Tongaat-Hulett helps aids orphans

The Tongaat-Hulett Group has entered into a funding partnership with NOAH, an NGO that mobilises communities to nurture AIDS orphans by helping them grow into emotionally and psychologically stable adults. The partnership involves the establishment of two multi-resource centres and sports facilities in KwaZulu-Natal.;

Tongaat-Hulett will be contributing more than half a million rand over two years towards these projects as part of the Group’s commitment to making a sustainable impact on society. “These initiatives typically take the form of upliftment projects in the Southern African region, particularly in historically disadvantaged communities where our people live, and where we operate,” said Kenneth Mshengu who is responsible for Corporate Social Investment at Tongaat-Hulett.

Plans for building the first centre at Shakashead in Umhlali are already ahead of schedule. Through voluntary work from the community and donations from experts in the building industry, the land where the centre will be constructed has been prepared and the foundation built. The Group has donated an initial R300 000 to cover Shakashead’s building costs this year.;

“We are happy to make a contribution towards helping those who can hardly help themselves. This is one of the many ways Tongaat-Hulett makes a contribution towards nation-building in areas within which we operate,” said Mshengu. “The Group places special emphasis on helping those who are historically disadvantaged and the partnership with NOAH will make it possible for AIDS orphans to live a life they deserve.”

Noah for Khanya Africa is the other centre to be built with funding from the Group. This centre will be situated in Pietermaritzburg, where NOAH has already been feeding over 100 children. The resource centre will offer computer literacy training, education support through audio-visual material and other services. NOAH for Khanya Africa will be up and running before the end of next year.;

Mshengu said that the Group wide team responsible for corporate social initiatives has a comprehensive social investment plan that is focused on education, health, community skills upliftment, welfare, environment and crime prevention. The commitment to NOAH follows one of Tongaat-Hulett’s other HIV/AIDS projects at Sukumawenze, a place of care that looks after terminally ill patients. The Group financed the construction of Sukumawenze, which means stand up and do something for yourself, through a Tongaat-based BEE company. Run by Sister Mary-Anne Mkhize, Sukumawenze fulfils its mission with compassion and dignity in Inanda, near Durban.

Elliot Nkosi, Graeme Leitch, Omilla Laucten (Leitch Landscapes);;
Menanteau Serfontein, Kenneth Mshengu (Tongaat-Hulett); Cutter Nkosi,;
Dr Greg Ash (Noah Orphans); Martin Mohale (Tongaat-Hulett).

Statement from Hulett Aluminium 5th October 2004

Hulett Aluminium, the South African based producer of aluminium rolled products, announced today that the US Department of Commerce has issued a ruling in the antidumping investigation of Hulett’s series 6000 plate sales to the United States. This antidumping case was filed by Alcoa in October 2003, who alleged that Hulett was selling into the USA at prices which produced dumping margins exceeding 100%. The DOC’s findings come after more than nine months of investigation, and have concluded that a dumping margin of 3,5% existed.;

While Hulett believes that the finding of a substantially lower dumping margin fully vindicates the position that Alcoa’s allegation of injurious dumping had no merit, Hulett also expressed disappointment that the DOC continued to apply its “zeroing methodology” to arrive at the final dumping figure. The WTO Appellate ruled in August that application of this methodology in antidumping investigations violated the U.S’s WTO obligations. If the DOC had not applied that methodology in this case, the level of dumping would have reduced to zero. Hulett Aluminium Chairman, Peter Staude, says that, if an antidumping duty order is ultimately entered against imports from South Africa, the company intends to challenge the DOC on this matter.

The dumping case now returns to the US International Trade Commission which must assess whether the U.S. aluminium rolling industry is suffering material injury, by reason of these South African imports. Hulett Aluminium has previously stated, and continues to believe, that Alcoa’s allegation of being materially injured by reason of imports of such a narrowly defined range of 6000 series aluminium plate from South Africa, is outrageous. It has also questioned why Alcoa has ignored the significant volumes of lower priced imports from other countries, particularly Russia, over the period of the investigation.

Following a public hearing in Washington on October 5th, the ITC is expected to make its final decision in November 2004. Hulett will continue to co-operate fully with the US government authorities investigating Alcoa’s allegations.;

Hulett Aluminium remains optimistic that the ongoing investigation will find that Hulett has not engaged in any injurious unfair practice through the sales of its 6000 series aluminium plate to the United States, and will continue to supply this high quality product into the US market.

South Africa makes an impact on cycling at the Athens 2004 Olympic Games

While South Africa may not have any cyclists competing in Athens, there will be a very strong South African presence at the cycling events…

Hulett Aluminium, part of the Tongaat-Hulett Group, continues to compete with the best in the aluminium industry by being chosen to supply roofing material for one of the most high profile stadia for the 2004 Olympic Games.

This year’s Olympic and Paralympic Games are expected to draw millions of sports lovers to Athens in August. Spectators will be accommodated in a total of 36 venues located in Athens and its surrounding towns. One of the prestigious venues situated in the heart of the city is the Olympic Velodrome, where the indoor track cycling competition will take place.

The Velodrome is clad with Color-Tech G4, one of Hulett Aluminium’s branded roofing sheet products, which was supplied through a German customer of Hulett Aluminium. This state -of-the-art roof covers approximately 20,000m2, is moveable and spans over 145 metres.;

Designed by Spanish Architect, Santiago Calatrava, the Olympic Velodrome takes up 53,400m2 of land, and is to host thousands of spectators, who will have the opportunity to view this fast-paced sport in one of the most modern venues in the world.

“We are very proud to be associated with this major Olympic stadium. Along with having supplied the roofing material for the Beijing Opera House in China, the Changi International Airport in Singapore, and the Spencer Street Station in Melbourne, Australia, we are excited about our contribution to some of the world’s most significant contemporary construction projects,” says Richard Jacob, Director of Coated Products at Hulett Aluminium.

The export of branded painted aluminium sheet products for the building and construction industry is an important element of Hulett Aluminium’s drive to achieve its most profitable sales mix. Exports of these high value products have grown by more than 50% per year over the last three years.

