STRATEGIC PARTNERING AT TONGAAT HULETT STARCH
An upgrade to the existing Alidex plant at Tongaat Hulett Starch’s Germiston mill, costing some R130 million, has resulted in an increase of its enzyme glucose output to 300 tonnes from 130 tonnes per day. The expansion was driven by increased customer demand in the spray drying sector.
Stewart Krook, Marketing director at Tongaat Hulett Starch explains the reasoning behind the expansion of the Alidex plant, ‘We identified that we were short of capacity to supply product to our customers on time and in full.
The spray drying market was growing substantially faster than our current GDP. In order to meet the increased demand for final products, our customers had themselves invested to increase their output. With this growth in the local and export markets, which resulted in the need for more glucose, we found ourselves well short of capacity to supply everyone in the market.’
As a result, glucose had to be imported, which had a detrimental effect on all participants in the local value chain. To pursue the glucose market more aggressively, the company implemented two strategies. ‘We decided to increase the capacity on our acid glucose plant and also invested in an additional enzyme glucose production plant. This was the biggest single undertaking by Tongaat Hulett Starch since the commissioning of the Kliprivier Mill,’ Krook states.
The project resulted in additional downstream benefits. ‘We are proud that we are touching the lives of maize farmers as we are procuring more maize. Much needed foreign exchange is now staying in the country and allowing South African producers to pursue export programmes for local products. As additional product is put through the plant, production costs are optimised. Benefits in the downstream value chain, for instance transport and logistics operations, are also impacting on sustaining jobs.’
Extra capacity on enzyme glucose was also driven through standardisation by customers in the spray drying sector. The company invested some R130 million in the upgrade, on the back of a long-term supply agreement. This has additional benefits as Tongaat Hulett Starch’s acid glucose is now being freed up. Tongaat Hulett Starch can now offer all its customers in the spray drying and confectionary sectors the grade of glucose they want, to optimise their product and plant efficiencies. Different spray towers use different products and the ability to meet the entire spectrum of market requirements has been very beneficial to the company.
According to project engineer Shahir Jayram, the team had a firm understanding of the operation, technology, engineering and project management requirements of the project. ‘We are very proud that during the construction phase, the mill continued to seamlessly supply Alidex to customers without any interruption to the Germiston operation.’
Tongaat Hulett Starch engaged the services of an engineering, procurement and construction management service provider to assist with project implementation. This was a fast-tracked initiative and final costing and commissioning were completed within one year. Jayram is particularly proud that not one loss-of-time injury occurred during the construction and commissioning phases of the project.
Processing systems that work
There are two methods to produce glucose syrup: the enzyme/enzyme or acid/enzyme process. Equipment at the mill is in the process of being ramped up to its intended design rate of 300 tonnes per day.
‘We are in the process of optimising specific unit operations to yield improved plant efficiencies. We are not only doing things smarter, but also simpler,’ Jayram states.
During the acid enzyme converting phase, maize is changed from a solid to a liquid state. The first phase takes place in the cooker, where steam is used to provide the heat required for conversion. This takes place in the presence of an acid catalyst. Product then goes through a reactor under the correct pressure and temperature to ensure complete conversion. Thereafter the product reacts with an enzyme to produce maltodextrin. ‘The amount of enzyme (liquefaction) added, determines the level of sweetness required. We produce two grades, a 20 DE and 30 DE syrup. On the full sweetness scale, our product offers a mild and moderate sweetness, which is perfect for use in products such as coffee creamers.’
After liquefaction the product then moves to the filtration plant. Filtration removes fats and proteins to render a clearer product. The standard is that the glucose product must be totally transparent or water white.
‘The filter medium we use is diatomaceous earth. A check filter ensures that no filter medium advances through the process. Ion exchange is the next step where the glucose syrup is demineralised in line with international standards,’ Jayram explains. ‘Carbon treatment is then implemented to remove colour forming bodies and to improve the appearance and shelf life of the glucose. A consumer will not buy a product if there is any colour deviation and the coffee creamer market is particularly unforgiving.’
A two-stage evaporation process concentrates the product to specification. The new evaporator station was designed and built by the Tongaat Hulett Starch’s Technology Group. This group renders process, engineering and project management support to all of the Tongaat Hulett Starch operations.
Quality control remains an important differentiator at Tongaat Hulett Starch. In the factory, the operator does initial process sampling and samples are also sent to the central laboratory. If any deviations are found, the necessary corrective action is immediately taken. In the final product phase, repeat samples are tested in the mixing tank and a final check is run to determine whether pH, sugar profiles and conductivity meet all specifications.
A sophisticated air filtration (ultra violet light) system was installed onto the new Alidex storage tank. Disinfection with UV light kills any microbes to offset contamination in the storage tank. Tongaat Hulett Starch is so impressed with the new system that further roll-outs in other parts of the factory are expected during the year.
All about control
The company uses the Foxboro Intelligent Distributed Control system, which allows the operating team to dial straight into the plant control system. This helps the engineers in trouble-shooting and assists the operator to eradicate and resolve issues. It also enables root causes analysis off-site.
Tongaat Hulett Starch’s Germiston mill is set for further improvement this year. ‘We are planning a replacement of the starch wash battery. This will ensure that the plant is able to increase its throughput and overall efficiency,’ Krook concludes.
Source: Food Review – March 2016
CORNUBIA ACCESS INTO INDUSTRIAL AND BUSINESS ESTATE ENHANCED WITH OPENING OF JG CHAMPION DRIVE
Access into the Cornubia Industrial and Business Estate (CIBE) has been greatly improved with the opening of MR 458 road-over-rail bridge which leads motorists directly to the main entrance of the estate.
Previously, access into the CIBE was via a single lane from the R102, which had to be upgraded to accommodate the increasing traffic volumes. To ensure smooth flow of traffic, this road will remain open, and be the primary access to eThekwini’s housing development, while the MR 458, or JG Champion Drive, entrance is now the main entrance into the estate.
“The opening of JG Champion Drive will go a long way in easing traffic congestion by greatly increasing access to the ever-expanding CIBE,” explained Mtura Matshini, Development Executive of Tongaat Hulett Developments. “This long-awaited gateway to the CIBE comprises of two, dual lane road bridges. The location of the railway line, as well as wetland, necessitated the structures which presented an opportunity to construct aesthetically interesting feature bridges and entrance to the estate.
With this in mind, Tongaat Hulett Developments assembled a professional team comprising of both a consulting engineer and urban design architect, with the view of developing a unique and aesthetically pleasing entrance to the estate. The main design theme encompasses 14 masts along the outside of each structure, leaning in both the transverse and longitudinal directions. Each mast is illuminated creating an impressive night-time effect, directing traffic towards the CIBE.
The 88.50 m long structures comprise of four spans, integral at the abutments and intermediate piers. An expansion joint is placed over the central pier, allowing for movement of the bridge decks. The bridge decks are 10.4 m wide, carry two lanes of traffic and a sidewalk each, with a clear gap of 7,8 m separating the bridge decks. The structures are at a 5o angle. The uniqueness of the structures is in the abutments leaning
A unique aspect of the structures is that the abutments and intermediate piers lean towards the approaches, while the central pier is vertical. This layout is mirrored by the light masts.
