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The Tongaat-hulett Group Limited - Interim Results
Release Date: 04/08/2003 07:21:28 Code(s): TNT
THE TONGAAT-HULETT GROUP LIMITED - INTERIM RESULTS
THE TONGAAT-HULETT GROUP LIMITED
Registration No.1892/000610/06
Share code TNT
ISIN ZAE000007449
Issuer code TOJK
INTERIM RESULTS
for the half-year ended 30 June 2003
INCOME STATEMENT
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 December
2003 2002 2002
Rmillion Note Restated
Revenue 3 021 2 809 6 103
Underlying operating profit 233 387 802
Triangle dividend 31 71
Valuation adjustments on financial
instruments and other items 1 (375) (74) (215)
(Loss)/earnings before interest and tax (142) 344 658
Net interest paid 2 (62) (55) (100)
(Loss)/earnings before exceptional items (204) 289 558
Exceptional items 2 6
(Loss)/earnings before tax (204) 291 564
Tax 3 29 (63) (127)
(Loss)/earnings after tax (175) 228 437
Share of associate company"s loss (15) (21) (36)
Total net (loss)/earnings (190) 207 401
(Loss)/earnings per share (cents)
Total net (loss)/earnings
Basic (187,4) 204,5 396,0
Diluted (186,5) 200,4 389,8
Headline (loss)/earnings
Basic (187,4) 202,5 388,1
Diluted (186,5) 198,4 382,0
Dividend per share (cents) 40,0 80,0 270,0
Currency conversion
Rand/US dollar average 8,03 10,99 10,48
Rand/US dollar closing 7,48 10,37 8,58
Rand/GB pound closing 12,37 15,85 13,81
HEADLINE (LOSS)/EARNINGS
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 December
2003 2002 2002
Rmillion Restated
Total net (loss)/earnings (190) 207 401
Surplus on sale of fixed assets (1) (3) (9)
Goodwill amortised 1 1 2
Other (1)
Headline (loss)/earnings (190) 205 393
BALANCE SHEET
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 December
2003 2002 2002
Rmillion Restated
Assets
Property, plant and equipment 4 237 4 189 4 144
Growing crops 219 205 168
Long-term receivable 210 210 210
Investments 14 42 29
Derivative instruments 36 111 51
Inventories 1 553 1 264 1 463
Accounts receivable 1 095 1 002 982
Cash resources 842 946 938
Total assets 8 206 7 969 7 985
Equity and liabilities
Equity 4 160 4 400 4 567
Minority interests in subsidiaries 5 5 5
Deferred tax 953 972 1 012
Borrowings - long and short-term 1 457 1 107 931
Provisions 244 241 245
Derivative instruments 156 3 186
Accounts payable 1 231 1 241 1 039
Total equity and liabilities 8 206 7 969 7 985
Number of shares (000)
- in issue 101 461 101 299 101 352
- weighted average (basic) 101 370 101 221 101 269
- weighted average (diluted) 101 883 103 312 102 870
Net asset value per share (cents) 4 100 4 344 4 506
Debt to equity ratio 28,5% 20,6% 16,7%
STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 December
2003 2002 2002
Rmillion Restated
Balance at beginning of period 4 567 4 389 4 389
Effect of changes in accounting policies (72) (7)
Restated balance 4 567 4 317 4 382
Total net (loss)/earnings for the period (190) 207 401
Dividends paid (193) (211) (292)
Movement in cash flow hedge reserve (31) 59 57
Movement on available-for-sale assets (4) 4 4
Currency exchange rate changes 3 11 (14)
Share capital issued 2 6 8
Share of associate"s reserves 6 7 21
Balance at end of period 4 160 4 400 4 567
CASH FLOW STATEMENT
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 December
2003 2002 2002
Rmillion Restated
(Loss)/earnings before interest and tax (142) 344 658
Adjustment for exchange rate translation loss 61 57 151
Depreciation and amortisation 108 90 209
Provisions (1) 16 20
Other non-cash items 26 7 131
Net interest (62) (55) (100)
Tax payments (31) (23) (39)
Change in working capital (30) 63 (321)
Cash flow from operations (71) 499 709
Property, plant and equipment:
New project expenditure (136) (53) (167)
Replacement expenditure (57) (47) (56)
Major plant overhaul costs capitalised (43) (39) (39)