Preliminary determination in alcoa’s antidumping petition

Hulett Aluminium, the South African based producer of aluminium rolled products, announced today that the U.S. Department of Commerce (DOC) has issued its preliminary results in the antidumping investigation of Hulett’s series 6000 plate sales to the United States. The DOC’s findings reject Alcoa’s allegations that Hulett had been selling its series 6000 series aluminum plate into the United States at prices that produced dumping margins of over 100%. The DOC’s findings come after more than six months of investigating the antidumping allegation made by Alcoa, Inc. Peter Staude, Chairman of Hulett Aluminium, stated that he was pleased that the U.S. DOC had vindicated Hulett’s view that Alcoa’s allegations are without merit. He further stated that he was confident that the minor dumping margin of 4.33% (four point three three percent) preliminarily found by the DOC would not affect Hulett’s ability to continue to supply high quality plate to the U.S. market.;

Hulett had previously stated that that Alcoa’s allegation of being materially injured by reason of imports of a very narrowly defined range of series 6000 aluminium plate from South Africa, is outrageous. It has also questioned why Alcoa has ignored the significant volumes of lower priced imports from other countries, particularly Russia.

The DOC is expected to issue a final decision in the antidumping investigation in late July. Hulett will continue to co-operate fully with the U.S. government authorities investigating Alcoa’s allegations. Hulett Aluminium remains optimistic that the ongoing investigation will find that Hulett has not engaged in any injurious unfair trade practice through sales of its series 6000 aluminium plate to the United States.

Tongaat-Hulett taking action to enhance earnings

HIGHLIGHTS AND SALIENT FEATURES OF HALF-YEAR RESULTS
The Group recorded headline earnings of R56 million for the half year. This is an improvement of R255 million from the headline loss in the same period last year.

The management actions taken throughout the Group to improve profitability have not yet fully impacted on Tongaat-Hulett’s results – the benefits of these and further actions will flow into the second half of 2004 and beyond.

Strong balance sheet with net debt to equity at 15,7%.

Interim dividend up 25% at 50 cents per share.

Moreland achieves milestone operating profit of R117 million.

Tongaat-Hulett Sugar’s actions to enhance future earnings in full swing.

African Products’ open maize futures position has been eliminated and the substantially revised approach to maize procurement will have a positive impact towards the end of 2004.

Hulett Aluminium continues to grow volumes, improve the sales mix and reduce costs, on the way to ensuring that the objectives of the Group’s major investment in aluminium rolled products are realised.

TAKING ACTION

“The management actions taken throughout the Group to improve profitability have not yet fully impacted on Tongaat-Hulett’s results. All the operating companies have programmes in place, which span the next two years, to grow earnings through internal actions. Benefits will increase as the solid progress made in the first half of 2004 is combined with the additional actions being taken,” said Peter Staude, Chief Executive of Tongaat-Hulett. “The focus is on optimising how the businesses operate and how Group wide issues are dealt with. Moreland’s performance shows what can be achieved.”

MORELAND ACHIEVES ANOTHER MILESTONE

Moreland continued to capitalise on the solid platform of its leading property developments and the prime land previously under sugar cane, increasing revenue for the first six months by 318% to R272 million. A milestone underlying operating profit of R118 million (2003: R20 million) was achieved.

Staude said that the buoyant property market, especially on the KwaZulu-Natal North Coast, is contributing to Moreland unlocking extensive value from its Zimbali, La Lucia Ridge and Umhlanga Ridge developments. Outstanding performances were achieved in the residential and resort portfolios due to the strong demand for new phases and developments launched during the period. Sales also increased in both the commercial and industrial portfolios. The Group continued to proactively manage the transition from sugar to property development on the KwaZulu-Natal North Coast.

Criteria for downstream investments are being developed and opportunities assessed. The focus will be on capturing full value from land developments to sustain long term profitability and reduce the impact of industry cyclicality.

The National Transport Minister, the KwaZulu-Natal Premier and the KwaZulu-Natal Finance and Economic Development MEC have reaffirmed government’s intentions to progress with development of the King Shaka International Airport and Dube Trade Port at La Mercy. The KwaZulu-Natal government has engaged with Moreland in order to progress this on a co-operative basis.

TONGAAT-HULETT SUGAR CONFRONTS HOSTILE EXTERNAL ENVIRONMENT…

Tongaat-Hulett Sugar’s revenue of R1,2 billion for the half-year was 15% below the comparable period last year, with underlying operating profit reducing to R38 million from R183 million. Sales volumes in South Africa were 211 767 tons and raw sugar export volumes at 120 345 tons were affected by lower carry-in stocks. The particularly small crop harvested in 2003 resulted in an increase in the production cost per ton of sugar that was carried forward and sold in the first half of 2004. This, together with the decrease in the South African domestic sugar price in October 2003 and the strengthening Rand’s effect on export realisations, depressed margins in the first six months of the year. In Mozambique, domestic market sales grew by 24% in the drive to increase market share. Triangle continues to operate profitably in the difficult Zimbabwean economic and business environment. Dividends of R21 million were received from Triangle and brought to account.

Year on year, consolidated sugar production for the 2004 year is expected to grow by 5,8% to 1,113 million tons. Sugar production from South African operations is estimated to increase by 9% to 712 000 tons while that of Mozambique is expected to rise to 99 000 tons (2003: 82 000 tons). In Swaziland, Tambankulu is estimated to produce the raw sugar equivalent of 52 000 tons. Triangle Sugar in Zimbabwe is expected to produce 250 000 tons this year.

… WITH ACTIONS TO ENSURE FUTURE SUCCESS IN FULL SWING

Tongaat-Hulett Sugar’s actions completed in the first six months included the closure of the Entumeni sugar mill with the diversion of cane to the Amatikulu mill, the closure of the sugar head office, downsizing of centralised services and the reorganisation of the South African milling operations from five mill structures to two regional business units. The benefits of these and the further substantial actions being taken will flow in future periods. Restructuring costs of R22 million have been incurred in the current period.

A benchmarking exercise to increase the benefit from the refining value chain has been completed. Efforts to leverage the technology base will see a new refining technology pilot plant deployed in Brazil for trials. Cane procurement initiatives to lift milling capacity utilisation in South Africa by about 10% includes the confirmation of some 501 000 tons of additional cane per annum with a further 331 000 tons being explored. Tongaat-Hulett Sugar is actively involved in Mozambique’s participation with other Least Developed Countries for earlier and greater “Everything-But-Arms” preferential access into the EU market.

