Hulett Aluminium questions background to Alcoa’s antidumping petition

Hulett Aluminium, the South African based producer of aluminium rolled products, with a rolled products worldwide market share of less than 1,2%, questions the background to an antidumping petition filed against it in the United States by Alcoa, the world’s largest aluminium producer.

The market segment cited by Alcoa in its antidumping petition constitutes less than 1% of the total United States market for aluminium rolled products and Hulett Aluminium has expressed its surprise at Alcoa’s claim of injury to the local industry.;

The fall off in demand in the related aerospace sector, in which Alcoa has the major market position, has led to downward pricing pressures in the engineering, tooling plate and die applications sector cited in the antidumping petition.;

The particular product specified by Alcoa is aluminium rolled plate, alloy 6061, with a thickness greater than 0.25 inches (6,3mm), which is not sold in South Africa by Hulett Aluminium.;

No petition has been filed against Chinese and Russian producers who tend to offer the lowest prices in the United States.

Hulett Aluminium will defend the antidumping petition filed by Alcoa.

Tongaat-Hulett impacted by valuation items at half-year

Tongaat-Hulett announced that the strengthening of the Rand and the reduction in commodity prices, especially maize, together with the consistent application of accounting statements AC133 and AC112 would lead to a substantial charge to the income statement for the period to 30 June 2003. This announcement is being made ahead of its release of half-year results as the impact of the valuation adjustments relating to the recognition and valuation of certain contracts and balance sheet items can now be determined.;

African Products has secured maize to meet customers’ requirements through to late 2004. The mark-to-market valuation adjustments due to a 40 to 45 percent decrease in the maize price in the last six months, to a level below farmers’ input costs, will result in a charge to the income statement of R255 million.;

African Products has followed a consistent strategy of securing the bulk of its maize requirements during the maize planting season and does not buy on speculation. 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.;

Cash continues to be held offshore for growth opportunities and the application of the exchange rate at 30 June 2003 will result in a reversal of R61 million of previous unrealized translation gains.

There are also ongoing and less significant impacts arising, inter alia, from the valuation of export debtors, inventories, foreign loan hedges and financial instruments.;

The magnitude of all period end valuation adjustments is such that it will exceed core underlying operating earnings for the half-year. This will result in a loss at the headline earnings level for the six months to 30 June 2003.;

Operating margins remain under pressure and each of the Group’s businesses is implementing actions to improve profitability.

The unaudited results for the half-year ended 30 June 2003 will be released on 4 August 2003.

Graph of comparative maize prices

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Tongaat-Hulett re-commissions a sugar mill in Mozambique

Tongaat-Hulett will be holding a ceremony to mark the re-commissioning of its rehabilitated sugar mill at Xinavane in Mozambique on 6 June 2003.

The Xinavane Sugar Mill, jointly owned by Tongaat-Hulett Sugar (49%) and the Government of Mozambique (51%), is situated approximately 136km north-west of Maputo.;

The replacement value of the sugar mill and surrounding sugar cane estates (6 300 hectares) is estimated to be well in excess of R500 million. In the 2003 season, the Xinavane Sugar Mill will produce 52 000 tons of VHP raw sugar, crushing at 132 tons of cane per hour in a 30-week crushing season. Plans are in progress to expand the factory to 150 tons of cane per hour by 2005, increasing the capacity to 70 000 tons of sugar in a 30-week crushing season. In the longer term, there are plans to double the annual capacity of the mill to 140 000 tons of sugar.

His Excellency, the President of the Republic of Mozambique, Joaquim Alberto Chissano, will open the rehabilitated mill.

Announcement – Directors

Two Executive Directors, Messrs DG Aitken and JB Magwaza, have reached retirement age after playing a leading role throughout Tongaat-Hulett for many years.

Mr JB Magwaza, who joined Tongaat-Hulett on 1 January 1975, will retire with effect from 31 July 2003. He will remain on the Tongaat-Hulett Board as a Non-Executive Director.

Mr DG Aitken, who joined Tongaat-Hulett on 23 June 1969, will relinquish his responsibilities as Group Financial Director on 30 September 2003. He will remain a Director of the Tongaat-Hulett Board for a further five months until his retirement on 29 February 2004.

Mr MH Munro, who is currently the Financial Director of Hulett Aluminium, has been appointed Group Financial Director and an Executive Director of the Tongaat-Hulett Board with effect from 1 October 2003.

