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ILV - Illovo Sugar Limited - Audited group results for the year ended 31 March
2010
ILLOVO SUGAR LIMITED
(Incorporated in the Republic of South Africa)
Company registration number 1906/000622/06
Share Code: ILV
ISIN: ZAE000083846
("Illovo")
AUDITED GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2010
- Operating profit increased by 8%
Good domestic market sales growth
Strong operational cash generation
Rand strength negatively impacts earnings
Ongoing major capacity expansions
Successful Rights Issues
Review
During the past year, group operating profit increased by 8% to R1 499 million
with the operating margin rising from 16% to 18%.
The results benefited from the positive impact of improved world and regional
market sugar prices, increased sugar production in Zambia following the major
expansion at Nakambala and good growth in domestic market sugar sales across the
group. However, the value of the rand which was significantly stronger compared
to the previous year impacted negatively on export revenue in respect of both
sugar and downstream products as well as the conversion of foreign subsidiary
profits into rands. In addition, adverse weather conditions in Zambia and South
Africa reduced anticipated sugar and downstream production, whilst lower prices
for sugar exports into the European Union became effective from 1 October 2009.
Net financing costs have reduced to R139 million following the receipt of the
rights issue proceeds. The effective rate of tax has normalised at around 30%
compared to 20% last year and this has resulted in headline earnings of R703
million showing a decline of 5%. As a result of the dilution impact of the
rights issue, headline earnings per share fell in total by 19% to 171.2 cents.
The contributions to operating profit were sugar production 59%, cane growing
34% and downstream 7%. By country, contributions were Malawi 42%, Zambia 18%,
South Africa 17%, Tanzania 11%, Swaziland 8% and Mozambique 4%.
Strong cash operating profit of R1 443 million was achieved. The rights issue to
raise R3 billion in fresh capital was successfully concluded in September 2009,
with a take-up of 99.4%. Consequently, the group has moved from a substantial
borrowings position to a net positive cash position of R213 million at year-end,
despite expansion projects and the acquisition of businesses amounting to in
excess of R1.1 billion being undertaken during the year.
The agricultural operations generally performed satisfactorily with cane
production in the 2009/10 season amounting to 6.1 million tons, an increase of
one million tons compared to the previous year. The season was affected by
variable weather conditions. South Africa, Tanzania and Mozambique had a very
dry winter which was favourable for harvesting the cane crop. South Africa then
had a very wet end to the season, which impacted negatively on anticipated cane
deliveries, but since then it has been extremely dry. Adverse weather conditions
in Zambia, where heavy and unseasonal rainfall severely disrupted cane
deliveries, resulted in 3 250 hectares of cane being carried-over to be
harvested in the coming year. The performance levels of the factories throughout
the group were generally good with improved recoveries of sugar from cane and
better operational efficiency levels. The Zambian factory, following the
completion of the major expansion, reached rated capacity during the season and
achieved reasonable performance.
Group sugar production of 1.685 million tons exceeded the previous season`s
output by in excess of 100 000 tons, excluding the production of the Umfolozi
and Pongola mills which have been sold. The downstream plants operated well.
Ethyl alcohol production was similar to last year, but the output of furfural
and its derivatives fell by around 10% commensurately with the reduced cane
supplies to the Sezela factory.
Domestic market sugar sales and prices were positive, with all operations
achieving similar or improved offtake compared to the previous year. In South
Africa, imports continued to have a negative impact on sales volumes, although
the quantity has reduced as a result of the higher world sugar prices during the
year. However, the South African Customs Union market provided a growth in
sales largely due to a reduced presence of Zimbabwe sugar in the region.
The world sugar price was very strong during the year with the price rising to a
28-year high. The improved world price had a positive knock-on effect for
regional prices. The world price increase was driven by a significant production
decline in India and capital constraints within the sugar industry in Brazil
together with inclement weather during the harvest in that country. The material
global deficit in production created the platform for the significant rise in
price. However, the price has come under intense pressure since the beginning
of February 2010 and is currently more than 50% lower than the high achieved
just a few months earlier. Negative macro economic factors generally triggered
the decline in the price which was sustained by fund liquidation and speculative
selling. Market sentiment is now very fragile, although there is still a global
physical supply deficit and prices are now at levels below the cost of
production of most major producers. It should be noted that only the South
African business is directly exposed to the world sugar market.
The rights issue was undertaken to enable the group to pursue major investments
outside South Africa which meet its investment criteria. The drive to
significantly increase the group`s cane and sugar production capacity outside of
South Africa continues, together with the group objective to become self-
sufficient in respect of power requirements for its operations as well as
supplying power into the national electricity grids in the various countries in
which it operates. The first step in the major growth phase was the Zambian
expansion project which was completed for the beginning of the 2009/10 season.