AFRICAN PRODUCTS IS IMPLEMENTING A NEW APPROACH TO MAIZE PROCUREMENT

African Products’ underlying operating profit for the first half of 2004 reduced to R7 million (2003: R67 million). The high priced maize procured during the previous cycle, under the previous business model, and the strengthening Rand’s effect on domestic selling prices and export margins were the main influencing factors. Domestic volumes of starch and glucose declined by 6%, compared to the first half of 2003, due to imported glucose in the spray drying industry and increased imports of final products such as confectionery. Export volumes reduced by 21% due to the strengthening currency. Initiatives to maintain key export markets and combat imports in the local market are ongoing with significant success in terms of volumes recovered for the second half of 2004 and for 2005. Fixed cash costs have been held at levels below those of the comparable periods in 2002 and 2003. The ongoing efficiency programmes yielded savings in variable costs.

All unhedged maize futures contracts have been eliminated and the substantially revised approach to maize procurement will have a positive impact towards the end of 2004. Based on current consumption, the higher priced maize will all have been used by October 2004.

Two product pricing models have been developed. The short term back-to-back fixed tonnage contracts is where maize is priced when the customer agrees the product price. The longer term fair return model is based on a negotiated margin for African Products with the customer making the decision when to price the maize.

HULETT ALUMINIUM GROWS VOLUMES, IMPROVES MIX AND REDUCES COSTS YET AGAIN

Hulett Aluminium’s underlying operating profit increased by R78 million, with the Group’s share being 50% thereof. Rolled products sales volumes grew to 142 000 tons annualised, a 19% increase over the same period last year. This was achieved despite an interruption on the Camps Drift hot mill that affected output for approximately two weeks. Local sales increased by 5% and exports by 26%. The mix improved, with sales of clad products and exports of closure sheet being three times those of the first half of last year while exports of can end stock and painted products continued to show strong growth. Total rolled products manufacturing costs, excluding metal, have been limited to an increase of 4% despite the growth in volumes, resulting in a 13% reduction in conversion costs per ton. The impact on the half year results of the stronger Rand offset much of the approximate R110 million benefit that was gained from improved capacity utilisation, more profitable sales mix and cost performance.

SUSTAINABLE DEVELOPMENT

The Group continued with its BEE procurement and employment equity related achievements. This was evidenced by its ratings in the May 2004 Financial Mail/Empowerdex Top Empowerment Companies Survey with fourth place for procurement and fifth for employment equity. A major highlight during the period was the procurement of 5 000 tons of maize from emerging farmers.

The Group’s emphasis on safety continued and the lost time injury frequency rate decreased from 1,50 to 0,49 over the last twelve months with the total recordable case frequency rate showing improvement from 2,50 to 1,12.

The Group’s achievement in sustainability was rewarded with inclusion in the JSE’s Socially Responsible Investment (SRI) Index. Relationships with government in the Southern African region continue to grow from strength to strength.

FINANCIAL RESULTS

The Group recorded headline earnings of R56 million, generated off revenue for the half-year of R2,95 billion (2003: R3,0 billion). These earnings show an improvement of R255 million from the headline loss in the same period last year.

The Group’s underlying operating profit decreased by R80 million and the valuation adjustments charged against income improved by R354 million, compared to the 2003 interim results. This led to the total operating profit improving to R159 million from the 2003 first half loss of R115 million. Operating profit is the total of underlying operating profit, valuation adjustments, restructuring costs and Triangle dividends received.

The valuation adjustments charged against income amounted to R21 million, compared with the charge of R375 million for the first half of 2003. These items relate mainly to the valuation of certain contracts and balance sheet items based on the exchange rate and maize price at the end of the period. The open maize futures position reported in previous periods has been eliminated and a valuation gain of R18 million has been realised, compared to the R255 million charge in the same period last year.

Cash flow before dividends and financing activities was R337 million better than in the first half of 2003. The Group’s balance sheet remains sound with net borrowings as a percentage of equity at 15,7% (2003: 14,9%). The board declared an interim dividend for the half-year of 50 cents per share (2003: 40 cents per share).

“Today, Tongaat-Hulett is a Group with four sizeable, strategically well positioned and focused businesses,” said Staude. “The Group has a solid asset and business base and, with its strong balance sheet, is ideally positioned to capitalise on opportunities that may arise.”

OUTLOOK

All the operating companies have programmes in place, which span the next two years, to grow earnings through internal actions. Benefits will increase as the solid progress made in the first half of 2004 is combined with the additional actions being taken.

Hulett Aluminium and Tongaat-Hulett Sugar will benefit from sales that are being booked for late 2004 and into 2005 at higher US dollar prices than those of earlier in 2004.

The Group expects headline earnings for the second six months of 2004 to be considerably above those for the first half, on the basis of similar exchange rates, with underlying operating profit having a sensitivity of approximately R10 million for every 10 South African cents move against one US dollar.


Peter Staude
Chief Executive Officer

Amanzimnyama, Tongaat
2 August 2004

ENDS ;

Commentary on 2003 and actions being taken

Tongaat-Hulett experienced a year dominated by a number of external developments that had a significant detrimental impact on the earnings performance of African Products, Tongaat-Hulett Sugar and Hulett Aluminium. This led to unsatisfactory results for the Group, notwithstanding considerable achievements in these operations and Moreland’s record-breaking year.

The year highlighted the importance of having the ability to draw on expertise on a group wide basis. The prevailing conditions acted as a catalyst to focus our efforts and energies on those actions that will best unlock future earnings from the considerable number of opportunities available, thereby driving recovery and growth.

Tongaat-Hulett enjoys an impressive asset and business base. Over the years, we have made substantial investments in facilities and people. This has provided a solid platform from which we are now moving forward.

We had previously strengthened the cohesion of top management and emphasised the leadership roles of key individuals throughout the Group towards being more proactive, participative and action orientated. This was a source of strength during 2003.

Our actions will result in a future earnings stream for the Group that will be impressive, particularly when external conditions turn in our favour.

REVIEW OF OPERATIONS

AFRICAN PRODUCTS

“The 2003 financial year has been dominated by the rapid strengthening of the Rand and an equally rapid drop in the South African maize price. These twin developments were compounded by a growing threat of low priced imports.”

Maize Position and its Impact on Profitability

During the planting season of 2002, African Products followed its long established practice of securing the bulk of its customers’ maize requirements for the 2003/4 seasons with a focus on price stability, genetically modified free status of maize, locality and other quality issues. That maize was purchased from various sources, including direct purchases from farmers, contracts with traders and the use of the futures market. An element of this procurement was a hedging strategy that reduced the impact when maize prices rise while keeping the maize price stable into a second season if the market price falls.