Annual general meeting trading update

At the annual general meeting of the company held today the following statement was made:;

“In recent years, the Group’s investments in major manufacturing projects in Southern Africa have generated the planned growth in sales, boosted by exports, and while many new opportunities in marketing and sales have been created, the Group’s results are now more sensitive to exchange rate fluctuations. The movement in the Rand is not helping us at the moment; it continued to strengthen in the first quarter of 2003 and in that period, the domestic maize price almost halved. The financial effects of the application of AC 133 on maize procurement contracts are currently being assessed. Furthermore, a lower sugar crop is expected this year following poor rainfall in the cane growing areas. Earnings for the first six months of 2003 are therefore likely to show a major reduction, with some improvement expected during the second half.

Against the background of an uncertain world economy and exchange rate volatility, our underlying operations remain sound, with continued growth in sales revenues. Management is focused on reducing overheads, minimizing expenditure and maximizing cash flows.;

The Group’s balance sheet is strong and despite the anticipated setback in earnings, the Group will endeavour to maintain its interim dividend for the half year.”

Tongaat-Hulett Group reports strong growth for financial year

The Tongaat-Hulett Group reported strong growth in volumes, revenue and operating earnings for the year to 31 December 2002, assisted by the weak rand which prevailed generally throughout the year but which had strengthened significantly by year end.

Speaking from Amanzimyama, the Group’s headquarters at Tongaat in KwaZulu-Natal, CEO Peter Staude said revenue from continuing operations rose by 22 percent to R6,1 billion and operating earnings were 24 percent higher at R738 million. The year-end valuation of underlying reserves of GBP 42 million pertaining to offshore cash resources resulted in an unrealised translation loss of R151 million, compared with a corresponding gain of R255 million last year. This has resulted in headline earnings per share declining by 36 percent. Excluding the translation adjustment, headline earnings per share increased by 30 percent to 523,4 cents.

The Group was in a net cash positive position for the first time since the commencement of the major investments in African Products and Hulett Aluminium. Over the past two years, the Group has approved some R550 million for investment in projects all focussed on unlocking more value from existing businesses. The board has declared a final dividend of 190 cents per share, which, together with the interim dividend of 80 cents per share, amounts to an unchanged total dividend for the year of 270 cents per share. The balance sheet remains healthy with a further increase in shareholders’ equity to R4,6 billion. Net borrowings have declined from R377 million at the start of the year to a closing net cash position of R7 million.

African Products, delivered a strong performance in 2002, overall volumes grew from 578 000 tons in 2001 to 616 000 tons driven by a 10 percent growth in domestic sales. A drop in export volumes from 71 000 tons in 2001 to 64 000 tons, precipitated by the high maize price and a strong rand was offset by an improved product mix that realized higher margins. Operating earnings for the year before interest grew to R220 million.

In a year in which the international aluminium market has seen depressed demand and pressure on margins, Hulett Aluminium increased revenue by 28 percent to R3,2 billion showing a 35 percent compound annual growth rate over the past three years. Rolled products sales volumes in the last quarter improved significantly and were 23 percent ahead of average sales in the first nine months of the year. Operating earnings before interest grew by two percent to R272 million, the Group’s 50 percent share of which amounted to R136 million (2001 – R134 million).

Moreland, widely acknowledged as having created one of South Africa’s leading property growth nodes in Durban, achieved a strong cash flow performance in 2002 and increased revenue by eight percent to R146 million in spite of four interest rate hikes and high property rates on vacant land in Durban.

Tongaat-Hulett Sugar delivered particularly impressive performance increasing operating earnings by 49 percent to 420 million for 2002. This was achieved through higher cane and sugar production, improved export realizations as well as higher returns and restructuring in Swaziland and Mozambique.;

Triangle Sugar, in Zimbabwe, which is accounted for to the extent that dividends are received, continues to operate resiliently in a demanding environment. In 2002, dividends received from Triangle totalled R71 million (2001 – R76 million) net of withholding tax, representing a seven percent reduction on last year. Difficult trading conditions are likely to persist in 2003, underpinned by concerns over the future remitability of dividends from Zimbabwe.

