveraging THS’s Technology Leadership
Leveraging THS’s Technology Leadership • By November 2005, Tongaat-Hulett will be the first company in the world that produces white refined cane sugar directly out of a sugar mill (WSM), eliminating the need for a refinery • Paradigm shifts in sugar milling and refining • Brazil – first internation
Slide 33: International Sugar Trade Reform
International Sugar Trade Reform Impact % of THS Markets on THS Production ACP exposure to preferential market price 5% decrease Greater EBA access for LDC countries into EU, 1% offset by lower preferential market prices Upward movement of world market prices 40% More favourable domestic market pric
Slide 34: Positive Outlook
Positive Outlook • Economic conditions in 2005 • 2004 achievements have opened up the way • Culture of making things happen • Earnings momentum to continue 34
Slide 35: Information Pack
Tongaat-Hulett Information Pack
Slide 36: African Products
African Products —
Slide 37: 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 37
Slide 38: Grow Volumes
Grow Volumes • Significant portion of business lost to imports recovered • After 6% volume drop in H1 2004 compared to H1 2003, H2 2004 volumes were in line with H2 2003 volumes • New business of 5 900 tons annualised achieved in 2004 • New business of 5 000 tons planned for 2005 • Further opportuni
Slide 39: Reduce the Cost of Running the Business
Reduce the Cost of Running the Business • Fixed cash costs held below 2002 and 2003 levels • Major restructuring exercise across all operations in progress • Good progress on chemical usage efficiencies (benefit ± R5 million per annum) • Focus in 2005 on yield improvements at Germiston and Kliprivie
Slide 40: Volume Data
Volume Data Volume 2004 2003 Local Starch 83 705 84 622 Local Glucose 290 881 297 753 Total Local 374 586 382 375 Export Starch 35 116 43 932 Export Glucose 17 806 21 389 Total Exports 52 922 65 321 Co-Products 148 428 161 840 Total 575 936 609 536 40
Slide 41: Financial Data
Financial Data Rmillion 2004 2003 Revenue: 1 347 1 491 Domestic 983 1 067 Exports 126 167 Co-Products 238 257 Underlying Operating Profit 42 114 Valuation Adjustments 21 (218) Operating Profit 63 (104) 41
Slide 42: Hulett Aluminium
Hulett Aluminium a
Slide 43: Hulett Aluminium operating profit improvement
• Operating profit improvement reflects progress being made in growing volumes, improving the sales mix and reducing costs • Industry consolidation and increased demand favours Hulett Aluminium as independent from the multinational producers • Optimum allocation of capacity to excess sales opportuni
Slide 44: Hulett Aluminium
Hulett Aluminium FY 2004 FY 2003 Average R/US$ 6,44 7,55 Sales volumes – Rolled Products (t) 144 000 130 400 - Other 18 200 16 300 - Total 162 200 146 700 Revenue (Rm) 3 343 3 200 Underlying operating profit 149 44 Valuation adjustments 1 (39) Operating profit 150 5 44
Slide 45: Hulett Aluminium
Hulett Aluminium • Rolled Products total volume up 10% despite disruptions • 144 000 tons • Rolled Products local volume up 11% • Strong growth in transport, automotive and packaging markets • Exports by local fabrication industry grow by 37% • Manufacturing costs per ton (excl metal) down by 5% • R
Slide 46: Industry Climate
Industry Climate • North American and Asian markets more bouyant, with improved rolling margins • European market generally still quiet • Competitor dynamics • Alcan acquires Pechiney – now only 3 majors • Alcoa acquires Russian mills • Alcan places rolling mills in separate listed company 46
Slide 47: Rolled Products Capacity Utilisation
Rolled Products Capacity Utilisation Sales Volumes Year % Increase (tons) 2000 85 000 7 2001 91 000 7 2002 105 000 15 2003 130 000 24 2004* 144 000 10 • *The Hot Mill fire and industrial action reduced 2004 sales by approximately 10 000 tons • All products developed for specific customers and applic
Slide 48: Reduce Conversion Costs
Reduce Conversion Costs • Total conversion costs (excluding metal) limited to increase of 5% • Nominal 5% reduction in conversion costs per ton, real reduction of 9% • Progress in reducing variable costs per ton: • Metal premiums and recycling costs reduced by 12% • Other direct material costs reduc
Slide 49: Moreland
Moreland
Slide 50: Another milestone performance
• Another milestone performance • Zimbali JV with IFA surging ahead • Izinga and Ilala Ridge residential projects yielded excellent sales • Outstanding sales in Umhlanga Ridge New Town Centre 50
Slide 51: Capitalising on the solid platform of globally benchmarked developments
• Capitalising on the solid platform of globally benchmarked developments in booming 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
Slide 52: 2004 Performance
2004 Performance • Another record performance • Reaping rewards from world-class platform and continued buoyancy in the property market • Revenue up 86% to R420 million • Excellent revenue level for all portfolios • Outstanding Resorts and Residential performance • Strong Commercial and Industrial p
Slide 53: Accounting Treatment