The South African maize market experienced a period of extreme volatility, with prices falling from nearly R2 000 per ton late in 2002 to below R800 per ton at one point in 2003. In the second half of 2003 prices have stabilised to an extent, although a relatively sharp rise was experienced late in 2003 to levels of above R1 100 per ton for the July 2004 position.

The aforementioned procurement strategy and price volatility resulted in African Products having a long maize position and incurring valuation losses on certain procurement contracts. The Safex futures position was 412 000 tons at June 2003 and has been reduced to 169 000 tons at the end of December 2003 as futures contracts were sold and replaced by contracts for physical delivery in 2004.

The impact of the high volatility in the maize price as well as new customer pricing expectations have resulted in African Products changing its business model with respect to future maize procurement and product pricing. African Products will move towards this model once the current long maize position is utilised in 2004.

Local Market

The strong growth trend of the last few years continued in the first half of 2003 with volumes for the six months up by 5,3 percent against the previous year. In the second half, the impact of imports, both in the direct form of imported starch and glucose and in the indirect form of imported finished goods, resulted in declining volumes.

The second half of 2003 saw volumes 7,9 percent below the second half of 2002, resulting in overall local volumes being 1,5 percent below 2002 for the year as a whole. The underlying demand for starch and glucose in South Africa grew by an estimated 1,5 percent in 2003.

Export Markets

Export contributions were considerably reduced as a result of the currency impact on realised prices. African Products maintained its presence in all export markets and grew its export volumes of 65 000 tons by 3,5 percent over the previous year. It will continue to explore export opportunities that offer meaningful contribution, while maintaining its presence in low contribution markets in order to capitalise on future opportunities.

International Trends in Starch and Glucose

The year 2003 was characterised by a significant movement of starch and glucose products around the world. In particular, the weakening of the US dollar has prompted China and the US to increase exports, while strong currency countries such as Australia and South Africa became more attractive target markets.

Starch and glucose prices started to increase towards the end of 2003, partly driven by rising freight rates and a firming world corn price.

HULETT ALUMINIUM

“Rolled Products, our major manufacturing operation, increased sales volumes by 24 percent to 130 000 tons in 2003, growing sales in an international market that showed little signs of recovery, while holding manufacturing conversion cost increases to two percent. Sales volumes of exported products grew by 37 percent enabled by increased manufacturing plant performance in Rolled Products. In December 2003 a record rolled products production level of over 150 000 tons annualised was achieved.”

The impact on the 2003 results of the currency movement and time lags in raw material costs have masked the approximate R300 million benefit that was gained from improved capacity utilisation, more profitable sales mix and cost performance.

Growing Market Share

Hulett Aluminium continued to grow overall sales volumes, particularly in higher margin and more technically demanding products, in a lacklustre international market.

Exports of can-end stock, a demanding thin gauge and hard alloy product, have more than doubled in the past year. Growth in other higher value products, such as painted sheet and automotive clad products, has also been robust.

Following concerted efforts to develop the local downstream manufacturing market, particularly in the automotive and transport sectors, a number of customers are advanced in their planning and implementation of downstream investments, which should increase total sales in the local market by 20 percent in the next two years.

Late in 2003, international volumes and rolling margins were starting to respond to an improving world economy and a weaker dollar, both of which will enhance future profitability.

Hulett Aluminium continues to be one of the world’s fastest growing independent aluminium rolled products companies. Alcoa has lodged an anti-dumping petition against a very narrow range of heat treated plate exported by Hulett Aluminium to the USA. Should anti-dumping duties be imposed, they are unlikely to have a significant impact on Hulett Aluminium or on sales to North America. The Group believes the case is without merit. Market response to this action has confirmed our position as a preferred supplier of high quality products to this market.

A Year of Manufacturing Breakthroughs

In November 2000, Hulett Aluminium commissioned the R2,4 billion expansion of its rolled products facility, lifting capacity from 54 000 tons to an estimated maximum in excess of 200 000 tons per annum. The process of ramping up production towards this target is progressing well, with output growing from 105 000 tons in 2002 to 130 000 tons in 2003.

An increase in production yields and other manufacturing achievements in key areas such as the remelt and the coating line are indicative of many start-up complexities and problems being overcome. We are increasingly confident in our ability to produce more high value products.

The manufacturing cost structure of the rolled products operation is largely fixed, and this, coupled with stringent cost containment and a strengthening Rand, led to limited cost increases.

Progress in the Other Aluminium Operations

While much of the recent focus has been on the growth of the rolled products operation, Hulett Aluminium’s other operations are sizable organisations in their own right.

Hulett-Hydro Extrusions has a major share of the market for extrusions in sub-Saharan Africa and achieved improved profits and cash flows during 2003. An expanding domestic architectural and transport sector point to a number of opportunities for future growth in Hulett-Hydro Extrusions.

The Commercial Products business produces a range of downstream products, including rigid foil containers, composite panels, roll formed sheet, and high pressure cylinders. It also includes the Aluminium City distribution operation. Results from these operations in 2003 were mixed and their combined contribution to profits was below 2002. Actions in the second half of 2003 will result in the contribution from rigid foil container sales increasing substantially in 2004, and sales from all manufacturing operations increasing by more than 20 percent.

MORELAND

“The 350 percent increase in operating profit in 2003 confirmed Moreland’s status as one of South Africa’s premier private sector land developers. Taking full advantage of the booming property market, fuelled by reducing interest rates, and its leading-edge investments over the last decade, Moreland posted record earnings performance together with strong cash generation, with improvements in all portfolios.”

A major milestone achieved during the year was the conclusion of an international deal in which we sold a 50 percent interest in our 400-hectare Zimbali Coastal Estate to International Financial Advisers (IFA) Hotels and Resorts, a Kuwaiti company with resort investments in Dubai, Portugal and Zanzibar that will partner Moreland in the further development of the estate and surrounding areas. The project encompasses the realignment of the M4 coastal highway to the west of the resort to create a single coastal-fronting land entity that adds substantial value to existing and future Zimbali properties. These proposals include a commitment by IFA to develop a five star internationally managed hotel on a 100-hectare resort incorporating a planned new 18-hole golf course.

