TSB Investor site visit presentation - Malalane 17 September 2014
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Agenda Item Presenter Time Allocation Welcome Miles Dally 09:30 – 09:45 Introduction to TSB John du Plessis 09:45 – 10:45 Break 10:45 – 11:00 Site orientation Clinton Vermeulen 11:00 – 11:15 Mill Visit Clinton Vermeulen 11:15 – 12:45 - Mill Logan Govender - Packaging Mike Ngcobo / Prem Sahadeo - Molatek Fanie du Plessis Lunch 13:00 – 13:45 Contract grower presentation Dawie van Rooy 13:45 – 14:15 Closure John du Plessis 14:15 – 14:45
Operational overview (South Africa) • Market leader in sugar cane agriculture, production, marketing, sales and distribution • Strategically located in the "northern irrigated" region of the South African sugar industry − Head office is located at Malalane, ± 60 km east of Nelspruit − Main production takes place in the Nkomazi area (Malalane and Komati) on the Mozambican corridor and in close proximity to Swaziland − Pongola Mill is situated in the north of KwaZulu-Natal, close to the southern border of Swaziland • Operates 3 mills: Malalane, Komati and Pongola − Malalane and Pongola each have a refinery and a packaging plant • Total production capacity of approximately 700 000 tons of sugar per annum • Strong portfolio of market leading brands − Quality Sugars (majority-owned subsidiary) markets sugar under the Selati brand − Molatek, produces animal feeds from by-products of the sugar manufacturing • Employs c.3800 permanent staff, making a substantial contribution to the economies of the areas within which it operates 4 Source: TSB
Company history 1965 TSB is founded. Central Sugar Board allocates 11 518 hectares of land for cane cultivation 1966 Quality Sugars is formed to act as marketing distribution agents for TSB 1967 TSB's Malalane Mill receives its first cane and commences sugar production 1982 A transport fleet is established, mainly for the conveyance of cane from TSB estates to the mill 1985 Molatek Animal Feed factory is commissioned 1988 Remgro acquires TSB. 1993 TSB purchases Quality Sugars 2004 TSB acquires Booker Tate 2005 TSB acquires a shareholding in RSSC and establishes Mananga Sugar Packers (MSP) in partnership with RSSC 2007 TSB sells 6 000 hectares of its agricultural land to communities to settle the Tenbosch land claim. The settlement results in the formation of Libuyile and Mgubho farming companies, which are jointly owned by TSB and the communities, to continue farming operations. TSB also forms Akwandze Agricultural Finance in partnership with cane growers to finance sugar cane farmers 2008 TSB starts marketing its own refined sugar on the international market 2009 TSB acquires Pongola Sugar Mill 2011 Quality Sugars assumes responsibility for marketing sugar on behalf of TSB and Mananga Sugar Packers. Molatek Block Plant commissioned 2012 Establishment of Sivonuseftu, a joint venture company to resolve the Matsamo land claim 2014 TSB is acquired by RCL Foods Source: TSB 5
Group structure RCL Foods 100% Akwandze 50% TSB RSA Financial Services 100% 51% TSB International Massingir Agro Industrial 27% 100% 75% Royal Swazi Sugar Agriculture 100% Shubombo Quality Sugars 25% Booker Tate Corporation Technical Services Cane Operations Agricultural Services Sugar Marketing Mhlume Mill Management Simunye Mill 50% Manufacturing Malalane Mill 50% Komati Mill Sivonuseft Pongola Mill Libuyile Mgubho TsGro Mananga Animal Feeds Farming Farming u Farming 50% Services Services Farming Services Sugar Packers Services Sugar Packing Supply Chain Packaging, Warehousing Transport Sales, Operational Planning Source: TSB 6
Key investment highlights 2 Produces approximately 30% 1 Selati is the of South Africa's total #1 sugar sugar output brand in 3 Operates three mills South Africa in South Africa, in close proximity to Mozambique with capacity to produce 700 000 tonnes of 6 sugar p.a. Significant growth potential into Africa 4 Produces animal feed from by- products of the sugar manufacturing process - produced 5 The lowest-cost sugar c.300 000 tonnes of animal feed producer in the South during FY2014 African sugar industry Source: TSB 7
High level overview of TSB’s business Manufacturing & Cane Supply Marketing Supply Chain Outbound Distributor SSG’s • Cane Volume Molatek Supply Chain 300 000 (t) 0.4 m (t) • Cane Quality • Daily Supply Wholesale 160 000 (t) CGs Inbound Outbound Retail Raw Mill Refinery 3.2 m (t) Supply Chain Supply Chain 190 000(t) Industrial 196 000 (t) Cane Ops Outbound Export 1.3 m (t) Supply Chain 137 000 (t) Source: TSB Electricity to Grid 47 (GW/hrs) 8
