Earnings releases


Interim Results for the half-year ended 30 June 2007


COMMENTARY
 

The Tongaat-Hulett Group has unbundled its shareholding in Hulamin to its shareholders following the listing of Hulamin on the JSE. Two focussed, separately listed entities have been established in the form of Tongaat Hulett and Hulamin. Tongaat Hulett is an agri-processing business, which includes integrated components of land management, property development and agriculture. Hulamin is an independent niche producer of rolled, extruded and other semi-fabricated aluminium products.

Pursuant to the listing and unbundling of Hulamin at the end of June 2007, Tongaat Hulett's 50% share in Hulamin was valued through the income statement by R3,348 billion and thereafter unbundled as a distribution in specie. Hulamin's net profit (which does not include the investment fair valuation) for the period up to the unbundling is reflected as a discontinued operation.

The corporate transactions being undertaken by Tongaat Hulett include a 25% BEE equity participation and a return of capital to shareholders by way of a share buy-back. All the transactions were approved by shareholders with a 99% vote in favour at a general meeting held on 11 June 2007, where 84% of shareholders were represented. The 18% strategic partner, cane and infrastructure BEE equity participation cost was measured and recognised at the grant date in June 2007, resulting in a once-off IFRS 2 cost of R320 million being charged to the income statement. Advisory and other transaction related costs of R34 million have also been brought to account. The share buy-back, totalling R506 million including STC and implemented in July 2007, will be accounted for in the second half of 2007. The IFRS 2 costs relating to the 7% BEE employee transaction will be amortised over 5 years, commencing in the second half of 2007 with a cost of approximately R15 million in that period.

Net finance costs increased to R37 million (2006: R15 million income) as a result of higher interest rates and the non-recurrence of financial instrument income received in 2006 on the Hulamin finance structure.

Profit from Tongaat Hulett operations in the first six months of the year was R308 million (2006: R307 million).

Tongaat Hulett's total net profit for the six months to 30 June 2007 is R3,209 billion (2006: R320 million). Headline earnings, which exclude the Hulamin fair valuation and include the transaction costs and BEE IFRS 2 costs, reflect a headline loss of R155 million (2006: R297 million headline profit) for the half-year.

Profit from sugar operations was R167 million (2006: R159 million excluding dividends from Triangle in Zimbabwe). The 2006 crop in South Africa was the second lowest in the past 10 years, with the resultant increased cost per ton of sugar and the lower export stocks carried forward into the first half of 2007. Raw sugar export volumes from South Africa reduced to 84 079 tons (2006: 162 301 tons) and were sold at an effective world sugar price of 14,4 US c/lb (2006: 11,1 US c/lb). South African domestic sales were 209 765 tons (2006: 209 311 tons). Improved contributions were achieved from non-South African operations including the consolidation of Xinavane in Mozambique. No dividends from Triangle in Zimbabwe were brought to account in the first half of 2007 (2006: R8 million). A dividend equivalent to 8 million US dollars has been declared by Triangle and approved by the Zimbabwe Reserve Bank, which is expected to be brought to account in the second half of 2007.

Total sugar production in 2007 is forecast at 1,327 million tons, an increase of 24% compared to the 1,067 million tons produced in 2006. Production in South Africa is estimated at 704 000 tons (2006: 666 000 tons). In Swaziland, Tambankulu Estates is expected to produce the raw sugar equivalent of 54 000 tons (2006: 55 000 tons). In Zimbabwe, sugar production is expected to increase to 442 000 tons (including 201 000 tons at Hippo Valley) from the 240 000 tons produced by Triangle in 2006. In Mozambique, sugar production at Xinavane is expected to increase to 77 000 tons (2006: 65 000 tons) with Mafambisse increasing to 50 000 tons (2006: 41 000 tons). New cane expansion and procurement initiatives continue across all the regions. The Mozambique expansion projects at Xinavane and Mafambisse are progressing well.

Profit from starch operations reduced to R37 million (2006: R43 million) as margins remained under pressure from high domestic maize prices. Poor weather conditions during the South African summer rainfall period resulted in local maize prices increasing to import parity levels. Improved local co-product selling prices partially reduced the impact of the increase in maize prices. Domestic sales volumes of starch based products grew by 6,7% with strong demand seen in the alcoholic beverages and confectionery sectors. Local maize prices are expected to remain at import parity levels for the remainder of 2007 given the current supply and demand balance. International maize prices have increased by 70% since the fourth quarter of 2006, driven by increased demand for biofuels. They are likely to remain at relatively high levels, supporting an increase in planting in South Africa for the 2007/2008 season. This should result in domestic maize prices moving below import parity levels. International starch margins have started to improve after coming under pressure during the latter part of 2006 and early 2007 as a result of the sharp increases in the international maize price.

Profit from land and property developments of R127 million (2006: R117 million) was achieved from restricted levels of zoned stock. Progress is being made on securing development approvals at Umhlanga Ridgeside, Sibaya Resort at Umdloti, Zimbali Lakes, Assagay Valley residential area at Shongweni, further phases of Izinga and Umhlanga Ridge Town Centre residential precincts at Umhlanga Ridge. Significant contributions in the first half of 2007 came from RiverHorse Valley Business Estate, Bridge City, Umhlanga Ridge Town Centre, Zimbali Coastal Resort, Izinga Ridge and Kindlewood. Demand across all portfolios remains strong and the shortage of stock of zoned and serviced sites throughout the region, as a result of ongoing delays in obtaining development approvals, is contributing to higher prices.

The Board has declared an interim dividend for the half-year of 150 cents per share (2006: 200 cents per share).

OUTLOOK

Headline earnings for 2007 will include the significant effects of the once-off costs of the corporate transactions, as reported for the half-year to 30 June 2007 and as indicated in the circular to shareholders dated 18 May 2007.

Profit from Tongaat Hulett operations in the second half of the year is expected to exceed that achieved in the first half of 2007. Real growth in profit from operations is expected for the full 2007 year.

For and on behalf of the Board

C M L Savage
Chairman
P H Staude
Chief Executive Officer
 
Amanzimnyama, Tongaat, KwaZulu-Natal

27 July 2007