Tongaat Hulett Limited · JSE:TON
Tongaat Hulett — H1 2018/19 Earnings Presentation
52 slides from Tongaat Hulett's earnings presentation, November 2018
Slide 1: Tongaat Hulett Interim results November 2018
@ Tongaat Hulett NOVEMBER 2018 _ Interim results
Slide 2: Index
Index Tongaat Hulett operations and regional markets Page • Overview 3 • Financial overview 4 • Sugar operations 12 • Starch and Glucose 19 • Land conversion and development 22 • Additional information 25 2
Slide 3: Overview
Overview • Tongaat Hulett encountered significant challenges during the six months ended 30 September 2018 • Operating profit for the period of R530 million was 64% below the R1,471 billion earned in the six months ended 30 September 2017 • In the land conversion and development activities, the majo
Slide 4: Financial overview
Financial overview 6 months to 6 months to R million 30 September 2018 30 September 2017 Revenue 8 808 8 118 +9% Operating profit 530 1 471 - 64% Headline (loss)/earnings (87) 661 - 113% Operating cash flow (before working capital) 1 978 2 447 Cash flow - highlighting sugar related dynamics and land
Slide 5: Revenue and impact of IFRS 15
Revenue and impact of IFRS 15 IFRS 15 Revenue from Contracts with Customers affects commercial transactions within its land conversion and development activities as well as certain of the customary transactions within the sugar operations where sugar is sold to industry (or similar) bodies 6 months
Slide 6: Operating profit
Operating profit 6 months to 6 months to 12 months to R million 30 Sept 2018 30 Sept 2017 31 March 2018 Sugar Zimbabwe 537 580 363 Eswatini 55 61 4 Mozambique 341 394 71 South Africa 205 273 29 Sugar operations before cane valuations 1 138 1 308 467 Cane valuations (796) (473) 370 Sugar operations t
Slide 7: Operating profit: current year versus prior year
Operating profit: current year versus prior year Lower domestic prices, reduction in Mozambique's cane Low maize costs support higher Major transactions anticipated area due to end of lease arrangements and a lower cane margins. Improved co-product not concluded - 0,6 hectares age profile due to an
Slide 8: Cash flow and borrowings
Cash flow and borrowings In light of the current debt levels, tight cash flow management will continue to receive focussed attention across the business 8
Slide 9: Cash Flow - Highlighting Sugar Related Dynamics and Land Conversion Cash Flow Profile
Cash Flow - Highlighting Sugar Related Dynamics and Land Conversion Cash Flow Profile 2018/19 2017/18 2017/18 Sugar operations H1 R million H1 H1 FY • The South African sugar operations benefitted from a sizeable “buy-in” ahead of the Operating profit + 530 + 1 471 + 1 958 September 2018 price incre
Slide 10: Free cash flow by activity - current year vs prior year
Free cash flow by activity - current year vs prior year • Weekly cash flow analysis and projections receiving significant attention • Various initiatives are in progress to reduce working capital requirements, limit capital expenditure and improve operating cash flows • Proceeds from previous land s
Slide 11: Net debt levels and long-term borrowings
Net debt levels Net Debt 1,000 930 Long-term Borrowings (R million) 9000 880 8000 800 680 700 7000 600 6000 600 5000 410 400 4000 400 3000 252 171 2000 200 1000 56 0 0 2015/16 2016/17 2017/18 2018/19 H1 FY LT Borrowings - South Africa LT Borrowings - Mozambique • As sugar operations produce for nine
Slide 12: Sugar operations
Sugar operations To focus on generating cash flow and increasing returns on capital employed 12
Slide 13: Global sugar market dynamics and prices
Global sugar market dynamics and prices • The average world market sugar price in H1 2018/19 was 11,35 US c/lb and 14,53 US c/lb in H1 2017/18 • Revenue from the higher production was offset by the lower world market raw sugar price, which was on average 22% below the comparative period 12 20.0 10 1
Slide 14: Zimbabwe - sugar production
Zimbabwe - sugar production 2015/16 2016/17 2017/18 2018/19 Sugar produced (tons) Actual Actual Actual Estimate Hippo and Triangle 578 000 454 000 392 000 450 000 - 460 000 Continued focus on agricultural improvement plans leading to ongoing yield improvements on a sustainable basis • McP - 102 tons