Each bridge deck comprises of six u-shaped, reinforced concrete, precast beams with lengths of approximately 21,0 m. A precast beam solution was necessary as the rail line that the structures span over needed to remain open with minimal disruptions during the construction period. This was achieved by lifting and placing the beams with cranes during temporary, short duration closures of the rail line. Diaphragms at each support create the monolithic structural system and a 200 mm thick cast in-situ deck slab, cast on permanent formwork, creates the riding surface of the bridges.
The bridge abutments are buttressed walls, leaning back at a 1 in 4 slope. The abutments are integral with the bridge deck. The piers comprise of leaning columns with a capping beam. The intermediate piers are integral with the bridge deck, while elastomeric bearings at the central piers support the bridge deck. All substructure elements are supported on 1,05 m diameter piles, raked where required.
The approaches to the structures are retained by mechanically stabilised earth walls. The southern approach passes through a wetland which required an unusual solution to stop the approach fill settling over the life of the structure. Stone columns where installed in this area to support the approach fill, with careful monitoring of the settlement taking place to ensure settlement limits were achieved, prior to finishing off the approaches.
Construction of the MR 458 started in April 2014, with FCE (Fountain Civil Engineering) as the main contractor. The official opening of the route took place at the end of February 2016. The R140 million access route was co-funded by eThekwini Municipality (60%) and Tongaat Hulett Developments (40%).
Access to the MR458 or JG Champion Drive is off the R102 and Northern Drive intersection near Phoenix and Ottawa.
Currently several organisations are operating in the CIBE including Bidvest Food services, Digistics, ID Logistics, Blinds Mart, Cargo Compass, and MacNeil with other purchasers including listed property funds as well as other large companies like TechnoVaa South Africa having acquired land in the estate. The Estate, which permits light industrial and business uses, is almost sold out, except for 1 large site.
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2015
- Revenue of R7,609 billion (2014: R8,073 billion) -5,7%
- Operating profit of R1,361 billion (2014: R1,510 billion) -9,9%
- Operating cash flow of R2,292 billion (2014: R2,413 billion) -5,0%
- Headline earnings of R673 million (2014: R773 million) -12,9%
- Interim dividend of 170 cents per share (2014: 170 cents per share)
Commentary by Peter Staude, CEO of Tongaat Hulett:
The results for the half-year ended 30 September 2015 were attained with strong performances from the land conversion activities and the starch operation being more than off-set by the impact of difficult conditions for the sugar industry. In total, for the six months, revenue amounted to R7,6 billion and operating profit of R1,4 billion was generated, which is 9,9% below last year.
Land conversion and development activities generated operating profit of R576 million from the sale of 65 developable hectares (2014: R435 million from 49 developable hectares). Sales in this period came from Cornubia (industrial and office), Sibaya (commencement of node 1 for high-end residential), Umhlanga Ridge Town Centre, Kindlewood, Izinga and Bridge City. The profit per developable hectare averaged R8,9 million in the half-year, ranging from R4 million to over R38 million per developable hectare, in line with the expectations previously communicated.
The starch and glucose operation increased operating profit to R281 million (2014: R264 million). Sales volumes of prime products reflected a 1% reduction in the half-year, with gains in the coffee/creamer sector and a slight increase in exports being off-set by reductions in the confectionery, prepared foods, canning and paper making sectors. Maize costs were competitive and there were ongoing improvements in operating efficiencies, co-product recoveries and cost control.
The various sugar operations’ revenue totalled R5,0 billion for the six months, which was 14% below the previous half-year. Profit before the impact of cane valuations was R1,13 billion compared to R1,45 billion in the first half of last year. A reduction in sugar production is being driven by poor growing conditions, particularly in South Africa. In addition to lower volumes, export revenues are also being impacted by a lower international sugar price, with regional deficit markets and EU exports linked to that price. Export prices earned into the EU have reduced by some 5,3 US cents per pound, in line with the reduction in the world price, compared to the first half of last year, with a revenue impact of some R200 million in Zimbabwe and Mozambique. Cost reduction initiatives continue across all operations. There are multiple currency dynamics, with positive and negative effects compared to the same period last year. The negative cane valuation impact of R570 million at the half-year is to be expected with the harvesting that has taken place and is consistent overall with the movement seen last year. Operating profit after cane valuations, from all the sugar operations, totalled R562 million compared to R864 million in the first half of last year.
The South African sugar operations, including the agriculture, milling, refining and various downstream activities have seen a reduction of operating profit to R154 million (2014: R259 million). Production volumes are substantially below last year as a result of the drought in KwaZulu-Natal (including the Darnall mill not being opened this season) and export sales volumes have consequently reduced by 88% compared to the same period last year. The overall reduction in volumes has been partly off-set by focused cost reductions and improved local market pricing, with a reduced impact of imports into the local market. Value added activities, including speciality sugars, branding, packing and distribution in Botswana, Namibia and South Africa, as well as Voermol (the specialist animal feeds business), continue to make a significant contribution.
The Tambankulu Estate in Swaziland recorded operating profit of R32 million (2014: R35 million), which continues to reflect the impact of lower sugar cane prices.
The Mozambique sugar operating profit reduced to R142 million (2014: R226 million) due to lower export sales prices and sales volumes in the half-year. The lower sales volumes are as a result of lower production levels at this stage in the season. The effect of lower export revenues, including the reduction in export prices into the EU, was partially off-set by increased local market revenues.
The Zimbabwe sugar operations’ operating profit for the half-year amounted to R234 million (US$19 million) compared to the R344 million (US$32 million) in the same period last year. Domestic market sales volume levels have been maintained despite the challenging local economic conditions. This was more than off-set by lower export volumes, due to the timing of shipments between the first and second halves of the year, and lower export prices into the EU. The strength of the US dollar is exerting pressure, particularly in respect of US dollar based costs (such as wages and salaries) and Euro based revenues. The movement in the exchange rate has benefitted the conversion of the US dollar earnings into Rands on consolidation.
Finance costs of R314 million (2014: R297 million) were commensurate with the borrowing levels and prevailing interest rates.
Operating cash flow generated for the six months was R2,3 billion (2014: R2,4 billion), before working capital movements. The absorption of cash in working capital at the half-year was some R2,4 billion, being the middle of the sugar season when sugar stocks and debtor levels are usually substantially higher than at the end of the financial year. The increased level of land conversion sales and profits has led to a higher level of accounts receivable. Capital expenditure for the half-year has increased with high return initiatives being undertaken, for example the coffee/creamer production facility expansion in the starch and glucose operation. After taking all of the aforementioned into account, net debt at the half-year was R5,27 billion (2014: R4,90 billion).
Headline earnings for the half-year amounted to R673 million (2014: R773 million). An interim dividend of 170 cents per share has been declared (2014: 170 cents per share).
OUTLOOK
Tongaat Hulett has substantially enhanced its strategic positioning over the past few years and will continue to do so, focusing on multiple strategic thrusts, all with a positive impact on earnings and cash flow, through the various cycles that the business experiences. The financial results for the current full year continue to be influenced by a number of substantial and varying dynamics, both negative and positive, and the full impact is difficult to predict at this stage.
