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15-07-2003

Tongaat-Hulett impacted by valuation items at half-year


Tongaat-Hulett announced that the strengthening of the Rand and the reduction in commodity prices, especially maize, together with the consistent application of accounting statements AC133 and AC112 would lead to a substantial charge to the income statement for the period to 30 June 2003. This announcement is being made ahead of its release of half-year results as the impact of the valuation adjustments relating to the recognition and valuation of certain contracts and balance sheet items can now be determined. 

African Products has secured maize to meet customers' requirements through to late 2004. The mark-to-market valuation adjustments due to a 40 to 45 percent decrease in the maize price in the last six months, to a level below farmers' input costs, will result in a charge to the income statement of R255 million. 

African Products has followed a consistent strategy of securing the bulk of its maize requirements during the maize planting season and does not buy on speculation. The focus is on price stability, the genetically modified free status of the maize, locality and other quality issues. Maize is purchased from various sources, including direct purchases from farmers, contracts with traders and the use of the futures market. An element of African Products' procurement has been a hedging strategy that reduces the impact when maize prices rise while keeping the maize price stable into a second season if the market price falls. 

Cash continues to be held offshore for growth opportunities and the application of the exchange rate at 30 June 2003 will result in a reversal of R61 million of previous unrealized translation gains.

There are also ongoing and less significant impacts arising, inter alia, from the valuation of export debtors, inventories, foreign loan hedges and financial instruments. 

The magnitude of all period end valuation adjustments is such that it will exceed core underlying operating earnings for the half-year. This will result in a loss at the headline earnings level for the six months to 30 June 2003. 

Operating margins remain under pressure and each of the Group's businesses is implementing actions to improve profitability.

The unaudited results for the half-year ended 30 June 2003 will be released on 4 August 2003.

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