Successful residential sales included the virtual sell out of Mount Edgecombe Country Club Estate Two and the sale of sought-after sea view apartment sites in Ilala Ridge, La Lucia. Sewer capacity constraints in Umhlanga delayed further phases of Ilala Ridge and the launch of Izinga Ridge. A solution has now been developed in conjunction with the eThekwini Municipality that will see the launch of these projects early in 2004.

Several new office buildings were erected by the purchasers of sites in the La Lucia Ridge Office Estate, in the vicinity of Unilever’s award-winning headquarters serving the African continent. A number of retail buildings were commissioned in the Umhlanga Ridge New Town Centre, including the flagship City Lodge Hotel, to complement Old Mutual’s R1,4 billion Gateway Theatre of Shopping complex, bringing total commercial building development on the Ridge to more than 350 000 square metres. The completion of the first residential apartments near Gateway has set the scene for a truly mixed-use urban environment on the Umhlanga Ridge.

The first businesses have opened at the RiverHorse Valley Business Estate, a joint venture with the eThekwini Municipality straddling the N2 freeway at Effingham which includes international investment by Total France in a Petroport. The strategic Nandi Drive interchange on the N2 has been completed recently by the City and will establish a road link through to Moreland’s Briardene Industrial Park and into the Durban CBD by the end of 2004.

Moreland is increasingly earning revenue through its expertise in the management of property development. The largely city-funded uShaka Marine World is being project managed by Moreland and is due to open in the first half of 2004. The project is likely to be the catalyst for the renewal of the Durban–Point precinct. Moreland is also project-managing the Point Waterfront development around an ambitious waterway and canal system currently under construction. Following its market launch in April, sales of R60 million were achieved during the year.

Further north, Afrisun KZN’s Sibaya Casino Resort at Umdloti is well under way with a scheduled opening in 2004. The infrastructural development of this node will open up a further 200 hectares for future development in a prime node on the north bank of the Ohlanga River.

The focus on black economic empowerment has seen the proportion of total spend exceed 35 percent in 2003. It is particularly pleasing that we have facilitated the establishment of black property developers into our customer base. With its professional, multi-disciplinary team, supplemented by effective management of outsourced property consultants and contractors, Moreland continues to provide a sound foundation for growth, economic investment and job creation.

TONGAAT-HULETT SUGAR

“2003 has seen the unleashing of a process that will extensively change the way Tongaat-Hulett Sugar runs its business. It is in this operating company that the external environment has provided the greatest catalyst for change.”

The sugar industry in South Africa is facing one of its most extreme challenges in recent history brought about by a number of factors converging at the same time. The most important factors are the rapid strengthening of the Rand, cost push pressures since 2000 that have rendered the industry less competitive in US dollar terms, the reduction in the domestic market sugar price in 2003 and the “dumped” world market price being at its lowest level in recent years. This environment has been exacerbated in 2003 by poor rainfall in many parts of the cane belt, with some of the worst affected areas reaching full-blown drought status.

Production

Total sugar production in 2003 decreased to 1,1 million tons, 18 percent down on 2002. The total cane crush of 9 million tons in 2003 represents 71 percent of installed capacity compared to 84 percent in the 2002 year.

Sugar production in South Africa of 652 000 tons was 24 percent down on the 860 000 tons produced last year. This decrease is attributable to the poor rainfall in many parts of the cane belt.

In Swaziland, Tambankulu Estates produced the raw sugar equivalent of approximately 54 000 tons, compared to 50 000 tons in the 2002 season. Record sucrose yields as well as additional hectares under cane following the conversion of the citrus orchards to sugar cane were the major drivers behind this eight percent improvement.

The socio-political and economic difficulties of operating in Zimbabwe have continued and Triangle’s sugar production decreased to 264 000 tons, nine percent down on the previous year. The operation has remained profitable and intact.

In Mozambique the rehabilitation of the Mafambisse and Xinavane sugar estates continued in 2003 with sugar production up 15 percent to 82 000 tons compared to 71 000 tons in the 2002 season.

In terms of installed milling capacity, Tongaat-Hulett Sugar is capable of producing 1,5 million tons of sugar per annum compared to the 1,1 million tons produced in 2003.

Export Markets

Export market prices in Rand terms in 2003 were approximately 16 percent below those prevailing in the 2002 year due to the low international prices coupled with the strength of the Rand. Export sales at 344 000 tons show a one percent increase over 2002.

Domestic Markets

The domestic markets of Mozambique, Zimbabwe and the South African customs Union have been characterised by opportunities and challenges. Tongaat-Hulett Sugar’s brands performed well in 2003 with Huletts® being voted by an independent survey South Africa’s fifth most admired food brand and sixth favourite brand overall measured in terms of awareness as well as trust and confidence.

In South Africa, local market sales at 499 000 tons show an increase of six percent over 2002, although the recent seven percent decrease in the price of sugar in October 2003 has resulted in a reduction in margins.

Good progress has been made by sugar producers in Mozambique to secure the domestic market against imports with year-on-year sales by domestic producers growing by 68 percent.

Statutory price control remains the over-riding feature of the market in Zimbabwe, squeezing both cane growing and sugar milling margins. The sugar industry in Zimbabwe continues, with some success, to make representation to the government for increases in controlled prices.

The Department of Trade and Industry is reviewing the South African sugar industry’s regulatory framework following a notice to this effect in the Government Gazette on 12 January 2001. The review is being undertaken within the accepted framework of the government’s strategies for the sugar sector in the South African Customs Union and the Southern African Development Community, and will be undertaken in consultation with the industry. Changes are not expected before the 2004/5 season.

Animal Feeds

Tongaat-Hulett Sugar’s molasses and bagasse-based animal feeds operation, Voermol Feeds, again experienced significantly improved trading conditions. Its contribution to Tongaat-Hulett Sugar’s earnings in 2003 was more than double that of the previous year.

TAKING THE GROUP FORWARD

The Group’s earnings profile remains sensitive to exchange rate movements. The strengthening rand and external developments such as the movements in the maize price have impacted our 2003 results. These developments have acted as a major stimulus to further energise and focus our efforts on all opportunities to improve earnings going forward, whatever the external conditions.

Actions to address the current challenges have been initiated and the road ahead is clear. Each operating company has a different profile of future earnings enhancing opportunities, the most important ones being:

Tongaat-Hulett Sugar

Nowhere have the developments in 2003 had a bigger impact than in our sugar business, where a course of action has been unleashed that will result in a century old company changing dramatically to ensure its future success.