Tongaat Hulett’s Sugar Production and its Markets
Tongaat Hulett’s sugar production in 2015/16 has been heavily impacted by the drought in KwaZulu-Natal and the lower water and dam levels for irrigation have had an impact in Mozambique, Zimbabwe and Swaziland. Sugar production in total for the 2015/16 season is expected to be between 1 005 000 and 1 093 000 tons (2014/15: 1 314 000 tons), with South Africa between 310 000 and 325 000 tons (2014/15: 541 000 tons), Zimbabwe between 410 000 and 450 000 tons (2014/15: 445 000 tons), Mozambique between 230 000 and 260 000 tons (2014/15: 271 000 tons) and the raw sugar equivalent in Swaziland between 55 000 and 58 000 tons (2014/15: 57 000 tons). Production levels in 2016/17 will largely depend on the extent of rainfall over the next 7 months. The drought has already had an impact, particularly in South Africa. In Zimbabwe, Mozambique and Swaziland the quantum of irrigation is being reduced as a mitigation measure against potential poor rainfall in the coming months. Electricity availability has, at times, impacted on irrigation. A return to regular growing conditions, together with the benefit of the intensive agricultural improvement plans that are well under way, should lead to sugar production increasing to above 1,6 million tons by 2018/19.
A number of factors are in play in the markets where Tongaat Hulett operates. The key markets are the domestic markets in countries where it produces sugar, all of which have the potential to grow Tongaat Hulett’s supply. Progress is being made with the effectiveness of various import protection measures. In Zimbabwe and Mozambique, sugar refining matters are being addressed, which should lead to the replacement of imported industrial white sugar. Growth is expected in consumption per capita, off a low base, particularly in Mozambique and partly in Zimbabwe, together with increased distribution and marketing initiatives. In South Africa, with its current low sugar production level, Tongaat Hulett is having to procure other producers’ raw sugar for refining to supply its local market white sugar position and plans to replace this with its own production in future. Tongaat Hulett has the leading sugar brands in South Africa, Zimbabwe, Botswana and Namibia. Total local market sales in Tongaat Hulett’s domestic markets could increase from some 850 000 tons in 2014/15 to some 1 090 000 tons by 2018/19.
Tongaat Hulett’s additional sugar is sold mainly into regional and EU markets, where a premium is earned above the volatile world sugar price. Coming out of 5 years of global surplus production, high stock levels and a low world price, the expectations for the current year are that global supply will fall short of global demand. Current weather conditions, together with farmer behaviour driven by low prices and input cost pressures, are exerting downward pressure on global sugar production levels. Global sugar consumption is predicted to continue to grow at a rate of some 1,5% to 2% per annum, with most of this growth coming from low per capita consumption developing countries.
Tongaat Hulett has key market positions and experience in both the EU and the region (southern and eastern Africa). The EU reforms are leading to a shift for Tongaat Hulett away from the EU to regional deficit markets, replacing deep sea imports and benefitting from trade-bloc advantages. By 2018/19, regional exports could increase from 100 000 tons in 2014/15 to some 275 000 tons and EU exports are likely to reduce from 327 000 tons to some 130 000 tons.
Cost Reductions
The sustainable cost reductions achieved over the past two years (equivalent to some R950 million in real terms), while having to absorb input price increases, provided a good base for the next steps in the concerted cost reduction process in the sugar operations. An overall reduction in goods, services, transport, marketing, salaries and wages costs in real terms is expected this year.
Growing Starch and Glucose
The starch and glucose operation is well positioned strategically and is focused on growing its sales volume, with an enhanced product mix and customer growth prospects into Africa. This is underpinned by improving use of its available capacity and the efficiency of its operations. The R135 million expansion project for the coffee/creamer sector is currently in its commissioning phase. For the second half of this year, 85% of maize requirements have been priced, back to back with customers, with margins slightly below the same time last year. The current prevailing dry weather conditions have resulted in planting delays for the forthcoming maize season. Rain is required during the next three to six months to allow the crop to be planted and established. The margins earned on approximately 55% of the starch operation’s sales volumes for the next financial year will be influenced by the extent to which local maize prices trade closer to import parity levels.
Momentum in Land Conversion and Development
The momentum in Tongaat Hulett’s land conversion and development activities continues, with good progress on numerous value unlocking activities spanning the portfolio of 8 026 developable hectares in KZN earmarked for development. These activities include strengthening demand drivers, unlocking infrastructure at key points, securing release from agriculture and other development approvals, while executing optimal sales strategies for the various parcels of land. The value achieved per hectare of land sold is increasingly reflecting this steadily improving land conversion platform and varies based on usage and location. Tongaat Hulett continues to work together with Government, related organisations and key stakeholders in the property industry to capture the synergy of each other’s unique capabilities and to create and unlock value for all stakeholders. An increasing number of significant black economic empowerment related land development transactions are taking place. This all has a positive impact on economic development, including industrial, commercial, tourism and all levels of residential development in the Durban/KZN North Coast area, complementing the simultaneous rural development taking place around new agricultural cane developments.
Following the sales of the last 18 months, which total 173 developable hectares, the remainder of this financial year could see muted sales activity. Significant early sales momentum (40 developable hectares sold) has been achieved in opening up both the western expansion of Umhlanga Ridge Town Centre into Cornubia and a new development area in node 1 of Sibaya at eMdloti, with a further 58 developable hectares to come in these areas following a consolidation around these early catalyst sales. Good progress has been made, after a 2-year comprehensive process, in understanding how to unlock optimal value from the prime 42 developable hectares in precincts 1 and 2 of Umhlanga Ridgeside. A single sale of these 42 hectares, with the current commercial and residential mix, is not likely to be the optimum route and a multiple sales approach will now be embarked upon, benefitting from the significant interest created to date.
An update of the land portfolio document (including prospective usage, market momentum, demand drivers, possible timing and values) is available on the www.tongaat.com website. It includes an update of the possible 5-year sales outcomes, indicating total sales of at least 639 developable hectares with a profit range of R2 million to R39 million per developable hectare. It also details those areas where commercial negotiations have commenced or are likely to commence over the next 24 months.
Tongaat Hulett continues to focus on value creation for all stakeholders through an all-inclusive approach to growth and development, with its footprint in six SADC countries, its ability to process both sugar cane and maize, animal feeds thrust, electricity generation and ethanol opportunities, increased momentum in land conversion and its socio-economic positioning and constructive interfaces with Governments and society.
Peter Staude
Chief Executive Officer
About Tongaat Hulett
Tongaat Hulett is an agriculture and agri-processing business, focusing on the complementary feedstocks of sugarcane and maize. Its on-going activities in agriculture have resulted in the company having a substantial land portfolio within the primary growth corridors of KwaZulu-Natal with strong policy support for conversion at the appropriate time. A core element of Tongaat Hulett’s strategic vision is to maximise the value generated from the conversion of land in the portfolio by responding to key demand drivers and identifying its optimal end use for all stakeholders. Through its sugar and starch operations, Tongaat Hulett produces a range of refined carbohydrate products from sugarcane and maize, with a number of products being interchangeable. Global sweetener markets continue to be dynamic and the business seeks to optimise its various market positions, leveraging off its current base to maximise revenue from these products. The business’s sugar operations are well placed to benefit from evolving dynamics of renewable electricity and ethanol in South Africa, and the Southern African Development Community (SADC) region.
Agriculture and agri-processing is a fundamental element of socio-economic development in Africa – particularly in the development of rural communities, farming activities, food security and water management, housing and land conversion to development as urban areas expand. This is also linked to the socio-political dynamics of the region. Tongaat Hulett is well positioned in the nexus of these dynamics.
BRIDGE CITY ATTRACTS ENTREPRENEURS
Bridge City, a key link in KwaZulu-Natal’s rapidly developing Northern Growth Corridor, is attracting entrepreneurs and new entrants into the property development space thereby helping grow the regional economy and uplift surrounding communities.
