CEO Peter Staude said "After last year's record earnings, these results are another step along a journey. Tongaat Hulett possesses the advantage of owning an unmatched mix of agri-processing and land assets which together with the ability to make things happen enables us to exploit a rapidly changing global agriculture, land, energy and trade environment. The profit from operations in the first half of 2007 was achieved in difficult conditions. We expect to deliver real growth in profit from operations for the full 2007 year.
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 IFRS2 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 IFRS2 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 IFRS2 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
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
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
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,
The Board has declared an interim dividend for the half-year of 150 cents per share (2006: 200 cents per share – which included Hulamin).
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."
Chief Executive Officer
30 July 2007
The broad based BEE transactions involve the collective 25% equity participation in Tongaat Hulett by:
Peter Staude said, "We are delighted to have concluded these BEE equity participation agreements and have already commenced a process to ensure their successful implementation."