Permanent staff headcount Staff headcount 3900 3807 3800 3694 3700 3600 3500 3400 3300 3229 3221 3200 3100 3000 2900 2011 2012 2013 2014 9
Overview of the South African sugar market With the tariff • The South African Customs Union (“SACU”) provides the basis for the domestic imposed on market for the sale of sugar by South African sugar millers imports, the − Approximately 80% of sales are white refined sugar and the remainder is brown sugar industry is moving to − 44% of sales are in the industrial market, 45% into the direct market and 11% of sales are to normality, packers in Botswana, Lesotho, Namibia and Swaziland producers are basing • Sugar consumption growth historically has been c. 2% per annum investment decisions on the • Industry players initiated a number of measures to combat imports – lobbying sustainability of government on the impact of imports (particularly on small scale growers) and tariff protection. application to increase the current ineffective protection on imports • The South African government has recently announced a new sugar import tariff of R132c/kg. This is predicted to improve local producers profitability • Growth in South Africa continues to lag behind the rest of Africa, however, with the tariff protection sugar consumption is expected to increase at similar levels. Source: TSB 11
South African sugar industry Location of key industry players Structure of industry Growers Millers • Tongaat Hulett (4 Mills) • Illovo (4 Mills) • TSB (3 Mills) 13 local growers • UCL Company (1 Mill) councils • Umfolozi Sugar Mill (1 Mill) • Gledhow Sugar (1 Mill) SA Cane Growers’ SA Sugar Millers’ Association Association Key mills TSB Malalane, Pongola, Komati SA SUGAR COUNCIL Illovo Eston, Noodsberg, Umzimkulu, Gledhow ASSOCIATION Tongaat Felixton, Maidstone, Darnall, Amatikulu Hulett Source: SASA 12
Divisions of proceeds – F2014 season Local market Export market Sugar sales Sugar sales Molasses sales Total industrial proceeds Deduct industrial costs and rebates Equals net divisible proceeds Fixed division Grower share Miller share 64.37% 35.63% Distributed by individual Price per ton millers according to production Growers share “Rand” divided by RV tons share Source: TSB 13
Imposition of import tariffs Successful in mitigating the threat from imports Imports (Duty Paid) 2012/2013 & 2013/2014 462 081 Cumulative 433 149 418 500 480 000 460 000 440 000 420 000 337 612 400 000 380 000 360 000 340 000 255 993 320 000 300 000 224 788 280 000 204 151 260 000 183 070 173 417 Tons 240 000 165 037 220 000 144 187 142 739 200 000 122 520 180 000 103 370 99 393 160 000 85 756 140 000 74 221 65 274 120 000 61 281 42 462 100 000 40 500 38725 28 390 80 000 20 306 16 126 60 000 9871 3025 2695 2212 40 000 20 000 0 2012/2013 2013/2014 2014/2015 Source: ITAC media release, April 2014 and SASA 14
Agriculture 15
Agriculture Cane farming • TSB supports approximately 1 800 commercial and small-scale growers who supply 80% of the sugar cane to its factories from 55 000 hectares of irrigated land • Collectively the total area under cane amounts to 69 000 hectares of which: − Malalane Mill area is 24 000 hectares − Komati Mill area is 27 000 hectares − Pongola Mill area is 18 000 hectares • Commercial growers account for 64% of the land under cane, Small-Scale Growers 15% and the balance (21%) is TSB cane land • Land reform beneficiaries account for 62% of the area under cane in Nkomazi region and 49% across the three mills − The Government of South Africa embarked upon a process to create an equitable and sustainable land dispensation that results in social and economic development by providing land rights to all South Africans, with a particular emphasis on black people − Land reform projects that have so far been implemented by TSB in partnership with the Department of Land Affairs and bears testimony to TSB's commitment to see the transfer of land rights to black people − TSB's support to newly settled growers includes credit finance and technical services to ensure the transfer of the critical skills required to underpin their success as emerging farming entrepreneurs Source: TSB 16