Brian Ive, a Development Executive at Tongaat Hulett Developments, said the wide variety of opportunities and holistic planning of both the Bridge City Town Centre and Business Estate provided for a wide range of business activities, including light industrial, medical, legal, commercial, retail and residential elements.
In addition, the substantial additional footfall created through the establishment of Bridge City as one of the city’s largest inter modal transport facilities would open up numerous opportunities across these sectors.
Already Bridge City is expected to be the second busiest transport interchange in the city, second only to Berea Road/Warwick Junction. The first phase of the Go Durban! integrated rapid public transport network (IRPTN) is expected to be completed in 2018 with Bridge City as the meeting point for three bus rapid transport corridors linking it to the Durban CBD, Pinetown and Umhlanga.
Usage of the already operational Bridge City railway station, through which 22 trains pass daily, is expected to increase still further. Once all transport modes are fully operational, it is expected to service over 100 000 commuters daily.
Ive pointed out that significant progress had been made on the first private development at Bridge city by independent property development company, Imabli Props 48. Construction began in late 2014 and the first phase is expected to be completed by December this year.
Centrally located adjacent to the shopping mall, it is a mixed use development with a total lettable area of 5 500 m². It will include a musallah and a clinic as well as retail, commercial and residential space. Key tenants include a KFC Drive Through, a Lenmed Medical Clinic and a Check Star Supermarket.
Ive said that that two sales had been concluded recently and that construction of these developments was due to begin during the first quarter of 2016. So far, half of the sites within the Bridge City Town Centre (30 hectares) have been sold whilst there are just four sites available in the 17 hectare Bridge City Business Estate.
The Business Estate, too, is intended for mixed use. Sites vary in size from those suited to small companies needing smaller sites to larger sites for warehousing and light manufacturing.
Bridge City is being developed as the second leg of the Effingham Development Joint Venture Public Private Sector Partnership between the eThekwini Municipality and Tongaat Hulett. The first was the highly successful Riverhorse Valley Business Estate. However, whilst the latter is primarily industrial with a single hospital, Bridge City is a mixed use development.
He explained that Tongaat Hulett was reinforcing its commitment to creating meaningful stakeholder value through the growth and development of entrepreneurs such as HZ Investments which is headed by local entrepreneurs and property developers under the age of 23.
Their first R650 million development, HZ Empire, begins with a R250-million first phase which includes a petrol filling station and a six floor mixed use development.
It is located on a strategic site on the western edge at the entrance to Bridge City.
Construction is expected to begin during the first quarter of 2016. The design review process is due to be concluded within the next two months and all major consultants have been appointed.
The second phase will be located on an adjacent site, the purchase of which is underway. It is hoped to house a “government mall” – a government one stop shop that will include offices of strategic departments such as Home Affairs, the Department of Social Development and municipal electricity and water services. Negotiations are underway.
“We come from KwaMashu, Ntuzuma and Inanda, so we know the needs of the community. Through the creation of a government mall, we want to cater for those who cannot travel far. We want to provide jobs and are looking at projects that will impact on the area. We want to see this place being elevated. That is one of our core visions,” says chief executive of HZ Investments, Wandile Zulu.
Together with his colleagues Siyabonga Hlengwa, who is joint chief executive, chairman Bishop Qwabe and chief operating officer, Robert Phato, he established HZ Investments in 2013.
The initial intention was to open a petrol filling station on the site. BP not only appointed and trained them to operate the petrol station, but assisted with funding the land purchase through paying all leases upfront and helping them expand their vision and take their development to the next level with the inclusion of the rest of the mixed use development.
HZ Investments has already secured the correct zoning to operate the filling station on that location for the next 20 years. Application has been made to the Department of Energy for a licence to operate. This is expected in about six months.
Tongaat Hulett Developments also stepped in to play a mentoring role, according to Ive.
“Although many other professional developers had shown an interest in this prime site, we chose to work closely with HZ Investments for over two years, mentoring and assisting them to reach the position where they are now about to see their first development come out of the ground. One of our key drivers is to get local black developers to invest in Bridge City and we felt that there was a synergy between the vision of HZ Investments and that of Tongaat Hulett Developments,” he explained.
He said he was looking forward to seeing other young investors and entrepreneurs gain traction at Bridge City.
He also expects new entrants such as HZ Investments to continue to pursue opportunities. Already these entrepreneurs are looking at opening a factory to produce energy drinks at Bridge City in partnership with the IDC.
PARTNERSHIP TO CREATE EXCELLENCE IN AGRICULTURAL EDUCATION
Government through the National Development Plan Vision 2030 (NDP) has emphasised on the importance of building an inclusive and integrated rural economy where local government, rural communities and business create partnerships to drive local economic development and maintain sustainability. Tongaat Hulett believes that business is a significant contributor to the planning and implementation of the NDP.
“The company is cognisant of the instrumental role it can play in creating an environment in which local economic development can be effectively delivered,” said Bongani Gumede, Tongaat Hulett Land Policy Executive.
In 2012, Tongaat Hulett signed a Collaboration Agreement with the Department of Agriculture and Rural Development in KwaZulu-Natal. It focused on the concept of sustainable rural development, with an emphasis on education and training, food security and capacity building.
The Department of Agriculture and uThungulu District Municipality endorsed a partnership between Owen Sitole College of Agriculture and Tongaat Hulett, which aims to transform the College into a Centre of Excellence in sustainable agriculture in accordance with the standards of Agricultural Training Institutions. The partnership looks to harness the potential of agriculture in the surrounding rural areas, focusing on:
- Accelerating the establishment of experimentation plots to ensure that the students obtain hands-on experience in various aspects of sugarcane agriculture. This resulted to a 20 hectare plot being allocated specifically towards this project.
- Capacity building of the academic staff with the aim to strengthen the College’s capacity to develop and provide quality and relevant educational programmes, practicals and research that will support the local socio-economic agenda. A total of five lecturers received support to attend a five week Senior Certificate Course in Sugarcane Agriculture. In addition, 20 lecturers were supported to attend a week-long course in moderation.
- Promoting the crosspollination of information through company-led expert lectures. These lectures help to bridge the gap between what is being taught in lecture halls and its application in the workplace. A total of 142 students have attended these expert lectures.
- Awarding 18 bursaries to high potential students from historically disadvantaged backgrounds with a passion for agriculture.
Gumede concluded, “In partnership with government and society Tongaat Hulett strives to create value for all stakeholders in an all inclusive approach to growth and development, by making company business relevant to the complementary interests of local communities. The company will continue to look for opportunities partner with government to foster sustainable development”
RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 MARCH 2015
• Revenue of R16,155 billion (2014: R15,716 billion) +2,8%
• Operating profit of R2,089 billion (2014: R2,374 billion) -12,0%
• Cash flow from Operations of R2,533 billion (2014: R2,173 billion) +16,6%
• Headline earnings of R945 million (2014: R1,106 billion) -14,6%
• Annual Dividend of 380 cents per share (2014: 360 cents per share) +5,6%
Commentary by Peter Staude, CEO of Tongaat Hulett:
The results for the year ended 31 March 2015 were attained in difficult conditions in the sugar industry and with a number of positive achievements by Tongaat Hulett in terms of cost reductions, securing local markets and future cane supplies. The starch operations again delivered a strong performance. Land conversion and development activities continue to unlock substantial value, albeit with operating profit recognised in the year being below that reported last year. Overall, with revenue of more than R16 billion, operating profit of R2,089 billion was earned, reflecting a 12% reduction compared to the previous best of R2,374 billion earned last year.
