Tongaat Hulett Limited · JSE:TON
Tongaat Hulett — FY2006 Earnings Presentation
82 slides from Tongaat Hulett's earnings presentation, February 2007
Slide 1: 1
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Slide 2: Unbundling and BEE
Unbundling and BEE • Two Listed, Focussed Companies in 2007 • Tongaat-Hulett, an agri-processing business which includes integrated components of land management, property development and agriculture; and • Hulett Aluminium (Hulamin), an independent niche producer of aluminium rolled, extruded and o
Slide 3: Financial Results
Financial Results 3
Slide 4: Year to December 2006
Year to 31 December 2006 • Revenue of R7,8 billion (2005: R6,9 billion) • Increase of 13% • Operating profit of R1,02 billion (2005: R730 million) • Increase of 40% • Equity accounted associate improvement • Finance cost reduction • Headline earnings of R703 million (2005: R466 million) • Increase o
Slide 5: Operating Profit
Operating Profit 2006 2005 African Products 96 112 Tongaat-Hulett Sugar 295 232 Triangle dividend 61 19 Moreland 325 231 Hulett Aluminium (50%) 211 159 Corporate (51) (44) Exchange rate translation gain 57 14 Exceptional items 26 7 Group total (Rmillions) 1 020 730 • Average exchange rate R6,77/US$
Slide 6: African Products
African Products 2006 2005 Operating profit (Rm) 96 112 • Margins under pressure • Maize cost - import parity levels • Selling prices of starch and glucose – pressure from imports • Domestic prime product volume growth: 3,7% • Growth rates >13% on value added spray dried glucose • Improved co-produc
Slide 7: Cost Management and Volume Growth Initiatives
Cost Management • Alternate maize storage expanded threefold • Fixed costs down on a rand/ton basis • Fixed costs held below inflation for last 3 years Volume Growth Initiatives • Mining depressant sales up 15% • Starch-based adhesives sales up 98% 7
Slide 8: Tongaat-Hulett Sugar
Tongaat-Hulett Sugar 2006 2005 Operating profit (Rm) 356 251 • Higher export and local market realisations • 2006 results include average world sugar price of 12,8 US c/lb at R6,56/US$ (2005: 9,0 US c/lb at R6,58/US$) • 2006 SA crop was the second lowest in 10 years • Increased contributions from Sw
Slide 9: South Africa
South Africa • SA crop 2nd lowest in past 10 years despite cane procurement initiatives • Lower cane yields • Unexpected poor cane quality • Sucrose % cane 7% lower than 2005 • Effect on 2007 H1 results • Cane initiatives with normal growing conditions • 18 900 hectares yielding 1 283 000 tons of ca
Slide 10: Tongaat-Hulett Sugar
Tongaat-Hulett Sugar • Ongoing drive to reduce manufacturing and overhead costs • Technology – industry leader in sugar milling recoveries • Refinery • 2006 production - 505 000 tons • Capacity target - 600 000 tons 10
Slide 11: Moreland
Moreland 2006 2005 Operating profit (Rm) 325 231 • Strong contribution from Commercial, Industrial and Resort portfolios • Major contributions: RiverHorse Valley Business Estate and Umhlanga Ridge Town Centre, Umhlanga Triangle and Zimbali Coastal Resort • Development approvals on several key develo
Slide 12: Hulett Aluminium
Hulett Aluminium 2006 2005 Operating profit (Rm) 422 319 • Tongaat-Hulett’s 50% share: R211 million • Refer to Hulett Aluminium section for details 12
Slide 13: Other Income Statement Items
Other Income Statement Items • Exceptional item • Capital profit realised on land • Translation gain in respect of foreign cash • R57 million in 2006 (2005: R14 million) • Finance costs • R23 million in 2006 (2005: R60 million) • Tax • Higher tax charge from increased operating profit • Increased ST