Slide 15: South Africa - imports and tariff protection
South Africa - imports and tariff protection • After extensive engagement with the International Trade Administration Commission and the South African government, the US dollar-based reference price, was increased 20% in August 2018 from US$566 to US$680 per ton • Substantial reduction in imports wi
Slide 16: South Africa - SACU sales volumes and prices
South Africa - SACU sales volumes and prices • In response to competition from imported sugar, local prices were reduced both in July 2017 and March 2018 by a cumulative 22%, resulting in lower margins relative to the comparative numbers • Local prices increased in September 2018 returning to around
Slide 17: Mozambique - refined sugar to improve realisations
Mozambique - refined sugar to improve realisations • Robust measures are being taken to stem the flow of illegal sugar imports from the region in order to recover local market share • The commissioning of the Xinavane refinery will be completed by mid-November 2018 and will deliver a step-change imp
Slide 18: Mozambique - domestic price history
Mozambique - domestic price history • The stronger Metical resulted in a higher local price of sugar in Mozambique than in neighbouring markets in US dollar terms, creating price arbitrage opportunities • Local market sales volumes were below the comparative period 70,000 1,200 60,000 1,000 Raw Suga
Slide 19: Starch and Glucose operations
Starch and Glucose operations Favorable maize outlook and sustained profit margins 19
Slide 20: Maize prices are benefiting operating margins
Maize prices are benefiting operating margins Relief on margins as maize prices continued to trade closer to export parity • Record 2016/17 maize harvest led to maize prices trading closer to export parity levels and improved margins • Improved maize costs coupled with a weaker local currency have o
Slide 21: Evolving product, customer and market mix
Evolving product, customer and market mix • Improved margins • Margins continued to recover from the higher drought-induced maize prices of 2017/18 • Margins benefited from improved co-product realisations • Market volumes • Volume growth continues to be enjoyed from new market development initiativ
Slide 22: Land Conversion and Development
Land Conversion and Development Set to unlock further value from a solid platform 22
Slide 23: Unlocking more value from a solid platform
Unlocking more value from a solid platform • Significant cash generation as transfers of sold properties are registered • R630 million collected during October • Remaining properties for registration represent R1,934 billion - most of which will be collected over the next 12 months • Key indicators
Slide 24: Conclusion
Conclusion Tongaat Hulett recognises the imperative to restore returns for its shareholders to an acceptable level, improve cash generation and reduce debt levels. Therefore, the business is accelerating a review process across all its operations with the objective of unlocking value Tongaat Hulett
Slide 25: Additional information
Additional information Page • Financial information 26 - 28 • 2007 BEE transaction 29 - 30 • Global sugar market dynamics 31 • Sugar production 32 • Deficit regional sugar markets 33 - 34 • Tongaat Hulett’s sugar market positioning 35 • Zimbabwe sugar operations 36 - 38 • South African sugar operati
Slide 26: Growing crops on the Tongaat Hulett balance sheet
Growing crops on the Tongaat Hulett balance sheet 30 September 2018 30 Sep 17 31 Mar 18 South Mozambique Eswatini Zimbabwe Total Total Total Africa Standing Cane Hectares for harvest 22 771 34 387 3 784 27 232 88 174 87 550 89 818 Standing cane value (R per ha) 23 671 16 632 24 663 39 332 25 967 24
Slide 27: Growing crops - change in fair value
Growing crops - change in fair value IAS 41 Fair Value Change included in the Income Statement: Period to 30 September 2018/19 2017/18 South Africa R million • Low export price and lower than expected local H1 H1 market price increase South Africa - 192 - 62 Mozambique • Low export price and limited
Slide 28: Exchange rates