The expansion resulted in factory capacity increasing to a level which enables
sugar production to rise to 450 000 tons per annum. The plant has been settling
down and is demonstrating its increased production capability. The Zambian
operation also acquired a large cane growing company, Nanga Farms PLC, currently
producing 325 000 tons cane per annum with the potential to further increase
output. The Zambian business completed a rights issue which raised US$50 million
in August 2009, resulting in Illovo`s interest in Zambia Sugar Plc reducing from
89.7% to 81.6%, this being supportive of the Government policy to increase local
participation in businesses in that country. The proceeds have been utilised to
reduce borrowings related to the acquisition of the Nanga operation and the
expansion project. The Maragra expansion project in Mozambique, which has
increased the factory capacity to around 150 000 tons sugar per annum was
completed for the start of the forthcoming season. Linked to this, the company
is currently involved in projects to increase cane supplies from both its own
estate and local growers.
The Ubombo factory and co-generation project in Swaziland has commenced. The
project provides for an increase in annual sugar production from 220 000 tons to
over 300 000 tons, together with an increase in power generation capacity
utilising biomass as supplementary fuel for the factory boilers. The power plant
will enable the factory and estates to become self-sufficient in electricity
consumption. In addition, agreement in principle has been reached with the
Swaziland Electricity Company to supply power into the national grid for 48
weeks of the year. The project is linked to the completion of a major new dam
and canal system sponsored by the Swaziland Government which will facilitate the
development of some 5 000 hectares of new cane land in the medium-term.
Development of the first 880 hectares of land is nearing completion and this
area will be harvested in 2011. A further 600 hectares is planned for
development during the current calendar year.
The proposed greenfields project in Mali continues to be progressed, and the
various pre-project activities are at an advanced stage. Subject to the
Government of Mali meeting certain requirements, the necessary approvals for the
funding of the project are likely to be progressed and finalised in the second
half of the calendar year. This would facilitate the commencement of cane
development, with factory commissioning taking place around two years later.
The sale of the Pongola sugar factory in South Africa to TSB Sugar RSA Limited
was approved by the Competition Commission during the year. The disposal was
part of a process to consolidate Illovo`s business in South Africa. The transfer
of the South African business, which remains the largest sugar producer in South
Africa, into a wholly-owned subsidiary was completed with effect from 1 April
2010.
Directorate
We are pleased to welcome Ami Mpungwe back to the Board as an independent, non-
executive director. Mr Mpungwe served on the Board from 2001 to 2006 and was
previously the Tanzanian High Commissioner to South Africa. He has a wealth of
commercial experience on the African continent. We also welcome Trevor Munday as
an independent, non-executive director. Mr Munday has considerable experience in
the corporate sector and is a director of other listed companies.
Richard Pike has joined the Board as a non-executive director and replaces David
Langlands. Richard joined the British Sugar Group as finance director following
the resignation of David from that position. We welcome Richard to our Board and
thank David for his contribution during his tenure as a director.
Tony Norton retired at the last annual general meeting in July 2009, and Brian
Connellan and Martin Shaw will both retire at the annual general meeting in July
2010. We would like to record our thanks and appreciation to all of them for
their valuable contribution and wise counsel over the long period they have been
members of the Board. David Haworth will be retiring at the end of May 2010.
Capital reduction distribution out of share premium in lieu of dividend
The Board has decided to declare a final capital reduction distribution out of
share premium of 54.0 cents per share, in lieu of a dividend, on the ordinary
shares of the company, subject to shareholder approval, in respect of the year
ended 31 March 2010. This distribution, together with the interim dividend of
32.0 cents per share which was declared on 18 November 2009, makes a total
distribution in respect of the year ended 31 March 2010 of 86.0 cents per share.
In accordance with the settlement procedures of Strate, the company has
determined the following salient dates for the payment of the capital
distribution:
Last day to trade cum the Friday, 30 July 2010
capital distribution
Shares commence trading ex Monday, 2 August 2010
the capital distribution
Record date Friday, 6 August 2010
Payment of final capital Tuesday, 10 August 2010
distribution
Share certificates may not be dematerialised / rematerialised between Monday, 2
August 2010 and Friday, 6 August 2010, both days inclusive.
An ordinary resolution for approval of the capital reduction distribution will
be submitted for consideration at the annual general meeting of the members of
the company, to be held on Wednesday, 21 July 2010. The 2010 Annual Report,
incorporating the notice of the meeting, will be posted to shareholders on or
about Tuesday, 22 June 2010. A more detailed announcement relating to the
capital reduction will be issued concurrently herewith.
Prospects
In the current 2010/11 year, own cane, sugar and downstream production are all
anticipated to exceed the levels achieved in the last season, with output in
Zambia expected to increase by more than 25%. World sugar prices are extremely
volatile and futures prices are currently below last year`s average prices.
