Earnings releases

Interim Results for the half-year ended 30 June 2004


The Group recorded headline earnings of R56 million, generated off revenue for the half-year of R2,95 billion (2003: R3,0 billion). These earnings show an improvement of R255 million from the headline loss in the same period last year.

Management actions taken throughout the Group to improve profitability have not yet fully impacted on Tongaat-Hulettís results. The benefits of these and further actions will flow into the second half of 2004 and beyond. Results for the first half of 2004 are detailed below.

African Productsí underlying operating profit for the first half of 2004 reduced to R7 million (2003: R67 million). The high priced maize procured during the previous cycle, under the previous business model, and the strengthening Randís effect on domestic selling prices and export margins were the main influencing factors. Domestic volumes of starch and glucose declined by 6%, compared to the first half of 2003, due to imported glucose in the spray drying industry and increased imports of final products such as confectionery. Export volumes reduced by 21% due to the strengthening currency. Initiatives to maintain key export markets and combat imports in the local market are ongoing with significant success in terms of volumes recovered for the second half of 2004 and for 2005. Fixed cash costs have been held at levels below those of the comparable periods in 2002 and 2003. The ongoing efficiency programmes yielded savings in variable costs.

All unhedged maize futures contracts have been eliminated and the substantially revised approach to maize procurement will have a positive impact towards the end of 2004. Based on current consumption, the higher priced maize will all have been used by October 2004.

Hulett Aluminiumís underlying operating profit increased to R78 million, with the Groupís share being 50% thereof. Rolled products sales volumes grew to 142 000 tons annualised, a 19% increase over the same period last year. This was achieved despite an interruption on the Camps Drift hot mill that affected output for approximately two weeks. Local sales increased by 5% and exports by 26%. The mix improved, with sales of clad products and exports of closure sheet being three times those of the first half of last year while exports of can end stock and painted products continued to show strong growth. Total rolled products manufacturing costs, excluding metal, have been limited to an increase of 4% despite the growth in volumes, resulting in a 13% reduction in conversion costs per ton. The stronger Rand offset much of these gains.

Moreland continued to capitalise on the solid platform of its leading property developments and the prime land previously under sugar cane, increasing revenue for the first six months by 318% to R272 million. A milestone underlying operating profit of R118 million (2003: R20 million) was achieved. The buoyant property market, especially on the KwaZulu-Natal North Coast, is contributing to Moreland unlocking extensive value from its Zimbali, La Lucia Ridge and Umhlanga Ridge developments. Outstanding performances were achieved in the residential and resort portfolios due to the strong demand for new phases and developments launched during the period. Sales also increased in both the commercial and industrial portfolios.

Tongaat-Hulett Sugarís revenue of R1,2 billion for the half-year was 15% below the comparable period last year, with underlying operating profit reducing to R38 million from R183 million. Sales volumes in South Africa were 211 767 tons and raw sugar export volumes at 120 345 tons were affected by lower carry-in stocks. The particularly small crop harvested in 2003 resulted in an increase in the production cost per ton of sugar that was carried forward and sold in the first half of 2004. This, together with the decrease in the South African domestic sugar price in October 2003 and the strengthening Randís effect on export realisations, depressed margins in the first six months of the year. In Mozambique, domestic market sales grew by 24% in the drive to increase market share. Triangle continues to operate profitably in the difficult Zimbabwean economic and business environment. Dividends of R21 million were received from Triangle and brought to account.

Year on year, consolidated sugar production for the 2004 year is expected to grow by 5,8% to 1,113 million tons. Sugar production from South African operations is estimated to increase by 9% to 712 000 tons while that of Mozambique is expected to rise to 99 000 tons (2003: 82 000 tons). In Swaziland, Tambankulu is estimated to produce the raw sugar equivalent of 52 000 tons. Triangle Sugar in Zimbabwe is expected to produce 250 000 tons this year.

Tongaat-Hulett Sugarís actions completed in the first six months included the closure of the Entumeni sugar mill with the diversion of cane to the Amatikulu mill, the closure of the sugar head office, downsizing of centralised services and the reorganisation of the South African milling operations from five mill structures to two regional business units. The benefits of these and the further substantial actions being taken will flow in future periods. Restructuring costs of R22 million have been incurred in the current period.

The Groupís underlying operating profit decreased by R80 million and the valuation adjustments charged against income improved by R354 million, compared to the 2003 interim results. This led to the total operating profit improving to R159 million from the 2003 first half loss of R115 million.

The valuation adjustments charged against income amounted to R21 million, compared with the charge of R375 million for the first half of 2003. These items relate mainly to the valuation of certain contracts and balance sheet items based on the exchange rate and maize price at the end of the period. The open maize futures position reported in previous periods has been eliminated and a valuation gain of R18 million has been realised, compared to the R255 million charge in the same period last year.

The Groupís balance sheet remains sound with net borrowings as a percentage of equity at 15,7% (2003: 14,9%).

The board declared an interim dividend for the half-year of 50 cents per share (2003: 40 cents per share).

All the operating companies have programmes in place, which span the next two years, to grow earnings through internal actions. Benefits will increase as the solid progress made in the first half of 2004 is combined with the additional actions being taken.

Hulett Aluminium and Tongaat-Hulett Sugar will benefit from sales that are being booked for late 2004 and into 2005 at higher US dollar prices than those of earlier in 2004.

The Group expects headline earnings for the second six months of 2004 to be considerably above those for the first half, on the basis of similar exchange rates, with underlying operating profit having a sensitivity of approximately R10 million for every 10 South African cents move against one US dollar.


For and on behalf of the board
C M L SavageP H Staude
Chairman Chief Executive Officer
Amanzimnyama, Tongaat, KwaZulu-Natal30 July 2004