Exchange rates 2018/19 2017/18 30 Sep 31 March H1: Avg. H1: Avg. 2018 2018 Rand/US$ 13,39 13,21 14,21 11,89 Rand/Euro 15,73 15,03 16,41 14,64 Rand/Metical 0,22 0,21 0,23 0,20 US$/Euro 1,18 1,14 1,16 1,23 Metical/Euro 70,1 70 70,3 74,7 Metical/US$ 59,4 61,1 60,8 60,7 • Export proceeds: US$ and Euro (
Slide 29: 2007 BEE transaction
2007 BEE transaction Details as per SENS Announcement of 2 July 2014 • 2007 structure - an 18% participation structure for two strategic/broad-based groupings • Original terms and conditions of the transaction agreements have remained in place and have not been altered since their conclusion and app
Slide 30: 2007 BEE transaction
2007 BEE transaction • This buy-back right is subordinated in favour of the repayment of the external funding and the BEE shareholder loans, which have no recourse to Tongaat Hulett and are well covered by the assets in the BEE SPVs. This means that the buy- back by Tongaat Hulett can only occur aft
Slide 31: Global sugar market dynamics
Global sugar market dynamics • The price of raw sugar in the world market has been under World Market Raw Sugar Price sustained pressure from supply-side dynamics that resulted in a global surplus in the period October 2017 - September 2018 of High Low Avg some 9 million tons, trading at its lowest
Slide 32: Sugar production
Sugar production 2013/14 2015/16 2016/17 2017/18 2018/19 Tons Raw Sugar Actual Actual Actual Actual Estimate South Africa 634 000 323 000 353 000 513 000 570 000 - 590 000 Mozambique 249 000 232 000 198 000 218 000 235 000 - 245 000 Zimbabwe 488 000 412 000 454 000 392 000 450 000 - 460 000 Eswatini
Slide 33: Deficit regional sugar markets
Deficit regional sugar markets • Import demand in target deficit countries is forecast to amount to some 1,76 million tons of sugar per annum, which has been supplied by both the regions’ producers and also by India, Thailand, Saudi Arabia, Dubai and Brazil • Per capita annual sugar consumption is m
Slide 34: Deficit regional sugar markets
Deficit regional sugar markets • As Tongaat Hulett fills its production capacity ahead of demand Projected growth in regional demand for imported sugar growth in its internal markets, a substantial portion of the additional Country 2017/18 2020/21 Increase production will be directed to these market
Slide 35: Tongaat Hulett's sugar market positioning
Tongaat Hulett’s sugar market positioning • The domestic markets in countries where Tongaat Hulett Sugar Produced - Markets 2018/19 (tons) produces sugar is a key focus area. There has been progress in South Africa and significant success in Zimbabwe and Mozambique with the protection from imports,
Slide 36: Zimbabwe - local market dynamics
Zimbabwe - local market dynamics Short to medium-term focus on protecting sales volume and value in view of increasingly unstable economic environment • Continue to lobby government to maintain existing import controls (on sugar) - proven effective with zero imports in 2017 and 2018 • Sugar price in
Slide 37: Zimbabwe - sugar production
Zimbabwe - sugar production 2015/16 2016/17 2017/18 2018/19 Cane milled and sugar produced Actual Actual Actual Estimate Total hectares farmed as at 44 952 45 339 45 245 45 274 1 April (beginning of the season) Hectares milled 41 683 42 665 41 338 41 307 41 307 Cane yield (tcphm) 80,32 81,63 74,39 8
Slide 38: Zimbabwe - rainfall and dam levels
Zimbabwe - rainfall and dam levels Full Volume % Full as at % Full as at % Full as at Current levels of existing dams ML 30 April 2018 15 Oct 2017 15 Oct 2018 Tugwi-Mukosi 1 909 294 79,0 68,0 72,0 Mutirikwi-Bangala 1 501 856 57,4 38,9 50,3 Manjirenji-Siya 379 634 92,0 90,2 81,5 Manyuchi 303 473 100,
Slide 39: South Africa - sugar production
South Africa - sugar production 2015/16 2016/17 2017/18 2018/19 Cane milled and sugar produced Actual Actual Actual Estimate Total hectares farmed as at 121 530 122 856 116 416 116 322 1 April (beginning of the season) Hectares milled 78 194 78 252 86 285 86 721 86 721 Cane yield (tcphm) 39,54 47,20
Slide 40: South Africa - industry transformation
