Listed sugar, aluminium and property development group Tongaat-Hulett is expected to accelerate its earnings growth in 2005 through both incremental growth and investment opportunities, after posting a turnaround in 2004, according to the group’s 2004 Annual Report, released on Tuesday.
Durban-based Tongaat-Hulett’s main businesses comprise of Hulett Aluminium, which produces rolled aluminium products, sugar group Tongaat-Hulett Sugar, property developer Moreland and African Products, dealing mainly in starch and glucose products.
In 2004, Tongaat-Hulett recorded a turnaround of R307-million in headline earnings to R214-million, with the group battling difficult market conditions including the strong rand and small sugar crops harvested in 2003 and 2004.
Writing in the group’s Annual Report, CEO Peter Staude said he expected “considerable” earnings growth in the year ahead as the company was growing earnings from its established asset base and was well-positioned to pursue further growth opportunities. This included incremental growth initiatives, as well as substantial investment opportunities in sugar and aluminium.
He identified a number of opportunities on which Tongaat-Hulett could capitalise, including the potential acceleration of the deregulation of the European Union’s sugar regime and the resultant likely increase in the world sugar price, with the opportunity of expanding Tongaat-Hulett’s sugar operations in Mozambique. There was also the possibility of the sugar producer to develop profitable electricity generation from bagasse-fuelled plants at its sugar mills.
The group’s new plant – using its own piloted technology (called WSM) to produce white refined cane sugar directly out of a sugar mill, thus eliminating the need for a refinery, was scheduled to be operational by November 2005 at its Felixton sugar mill, Staude said. This would open the way for major shifts in the approach to sugar milling and refining.
Brazil was the first targeted international destination for this WSM technology, and a pilot plant had been successfully deployed for trials at two sugar mills. Further marketing initiatives were also underway, he noted, with significant potential equity or royalty opportunities.
There were also many opportunities for growth in the aluminium rolled products market, Staude said, where Hulett Aluminium currently had a global market share of less than 2%.
“Opportunities exist to incrementally build on the established competence, with additional capacity being added at a low capital cost per ton. Plans are advanced for the installation of additional finishing equipment.”
“The addition of further rolling capacity enhancements is being evaluated, which would be on a smaller scale than the original investment that created the Hulett Aluminium platform,” Staude added. “The options range from continuous casters of hot rolled coil to increased foil rolling capacity. Consideration is also being given to the investment in value added processes for rolled products.”
The area of agro-processing was another that provided numerous opportunities, the CEO noted, including new products and applications from the group’s current agricultural raw materials, as well as from alternative raw materials. Using the current business base, there was the possible production of unique modified starches or syrups, pharmaceutical intermediates and biochemicals. Other options included the processing of materials like cassava, wheat, sorghum, guar and chicory for markets ranging from depressants for the mining industry to animal feed formulations, insulin and prebiotics.
The company’s African Products business continued to focus on looking for opportunities to add to its range of higher value products. With the initial sales of commercial quantities of starch-based adhesives, carboxyl methyl starch and guar/starch-based mining depressants, it planned to expand sales in these product lines in 2005.
There was a positive outlook for Tongaat-Hulett in 2005, Staude said.
Hulett Aluminium was growing its sales volumes, and with its cost base largely in place, would use its remaining 25% capacity at a higher level of profitability. The group would benefit from higher international US dollar rolling margins and healthy demand from its broad customer base.
African Products, meanwhile, was now well positioned to compete against imports and had moved to a new maize procurement and customer pricing model.
The company was projecting that the South African maize price would remain closer to export parity thanks to the South African maize carry over and the current good crop.
The encouraging early summer rainfall together with actions to optimise cane supply should result in increased sugar production at Tongaat-Hulett Sugar, the CEO said, impacting the second half of 2005.
“The continuing discussions around reform of the EU’s Common Agricultural Policy and the recent move in the world sugar price from six to about nine United States cents per pound is encouraging and should result in additional export realizations,” he added. “Tongaat-Hulett Sugar is well placed to increase earnings in 2005 and beyond.”
At property development subsidiary Moreland, the group was able to participate in the downstream resort growth in the Zimbali Coastal Resort (apart from simply land development), and a number of environmental impact studies and planning programmes were due to be completed in 2005 to maintain the company’s current momentum. The present valuation of the prime property, after development, was over R2-billion. — I-Net Bridge