Operating profit from the various sugar operations totalled R806 million (2014: R908 million). The benefit of cost reductions over the past two years, increased local market sales in Zimbabwe, together with the negative cane valuation effect recorded in the income statement last year not being repeated this year, were offset by a reduction in sugar production volumes and lower prices. Sales volumes included the sale of sugar from previous season stocks in Zimbabwe. Revenue in Mozambique and Zimbabwe was impacted by a further substantial reduction in prices (4,7 US cents per pound, with a total impact of some R390 million) for exports into the EU. World sugar prices declined further, with global stock levels having increased following favourable weather conditions in many sugar production regions of the world. The overall cane valuation impact in the income statement was a positive R96 million this year (driven mainly by the increased areas under cane and new/replanting of roots), compared to a negative R153 million last year (when there was a large negative impact of sugar price reductions). Tongaat Hulett’s sugar production for the year totalled 1,314 million tons compared to 1,424 million tons in the prior year.
The South African sugar operations, including the agriculture, milling, refining and various downstream activities recorded operating profit of R261 million (2014: R340 million). These operations, which previously increased sugar production substantially to 634 000 tons, saw sugar production this season reduce to 541 000 tons due to low rainfall in KwaZulu-Natal (KZN). The impact of the dry conditions has been partially mitigated by 11 554 hectares of new cane developments that were harvested for the first time this year. Local sales were below prior years, with various pressures in the market. Cost reduction actions have limited the cost of goods, services, transport, marketing, salaries and wages to an increase of 4% this year.
The Zimbabwe sugar operations’ operating profit for the year amounted to R386 million (US$35 million) compared to the R330 million (US$33 million) last year. Local market sales volumes recovered significantly, with improved local market protection (tariffs and import licences) implemented earlier in the year and progress being made with distribution and marketing initiatives. The local market remains suppressed by the macro-economic conditions. Sugar production for the year was 445 000 tons (2014: 488 000 tons) as a consequence of no cane being diverted from the independent ethanol plant at Chisumbanje (39 000 tons sugar equivalent in the prior year) and after experiencing the impact of low dam levels for irrigation at the end of 2013, which only recovered in early 2014. The conversion of US dollar profits into Rands on consolidation was positively impacted by exchange rate movements. The cost of bought-in goods and services, salaries and wages was US$11 million lower than the prior year and US$51 million lower than two years ago, after absorbing input price, salary and wage increases.
The Mozambique sugar operations recorded operating profit of R130 million (2014: R168 million). Sugar production for the year increased to 271 000 tons (2014: 249 000 tons). The local market was significantly impacted by additional imports and this necessitated increased exports by local producers at lower prices, with a negative R77 million profit impact on Tongaat Hulett. The cost of goods and services, salaries and wages was lower than two years ago by an amount of Mt165 million, which was the Rand equivalent of some R58 million, after absorbing price increases and substantial salary and wage increases. Sugar production has grown by 15% over the same period.
The Swaziland sugar operations reported operating profit of R29 million (2014: R70 million) as a result of the lower sucrose price as a consequence of a reduction in export prices into the EU. The Swaziland estates produced the raw sugar equivalent of 57 000 tons (2014: 53 000 tons).
The starch operation increased operating profit to R561 million (2014: R482 million), with improvements in the sales mix, co-product recoveries, capacity utilisation and plant efficiencies. Domestic sales volumes grew by 4%, with increases in the coffee/creamer, confectionary and paper making sectors. Working together with customers, success has been achieved in increasing sales of products where demand is growing (locally and exporting into the rest of Africa) and recovering local market from imports. Starch and glucose processing margins were in line with the prior year.
Land conversion and development activities generated profit of R829 million from the sale of 108 developable hectares (2014: profit of R1 080 million from sales of 259 developable hectares). Sales came largely from Cornubia (industrial, business and retail) with an average profit of R8,2 million per developable hectare and Izinga/Kindlewood with average profit of R6,3 million per developable hectare. Profit in Umhlanga Ridge Town Centre exceeded R25 million per developable hectare. The momentum on larger land sales has continued, with a single sale of 19 developable hectares in Izinga and a sale of 27 developable hectares in a new area of Cornubia. The sale of 42 developable hectares of highly valued land in Umhlanga Ridgeside, precincts 1 and 2, which was previously expected to be finalised by the end of March 2015, was not concluded in this financial year. Negotiations with four parties are at various stages, aimed towards reaching an imminent conclusion. The development proposals received for Ridgeside are confirming the value that has previously been attributed to the land.
Cash flow from operations generated R2,533 billion (2014: R2,173 billion), an improvement of some R360 million, with a reduced cash absorption in working capital. Net debt at the end of the year reduced to R3,992 billion with a R419 million positive cash flow after dividend payments.
Total net profit before the deduction of minority interests was R1,047 billion (2014: R1,227 billion) and headline earnings attributable to Tongaat Hulett shareholders amounted to R945 million compared to R1,106 billion last year. A final dividend of 210 cents per share has been declared, bringing the annual dividend to 380 cents per share (2014: 360 cents per share).
LOOKING AHEAD
Tongaat Hulett has substantially enhanced its strategic positioning over the past few years and expects to continue to do so, focusing on multiple strategic thrusts, all with a positive impact on earnings and cash flow.
More Favourable Sugar Markets in Coming Years
The sustainability of farmers in the sugar industry throughout many parts of the world is under significant pressure at the low current world price and taking into account the substantial input cost increases over the past decade. This, together with possible variable weather conditions, is likely to exert downward pressure on global sugar production levels. Global sugar consumption is predicted to continue to grow at a rate of some 2% per annum, with most of this growth coming from low per capita consumption developing countries. There are predictions for sugar demand growth in southern and eastern Africa of some 30% over the next six years. The current surplus global stock levels have also been putting pressure on local and regional prices, as well as the EU market, amplified by the EU market reforms. Tongaat Hulett is steadily shifting export sales from the EU to regional deficit markets. Attention is focused on capturing and growing local market sales. In South Africa, the reference price used to calculate import duty levels does not yet fully provide adequate and appropriate protection for this socio-economically important rural industry. In Mozambique, the imminent substantial increase in the reference price should provide such assistance.
Further Cost Reductions
The sustainable cost reductions achieved over the past two years, while having to absorb input price increases, provide a good base for the next steps in the concerted cost reduction process in the sugar operations. Unit costs of sugar production will benefit substantially from growth in volumes and better yields, as milling costs and many of the agricultural costs per hectare are mostly fixed. The marginal cost of additional sugar production from existing hectares under cane is typically 4 to 6 US cents per pound.
Growing Sugar Production
The crop size in the coming season in South Africa is uncertain and is likely to be at the lowest level for many years, while Zimbabwe and Mozambique are likely to show modest growth in sugar production.
Good progress continues to be made in growing the number of hectares under cane and it is expected that by 2018/19 an additional 22 800 hectares will be harvested, of which 9 074 hectares have already been planted. Agricultural improvement programs aimed at improving yields and sucrose content are proceeding well. Tongaat Hulett has more than 2,1 million tons of sugar milling capacity. Sugar production is targeted to grow from the 1,314 million tons in 2014/15 to some 1,821 million tons in 2018/19, under normal weather conditions. Of this growth, 37% is expected to come from a return to normal weather conditions, 30% from additional hectares under cane and 33% from yield and sugar extraction improvements.