Slide 14: Cash Flow and Balance Sheet
Cash Flow and Balance Sheet • Cash flow before dividends and before Hippo Valley acquisition: R203 million • Capital employed – increased working capital • ROCE increased to 14% 14
Slide 15: Tongaat-Hulett Going Forward
Tongaat-Hulett Going Forward 15
Slide 16: Sugar Starch and Glucose
Sugar Starch and Glucose • Tongaat-Hulett produces almost half of South Africa’s refined carbohydrates • Significant market sectors where it manufactures complementary and substitute products from either maize or sugar cane • Considerable expertise and skills base in adding value to carbohydrates an
Slide 17: Agriculture and Land
Agriculture and Land • Significance of agriculture to Tongaat-Hulett is increasing rapidly • Mozambique sugar operations after expansion will entail > 45 000 hectares of land • Established successful track record of managing the dynamics around agricultural land 17
Slide 18: A Structural Shift in the World of Corn and Cassava
A Structural Shift in the World of Corn and Cassava • Bio-ethanol production in the US in 2006 – 5 billion gallons • Projected production for 2007 – 12 billion gallons • Steep increase in international corn prices CBOT Corn Prices - 2006 150.00 135.00 120.00 US$ /ton 105.00 90.00 75.00 60.00 Jan Mar
Slide 19: Profit Volatility
Profit Volatility • Afprod’s profitability impacted by • Relativity of SA maize price to world price • International starch and glucose prices • R/$ exchange rate 19
Slide 20: Import versus export parity
Import versus export parity Maize price gap of R317 million per annum Bio-ethanol High world price encourages planting International maize and Good local maize crop cassava prices increase Worlds starch & SA maize prices glucose price increase move towards (4-6 month lag) export parity Local starch
Slide 21: Hydropolymers
Hydropolymers • Technology agreement signed • ± R8 million committed to date • More saleable product to be imported in 2007/2008 • Detailed engineering completed • R70 million project • ±R40 million/per annum operating profit 21
Slide 22: Value Creation out of Agricultural Land
Value Creation out of Agricultural Land • Growing competence and platform to unlock substantial value from agricultural land when urban/tourism expansion triggers a transition • Conversion of cane land to property development • 100 to 400 hectares per annum La Lucia Ridge : 1995 22
Slide 23: Rising Profitability
Rising Profitability Moreland Operating Year profit (Rm) 2002 20 2003 90 2004 181 2005 231 2006 325 La Lucia Ridge : 2007 23
Slide 24: The Balancing Act
The Balancing Act • 72% mill capacity utilisation in SA • EBIT impact of R 227 million (full season, 2006 fundamentals, 33% share of industry) • Maidstone sugar mill capacity • > 30 000 hectares of cane supplies • Closure Maidstone sugar mill • Value destruction > R 850 million 24
Slide 25: Land Values in Tongaat-Hulett
Land Values in Tongaat-Hulett • Transition is focussed on 12 937 hectares of prime land in KZN coastal belt • Globally prime coastal land shows real appreciation that exceeds the time value of money over the long term 25
Slide 26: Value of bulk cane land before development rights
Value of bulk cane land (10 917 hectares) before development rights Bulk Values as at 31 December 2006 (Rm) Extent – Value per Locality Anticipated Value hectares hectare Shongweni - current 105 2007 0,50 52,5 - future 1 938 2009 0,13 253,9 Cornubia / Mt Edgecombe North 1 218 2008 0,20 243,6 Compens
Slide 27: Catalyst Road Developments Now Open
Catalyst Road Developments Now Open Zimbali M4 (R42m) Sibaya N2/M4 (R46m) RiverHorse Valley Business Estate – Nandi Drive N2 (R250m) 27