Agriculture Cane farming – supporting local communities Farm management support Broad-based Black empowerment: • TSB offers Farm management support to the farming ventures Agricultural land reform created through the land restitution process Freehold Area under cane • TSB's involvement in these joint ventures is aimed at ensuring the (85% of Total) sustainability of cane faming operations and contributing to White growers 72% development, empowerment and skills transfer to claimant Black growers 21% beneficiaries Miller-cum-planter 7% • The joint ventures have collectively paid millions of Rand in rent and dividends to the respective communities over the past few Total growers 100% years Note: Including communally owned land, 38,8% of land is under black ownership Grower support • TSB provides a full range of cane support services to all its growers • As the miller and grower are inextricably linked, grower support 50% 100% 100% aims at ensuring a sustainable grower base Shubombo • Services include: Sivunosetfu Agricultural Services TSGro − extension advice on all aspects of cane husbandry 50% 50% − engineering support Mgubho Libuyile Farming Farming − training in commercial skills Services Services − pump and irrigation service is also available to small growers Source: SASA 17
Agriculture Akwandze Agricultural Finance (AAF) • A development finance organisation that provides TSB sugarcane growers with financial services: − Production finance and irrigation infrastructure for growers − Working capital for contractors • AAF sources, negotiates and manages development finance funds for its shareholders’ benefit (Liguguletfu Co-op & TSB Sugar RSA) • FY2014 – loan books of R118 million Source: TSB 18
Operational overview – Manufacturing & Supply Chain 19
Manufacturing Nkomazi Mills Region Mill Established Tons sugar Notes produced per year Malalane 1968 189 000 Nkomazi produce approximately Nkomazi 490 000 tons of sugar per year. Komati 1993 250 000 Pongola produce approximately 135 000 tons of sugar per year. Pongola Pongola 1954 163 000 Adding Pongola to Nkomazi, TSB currently produces 27% of the total SA production Malalane Mill Source: TSB 20
Logistics 21
Operational overview TSB transport • Overview • TSB transports sugar cane from TSB owned and managed estates and independent sugar cane growers (especially small scale and emerging cane farmers who have contracts with the company) to its mills • TSB's Transport division holds about 40% of the transport market in the cane production areas of Mpumalanga • The division also transports sugar from TSB's mills to the market • The division undertakes fleet management, vehicle maintenance support and oversees the management of group transport • Warehousing contracts capacity • Bulk raw warehouses • Malalane – 60 000 tons • Komati – 49 000 tons • Packed sugar warehouses • Malalane – 48 000 tons Source: TSB 22
Operational Review - Molatek 23
Molatek animal feed • Manufactures and markets an extensive range of animal feeds (energy feeds, fattening and dairy concentrates, lick supplements and molasses) • 2 manufacturing facilities: Komati (to move to Pongola) and Malalane • Established in 1985 and has grown over the past 26 years as a major role player in the feeds and livestock industry • Products are developed in line with latest scientific research and are used with tremendous success by farmers in South Africa, Namibia, Botswana, Mozambique and Swaziland • Molatek's molasses-based concentrates ensure palatability, nutritional care and prevention of dusty feeds • Molatek sell c.300 000 tons of manufactured product • Products are sold in bulk bags (40kg and 50kg bags) • Quality control is fundamental to the animal feed industry − Molatek is ISO 9001: 2008 accredited ensuring strict adherence to procedures and systems • Meticulous quality control in Molatek's own laboratory ensures that products of outstanding quality are produced Source: TSB 24
Operational Review - Marketing 25
Marketing Quality Sugars and the Selati brand • Majority-owned subsidiary of TSB and is the logistics and marketing arm of the business • Quality Sugars adds value to the Selati brand through strategised and targeted advertising using national media. • Selati has become one of the top ten most recognised household names in South Africa • Supplier of both Selati and house brands to most of the nation's leading food retailers and other bulk sugar buyers • Subject to a series of customer and regulator quality control audits on an ongoing basis. Source: TSB 26
Market Shares As At July 2014 July 2013 July 2014 July 2013 July 2014 (12MMA) (12MMA) Total TSB 50.1 49.9 48.6 49.4 Selati 32.5 31.8 33.2 30.6 Huletts 29.9 27.1 32.5 29.0 Illovo 3.1 3.4 3.1 3.2 Savemore 1.9 1.4 2.2 1.1 House Brands *1 Spar 7.8 8.5 7.4 8.5 *2 No Name / PnP 6.8 6.2 5.6 7.2 *3 Rite Brand / Shoprite) 6.4 7.6 5.5 6.6 All other, i.e. Imports / Checkers, Rhino, 11.5 14.0 10.4 13.6 Boxer, WW House Brands – packed by TSB and sold by Quality Sugars *1 Spar Brand – 100% ex TSB/QS *2 No Name / PnP – 90% ex TSB/QS (WC is Brazil) *3 Ritebrand / Shoprite – 60% ex TSB/QS (KZN/WC is Brazil)
