Tongaat Hulett Limited
Registration number (1892/000610/06)
Share code: TON
Update on the operations and trading conditions provided by Tongaat Hulett’s Chief Executive Officer, Peter Staude, at today’s Annual General Meeting:
“A detailed Outlook was provided with the Results Announcement published in May 2013 and in the 2013 Integrated Annual Report. The details of those statements remain relevant and applicable. The update provided today should be taken in conjunction with those statements.
Tongaat Hulett is continuing to make substantial progress in the multiple focus areas that will further enhance its strategic position.
All the sugar mills started-up well in April and May, as planned for the current season. The cane quantity and quality and the mill performances thus far have further substantiated the early season forecast of an increase in sugar production of some 114 000 tons to 1 368 000 tons, with the increase this year coming from South Africa.
Downward pressure on sugar prices continues. In real terms, the world price is currently at its lowest in many years. In the regional markets, a period of pressure on selling prices and from imports is being experienced as a result of the current low world price. In South Africa, an application to increase import duties has been lodged by the industry. The South African sugar industry export pricing to date shows a reduction of some 5 US cents per pound compared to last year. With the changing dynamics in the European Union, the price levels that the business is achieving from Mozambique and Zimbabwe into the EU, this season, from its multiple commercial arrangements and channels are averaging some 6 US cents per pound lower than the levels in the last two years. The business is currently focusing a great deal of attention in multiple areas on achieving the best possible outcome in terms of sugar prices, combatting import competition and the mix of sugar flow destinations.
Year to date, the prevailing exchange rates have been beneficial as Tongaat Hulett’s financial results remain sensitive to movements in exchange rates, which impact on export realisations and the conversion of profits from Zimbabwe and Mozambique into Rands.
The fundamental review to re-examine all bought-in goods and services, of some R5 billion per annum excluding cane and maize purchases, is gathering substantial momentum. Initially, action is being taken to eliminate, reduce or postpone costs, wherever possible, with immediate benefits. The full review is examining the “quantum”, “value add”, “in house or outsource” and possible longer term procurement arrangements, in detail, for all goods and services.
Expenditure on cane planting in South Africa and Mozambique is being reviewed and, where appropriate, delayed while development funding is being sought for private growers. In Zimbabwe, with the low dam levels and the corresponding mitigating actions related to irrigation, cane expansion and root replanting for both private growers and own estates have been curtailed, to be resumed once the dam levels recover.
The first quarter of this financial year has confirmed that the starch operation is currently well positioned. The latest South African maize crop estimate has remained at 11,4 million tons and should result in another surplus year. Maize continues to be priced at levels close to international prices. Starch and glucose volumes are expected to show modest growth with depressed local market demand being offset by a growth in export volumes, with continued improvements in manufacturing performance.
The next two years are likely to be rewarding as to unlocking value from Tongaat Hulett’s land holdings in South Africa. The number of interesting prospects is increasing significantly, particularly with more land becoming “shovel ready” in the second half of the year. The new developments, together with existing active developments, are attracting increasing market interest. Various sales strategies (bulk sale, partnership or own development) continue to be reviewed for each land holding and implemented as appropriate. The next period looks promising for own development sales, together with good prospects for substantial bulk sales, with an increase in both land available and interest by prospective purchasers.
The drive to optimise revenue earned from sugar cane is one of the most important strategic positioning issues. It is pleasing that a “Request for Information and Registration (RFIR)”, issued by the Department of Energy, was completed and submitted in June 2013 to register Tongaat Hulett’s position relating to new electricity generation. The current financial year should see the compilation of a bid for the first 80MW power station following the Ministerial Determination for 800MW issued in December 2012. Planning for the project, including the environmental impact assessments and plant construction contracting processes, is well advanced.
Tongaat Hulett is in the fortunate position (in a world where sugar consumption is forecast to continue to grow at some 2% per annum and more and more sugar cane worldwide is being diverted into ethanol) to still have more than 850 000 tons per annum of unutilised sugar milling capacity. Unit costs of sugar production will continue to benefit from further growth in volumes and better yields, as milling costs and many of the agricultural costs per hectare are mostly fixed.
31 July 2012
Sponsor: Investec Bank limited