TSB Investor site visit presentation - Malalane 17 September 2014

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TSB Investor site visit presentation - Malalane 17 September 2014
TSB
Investor site visit presentation - Malalane

17 September 2014

                                              1
TSB Investor site visit presentation - Malalane 17 September 2014
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
TSB Investor site visit presentation - Malalane 17 September 2014
Overview of TSB
and key
investment
highlights

                  3
TSB Investor site visit presentation - Malalane 17 September 2014
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
TSB Investor site visit presentation - Malalane 17 September 2014
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
TSB Investor site visit presentation - Malalane 17 September 2014
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
TSB Investor site visit presentation - Malalane 17 September 2014
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
TSB Investor site visit presentation - Malalane 17 September 2014
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
TSB Investor site visit presentation - Malalane 17 September 2014
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
TSB Investor site visit presentation - Malalane 17 September 2014
Market
environment

              10
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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