Creating Value For All Stakeholders
Tongaat Hulett continues to focus on value creation for all stakeholders through an all-inclusive approach to growth and development. In KZN there are established collaborations with Provincial and Local authorities in the inextricably linked areas of sugar and cane activities, the development of urban areas (including Cornubia) and maximising the future benefit of renewable energy. The planting of 28 687 hectares in the past four years has created some 7 175 direct jobs in rural areas and the 12 000 hectare project currently underway for cane development and job creation in rural KZN includes a Jobs Fund grant for R150 million allocated over some three years, with the first R50 million already received. In Zimbabwe, Tongaat Hulett, the Government and Local communities are working together on socio-economic initiatives in the south-eastern Lowveld region of the country. One of the key focus areas remains the on-going orderly development of sustainable private sugar cane farmers and at the end of the 2014/15 season, some 857 active indigenous private farmers, farming some 15 880 hectares, employing more than 7 300 people, generated US$70 million in annual revenue. Current initiatives should increase this, by the 2017/18 season, to some 1 023 private farmers supplying more than 1 900 000 tons of cane harvested from 19 270 farmed hectares, with further job creation in rural communities. In Mozambique, 415 000 tons of cane were delivered from 4 370 hectares in the 2014/15 season, supporting 2 018 indigenous private farmers.
Growing Starch and Glucose
The starch and glucose operation, which is the only wet-miller in Sub-Saharan Africa, is well positioned strategically, focused on growing its sales volume, with an enhanced product mix and customer growth prospects into Africa. This is underpinned by improving use of its available capacity and the efficiency of its operations. Dry weather conditions in the new season have resulted in maize prices trading above international levels and the starch operations current exposure to these higher prices comprises approximately 15% of the coming year’s maize requirements.
Momentum in Land Development
The momentum in unlocking value and cash flow from land conversion and development continues, with a portfolio of 8 091 developable hectares in KZN ultimately earmarked for development. The value achieved per hectare of land sold is increasingly reflecting the steadily improving land conversion platform and varies based on usage and location. A progressively larger area is benefitting from planning activities and infrastructural investment at key points. Tongaat Hulett continues to work together with Government, related organisations and key stakeholders in the property industry to capture the synergy of each other’s unique capabilities and to maximise value for all stakeholders. This has a positive impact on economic development, ranging from industrial and commercial to tourism and all levels of residential development and the affordable housing backlog, in the Durban/Northern KZN area and complements the simultaneous rural development taking place around new agricultural cane developments. Over the next 5 years, sales are expected to come primarily out of 3 801 developable hectares in key focus areas comprising the urban expansion north of Durban in the Umhlanga and Cornubia areas, coastal lifestyle areas of Zimbali and Sibaya, business and residential development around the airport, coastal development north of Ballito in Tinley Manor and in the Ntshongweni area west of Durban. Further detail on the land portfolio (including prospective usage, market momentum, development themes, possible timing and values) is available on the www.tongaat.com website.
Financial Prospects for the Year Ahead
The financial results for the year ahead will be influenced by a number of varying dynamics, the magnitude and impact of which are difficult to predict at this stage. It is likely that the sugar operations will remain under pressure, particularly in South Africa. Land development could have a record year. Starch volumes, mix, cost and exchange rate dynamics are likely to counter maize prices being closer to import parity.
The business is in a good position to benefit from multiple actions across all of its well-grounded strategic thrusts, with its footprint in six SADC countries, its ability to process both sugar cane and maize, electricity generation and ethanol opportunities and increased momentum in land conversion.
Peter Staude
Chief Executive Officer
About Tongaat Hulett
Agriculture and agri-processing is a fundamental element of socio-economic development in Africa – particularly in the development of rural communities, farming activities, food security and water management, housing and land conversion to development as urban areas expand. This is also linked to the socio-political dynamics of the region. Tongaat Hulett is well positioned in the nexus of these dynamics.
Tongaat Hulett is an agriculture and agri-processing business, focusing on the complementary feedstocks of sugarcane and maize. Its ongoing activities in agriculture have resulted in the company having a substantial land portfolio within the primary growth corridors of KwaZulu-Natal with strong policy support for conversion at the appropriate time. A core element of Tongaat Hulett’s strategic vision is to maximise the value generated by optimum utilisation of land in the portfolio through its conversion to the most productive land use thereby optimising total real estate investment on the land. Through its sugar and starch operations, Tongaat Hulett produces a range of refined carbohydrate products from sugarcane and maize, with a number of products being interchangeable. Global sweetener markets continue to be dynamic and the business seeks to optimise its various market positions, leveraging off its current base to maximise revenue from these products. The business’s sugar operations are well placed to benefit from evolving dynamics of renewable electricity and ethanol in South Africa, and the Southern African Development Community (SADC) region.
Amanzimnyama
Tongaat, KwaZulu-Natal
25 May 2015
ENDS
Issued by: Tongaat Hulett
Michelle Jean-Louis
Communications Executive
Telephone: 083 386 3846
TONGAAT HULETT PARTNERS WITH LAND OWNERS
Courtesy of: The North Coast Courier 26-12-2104
Imagine you have 370 hectares of land but no way to make it profitable. That was the situation that Makhosikhosi Communal Property Trust was facing until they signed a lease agreement with Tongaat Hulett in 2013. The two organisations celebrated the success of their partnership on Wednesday December 17 at the Makhosikhosi Farm in Upper Tongaat.
View the full article here.
TONGAAT HULETT PARTNERS WITH BEE CONSORTIUM THROUGH THE SALE OF PRIME LAND AS UMHLANGA EXPANDS INTO CORNUBIA
Tongaat Hulett’s 12-hectare, 85,000 m2 first phase of the westward expansion of Umhlanga Ridge into Cornubia, which was launched in late August, has sold out. The sale, which was concluded during September, sold five subdivisions to two purchasers, with 68 000m2 going to a local black-owned company.
Michael Deighton, Tongaat Hulett’s property executive said that this was the company’s first major empowerment deal in a key area in Umhlanga. “We are confident that it is the first of many such empowerment deals,” he said, emphasizing that there were several opportunities in future phases of the expansion of Umhlanga Ridge into Cornubia to further reinforce the organisation’s intention to make space for black developers in this key growth and investment corridor north of eThekwini.
“We believe that this represents up to a R3 billion investment opportunity for these entities who could construct suitable facilities for a range of end users,” Deighton explained.
Speaking on behalf of the BEE consortium, the principal shareholder, Paulos Ngcobo, commented, “We look forward to partnering with Tongaat Hulett to maximise the potential of this prime location. As a catalyst for economic development, Cornubia has the potential to create employment and improve the lives of thousands of people.”
The bulk earthworks contract for the site has already commenced and is expected to be completed in mid-2015. Construction of internal services such as roads, telecommunications, water, sewerage and electricity will follow. Construction of top structures could commence as early as next year with trading likely to begin in 2017. Deighton believes that the value of the investment will be fully unlocked by 2017/8 after the opening of the Cornubia Shopping Centre, which is already under construction by Investec, and the completion of major infrastructure upgrades that include the Flanders Drive interchange on the M41.
