TON - TONGAAT HULETT – AGM – Update by the CEO of Tongaat Hulett
Tongaat Hulett Limited
Registration number (1892/000610/06)
Share code: TON
At today’s Annual General Meeting, Tongaat Hulett’s Chief Executive Officer, Peter Staude, gave the following update on the operations and trading conditions:
“One of Tongaat Hulett’s key objectives is to fully utilise its installed milling capacity of some 2 million tons of sugar with a simultaneous reduction in unit costs. In recent years, sugar production has averaged some 1 million tons. We continue to make good progress towards this target, in all three countries where we produce sugar.
The strategy to increase cane supply in South Africa is focused on increasing Tongaat Hulett’s influence in cane development through leasing additional land and collaborating with the government to rehabilitate cane supply on its land and land reform farms that have gone out of cane. The recent rains are encouraging for the spring plantings and the preparations needed to have more than 8 000 hectares of additional cane planted in this season in the catchment area of Tongaat Hulett’s South African mills are well advanced. This follows the additional 9 696 hectares planted over the past two years. As anticipated, the season thus far has seen cane with relatively high fibre and low sucrose content, mainly as a result of the variable growing conditions during the last summer. Some 1 400 hectares out of the 19 000 hectares that Tongaat Hulett farms directly have been identified as requiring replanting as a result of the severe drought in 2010. The results from the season thus far have confirmed our expectation that sugar production in South Africa will be higher than last year.
The current sugar milling season in Mozambique is presently some 40% complete. The Mafambisse sugar mill, west of Beira, is currently ahead of expectations in terms of agriculture and milling performance. At Xinavane, the quantity of cane is in line with expectations. The sucrose content in the cane and the sugar extracted thus far is below expectation, albeit 12% better than last year. Overall, expectations remain that sugar production in Mozambique for the year will increase by some 50% over last year.
In Zimbabwe, overall sugar production for the year is expected to be some 10% above the production level of last year, with the increase coming from Hippo Valley. Key stakeholders in Zimbabwe are generally aligned that the central theme for both indigenisation and the target of increasing sugar production to full milling capacity of 600 000 tons per annum is the substantial advancement of indigenous Zimbabwean cane farmers. Currently, approximately 600 indigenous farmers actively farm some 9 000 hectares with some 16 000 hectares being available in total. In this season, these farmers are expected to deliver approximately 465 000 tons of cane. All parties are actively involved in working together to uplift this to over 1,4 million tons of cane from the available hectares.
Pricing of raw sugar sold by Tongaat Hulett into the European Union continues to be at levels significantly above the current world sugar price of 30 USc/lb and is reflective of demand exceeding supply. Regional sugar prices, in line with current global sugar dynamics, are above those of last year.
Sales volumes of starch and glucose in the first quarter reflected a net growth of 1,1% with increased demand in the paper making, confectionery and coffee creamer sectors offset by a decline in sales to the alcoholic beverage sector. Sales in export markets have increased by 32% off a low prior year first quarter, supported by competitive local maize prices. Higher international starch prices are countering the impact of the exchange rate. Production costs continued to improve with further efficiency gains of R4,4 million achieved in the first quarter of this financial year. The surplus from the South African maize harvest in 2011 and the high maize stock levels from the previous three seasons should maintain local maize prices close to world prices for some time.
In the current economic climate, traditional land conversion sales remain suppressed, with take up rates below those of last year. Tongaat Hulett is exploring a number of significant bulk land sales - the exact timing and scale remain uncertain. Opportunistic offers for smaller scale bulk land sales have been received and turned down as they did not meet our value criteria. The Durban eThekwini Municipality has adopted well-conceived local area plans for the northern and outer west urban development corridors, supporting Tongaat Hulett’s own land conversion plans. Regular and productive interactions are taking place between Tongaat Hulett, Local, Provincial and National Government. Key areas of focus have been the aerotropolis potential of the new King Shaka International Airport / Dube Tradeport and the integrated human settlement / city building potential of the greater Cornubia. It is pleasing that all parties have accelerated planning and rights processes, with a number of applications nearing completion. We expect final permission to sell on Sibaya node 1 within the next 2 months. A short term priority of all partners has been serviced industrial land to satisfy the shortage in Durban that is limiting economic growth.
Tongaat Hulett’s financial results remain sensitive to movements in exchange rates. These impact particularly on export realisations and the conversion of profits from Zimbabwe and Mozambique into Rands. The Rand has strengthened some 10% against the US dollar since this time last year.
Tongaat Hulett continues to interface with Government towards establishing an appropriate regulatory framework for both electricity generation and ethanol production from sugar cane. Tongaat Hulett expects a resolution soon on the pricing for electricity generated from sugar cane fibre, notwithstanding the current uncertainty around the implementation of renewable energy in terms of the REFIT/COFIT process.”
29 July 2011
Sponsor: Investec Bank limited