Tongaat-Hulett Sugar is moving to a leaner and flatter structure and a more decentralised management approach. People at operating centres will assume greater responsibility and accountability for overall performance. Senior management are becoming increasingly mobile and more hands-on. The closure of the 180 people head office in La Lucia will see the small leadership team joining our offices at Amanzimnyama in Tongaat. Management changes have already resulted in the Tongaat-Hulett Sugar board halving in number and two regional operations managers have replaced the five mill general managers. The behavioural change that is emerging from this process will allow us to best tackle the challenges that we currently face and to take advantage of the opportunities that exist.

The focus in the South African operations is on lowering overhead costs, optimising milling capacity utilisation and improving the profitability of agricultural activities. The actions to reduce head office overheads by 50 percent include the closure of the La Lucia office and the downsizing and re-positioning of centralised services. Milling and refining costs are targeted to reduce by 10 and 30 percent respectively. The shutting down of the Entumeni sugar mill will further reduce the cost base and the additional available cane supplies, together with other cane procurement initiatives, will increase the capacity utilisation at the other mills. All of these actions will substantially improve our competitiveness.

Triangle Sugar in Zimbabwe is well placed to continue to assess the socio-political environment and to proactively manage it, where possible. It is ably positioned to determine the optimum timing to act on the growth opportunities that are currently on hold. The remittance of dividends from Zimbabwe remains an issue on which we maintain focus. We have received US $2 million in dividends since the beginning on 2004.

Mozambique provides us with an immense opportunity for earnings improvement. Actions are under way at Mafambisse and Xinavane to continue to increase cane and sugar production towards full capacity of 156 000 tons per annum together with growing domestic market sales. We will benefit further from Mozambique’s Least Developed Country status, which will enhance export revenue through improved access to preferential markets.

We are committed to the journey underway in Tongaat-Hulett Sugar and breakthroughs are being achieved on a weekly basis. We believe that the benefit of all these actions is likely to exceed R150 million per annum within the next three years.

African Products

The events over the last two years have clearly confirmed the need to change the business model as far as the local market interface and maize procurement is concerned. The local customer base has generally shifted from the need to have a stable inflation related price to one that has to compete internationally with the emphasis on currency and international starch prices. This is similar to Hulett Aluminium’s experiences in the early 1990’s.

The most appropriate maize procurement strategy, for African Products to match this development, is being implemented. In future, the bulk of its maize pricing will be done on a back-to-back basis when product prices are agreed with customers. Physical procurement will still largely occur during the planting season as quality, locality and genetic modification status need to be ensured. This will mean that African Products’ future earnings will be influenced by the extent to which the local maize price varies between export and import parity. At the same time the volatility arising from major valuation adjustments such as those that occurred in 2003 will be substantially reduced.

The emphasis on reducing the cost of running the business is encouraging. The cost reduction initiatives focus on lowering fixed overheads, improving procurement practices and further increasing plant efficiencies.

The year ahead will see continued progress in our many new business development initiatives, both in the local and export markets. These include new applications for existing products and the formulation of new products to be manufactured at existing plants. This should happen in concert with us regaining our position over imports in the local market. Underlying domestic demand for starch and glucose is expected to remain strong and grow over the next few years.

We expect to earn an attractive return on capital by 2005 following the implementation of the new approach to maize procurement with its link to the local customer base, combined with the impact of further cost reductions and market development initiatives, with the main uncertainty being whether the local maize price is closer to import or export parity.

Hulett Aluminium

The progress in Hulett Aluminium is expected to continue as the growth in manufacturing output is maintained.

Hulett Aluminium plans to grow output of rolled products by 50 percent over a two-year period by the end of 2004, towards a target of 185 000 tons within the next three years.

The majority of the costs in the business are already being incurred and manufacturing conversion costs should largely remain fixed as volumes grow. Important breakthroughs in energy and recycling costs, together with further cost saving opportunities, are expected to exceed R75 million per annum. This will yield a significant reduction in manufacturing costs per ton.

The prime opportunity to grow earnings is through the enhancement of the sales mix, as evidenced by the 60 US dollar per ton increase in average export margin in 2003 in a tough global market. It is encouraging that dollar rolling margins are increasing in sympathy with the weakening US dollar and improvements in commodity prices. Special emphasis will be placed on increasing the production of technically challenging and hence higher margin products. Exports of can-end stock should double again over the next two years. A 50 percent increase in painted coil exports is expected in 2004, with clad products well set for dramatic growth. These products will continue to push Hulett Aluminium’s average dollar margin upwards.

The local market remains an important aspect of the business and some major growth initiatives are encouraging. This is particularly the case in the automotive sector, in spite of the relative strength of the Rand.

Hulett Aluminium should use 70 percent of the incremental capacity from its expansion during 2004, with a target volume above 200 000 tons beyond 2006. This, together with an enhanced sales mix and substantial unit manufacturing cost reduction, will see a significant improvement in profitability, even in a strong rand scenario.

Moreland

There is general acknowledgement that Moreland’s development initiatives north of Durban over the past decade have created one of the country’s leading property growth nodes and a solid platform for unlocking the value of the prime land in the area. With the substantial investment in infrastructure and new capital investment into the area over a ten-year development horizon, Moreland has established a sound base to accelerate further unlocking of land values and for future earnings growth. The present assessment of the current value of our prime land, which is under pressure from urban expansion and potentially surplus to the operational requirements of the Group, once developed by Moreland exceeds R1,5 billion.

Joint ventures with international investors, particularly those with access to international customers, such as IFA, provide exciting initiatives for accelerated growth in earnings. Moreland’s reputation as a property developer, in concert with the provision of infrastructure and sensitivity about the environment, has been firmly established as a leading South African brand, supported by the strong brands of individual projects.

The full benefits of Moreland’s joint venture with IFA at Zimbali are still to be realised, including the anticipated positive impact on the value of the adjacent properties. Sales are exceeding expectations and are an acknowledgement of the prime international quality of our land holdings.

Moreland has earnings growth opportunities in other areas of Greater Durban. The scheduled opening of the Sibaya Casino Resort during 2004 will see the further development of 200 hectares of coastal property adjacent to Umdloti to the north of Durban. Residential property sales, particularly along the established La Lucia Ridge with its expansive sea and city views, are expected to remain buoyant. The extension of the Umhlanga Ridge New Town Centre surrounding Gateway will provide further commercial, retail and residential development. The completion of major infrastructural work by the City along the N2 freeway at RiverHorse Valley Business Estate will open up further industrial project opportunities. To the west of Durban, we are planning how to best realise the development of over 2 000 hectares at Shongweni.