Growing crops (78) (43) (12)
Proceeds on disposal of property,
plant and equipment 40 8 36
Investments 1 (1)
Net cash flow (344) 325 470
Borrowings raised/(repaid) 504 (246) (226)
Dividends paid (193) (211) (292)
Shares issued 2 6 8
Net decrease in cash resources (31) (126) (40)
Cash resources at beginning of period 938 1 125 1 125
Exchange rate translation loss (61) (57) (151)
Mark-to-market adjustment on available
for sale assets (4) 4 4
Cash resources at end of period 842 946 938
NOTES
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 December
2003 2002 2002
Rmillion Restated
1. Valuation adjustments on
financial instruments and other items
Maize procurement contracts (255) 15 (20)
Translation of foreign currency:
- offshore cash holdings (61) (57) (151)
- other (25) (12) (15)
Export receivables (22) (14) (26)
Financial instruments (12) (6) (3)
(375) (74) (215)
2. Net interest paid
Interest paid (170) (149) (306)
Financial instrument income 83 71 149
Interest received 25 23 57
(62) (55) (100)
Increased borrowings from R931 million at
31 December 2002 to R1 457 million at 30 June 2003
arose from the funding of operations and expenditure
on property, plant and equipment, resulting in the
increase in interest paid
3. Tax
Tax on (loss)/earnings before exceptional items
- Normal (7) (8) (21)
- Deferred 60 (39) (82)
- S T C (24) (16) (26)
Tax on exceptional items 2
29 (63) (127)
4. Capital commitments
Contracted 95 66 90
Approved but not contracted 107 113 221
202 179 311
5. Operating lease commitments 37 40 44
6. Guarantees and contingent liabilities 55 17 44
7. Basis of preparation
The unaudited results of the Group for the half-year ended 30 June 2003 have
been prepared on a basis consistent with the audited annual financial statements
at 31 December 2002. The accounting policies of the Group conform with South
African Statements of Generally Accepted Accounting Practice. The interim report
has been prepared in accordance with AC127: Interim Financial Reporting.
In preparing its financial statements for the year ended 31 December 2002, the
Group adopted AC 423: Property, Plant and Equipment - Major Inspection or
Overhaul Costs and AC 137: Agriculture (and as a consequence no longer accounts
for its sugar operations on a seasonal basis) and accounted for maize futures
and option contracts as derivatives or cash flow hedges where the requirements
for hedge accounting have been met. Comparative figures for the six months to 30
June 2002 have been restated for these accounting policy changes. This has had a
R13 million unfavourable effect on the prior half-year"s earnings after tax and
resulted in equity reducing by R85 million, property, plant and equipment by R62
million, investment in associate by R16 million, working capital by R230 million
and deferred tax by R18 million with an increase in growing crops of R205
million.
SEGMENTAL ANALYSIS
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 December
2003 2002 2002
Rmillion Restated
REVENUE
Tongaat-Hulett Sugar 1 427 1 336 2 864
Hulett Aluminium (50%) 773 745 1 623
African Products 756 678 1 470
Moreland 65 50 146
Group total 3 021 2 809 6 103
UNDERLYING OPERATING PROFIT
Corporate (10) (11) (34)
Tongaat-Hulett Sugar 183 193 391
Hulett Aluminium (50%) 0 108 179
African Products 40 93 246
Moreland 20 4 20
Group total 233 387 802
(LOSS)/EARNINGS BEFORE INTEREST AND TAX
Corporate (24) (17) (58)
Tongaat-Hulett Sugar 159 188 420
Hulett Aluminium (50%) (18) 88 136
African Products (218) 107 220
Moreland 20 4 20
Triangle dividend 31 71
Exchange rate translation loss (61) (57) (151)
Group total (142) 344 658
COMMENT ON RESULTS
Revenue from operations rose by 8% to R3 billion driven by increases in sales
volumes offset by the strengthening of the Rand and lower commodity prices.