Slide 28: Value of land - developments in progress
Value of land - developments in progress (2 020 hectares) Expected operating profit contributions (Rm) Extent – Bulk Transfer Over and above Locality hectares Value bulk value (Rm) Umhlanga Ridge Town Centre 40 19 202 Umhlanga Triangle 141 246 608 Izinga 405 198 263 Sibaya 796 317 515 Zimbali * 493
Slide 29: Umhlanga Ridge Town Centre
Umhlanga Ridge Town Centre • Bulk transfer value of unsold land: R19 million • Expected operating profit contribution R202 million • Commercial: R76 million over 1 year • Residential: R126 million over 6 years • 40 hectares unsold • N2 / M4 accessibility • Gateway catalyst • Parkside/Northward expan
Slide 30: Umhlanga Triangle
Umhlanga Triangle • Bulk transfer value of unsold land: R246 million • Expected operating profit contribution R608 million • Commercial: R217 million over 2 years • Residential: R391 million over 6 years • 141 ha – magnificent sea views M4 / N2 accessibility • Four precincts / mixed use • Ridgeside
Slide 31: Izinga - Umhlanga
Izinga - Umhlanga • Bulk transfer value of unsold land: R198 million • Expected operating profit contribution R263 million over 7 years • 405 hectares (gross) • 72 units sold • New phases being launched in 2007 • Market strong 31
Slide 32: Sibaya
Sibaya • Bulk transfer value of unsold land: R317 million • Expected operating profit contribution R515 million over 8 years • 796 hectares • Beach and river frontage • N2 / M4 excellent access • Includes 5 hotel sites • R800 million Afrisun Sibaya Entertainment World catalyst / 2nd hotel opened Oct
Slide 33: Zimbali
Zimbali • Bulk transfer value of unsold land: R43 million* • Expected operating profit contribution R650 million * North (including Lakes) : R160 million over 4 years South (Westbrook) : R490 million over 9 years (* Moreland’s share) • Relocated M4 has improved access • 5-star Fairmont Hotel and Gar
Slide 34: Value Creation out of Agricultural Land
Value Creation out of Agricultural Land 2 020 hectares • Bulk transfer value of cane land R831m • developments in progress • Expected operating profit contributions R2 503m • developments in progress 10 917 hectares • Bulk cane land before development rights R1 901m • Bulk cane land development righ
Slide 35: Low Cost Sugar Production EU Reforms
Low Cost Sugar Production EU Reforms 35
Slide 36: Sugar Fundamentals
Sugar Fundamentals • EU sugar reform • Minimum price fixed €334,20 per ton (19,6 US c/lb) • 2009 to 2015 • Exports reduced from 7 million tons to 1,4 million tons • Duty free access to LDC countries in terms of EBA from 2009 • World sugar consumption growing at 2%+ p.a. • Renewable energy demand rap
Slide 37: LDC Countries
LDC Countries (Least Developed Countries) • 50 LDC countries • 22 sugar producing LDC countries. • Total production 2,5 million tons • Countries that have exported into EU • Ethiopia • Togo • Malawi • Zambia • Sudan • Tanzania • Senegal • Mozambique • Congo • Benin • Nepal • Sierra Leone • LDC crite
Slide 38: R1,3 Billion Expansion in Mozambique
R1,3 Billion Expansion in Mozambique Xinavane Mafambisse Sugar Milling and Cane Growing Activities 38
Slide 39: Xinavane Expansion
Xinavane Expansion • Production increases to 186 000 tons of sugar p.a.(2006: 65 000) • Capital cost - R1,163 billion • Mill – R819 million • Agric - R344 million • Capital spend • 2007 – 20% • 2008 – 50% • 2009 – 30% • TH shareholder returns • Nominal IRR - 25,2% • NPV @17% - R452 million • Additio
Slide 40: Competitiveness