The Group has adopted AC 137 (Agriculture) and as a consequence no longer accounts for its sugar operations on a seasonal basis. In addition, maize futures and option contracts are accounted for as derivatives or cash flow hedges where the requirements for hedge accounting have been met. Comparative figures have been restated for the accounting policy changes, where applicable. The adoption of AC 137 and the change in accounting policies in relation to the sugar operations, maize futures and option contracts has resulted in comparative figures being adjusted where applicable and had a R9 million favourable effect on the prior year’s earnings after tax and resulted in equity reducing by R18 million, property, plant and equipment by R84 million, working capital by R89 million and deferred tax by R14 million with increases in growing crops of R132 million and financial assets of R9 million. Current year earnings after tax have increased by R9 million as a result of the change in accounting policies.;

Staude is confident that the Group is well positioned to continue to deliver strong growth in revenues while at the same time reduce its cost base. He pointed out that the Group’s results are increasingly impacted by changes in the value of the rand. Should the rand remain at current levels, earnings for 2003 will be lower than those for 2002.

Tongaat-Hulett Group unlocks value from investments

The Group’s three internationally competitive businesses – starch & glucose sugar, and aluminium – have produced good earnings growth in the six months to the end of June 2002.

“The Group is unlocking substantial value from its recent major investments in African Products and Hulett Aluminium with strong operating earnings growths from both these divisions,” said Peter Staude, CEO of the Tongaat-Hulett Group.

Revenue from continuing operations rose 17 percent to R3 billion, and earnings were up 28 percent at R350 million after dividends from Triangle were received and net interest paid.;

As expected the strengthening of the rand to June this year has had an adverse effect on headline earnings, which nevertheless rose seven percent.

Had it not been for a loss of R57 million on the translation of £41 million in strategic cash resources, headline earnings would have risen by 34 percent.

On the other hand strong divisional cash flows enabled the Group to substantially reduce its net borrowings from R377 million to R161 million during the interim period.

In addition the board has decided to adjust the ratio between the interim and final dividends and has declared an increased interim dividend of 80 cents per share (2001: 62 cents).

African Products achieved a growth in revenue of 43 percent and in operating earnings of 83 percent.;

“Under pinning this performance was a strong 11 percent growth in the local market for starch & glucose products, which was partially driven by improved customer exports and import substitution, a doubling in export earnings boosted by a weaker rand, and the maintenance of the average maize input costs at well below the prevailing market prices,” said Staude.;

Sugar production from all operations is expected to rise by 13 percent to 1,25 million tons. South African operation’s contribution is expected to be 840 000 tons (last year actual production was 756 000 tons) while the higher cane and sugar production in Swaziland and Mozambique are increasingly contributing towards improved earnings.

Despite the deteriorating socio-economic conditions in Zimbabwe the operation there is expected to produce 280 000 tons of sugar, an increase of six percent on last year’s figure.

The Group has, to date, received R31 million in dividends from the Zimbabwe operation, however it cautions that the difficult economic and business environment may impact on receipts in the second half of the year.

Hulett Aluminium continued to produce outstanding results, increasing revenue by 20 percent to a record R1,5 billion, while earnings before interest and tax were R176 million up 52 percent compared to the corresponding period in 2001. The Group proportionally consolidates 50 percent of Hulett Aluminium.

These results were achieved despite difficult market conditions with international demand and margins in dollar terms being at their lowest level for many years.

” The business is steadily improving its sales mix as it moves up the product profitability curve, growing its capability to produce products with more challenging and stringent quality requirements. It continues to improve its market share in key targeted product groupings and geographic locations,” said Staude.

While the Group remains on track to deliver strong growth in volumes, revenue and operating earnings, it cautioned that headline earnings would be significantly influenced by the value of the Rand for the remainder of the year.

Tongaat-Hulett Group produces strong earnings growth

Despite a slowing world economy and tough domestic trading conditions, the Tongaat-Hulett Group increased headline earnings by 20 percent from 498,0 cents to 598,4 cents per share.;

Revenue from continuing operations rose 12 percent to R5,1 billion and operating earnings 14 percent to R584 million. Total net earnings for the year amounted to R609 million. The good results were boosted by exchange rate translation gains of R255 million.

A final dividend of 208,0 cents per share has been declared which, together with the interim dividend of 62,0 cents amounts to a total dividend of 270,0 cents per share, covered 2,2 times compared with 212,0 cents per share for last year.

“The Group’s strategy of investing some R4 billion over the past four years to create three internationally competitive businesses, growing through exports, has proved to be well timed in the light of recent events,” said Cedric Savage, executive chairman of the Tongaat-Hulett Group.

“The substantially enhanced capacity created by these businesses should continue to provide the Group with export driven growth,” he said. Exports currently account for 35 percent of total revenue.