Underlying operating profit for the half-year to 30 June 2003 decreased by 40%
to R233 million. Current reductions to the cost base were not sufficient to
compensate for reduced margins.
Dividends declared by Triangle during the period have not been brought to
account as Zimbabwean Reserve Bank approval for their remittance is still
awaited.
The consistent application of accounting statements AC133 and AC112 has led to a
R375 million valuation adjustment charge to the income statement for the six
month period to 30 June 2003. The valuation adjustments relate to the
recognition and valuation of certain contracts and balance sheet items. Maize
has been secured to meet customers" requirements through to late 2004. The
valuation adjustment required at 30 June 2003 on maize contracts has resulted in
a charge to the income statement of R255 million, due to the significantly lower
average maize price of R846 per ton at that date. African Products" maize
procurement strategy and its link to domestic pricing will be changed to
significantly reduce earnings volatility.
Cash continues to be held offshore for growth opportunities and the application
of the exchange rate at 30 June 2003 has resulted in a reversal of R61 million
of previous unrealized translation gains. Other valuation adjustments relating
to export receivables, loans to foreign subsidiaries and other financial
instruments, in total, have resulted in a charge against earnings of R59
million.
A headline loss of R190 million (2002 - headline earnings of R205 million) was
incurred. Notwithstanding this loss, the Board has declared an interim dividend
for the half year of 40 cents per share (2002 - 80 cents per share).
OPERATIONAL PERFORMANCE
Tongaat-Hulett Sugar"s revenue for the half year to 30 June 2003 was 7% up over
the comparable period last year while underlying operating profit was R183
million. After foreign exchange and valuation adjustments of R24 million,
earnings before interest and tax were R159 million.
Increased contributions from value-added activities (comprising sugar pre-
packing, speciality sugars, animal feeds and refined exports) and higher cane
profitability in Swaziland have been offset by reduced raw sugar export margins.
Domestic market volumes in South Africa at 236 200 tons were marginally up on
the same period last year, while raw sugar export volumes increased by 35% as a
consequence of higher carry-in stocks compared to 2002.
Total sugar production for the current season is forecast at 1,118 million tons,
12% below last year. Production from South African operations in the current
year is estimated to be approximately 19% down at 681 000 tons sugar while that
of Mozambique is expected to rise to 98 000 tons. In Swaziland, Tambankulu is
expected to produce the raw sugar equivalent of 54 000 tons. Triangle Sugar in
Zimbabwe continues to perform well in a difficult economic and business
environment and this year is expected to produce 285 000 tons of sugar. A
dividend of R21 million (net of withholding tax and at current exchange rates)
has been declared by Triangle in respect of the period to 30 April 2003.
Hulett Aluminium continues to make good progress in growing its manufacturing
output and international customer base. Rolled products export volumes increased
by 46% to 40 900 tons for the half-year to 30 June 2003. This contributed to
Hulett Aluminium"s overall sales volume growth of 24% to 67 500 tons for the
six months.
Cost reduction measures at Hulett Aluminium have resulted in its average
conversion cost per ton reducing by approximately 16%. This, together with the
benefits from the increased sales on underlying operating profit, has been
offset by the significant impact of a strengthening Rand, lower international
rolling margins and a metal price lag impacting on cost of sales. In addition,
the effect of exchange rate movements on the valuation of foreign currency
debtors and foreign loan forward cover contracts, resulted in Hulett Aluminium
incurring a loss before interest and tax of R36 million of which the Group"s
share is R18 million.