Competitiveness • Average cash cost – total enterprise 8,5 US c/lb • Milling - 2,2 US c/lb • Agric – 6,3 US c/lb • Harvesting and haulage – 45% • Ratoon and replant – 32% • Irrigation - 13% • Cost Competitiveness • Yields – 110 tons cane per hectare • Sucrose % cane – 14,1% *Marginal cash cost – pro
Slide 41: Mafambisse Expansion
Mafambisse Expansion • Production up from 41 000 tons (2006) to 82 000 tons (2008) • Capital cost – R114 million in 2007 • TH shareholder returns • Nominal IRR - 35,5% • NPV @ 17% – R166 million • Additional 2 100 ha planted to cane in 2007 • Yields – 103 tons cane per hectare • Construction of Muda
Slide 42: Zimbabwe
Zimbabwe Triangle Year Tons 2004 222 000 2005 236 000 2006 240 000 Capacity 315 000 Hippo Year Tons 2004 200 000 2005 194 000 2006 207 000 Capacity 285 000 2006 Total 447 000 Total capacity 600 000 Refining capacity 140 000 42
Slide 43: Zimbabwe
Zimbabwe • World class producer of sugar • Ideal growing conditions • Yields in excess of 110 tons cane per hectare • Fully irrigated • Economies of scale • Size of mills • Extensive cane growing • Cash cost - 7,5 US c/lb • Opportunities for low cost expansion • Tokwe-Mukorsi dam • Additional 30 000
Slide 44: Triangle/Hippo
Triangle/Hippo • Acquisition of 50,35% of Hippo Valley for US$36 million • Replacement cost of Hippo > US$280 million • Synergies between Triangle and Hippo Valley • US$8 million annual benefits • Potential yield increase up to 50 tons cane/hectare on 12 000 ha • Sugar markets in 2006 • Local 65% •
Slide 45: Wii
Wii Wi i Vd wll i
Slide 46: The Aluminium Rolling Industry in 2006
THE ALUMINIUM ROLLING INDUSTRY IN 2006 • Global demand remains firm • High metal price keeps pressure on margins • Profitability of major producers remains low • Consolidation and plant closures continue - Aleris acquires Corus’ aluminium assets - Alcoa closes Swansea plant - Hindalco acquiring Nove
Slide 47: Hulamin's Performance Continues to Improve
HULAMIN’S PERFORMANCE CONTINUES TO IMPROVE • Revenue growth of 32% to R5.5 billion • EBIT growth of 32% 2004 2005 2006 R150m R320m R422m • Local extrusion and rolled products sales up 15% and 11% • Margin reduction offset by improved mix and metal price lag • Manufacturing costs affected by energy a
Slide 48: Rolled Products Capacity Utilisation: A Key Driver of Earnings
ROLLED PRODUCTS CAPACITY UTILISATION: A KEY DRIVER OF EARNINGS • Industry average of 77% - Hulamin exceeding 90% • 2006 sales volume growth of 10 000 tons (6%) - LP Gas impact • Expansion Project impact from 2009 onwards 48
Slide 49: Strong Local Market Growth Impacting on Mix
STRONG LOCAL MARKET GROWTH IMPACTING ON MIX • Extrusions up 15% • Rolled Products up 11% • Further growth to continue 49
Slide 50: Growth of High Value Export Products Continues
GROWTH OF HIGH VALUE EXPORT PRODUCTS CONTINUES… • Industry rationalisation creating opportunities • Current Expansion Project - Additional Heat Treated Plate - Light Gauge Foil 50
Slide 51: Mix Improvement Is a Key Driver of Earnings Growth
MIX IMPROVEMENT IS A KEY DRIVER OF EARNINGS GROWTH • Growth in products with margins over $1500/ton 51
Slide 52: Hulamin Is at the Lowest End of the Industry Cost Curve
HULAMIN IS AT THE LOWEST END OF THE INDUSTRY COST CURVE No. of Suppliers 52
Slide 53: Cost Reduction Projects Are Progressing Well
COST REDUCTION PROJECTS ARE PROGRESSING WELL • Ongoing reduction in unit costs to 250 000 tons • New low cost technologies - Twin Roll Casters 53
Slide 54: Energy Has Increased as a Proportion of Total Costs
ENERGY HAS INCREASED AS A PROPORTION OF TOTAL COSTS 54
Slide 55: Extrusion Sales Growth Is Accelerating