Accounting Treatment • Bulk land acquired from THS at market value • Capitalise to inventories • Cost of sales write-off on relative value/project-by-project basis • Sales recognised when all major conditions are cleared: • When agreements unconditional • Purchaser has paid a meaningful deposit/lodg
Slide 54: Izinga Ridge - Umhlanga
Izinga Ridge - Umhlanga • 405 hectares (gross) • 2 000+ residential units • 44 units sold to date: (R37m) • New phases being unlocked in 2005 to 2007 54
Slide 55: Umhlanga Ridge New Town Centre
Umhlanga Ridge New Town Centre • Gateway expanded: 12 600m2 to total of 137 000m2 • 1 000 apartments under development • Customers constructing 77 000m2 bulk in 2005 • First blue chip corporate offices about to commence construction • Sales to date: R230m 55
Slide 56: RiverHorse Valley Business Estate
RiverHorse Valley Business Estate • Development: 100 ha • Straddling N2 at Effingham • Total investment: R1,6 billion • eThekwini Municipality opening R250m link road in early 2005 • First phase almost sold out • Sales to date: R97 million (bulk area of 40 ha) PPP with eThekwini Municipality 56
Slide 57: Zimbali South/West
Zimbali South/West • M4 highway realignment being opened in March 2005 • 150 hectares / 550 residential units • 2 hotels under construction • 200+ room, 5-star IFA hotel with construction commencing 2006 • Sales to date: R204m • Local, national and international purchasers JV with IFA 57
Slide 58: Tinley Manor
Tinley Manor • Coastal fronting / North and South bank of Umhlali river • 680 hectares new resort node • 5 000 potential units (processing EIA & zoning approval) • Hotel & Retail • Golf course development • Potential for small craft harbour 58
Slide 59: Shongweni
Shongweni • North & South of N3 Shongweni interchange • 2 000 hectares - planning/design/ layout already in progress – discussion with Municipality • Commercial – retail / offices 480 000m2 • Business Park • Residential - niche/special theme estates/projects – 4 700 units 59
Slide 60: Zinkwazi/Thukela
Zinkwazi/Thukela 2 050 ha, coastal fronting between Nonoti and Thukela rivers 60
Slide 61: Expanding the business model
Expanding the business model • Broaden exposure and linkages • International partners • Wider customer base • Increase marketing, visibility and awareness of Moreland/Durban • Downstream criteria and business plans being developed • Capture full value from land developments • Sustain long term profi
Slide 62: 2004 Highlights
2004 Highlights • Sibaya Entertainment Kingdom • Successful opening in December 2004 • Second hotel under construction ahead of original program • uShaka Marine World • Successful opening in May • Project managed for the Municipality / partners • Excellent festive season • Durban Point Waterfront De
Slide 63: Tongaat-Hulett Sugar
Tongaat-Hulett Sugar Be
Slide 64: 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 64
Slide 65: 2004 Results: H1 vs H2
2004 Results: H1 vs H2 H1 2004 H2 2004 R million R million Profit from operations 47 137 • Higher SA crop in 2004 resulting in reduced costs per ton in the second half of 2004 • Increased sales volumes • Restructuring benefits starting to take effect • Increased Triangle dividend • Increased contrib
Slide 66: Mozambique
Mozambique • Increased access to preferential markets • Participating with other LDC countries for earlier and greater EBA access into EU • ACP beneficiary through shortfall allocations • Share of 18 000 ton Barbados reallocation • Grow production towards full capacity of 156 000 tons • Production 8
Slide 67: Sugar Production
Sugar Production Installed Tons ‘000 2000 2001 2002 2003 2004 capacity South Africa 969 755 860 652 724 974 Mozambique 39 36 71 82 85 156 Swaziland RSE 41 45 50 54 50 55 Zimbabwe 282 264 296 264 222 315 Total 1 331 1 100 1 277 1 052 1 081 1 500 % of Capacity 89% 73% 85% 70% 72% 100% 67
Slide 68: SA Sugar Production
SA Sugar Production Industry: 2 225 000 tons 3 THS: 724 000 tons Tons Sugar - Millions 32,6% (2003: 27,1%) share of industry 2.5 2 1.5 THS 1 Industry 0.5 THS 2003 and 2004 crops lowest in 9 years 0 as a consequence of low rainfall 1999 2000 2001 2002 2003 2004 Year 68
Slide 69: Total Volumes THS (SA)
Total Volumes THS (SA) Tons sugar 2004 2003 Opening stock 276 598 331 357 Production 723 686 652 019 Prior season adjustment (455) 3 366 Sugar purchased in 89 819 133 163 Sales (756 287) (843 307) Closing stock 333 361 276 598 69
Slide 70: Domestic Volumes THS (SA)
Domestic Volumes THS (SA) Tons sugar 2004 2003 Opening stock 175 607 158 454 Production 394 979 367 863 Prior season adjustment (1 459) 15 046 Sugar purchased in 89 819 133 163 Sales (464 365) (498 919) Closing stock 194 581 175 607 70
Slide 71: Export Volumes THS (SA)
Export Volumes THS (SA) Tons sugar 2004 2003 Opening stock 100 991 172 903 Production 328 707 284 156 Prior season adjustment 1 004 (11 680) Sales (291 922) (344 388) Closing stock 138 780 100 991 71
Slide 72: Raw Sugar Export Realisations
Raw Sugar Export Realisations South Africa Raw Sugar 2004 2003 Price in US c/lb* 7,27 6,59 Average Rand/US$ R7,01 R8,85 Average Rand realisations per ton R1 231 R1 412 • Table includes raw sugar for refined exports • *Excludes preferential markets and premiums 72