African Products" prime domestic volumes increased by 6% to 189 000 tons
compared to the first half of 2002 and export volumes grew by 5% to 33 900 tons.
The strengthening of the Rand has exerted downward pressure on domestic sales
prices and has reduced export contributions, resulting in underlying operating
profit declining from R93 million to R40 million.
African Products has followed a consistent strategy of securing the bulk of its
customers" maize requirements during maize planting seasons. 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. The average maize market
price during the period of planting for the 2003 season was some 50% higher than
the prevailing maize price at the end of June 2003. The resultant valuation
adjustment on maize procurement contracts of R255 million has resulted in a loss
before interest and tax of R218 million.
The property market in the area between Umhlanga and Zimbali in KwaZulu-Natal in
which Moreland operates has continued to grow and has out-performed the national
average. This market strength and the availability of high value residential,
commercial and industrial land resulted in revenue for the half-year increasing
by 30% to R65 million with profit before interest and tax increasing to R20
million.
OUTLOOK
The Group"s operations remain sound with continued growth in sales volumes
expected in the second half. Each of the Group"s businesses is implementing
actions to improve profitability, the full benefits of which will be felt in
2004 and should result in an improvement in earnings for that year.
Valuation adjustments will continue to have either a positive or negative impact
on headline earnings. Key valuation adjustments for the second half of 2003 will
be made against the base of an average maize price of R846 per ton and exchange
rates of R7,48/US dollar and R12,37/GB pound, set on 30 June 2003.
At an average exchange rate of R7,50 per US dollar for the second half,
underlying operating profit for that period will be below that of the first half
of 2003, with a sensitivity of aproximately R8 million for every 10 South
African cents move against one US dollar.
For and on behalf of the board
C M L Savage P H Staude
Chairman Chief Executive
Amanzimnyama, Tongaat, KwaZulu-Natal 1 August 2003
DIVIDEND DECLARATION
Notice is hereby given that the board has declared an interim dividend (number
152) of 40 cents per share for the half-year ended 30 June 2003 to shareholders
recorded in the register at the close of business on Friday 29 August 2003.
The salient dates of the declaration and payment of this interim dividend are as
follows:
Last date to trade ordinary shares "CUM" dividend Friday 22 August 2003
Ordinary shares trade "EX" dividend Monday 25 August 2003
Record date Friday 29 August 2003
Payment date Thursday 4 September 2003
Share certificates may not be dematerialised or re-materialised, nor may
transfers between registers take place between Monday 25 August 2003 and Friday
29 August 2003, both days inclusive.
The dividend is declared in the currency of the Republic of South Africa.
Dividends paid by the United Kingdom transfer secretaries will be paid in
British currency at the rate of exchange ruling at the close of business on
Friday 22 August 2003.
For and on behalf of the board
M A Kennedy
Group Secretary
Amanzimnyama, Tongaat, KwaZulu-Natal 1 August 2003
CORPORATE INFORMATION
Executive directors: D G Aitken, B G Dunlop, A Fourie, G R Hibbert, G P N
Kruger, S J Saunders, M Serfontein, P H Staude (Chief Executive)
Non-executive directors: D D Barber, L Boyd, E le R Bradley, E K Diack, M W
King, J B Magwaza, M Mia,
T H Nyasulu, C M L Savage (Chairman), R H J Stevens, A M Thompson
Alternate directors: J A Thomas, G F Young
REGISTERED OFFICE:
Amanzimnyama Hill, Tongaat, KwaZulu-Natal, P O Box 3, Tongaat 4400
Telephone (032) 439 4000, Facsimile (032) 945 3333
TRANSFER SECRETARIES:
Computershare Limited,
70 Marshall Street, Johannesburg, 2001, P O Box 61051, Marshalltown, 2107
Telephone (011) 370 7700, Facsimile (011) 688 7709
