Earnings releases


Interim Results for the half-year ended 30 June 2005


COMMENTARY
 
HIGHLIGHTS
  • Revenue of R3,1 billion (2004: R3,0 billion)
     
  • Operating profit of R319 million (2004: R157 million)
     
  • Headline earnings of R208 million (2004: R53 million)
     
  • Interim dividend of 120 cents per share (2004: 50 cents per share)

Headline earnings improved to R208 million compared to R53 million in the first half of 2004. Earnings momentum is building as the strategy of growing earnings from the Group's four strategically placed and focused operations is being executed. Operating profit increased to R319 million from R157 million in 2004.

Hulett Aluminium increased operating profit to R180 million in the first half of 2005 (2004: R88 million), with the Group's share being 50% thereof. Rolled Products production increased to 168 000 tons annualised and sales volumes grew by 20% to 172 000 tons annualised. There was encouraging growth of value added exports by customers in the local market. Export sales volumes increased by 19% and sales opportunities well exceed the company's available capacity. There has been sustained growth in higher value, more demanding export products, as sales of can end stock increased by 37%, closure sheet by 25% and heat treated plate by 15%. The benefit of improved international rolling margins in the first half of 2005 was reduced by the 7% stronger average Rand/US dollar exchange rate. Conversion costs per ton reduced by 15% as a result of greater output and the increase in total rolled products conversion costs being limited to less than 3%. The Rolled Products operation is well on track to further increase volumes in the second half of 2005, towards the full capacity which exceeds 200 000 tons per annum. The extrusion business achieved a sound operating profit performance.

African Products has converted to the new maize procurement and product pricing model, and earnings volatility from maize valuations has been eliminated. Operating profit of R32 million is comparable to R7 million in 2004. Sales for the first four months were priced when maize was at import parity and this, together with low co-product prices, placed the business under pressure. The maize price moving towards export parity, as a result of the maize surplus in South Africa, started benefiting the business significantly from May 2005. African Products' profit recovery is progressing. Sales of prime domestic products increased by 3,6% to 183 500 tons, with success in regaining volumes lost to imports. Actions are underway to reduce maize carrying costs, lower fixed costs, increase operating efficiencies and develop new business opportunities.

Tongaat-Hulett Sugar's operating profit increased to R83 million (2004: R29 million) before Triangle dividends and restructure costs. Sales volumes in South Africa at 215 430 tons (2004: 211 767 tons) and raw sugar export volumes at 172 680 tons (2004: 120 345 tons) have increased due to growth in the domestic market and the sale of higher export stocks carried into 2005 from 2004 production. The small, drought-affected South African crop harvested in 2004 was nevertheless larger than the 2003 crop. The increased production volume resulted in a decrease in the cost per ton of sugar carried forward and sold in the first half of 2005. This, together with the improved sales tonnages and export realisations, has increased margins. The benefits of actions taken to enhance earnings are beginning to be realised. These include rationalisation of milling capacity, reduction in milling costs, cane procurement projects, head office closure, leveraging of the Huletts brand and other refining value chain initiatives. A dividend equivalent to US dollar 2,9 million was declared by Triangle Sugar Zimbabwe, of which the first US dollar 1,8 million was remitted in July and consequently no dividends have been brought to account in the first six months (2004: R21 million). Second half earnings are expected to improve with the higher 2005 sugar production and increasing benefits from the earnings enhancing initiatives. A Rand/ US dollar exchange rate at R6,60 and a world sugar price above 9 US c/lb will improve export realisations per ton by approximately 11% in the second half of 2005.

Tongaat-Hulett's sugar production for the 2005 year is expected to grow by 12% to 1,2 million tons. Production from South African operations is estimated to increase by 11% to 802 000 tons sugar (2004: 723 000 tons) while that of Mozambique is expected to rise by 28% to 109 000 tons (2004: 85 000 tons). In Swaziland, Tambankulu is expected to produce the raw sugar equivalent of 52 000 tons (2004: 50 000 tons). Triangle is expected to produce 250 000 tons of sugar (2004: 222 000 tons).

Moreland's operating profit for the half-year was R77 million (2004: R117 million). The industrial and commercial portfolios delivered strong performances. The resorts portfolio started benefiting in June from replenished stocks. The residential portfolio's performance was lower mainly due to the delay in obtaining development approvals for the La Lucia Ridge Executive Village site, which are expected to occur in the second half of the year. The strength of the KwaZulu-Natal property market is expected to continue, with relatively low interest rates and the continual broadening of the market boding well for good performances across all portfolios. Progress has been made in securing environmental impact, zoning and development approvals for a number of major projects to ensure that sufficient serviced stocks are available to capitalise on demand. New phases of current projects and new niche projects are scheduled to be launched within the next six months. Negotiations are already underway on a few large sites at Mdloti South, Sibaya and Umhlanga Triangle.

The Group has reduced its exposure to valuation gains and losses on financial instruments, which are included in operating profit. The majority of the valuation adjustments comprised of a foreign cash translation gain of R39 million (2004: loss of R28 million). Net financing costs have decreased mainly as a result of lower interest rates, reduced maize finance costs and changes in the funding of the Mozambique sugar business. The tax charge includes the benefit of the 1% reduction in the South African company tax rate and the consequent R28 million release from the deferred tax provision.

The board has declared an interim dividend for the half-year of 120 cents per share (2004: 50 cents per share).

A POSITIVE OUTLOOK
Tongaat-Hulett is growing earnings, benefiting from management actions both completed and underway across the Group and capitalising on the improved economic conditions in the areas where it operates. Actions include proactive optimisation of capacity utilisation, enhancement of sales mix, improvement of raw material procurement, growth of volumes, reduction of costs and capitalising on the Group's property development platform. The benefits will increasingly be reflected in future financial results. Considerable earnings growth is expected to be reported for the full year.

   
For and on behalf of the board
C M L SavageP H Staude
ChairmanChief Executive Officer

Amanzimnyama, Tongaat, KwaZulu-Natal
29 July 2005