EXTRUSION SALES GROWTH IS ACCELERATING • Good progress in more demanding automotive and transport sectors • Growing our market share in architectural segment • Additional capacity on stream 55
Slide 56: Ready for the Opportunities Ahead
READY FOR THE OPPORTUNITIES AHEAD • Expansion project progressing well - Significant further opportunities • Training investment > 5% of payroll • Experienced management team • Black management 52% • Sustainability - 36% improvement in LTIFR vs. 2005 - High environmental standards • BBBEE equity own
Slide 57: Additional Information
Additional Information 57
Slide 58: South African Bio-Fuels Scenario
South African Bio-Fuels Scenario • Draft strategy tabled late in 2006 and commentary period up to 10 March 2007 • Strategy proposes: • Mandatory blending • Price linked to basic fuel price (BFP) • Fuel levy reduction • Accelerated tax write-off (50:30:20) • Bio-fuel subsidy • Stabilisation Fund to c
Slide 59: Afprod: Financial Data
Afprod: Financial Data Rmillions 2006 2005 Revenue: 1 320 1 293 Domestic 1 038 988 Exports 74 126 Co-Products 207 179 Underlying Operating Profit 96 114 Valuation Adjustments 0 (2) Operating Profit 96 112 59
Slide 60: Afprod: Volume Data
Afprod: Volume Data Volume (tons) 2006 2005 Local Starch 91 706 85 311 Local Glucose 312 144 303 761 Total Local 403 850 389 072 Export Starch 14 307 33 003 Export Glucose 13 344 22 739 Total Exports 27 685 55 742 Co-Products 141 632 150 235 Total 573 133 595 049 60
Slide 61: Afprod: Co-Product Pricing
Afprod: Co-Product Pricing Price movement Co-product Major price drivers 2006 on 2005 50%: International edible Germ Up 7,7% oil price 50%: Local maize International protein Gluten-60 Up 26,7% (Soya, fishmeal) prices Gluten-20 Up 45,8% Local maize price 61
Slide 62: Kindlewood at Mount Edgecombe South
Kindlewood at Mount Edgecombe South • 600 unit gated estate without golf / adjacent Mt Edgecombe Country Club Estates • Development rights secured December 2006 • Single residential / cluster housing mix • Launch to market early in 2007 • Strong market demand 62
Slide 63: RiverHorse Valley Business Estate
RiverHorse Valley Business Estate • ± 300 ha gross area/110 ha developable • environmental rehabilitation • PPP with eThekwini Municipality • Bridging historically divided city / straddling N2 at Effingham • eThekwini Municipality’s Queen Nandi Drive link road access (R250 million) • First phase (80
Slide 64: Bridge City
Bridge City • 43 ha + 17 ha in phase two • Significant mixed-use city centre development • PPP with eThekwini Municipality • Strong support from National, Provincial and Local Government • Launch to market Feb 2007 • Government hospital and magistrates court sites sold • Two large negotiations in th
Slide 65: Shongweni
Shongweni • 2 000 hectares • North & South of N3 Shongweni interchange / great accessibility • Benefit from government N3 infrastructure investment plans • Mixed use development (major retail, offices, residential) • Low density niche residential developments • Conservation and recreation potential
Slide 66: Cornubia at Mt Edgecombe North
Cornubia at Mt Edgecombe North • 1 200 hectares • N2 freeway / M41 highway access / Umhlanga Ridge road link • Mixed use • Residential including affordable housing (35 000+ units) • Commercial 500 000+ m2 • Industrial 100 hectares • 2008 launch • Possible trade-off for affordable housing requirement
Slide 67: Tinley Manor
Tinley Manor • 680 ha new resort node • Coastal fronting / North and South bank of Mhlali River • N2 access • 5 000 potential units (processing EIA and zoning) • Hotel, Residential and Retail • Golf course, small craft harbour potential • Future opportunities 4+ years 67
Slide 68: Zinkwazi / Thukela