In addition to earnings escalation over the next few years from Moreland’s project pipeline, interesting opportunities are being explored in expanding our business model beyond land development. For example, in the joint venture with IFA, we have secured the option of joining them in any downstream income earning opportunities in their resort development activities.

CONCLUSION

The developments impacting on Tongaat-Hulett’s results for the past year have acted as a catalyst to accelerate management actions to improve profitability. Group-wide initiatives to reduce the cost base, increase sales volumes and optimise capacity utilisation will provide benefits as the year progresses.

The Group’s results will continue to be impacted by the size of the sugar crop, commodity prices and fluctuating exchange rates.

The results for the first half of 2004 will be affected by restructuring costs as well as by the size of last year’s sugar crop in South Africa. The size of the 2004 sugar crop in the non-irrigated areas will depend on good rains in the rest of the summer growing season. The soaking rain experienced early in the year is encouraging.

There are signs of international starch and glucose prices rising and the same applies to US dollar aluminium rolling margins. World sugar prices are presently at their lowest levels in recent years. The property market in which Moreland operates remains strong, with growing national and international interest.

The Group expects to record a substantial headline earnings recovery in 2004. Its asset and business base remains sound, with considerable opportunities for sustained earnings growth.

Peter Staude
Chief Executive Officer
;
20 February 2004

Tongaat-Hulett taking action

Peter Staude, Chief Executive of Tongaat-Hulett said today that all its businesses are implementing actions to counter the negative impact of current conditions on the Group.;

The sugar industry in South Africa is particularly facing one of its most extreme challenges in recent history brought about by a number of factors converging at the same time.;

The most important factors being the rapid strengthening of the Rand against the US$ to levels last seen in early 2000; cost push pressures since 2000 that have rendered the industry less competitive in US$ terms; the recently announced reduction in the domestic market sugar price; and the “dumped” world market price being at its lowest level in recent years largely attributable to the rapidly growing Brazilian sugar industry that is expanding even though there is little movement in world sugar trade liberalisation.

This environment has been exacerbated by poor rainfall in many parts of the cane belt with production in some of the worst affected areas reaching full-blown drought status.

On 13 November 2003, Tongaat-Hulett Sugar Managing Director Bruce Dunlop announced that the company had initiated consultations with Entumeni mill employees, their representative Unions and cane growers regarding the company’s proposal to close the Entumeni sugar mill. Consultations with stakeholders are ongoing.

In a further development today, Dunlop briefed employees that the company intends to cut its overheads by at least half. This would inter alia require the downsizing of its head office at La Lucia. Consultations with employees that might be affected would commence shortly. The intention is for centralised services to operations throughout Southern Africa to be downsized and where appropriate merged with activities closer to the ‘coal face’. All services operating out of La Lucia will be reviewed including Finance and Accounting, Information Technology, Purchasing and Procurement as well as Technical Services. Outsourcing where appropriate would be considered. The La Lucia office has a complement of 190 employees.;

At the same time Dunlop announced a review of the make-up of the Tongaat-Hulett Sugar Board as well as a re-organisation of executive responsibilities with an emphasis on a leaner and flatter structure. This is to be followed by a review of management structures at Tongaat-Hulett Sugar’s mills, refinery and agricultural estates in South Africa. The feasibility of relocating from the La Lucia offices in Umhlanga Rocks Drive to smaller premises and the need for an office in Maputo would also be examined. Major emphasis will be placed on empowering employees at operating level to assume greater responsibility and accountability for Tongaat-Hulett Sugar’s performance.

Peter Staude commented that the restructuring at Tongaat-Hulett Sugar was one of the actions being taken in the Group to get its businesses into better shape and to energise the organisation to become more proactive and action orientated in unlocking earnings growth opportunities within the Group with a greater sense of urgency.;

Over and above cost reductions, other areas of focus include volume growth initiatives, rationalisation of facilities and the optimisation of capacity utilisation.

Hulett is not surprised at the preliminary determination by the United States International Trade Commission

Hulett Aluminium, the South African based producer of aluminium rolled products, expressed its disappointment with the determination by the U.S. International Trade Commission to continue the antidumping investigation against its exports of series 6000 aluminium plate to the United States filed by Alcoa, Inc. Hulett believes that the case is without merit and continues to submit evidence in this regard.

Peter Staude, Chairman of Hulett Aluminium, said that he was not surprised at the preliminary finding. More than ninety per cent of all anti-dumping cases in the United States are ruled in favour of the complainant at this early stage of the process. The indication of material injury to the U.S. industry by reason of imports of series 6000 aluminium plate from South Africa is outrageous. The case was brought by a single member of the US industry, Alcoa, which describes itself as “the world’s leading producer of primary aluminium, fabricated aluminium, and alumina.” Alcoa’s representative testified at the ITC staff conference that “Alcoa as a whole is a healthy and prosperous company. In fact, last month Alcoa reported a substantial increase in overall earnings for the third quarter of 2003.”

Despite its healthy condition, and pre-eminent position in the US and global aluminium industry, Alcoa targeted a trade action against an extremely narrow category of aluminium plate products which constitutes less than 1% of the total United States market for rolled products. Alcoa has only targeted Hulett Aluminium which is one of many foreign producers that export this product to the United States. In so doing, Alcoa ignored both the substantial volumes of lower priced imports from other countries, notably Russia and China, as well as the broader range of aluminium plate and sheet products produced by the US industry.;

Alcoa’s petition is based on an erroneous understanding of several critical facts. For example, Alcoa has asserted that Hulett sells significant tonnages of a comparable plate product in South Africa and that Hulett is continuing to grow its exports of series 6000 plate to the United States.

Hulett continues to co-operate fully and provide all information necessary for the U.S. authorities who are investigating Alcoa’s allegations. Hulett Aluminium remains optimistic that the ongoing investigation will find that Hulett has not engaged in any injurious unfair trade practice through sales of its series 6000 aluminium plate to the United States.;

Peter Staude commented further that in Asia Hulett Aluminium continues to encounter stiff competition in the cited product from Alcoa out of Italy at prices significantly below those ruling in Europe and the United States.;

FACT SHEET

Hulett Aluminium is presenting information which shows that the U.S. industry is not materially injured by reason of unfairly traded imports of series 6000 aluminium plate from South Africa. This information includes the following:

• On the matter of causality, Hulett is presenting data which shows that the subject imports are not significant when compared to the volume of shipments by the U.S. industry producing aluminium plate or to shipments by the U.S. industry producing aluminium plate and sheet. Thus, imports from South Africa have not caused material injury to the U.S. industry.