The site forms part of the greater Cornubia development, a multi-billion rand collaboration between the eThekwini Municipality and Tongaat Hulett. The first of its kind in KwaZulu-Natal, Cornubia is a fully integrated human settlement. When the residential element of Cornubia is complete, there will be 24 000 homes, accommodating close to 100 000 people, many of whom will work, shop and seek entertainment in the precinct.
In conclusion, Deighton confirmed that, “Tongaat Hulett will work with the empowerment partners to maximise the value of the development. Through the purchase of this property, the new BBBEE entity is expected to evolve into a major player within the commercial property market to the north of the city.”
Amanzimnyama
Tongaat, KwaZulu-Natal
7 November 2014
ENDS
Issued by: Tongaat Hulett
Key contacts
Shirley Williams and Associates – Shirley Williams
Telephone: 031 564 7700 or 083 303 1663
Michelle Jean-Louis – Communications Executive
Telephone: 032 439 4101
INTERNATIONAL LAUNCH OF SIBAYA MEGA PROPERTY
Tongaat Hulett has embarked on a new chapter in its land conversion activities with the appointment of Savills (UK) in association with 5th Avenue and the Pam Golding Properties Group to launch Sibaya Nodes 1 and 5 real estate opportunities to an international market.
While a total of five nodes make up the first phases of the mixed-use Sibaya development, nodes 1 and 5 are being prepared for marketing within the next few months. Node One consists of 50 developable hectares and is located east of the M4 and Sibaya Casino. Node Five comprises 76 developable hectares and is situated immediately north of Node One and bordered by the M4, the M37 to the north and the coastal town of Umdloti to the east.
The appointment of international real estate services provider, Savills, to market the two properties highlights the potential that this unique landholding offers. With global headquarters in London, LSE-listed Savills, together with 5th Avenue and Pam Golding, offers a leading, global platform for the launch of this unique property.
In the fast-growing and well-established northern development corridor of Durban, boasting 180° sea views, a backdrop to extensive natural coastal forests and within easy reach of the King Shaka International Airport, the development possibilities for these two Sibaya nodes include major new resorts in conjunction with lifestyle residential accommodation, upmarket offices and developments suited to the leisure and hospitality industry. Hotels, conference and entertainment facilities, retail and recreation facilities would complete the picture.
“Tongaat Hulett envisages Sibaya as a unique play-live-work lifestyle that is based on bringing together the best of both urban and natural environments. These opportunities lend themselves to organisations possessing global expertise and bold vision to maximise their enormous potential,” notes Mike Deighton, Tongaat Hulett’s executive responsible for property development.
“Durban has seen tremendous expansion in recent years, with the construction of the new international airport and Dube Trade Port being real statements of intent from the Government and Local Authority to attract international investment to the region.” commented Daniel von Barloewen, head of Savills International Development Consultancy
“The Sibaya site provides an opportunity to deliver a new destination for Durban to attract international investors, hotel operators and businesses. Savills are delighted and privileged to be partnering with Tongaat Hulett in helping shape the future of the region and attract global investors,” he said.
“Found in the rapidly-expanding North Coast, a mere 8km north of Umhlanga and 25km from the Durban city centre, these properties are expected to attract significant investment into the region,” states Zamo Gwala of Trade & Investment KwaZulu-Natal, “and TIKZN would be available to provide assistance and resources to any new entrants to the market.”
Mike Deighton concludes, “The Sibaya precinct presents a powerful proposition for a catalytic impact on the region. Situated within an emerging Aerotropolis, there is an appreciation of the vast socio-economic needs within this broader region and Tongaat Hulett believes that new international investment into Sibaya will provide a substantial boost to the development necessary to address these challenges, enhancing the region’s global presence and branding.”
Amanzimnyama
Tongaat, KwaZulu-Natal
7 November 2014
ENDS
Issued by: Tongaat Hulett
Key contacts
Shirley Williams and Associates
Telephone: 031 564 7700 or 083 303 1663
Michelle Jean-Louis -Communications Executive
Telephone: 032 439 4101
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014
- Revenue of R8,073 billion (2013: R7,854 billion) +2,8%
- Operating profit of R1,510 billion (2013: R1,381 billion) +9,3%
- Operating cash flow of R2,413 billion (2013: R2,402 billion) +0,5%
- Headline earnings of R773 million (2013: R663 million) +16,6%
- Interim dividend of 170 cents per share (2013: 150 cents per share) +13,3%
Commentary by Peter Staude, CEO of Tongaat Hulett:
The encouraging results for the half-year ended 30 September 2014 were achieved with various improvements in the sugar operations at a time when revenue is being negatively affected by lower international sugar prices. The starch operations delivered a strong performance. Land conversion and development activities continue to unlock substantial value, albeit with operating profit recognised in this half-year being below that reported in the same period last year. Overall, revenue increased by 3% to more than R8 billion and operating profit reflected a 9% increase to exceed R1,5 billion.
The starch operation increased operating profit to R264 million (2013: R232 million). Domestic sales volumes grew 5%, with increases in the coffee/creamer, confectionary and paper making sectors. Starch and glucose processing margins were in line with the prior year as the operation continued to benefit from competitive local maize costs and good co-product recoveries. Improved operational efficiencies and a focus on costs have remained key drivers.
Operating profit from the various sugar operations totalled R864 million (2013: R684 million). As expected, there has been less of an impact of lower cane valuations at this half-year compared to last year. Operating profit before cane valuations was at a similar level to that of the same period last year. Total sugar revenue increased by 3%, while sugar production is below last year – a year in which there was a substantial increase. Sugar producers worldwide that are exposed to the current low world price are under pressure when one considers the substantial input cost increases over the past decade. The various protection measures implemented in each country of operation to improve local market sales volumes are starting to produce some benefits. The business experienced the impact on revenue of lower international prices, particularly for exports into the European Union (EU). At the same time, there has been a continued drive to reduce the costs of sugar production across all the operations, retaining the substantial reductions achieved in the 2013/14 year, including off-crop expenditure, while having to absorb input price increases.
The South African sugar operations, including the agriculture, milling, refining and various downstream activities recorded operating profit of R259 million (2013: R248 million). These operations, which grew sugar production substantially last year to 634 000 tons, are expecting sugar production this season to be between 525 000 tons and 595 000 tons due to low rainfall in KwaZulu-Natal (KZN). Production for the season is still expected to be well above the level of two seasons prior. The impact of the dry conditions has been partially mitigated by 11 554 hectares of new cane developments that are being harvested for the first time this year. The overall increase in the reference price used in the import duty calculation, to protect the local market against unfair import competition, has had a limited impact over the last six months. Local market sales were depressed by an estimated 120 000 tons of sugar that were imported before the adjustment to the reference price in April 2014. The two week industry-wide strike impacted on export sales volumes in the first half of the year. All the available cane is expected to be milled by the end of the season.
The Zimbabwe sugar operations’ operating profit for the half-year amounted to R344 million (US$32 million) compared to the R232 million (US$23 million) in the same period last year. This period has seen higher sales volumes, mainly due to improved local market protection (tariffs and import licences) implemented in April 2014. Export prices into the EU are lower than those earned last year. The negative effect of cane valuations at the half-year was lower than that experienced last year. The movement in the Rand/US dollar exchange rate impacted positively on the conversion of US dollar profits into Rands on consolidation. The Zimbabwe sugar operations are expecting a decrease in sugar production to between 440 000 tons and 475 000 tons for the full year (prior year: 488 000 tons) mainly as a consequence of no cane being diverted from the independent ethanol plant at Chisumbanje (39 000 tons sugar equivalent in the prior year) and after experiencing the impact of low dam levels for irrigation at the end of 2013, which only recovered in early 2014.