Market shares as at July 2014
Subsidiaries and associates 29
Booker Tate 30
Booker Tate overview • Booker Tate provides development, management and technical services to sugar and agribusiness industries throughout the world • Founded in 1988 from the amalgamation of Booker Agriculture International (BAI) and Tate & Lyle Agribusiness (TLA) with a sugar history stretching back to the 18th century • Booker Tate has successfully completed over 1 500 assignments in 120 countries over 50 years • Booker Tate has recently worked in Belize, Burkina Faso, Colombia, Dominican Republic, Guyana, Indonesia, Kenya, Mozambique, Nigeria, Papua New Guinea, Peru, Sierra Leone, South Africa, Sri Lanka, Sudan, Suriname, Swaziland and USA Global reach With emerging market exposure Source: TSB 31
RSSC 32
Royal Swaziland Sugar Corporation (RSSC) • Located in the north-eastern Lowveld of Swaziland and is one of the largest companies in the country • Employs over 3 500 people and produces two-thirds of the country’s sugar and a significant quantity of ethanol • Listed on the Swaziland Stock Exchange, the majority shareholder being Tibiyo Taka Ngwane with 53.1%, followed by TSB with 27%. • Manages more than 20 000ha of irrigated sugar cane which delivers approximately 2.3MT of cane per season to the company’s two sugar mills • These two mills currently produces in excess of 450 000t of sugar per season. • RSSC also operates a sugar refinery at the Mhlume mill with a capacity of 170 000t of refined sugar. It also has a 32Ml capacity ethanol plant which is adjacent to the Simunye mill. • Plays a significant role in the development of rural Swaziland, with over 2 500 families currently involved in sugar cane production as small-scale farmers who deliver to the two mills. From a land area measuring more than 11 000ha, they produce more than 1.3Mt of sugar cane and supply 52.0% of the Mhlume mill’s total cane and 25.0% of the Simunye mill’s total cane RSSC Inyoni Yami Mhlume Managa Sugar Royal Swazi Quality Swaziland (Swaziland) Simunye Plaza Packers (Pty) Distiller (Pty) Sugars (Pty) Irrigation Sugar (Pty) Ltd Ltd Ltd Ltd Scheme Company Ltd Simunye mill 100 100 50% 50% 25% 25% % % Source: TSB 33
Mananga Sugar Packers 34
Mananga Sugar Packers (MSP) Overview • MSP, a joint venture between RSSC and TSB, was established to pack sugar in Swaziland and, pursuant to a quota granted by the Swaziland Sugar Association, to sell packed sugar to the SACU • The plant packs about 96,000 tons of sugar in a season, making it the largest packaging operation of its type in the Swaziland sugar industry • TSB holds an effective interest of 63.7% - a direct interest of 50% and an effective 13.7% indirect interest through RSSC • Marketing by Quality Sugars Shareholding structure 27.42% 50% 50% Source: TSB 35
Massingir 36
Massingir High-level project overview Current Status • Best green field site in sub Saharan Africa • Incorporated MAI a newly established company. • Excellent natural resources TSB Sugar International holds 51% of the shares and the balance is held by SIAL • 8 hours average sunshine per day • Investment approval granted by Council of • 400 mm annual rainfall – 280 day crop Ministers • Red free draining soils • Land use permit (DUAT) granted • Large storage dam • MOU for water permit with 50% abstraction from • No human resettlement – a unique feature the dam signed with the Mozambique Water Authority • Located in South Western Mozambique – Gaza Province • Feasibility study substantially completed • Below Massingir Dam on Olifants river • Equity capital raising, debt arranging and off- approximately 400km from Malalane taker processes in progress • Original scope 37500 hectares, US$1.2bn • First replant of locally grown seed cane and trial project value food security crops under way • Alternatives to the project scope / phasing are currently being considered • The Board will make a final decision in the coming months 37 Source: MAI feasibility study
TSB Summary 38
TSB Summary 1 Market Leading Positions 2 Strong operating assets – lowest cost producer 3 Growth supported by fundamentals and well considered expansion 4 Vertically integrated platform 5 Well run assets with strong and experienced management teams 39
Site Orientation 40
What happens in a sugar mill? 41
What happens in a sugar mill? 42
Thank You TSB Sugar RSA (Pty) Ltd PO Box 47 Malalane 1320 T +27 13 791 1000 www.tsb.co.za 43
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