• The broader economic climate prevailing in the USA and a generally acknowledged recession in manufacturing over the period of investigation, and specifically the depressed aerospace and semiconductor equipment markets, two key end-use applications for heat treated plate, were the key factors that placed downward pressure on prices in the heat treat plate sector.

• It is noteworthy that Alcoa have made no mention of significant additional heat treat plate capacity which it has recently brought on stream as being a factor influencing its current economic condition. Nor did Alcoa mention any impact of subject imports when it announced in 2001 its plans to increase its heat-treatable plate capacity through a $90 million expansion at its Davenport facility.

• While Alcoa complained about “aggressive underselling” by Hulett, it does not complain about substantial tonnages of imports from other sources that are priced significantly lower than imports from Hulett.

• Evidence submitted by Hulett reveals that it has neither the capacity to increase production of series 6000 aluminium products, nor the intention to increase exports to the United States.;

• Further evidence presented by Hulett shows that subject exports for the last seven calendar quarters have remained steady, demonstrating the absence of any trend toward significantly increasing imports. This contradicts the erroneous allegations by Alcoa that subject imports have increased substantially during the past two years.

• In addition, Hulett has provided sales data of its exports of the subject plate to other countries around the world, and based on this recent strong growth trend, it is clear that over the coming years, sales to the USA will decrease, rather than increase.

These facts undermine Alcoa’s claims of injury and future threat of injury by imports of series 6000 aluminum plate from South Africa.

Tongaat-Hulett takes action to counter effects of strenghthening rand

Peter Staude, Chief Executive of Tongaat-Hulett said today that all the Group’s businesses have substantial future earnings improvement opportunities to be unlocked by management actions. The focus is on accelerating the execution of these actions to counter the effects of current conditions. These actions include volume growth initiatives, restructuring and cost reductions, rationalisation of facilities and optimisation of capacity utilisation.

Staude was commenting on Tongaat-Hulett’s trading statement released on SENS. Conditions for the year to date are such that the Group expects both earnings per share and headline earnings per share for the year ending 31 December 2003 to be substantially below those of the year ended 31 December 2002. At the current exchange rate and maize price, Tongaat-Hulett expects to report a headline loss for the year to 31 December 2003.

Tongaat-Hulett has previously advised shareholders of factors that impact on its results and it has distinguished between underlying operating profit and valuation items in the income statement. The interim results to 30 June 2003 included valuation adjustments that exceeded underlying operating profit and a headline loss of R190 million was reported. The exchange rate has moved well below the level of R7,50 per US dollar, which prevailed at 30 June 2003. The underlying operating profits earned by the Group for the year continue to be countered by substantial negative valuation adjustments, which arose predominantly in the first half.

At 30 June 2003, negative valuation adjustments of R375 million were reported for the first half of the year. At current exchange rates, there are further negative valuation adjustments mainly on offshore cash holdings and export debtors. At the current maize price, the charge in the income statement to 30 June 2003 in respect of the valuation of maize procurement contracts has not changed significantly. The maize futures position is being shortened in the second half of 2003 as the procurement contracts are managed for physical delivery during 2004.

Staude commented further that revenue is benefiting from sales volume growth. This is being offset by the negative impact of the movement in the exchange rate on export revenue, as well as by reduced domestic selling prices in the face of import threats. The low rainfall and the resultant reduced sugar production in South Africa, as well as a low world sugar price are negatively impacting underlying operating profit. The recently announced Moreland – IFA property transaction has boosted operating profit. Hulett Aluminium has achieved record sales volumes in the past quarter. A dividend of US dollar 2,75 million has been received and brought to account from Triangle Sugar Zimbabwe.

Tongaat-Hulett’s annual results for the year ending 31 December 2003 are expected to be released on 23 February 2004.

Possible closure of Tongaat-Hulett Sugar’s Entumeni sugar mill

The sugar industry in South Africa is facing its most extreme challenge in recent history brought about by a number of factors coming together at the same point in time, comments Tongaat-Hulett Group CEO Peter Staude. The most important of these factors being:

• The strengthening of the rand against the US$ to a level last seen early in 2000, together with cost push pressures since 2000 have rendered the industry less competitive in US$ terms. For example salary and wage levels are today 39% higher than they were in early 2000.
• The “dumped” world market price, at which less than 25% of the world sugar is sold, is at its lowest level in recent years in US$ terms.
• The recently announced reduction in the domestic market sugar price.
  

This environment has been exacerbated by poor rainfall in many parts of the cane belt with production in some of the worst affected areas reaching full-blown drought status.

At Tongaat-Hulett Sugar every action is being taken to deal with the challenges. This has resulted in the announcement today by Bruce Dunlop, Managing Director of Tongaat-Hulett Sugar, that the company has initiated consultations with Entumeni mill employees, their representative Unions and cane growers regarding the company’s proposal to close the Entumeni sugar mill.

The Entumeni mill is the smallest of Tongaat-Hulett Sugar’s 5 sugar mills in South Africa representing approximately 5% of the 9 million ton crushing capacity and has a complement of 120 permanent employees. The mill is Tongaat-Hulett Sugar’s highest cost producer and as such is not able to compete effectively, despite the best efforts of all concerned. Tongaat-Hulett Sugar has considered a number of alternatives for Entumeni’s future but believes that its continued operation cannot be justified in terms of the company’s drive to lower its production costs to meet the considerable challenges ahead.;

In order to face the challenges upon the industry, Tongaat-Hulett Sugar will continue to pursue strategies to lower its cost of production. One of the keys to achieving low cost production on an international scale is to ensure that milling capacity is fully utilised given the capital intensity and fixed cost nature of sugar milling. The proposed rationalisation of milling capacity, by closing the Entumeni mill and accommodating its cane supplies at the other Tongaat-Hulett Sugar mills, will contribute to lowering THS’ overall cost profile and improving its competitiveness.

In commenting on the possible closure of the Entumeni mill, Peter Staude said that this was just one of the initiatives being taken by Tongaat-Hulett Sugar. Every aspect of the business is being re-examined and actions will be executed to mitigate the impact of the current situation.