Whilst on the theme of investment and exports, Mr Savage complimented the President and his Cabinet, particularly the Minister of Trade and Industry, on their initiatives to liberalise and reform international trade. Having returned recently from the World Economic Forum in New York, he said: “The influential role of South African leaders in NEPAD and the WTO has become widely recognised throughout the world and their efforts to address the imbalance that currently exists in the unfair subsidisation of agricultural products in the developed countries are highly commended.”

Even though its South African sugar production reduced to 756 000 tons, the sugar division maintained earnings before interest at R320 million, largely as a result of a recovery in world raw sugar prices and the weak rand.;

In addition, the white sugar premium in US dollar terms improved in the second half of the year and the division’s other Southern African operations also performed well.;

The performance of the starch and glucose division improved substantially, supplemented by increased exports, resulting in total revenue exceeding R1 billion for the first time. Earnings before interest rose 48 percent to R148 million.;

“This performance justifies the R800 million investment we made at Kliprivier some three years ago. The major cost impact of this investment has been absorbed, placing the division firmly into a growth phase,” said Mr Savage.;

The aluminium division generated a substantial positive cash flow against a background of difficult and turbulent market conditions. Total revenue of Hulett Aluminium increased by 25 percent to R2,5 billion and operational earnings grew by 31 percent to R267 million, of which 50 percent accrues to the Group.

“The aluminium division has demonstrated its ability to adapt quickly to changing market conditions by developing new, higher value added products and has shifted its targeted sales and geographic mix in line with market dynamics,” he said.

During the year, it concentrated on establishing and maintaining its growing international presence through increased sales and market share in more than 45 countries.

The year for the property division was characterised by firmer demand in commercial, residential and the resort portfolios. Its earnings before interest increased by 22 percent to R28 million.;

Substantial investments were undertaken in the Umhlanga Ridge New Town Centre and La Lucia Ridge areas. The division’s private/public partnership with the eThekwini Municipality (Durban) will progress further this year with the commencement of the uShaka Island Marine Theme Park and the Effingham-Avoca developments.

In the year ahead, Mr Savage said: “The Group expects strong growth in volumes, revenue and operating earnings from its divisions. The attainment of the prime objective of real growth in earnings per share in 2002, taking into consideration last year’s currency translation boost, will depend mainly on the relative strength of the rand. Cash flows will, however, remain positive and the Group is well placed to deliver increased shareholder value.”;

On the subject of executive succession planning, he said: “At the end of January this year, I had the pleasure of announcing that my successor as chief executive officer would be Peter Staude, with effect from our AGM on 10 May 2002. Peter, currently managing director of Hulett Aluminium, will also become chairman of that division. I would like to take this opportunity to congratulate him publicly and wish him the greatest success in his well-deserved appointments. He has played a crucial role in the management and expansion of Hulett Aluminium and has contributed to the Group’s activities as a director on the board since 1996 and on the board’s executive committee since 1997.;

“In turn, congratulations are extended to Alan Fourie, currently the financial director at Hulett Aluminium, who has been appointed to succeed Peter as MD of that division. Alan is a Chartered Accountant with an MBA from Cape Town University and, over the past 19 years, has held various executive responsibilities in Hulett Aluminium and its subsidiary companies, including the responsibility for the Commercial Products businesses since 1997.”

With regard to the chairmanship of the Group, the board at its meeting on Friday, 8 February 2001, asked Mr Savage to remain as chairman of the Group in a non-executive capacity.

Appointment of managing director of Hulett Aluminium (Pty) Limited

The Boards of The Tongaat-Hulett Group Limited and Hulett Aluminium (Pty) Limited are pleased to announce that following the appointment of Mr Peter Staude as Chief Executive Officer of the Tongaat-Hulett Group Limited and as Chairman of Hulett Aluminium (Pty) Limited, Mr Alan Fourie has been appointed Managing Director of Hulett Aluminium (Pty) Limited with effect from 10 May 2002.

Mr Fourie, who is a Chartered Accountant and an MBA graduate from Cape Town University, joined the Tongaat-Hulett Group in 1979 and moved to Hulett Aluminium in 1983. He is currently the Financial Director of Hulett Aluminium and has held various executive responsibilities in Hulett Aluminium and its subsidiary companies, including the responsibility for the Commercial Products businesses since 1997.

M A Kennedy
Group Secretary