The Mozambique sugar operations grew operating profit to R226 million (2013: R151 million). An increase in sugar production is expected for the full year to between 265 000 tons and 280 000 tons (prior year: 249 000 tons). In the half-year, sales volumes increased by 5% while average selling prices have remained constant year on year, with improved local market prices and reductions in export prices to the EU. The movement in the Rand/Metical exchange rate had a positive impact on the consolidation of the Mozambique profits into Rands. The negative effect of cane valuations at the half-year was lower than that experienced last year.
The Swaziland sugar operations reported operating profit of R35 million (2013: R53 million) as a result of the lower sucrose price as a consequence of a reduction in export prices into the EU.
Land conversion and development activities generated operating profit of R435 million (2013: R512 million) from the sale of 49 developable hectares. Sales came largely from Cornubia (industrial, business and retail) with an average profit of R9,0 million per developable hectare. Sales in Izinga/Kindlewood averaged profit of R6,7 million per developable hectare and Umhlanga Ridge Town Centre averaged R29,4 million per developable hectare.
The centrally accounted and consolidation items amounted to R42 million (2013: R37 million). Finance costs amounted to R297 million (2013: R298 million) and were commensurate with the lower borrowing levels and higher interest rates.
Operating cash flow generated was R2,4 billion for the six months. Cash flow from operations after working capital was R576 million, an improvement of some R250 million compared to the same period last year. The cash absorbed in working capital was some R1,8 billion (2013: R2,1 billion) at the half-year, being the middle of the sugar season when sugar stocks and debtor levels are usually higher than at the end of the year. Net debt at the end of September has reduced to R4,9 billion (2013: R5,4 billion).
Headline earnings for the half-year grew by 17% to R773 million (2013: R663 million). An interim dividend of 170 cents per share has been declared (2013: 150 cents per share).
OUTLOOK
The momentum in unlocking value from land conversion and development continues, with 8 150 developable hectares ultimately earmarked for development. Over the next 5 years, sales are expected to come primarily out of 3 661 developable hectares prioritised in key focus areas comprising the urban expansion north of Durban in the Umhlanga and Cornubia areas, coastal lifestyle areas of Zimbali and Sibaya, business and residential development around the airport, coastal development north of Ballito in Tinley Manor and in the Ntshongweni area west of Durban. An increasingly larger area is benefitting from planning activities and infrastructural investment at key points. Tongaat Hulett continues to work together with Government, related organisations and key stakeholders in the property industry to capture the synergy of each other’s unique capabilities and to maximise the value for all stakeholders that can be derived from the region. Global markets will be further assessed through the international launch of Sibaya during the second half of the 2014/15 year. The development of urban residential areas for lower income earners is being accelerated. The potential sale of 42 developable hectares of the prime land in Ridgeside is progressing well. Further sales in the second half of the 2014/15 year are likely to come from Cornubia, Izinga/Kindlewood, Umhlanga Ridge Town Centre and possibly from Sibaya, Compensation and land adjacent to the airport.
The starch operations are well positioned to continue to perform strongly, with sales volume growth underpinned by improved capacity utilisation, enhanced product mix and customer growth prospects into Africa. The business will benefit from the recent large maize crop harvested in South Africa.
Sugar prices remain under pressure with the current low world price. In South Africa, Zimbabwe and Mozambique there is an increasing understanding, up to senior Government levels, of the importance to better protect local markets (especially to secure rural jobs) against imports from other surplus sugar producing countries, confirmed by the upcoming reforms to the EU sugar market. Better import protection would lead to lower exports.
The likely dynamics in the EU market beyond the October 2017 reforms remain uncertain. The average sugar prices earned by the business in 2014/15 for exports into the EU market are expected to be some Euro 25 per ton below those earned in 2013/14, during which year there was a reduction of Euro 155 per ton in the prices achieved.
Tongaat Hulett’s sugar production is targeted to grow by some 400 000 tons over the next 4 years. Agricultural improvement programs are now well entrenched and these programs, together with better weather conditions, should lead to higher cane yields and higher sucrose content in the cane, with the marginal cost of this sugar production being some 30% of the current low world sugar price. In South Africa, a 12 000 hectare project for cane development and job creation in rural KZN is an integral part of the growth and development of cane farming in Tongaat Hulett’s cane supply areas. The financing of this project includes a Jobs Fund grant for R150 million allocated over some three years, with the first R40 million already received.
Encouraging progress is being made towards establishing regulatory frameworks to turn a portion of South Africa’s export sugar into ethanol and to generate more electricity from the fibre component of sugar cane.
Further substantial reductions in the cost of sugar production are targeted for 2015/16, after the consolidation in the current season, which follows the reductions in cost per ton achieved in 2013/14 of 14% in Mozambique, 16% in South Africa and 23% in Zimbabwe.
Tongaat Hulett continues to focus on value creation for all stakeholders through an all-inclusive approach to growth and development. In KZN there are established collaborations with Provincial and Local authorities in the inextricably linked areas of sugar and cane activities (the planting of 24 979 hectares in the previous three years has created some 6 250 direct jobs in rural areas), the development of urban areas (including Cornubia) and maximising the future benefit of renewable energy. In Zimbabwe, Tongaat Hulett, the Government and Local communities are working together on socio-economic initiatives in the south-eastern Lowveld region of the country. One of the key focus areas remains the on-going orderly development of sustainable private sugar cane farmers and at the end of the 2013/14 season, some 813 active indigenous private farmers, farming some 14 000 hectares, employing more than 6 700 people, generated US$58 million in annual revenue. In Mozambique, an estimated 381 000 tons of cane will be delivered from 4 170 hectares in the 2014/15 season, supporting 1 898 indigenous private farmers.
The business is in a good position to benefit from multiple actions across all of its well-grounded strategic thrusts, with its footprint in six SADC countries, its ability to process both sugar cane and maize, electricity generation and ethanol opportunities and increased momentum in land conversion.
Profits and cash flows for the full year are expected to reflect further growth over the 2013/14 year.
Peter Staude
Chief Executive Officer
About Tongaat Hulett
Tongaat Hulett is an agriculture and agri-processing business, focusing on the complementary feedstocks of sugarcane and maize. Its ongoing activities in agriculture have resulted in the company having a substantial land portfolio. Tongaat Hulett’s unique skill and competence in the conversion of agricultural land to development, is a key driver of the fundamental shift in the pace and value unlock from the company’s land conversion activities and property portfolio. Through its sugar and starch operations, Tongaat Hulett produces a range of refined carbohydrate products from sugarcane and maize, with a number of products being interchangeable. Global sweetener markets continue to be dynamic and the business seeks to optimise its various market positions, leveraging off its current base to maximise revenue from these products. The business’s sugar operations are well placed to benefit from evolving dynamics of renewable electricity and ethanol in South Africa, and the Southern African Development Community (SADC) region.
Amanzimnyama
Tongaat, KwaZulu-Natal
10 November 2014
ENDS
Issued by: Tongaat Hulett
Michelle Jean-Louis
IR and Communication Executive
Telephone: 083 386 3846