Zinkwazi / Thukela • 2 050 hectares • N2 access • Coastal fronting • Between Nonoti and Thukela Rivers • Future opportunities 4+ years 68
Slide 69: Tongaat-Hulett Sugar
Tongaat-Hulett Sugar • 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 growing to 1,9 million tons by 2009 • Year round refining and packing capability of 776 000 tons p.a. • Well posi
Slide 70: Sugar Production
Sugar Production 2006 2009 Tons ‘000 2000 2001 2002 2003 2004 2005 2006 capacity capacity South Africa 969 755 860 652 723 753 666 974 974 Mozambique 39 36 71 82 85 115 106 156 270 Swaziland RSE 41 45 50 54 50 56 55 55 56 Zimbabwe 282 264 296 264 222 236 240 315 600 Total 1 331 1 100 1 277 1 052 1 0
Slide 71: SA Sugar Production
SA Sugar Production Tons Sugar - Millions 3 Industry: 2 230 000 tons THS: 666 000 tons 2.5 Share of industry 29,9% (2005: 30,1%) 2 1.5 THS 1 Industry 0.5 0 THS 2003 and 2006 crops 1999 2000 2001 2002 2003 2004 2005 2006 lowest in 10 years as a consequence of adverse growing Year conditions 71
Slide 72: Total Volumes THS (SA)
Total Volumes THS (SA) Tons sugar FY 2006 FY 2005 Opening stock 282 560 333 361 Production 665 978 752 881 Prior season adjustment (203) (540) Sugar purchased in 63 153 58 121 Sales (785 368) (861 263) Closing stock 226 120 282 560 72
Slide 73: Domestic Volumes THS (SA)
Domestic Volumes THS (SA) Tons sugar FY 2006 FY 2005 Opening stock 156 010 194 581 Production 400 345 379 705 Prior season adjustment (1) (2 010) Sugar purchased in 63 153 58 121 Sales (469 264) (474 387) Closing stock 150 243 156 010 73
Slide 74: Export Volumes THS (SA)
Export Volumes THS (SA) Tons sugar FY 2006 FY 2005 Opening stock 126 550 138 780 Production 265 633 373 176 Prior season adjustment (202) 1 470 Sales (316 104) (386 876) Closing stock 75 877 126 550 74
Slide 75: Raw Sugar Export Realisations
Raw Sugar Export Realisations South Africa FY FY Raw Sugar 2006 2005 Price in US c/lb* 12,81 8,98 Average Rand/US$ R6,56 R6,58 Average Rand realisations per ton R1 999 R1 455 • Table includes raw sugar for refined exports • *Excludes preferential markets and premiums 75
Slide 76: World Price Sensitivity (example)
World Price Sensitivity (example) South Africa Total SA sugar production (tons) 2,5m Domestic and preferential sales (tons) 1,3m Balance exported (tons) 1,2m Effect of 1 US c/lb world price increase R154/ton (1 US c/lb x 22.0462 conversion to US$/ton x R/US$ 7.00) Additional industry revenue R185m (
Slide 77: 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 78: lau,
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Slide 79: 2006 Review
2006 Review • Operating profit performance reflects: • Volume growth of 10 000 tons • Metal price lag benefit • High commodity prices impact on costs • R950m rolled products expansion approved • Capacity to 250 000 tons • Additional growth in high value products (heat treated plate and thin gauge fo
Slide 80: Rolled Products Sales Growth
Rolled Products Sales Growth Tons Annual % Sales Volumes (‘000) Increase 2002 105 15 2003 130 24 2004 144 10 2005 173 20 2006 183 6 All products developed for specific customers and applications 80
Slide 81: Enhanced Sales Mix
Enhanced Sales Mix • Strong local market demand • Extrusions up 15% • Rolled products up 11% • Heat treated plate expansion on stream • Brazing sheet grew by 38% year-on-year • Can end stock export sales grew by 14% year- on-year 81
Slide 82: Financial Data
Financial Data FY 2006 FY 2005 Average R/US$ 6,77 6,37 Sales volumes (tons) – Rolled Products 183 100 173 300 - Other 20 200 18 400 - Total 203 300 191 700 Revenue (Rm) 5 476 4 163 Operating profit (Rm) 422 320 82