South Africa - industry transformation Transformation - industry initiatives • Transformation initiatives by the industry are gaining momentum and provide a positive platform for government support as a whole, particularly for the funding for small-scale, black growers and land reform beneficiaries
Slide 41: Mozambique - domestic sugar market dynamics
Mozambique - domestic sugar market dynamics • Outlook on future sugar demand in Mozambique is positive and tracking the bullish sentiment sustained by the final investment decisions on the gas projects expected for the first quarter of 2019, resulting in increased FDI • Demand for industrial refined
Slide 42: Mozambique - sugar production
Mozambique - sugar production 2015/16 2016/17 2017/18 2018/19 Sugar produced (tons) Actual Actual Actual Estimate Xinavane 168 000 148 000 168 000 185 000 - 190 000 Mafambisse 64 000 50 000 50 000 50 000 - 55 000 Total Mozambique 232 000 198 000 218 000 235 000 - 245 000 • 2 848 hectares scheduled f
Slide 43: Mozambique - sugar production
Mozambique - sugar production Cane milled and sugar produced - 2015/16 2016/17 2017/18 2018/19 Xinavane Actual Actual Actual Estimate Total hectares farmed as at 18 364 18 130 17 953 18 036 1 April (beginning of the season) Hectares milled 16 367 16 504 16 084 16 835 16 835 Cane yield (tcphm) 88,48
Slide 44: Mozambique - rainfall and dam levels
Mozambique - rainfall and dam levels Full Volume % Full as at % Full as at % Full as at Current levels of existing dams ML 30 September 2016 30 September 2017 30 September 2018 Corumana dam 880 000 10,1% 59,1% 43,8% (Xinavane) Muda dam 56 000 18,5% 77,3% 76,2% (Mafambisse) • Activities underway to p
Slide 45: Ethanol and electricity
Ethanol and electricity Ethanol Electricity • Ethanol is an important complementary product to sugar, providing • Electricity remains an important co-product in sugar production, operational flexibility, longer crushing seasons, molasses beneficiation, as it contributes towards extracting maximum va
Slide 46: Raw sugar production history
Raw sugar production history Milling Season Tons ‘000 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 South Africa 977 762 868 659 731 760 674 612 652 573 455 486 486 634 541 323 353 513 Mozambique 39 36 71 82 85 115 106 108 108 134 164 233
Slide 47: Starch and Glucose - key information
Starch and Glucose - key information • Largest maize wet-miller in Africa • Use > 670 000 tons maize per annum • Significant market sectors manufacturing complementary and substitute products from either maize or sugarcane • Various market segments • Fermentation (alcoholic beverages) • Spray drying
Slide 48: Starch and Glucose - key drivers
Starch and Glucose - key drivers Markets Competitive Raw Materials • Established domestic market with substantial potential for growth • Established source of local maize with quality standards above as per capita consumption of starch and glucose increases to international levels developed market l
Slide 49: Starch and Glucose - volumes and revenue breakdown
Starch and Glucose - volumes and revenue breakdown Volume (tons) September 2018 September 2017 % Change Local starch 49 893 45 574 9,5% Local glucose 153 676 174 101 -11,7% Total local 203 569 219 675 -7,3% Export starch 17 738 17 150 3,4% Export glucose 21 467 20 766 3,4% Total exports 39 205 37 91
Slide 50: Starch and Glucose - South African maize history
Starch and Glucose - South African maize history 2017/18 Final Maize season 1979/80 2012/13 201314/ 2014/15 2015/16 2016/17 Production Estimate Hectares planted (000 hectare) 4 031 2 781 2 688 2 653 1 947 2 629 2 319 Yield (tons/hectare) 3,37 4,21 5,32 3,75 3,87 6,40 5,58 Production (000 tons) 13 58
Slide 51: Land Conversion and Development
Land Conversion and Development Substantial Social and Economic Impact • Tongaat Hulett is an active player in KwaZulu-Natal’s rural and urban economy • Supports agricultural development across the province • Land is used productively throughout the land conversion cycle • Business activities are ca
Slide 52: Further information
Further information For further information visit www.tongaat.com or Contact Michelle Jean-Louis Office: +27 32 439 4101 Mobile: +27 83 386 3846 Email: michelle.jean-louis@tongaat.com 52