Although the world sugar market is forecast to remain in deficit, if prices
remain at present levels this would be negative for sugar revenues. Domestic
market offtake is expected to remain positive. The results for the current year
will again be affected by the level of the rand compared to other currencies.
In addition, the value of the Euro impacts on downstream sales and sugar export
earnings from sales to the European Union. Sugar exports into the European Union
are anticipated to grow following increased market access. Whilst this will be
of long term benefit to the group, the current financial crisis in the Euro zone
and its impact on currency values is likely to have a negative impact on results
in the current financial year. Financing costs are expected to be similar to
last year. The effective tax rate is expected to remain at around 30%. Overall,
the current year is expected to be a difficult one for the company.
On behalf of the Board
R A Williams G J Clark Mount Edgecombe
Chairman Managing Director 28 May 2010
Directors:
R A Williams (Chairman)*, D G MacLeod (Deputy Chairman)*, G J Clark (Managing
Director) (Australian), M I Carr#*, B P Connellan*, M J Hankinson*, D L
Haworth#, D Konar*, P A Lister#*, P M Madi*, C W N Molope*, A R Mpungwe
(Tanzanian)*, T S Munday*, R N Pike#*, L W Riddle, M J Shaw*, B M Stuart, K
Zarnack
# British * Non-executive
The auditors, Deloitte & Touche, have issued their opinion on the group`s annual
financial statements for the year ended 31 March 2010. Their audit was conducted
in accordance with International Standards on Auditing. They have issued an
unmodified audit opinion. A copy of their audit report is available for
inspection at the company`s registered office. These abridged financial
statements have been derived from and are consistent in all material respects
with the group`s annual financial statements.
ABRIDGED GROUP INCOME STATEMENT
Year ended 31
March
2010 2009 Change
Notes Rm Rm %
Revenue 8 467.9 8 601.7 (2)
Operating profit 1 498.6 1 386.2 8
Dividend income 3.9 1.7
Net financing costs 2 139.0 185.4
Profit before non-trading items 1 363.5 1 202.5
Share of loss from associates ( 8.4) -
Material items 3 ( 52.4) 0.3
Profit before taxation 1 302.7 1 202.8
Taxation 411.5 238.9
Profit for the year 891.2 963.9
Attributable to:
Shareholders of Illovo Sugar 662.0 739.1 (10)
Limited
Non-controlling interest 229.2 224.8
891.2 963.9
Determination of headline
earnings:
Profit attributable to 662.0 739.1 (10)
shareholders
Adjusted for:
Loss on disposal of business 3 37.3 -
Impairment of investment in 3 15.0 -
agricultural joint venture
Loss/(profit) arising on 3 0.1 (0.3)
disposal of property
(Profit)/loss on disposal of (2.9) 2.6
plant and equipment
Total tax effect of adjustments (10.0) 0.4
Total non-controlling interest 1.0 -
effect of adjustments
Headline earnings 702.5 741.8 (5)
Number of shares in issue 460.2 350.9
(millions)
Weighted average number of shares
on which
headline earnings per share are 410.3 350.5
based (millions)
Headline earnings per share 171.2 211.6 (19)
(cents)
Diluted headline earnings per 170.7 210.6
share (cents)
Basic earnings per share (cents) 161.4 210.9
Diluted basic earnings per share 160.9 209.8
(cents)
Distribution per share (interim - 4 86.0 106.0 (19)
paid; final - declared) (cents)
ABRIDGED GROUP STATEMENT OF FINANCIAL POSITION
31 March
2010 2009
Note Rm Rm
ASSETS
Non-current assets 5 722.8 5 370.2
Property, plant and equipment 4 262.7 4 025.9
Cane roots 1 100.2 1 132.3
Intangible assets 179.1 61.8
Investments 180.8 150.2
Current assets 3 925.1 3 549.8
Inventories 679.1 725.8
Growing cane 1 260.7 1 222.9
Trade and other receivables 639.0 756.3
Financial instruments 0.9 189.2
Cash and cash equivalents 1 345.4 655.6
Total assets 9 647.9 8 920.0
EQUITY AND LIABILITIES
Total equity 6 314.7 3 445.0
Equity holders` interest 5 502.6 2 773.8
Non-controlling interest 812.1 671.2
Non-current liabilities 1 818.0 3 767.8
Deferred taxation 685.8 701.1
Borrowings 1 132.2 3 066.7
Current liabilities 1 515.2 1 707.2
Trade and other payables 1 513.4 1 702.0
Financial instruments 1.8 5.2
Total equity and liabilities 9 647.9 8 920.0
OTHER SALIENT FEATURES
Operating margin (%) 17.7 16.1
Interest cover (times) 10.8 7.5
Effective tax rate (%) 30.2 19.9
Net debt : equity ratio 5 ( 3.4) 70.0
Return on net assets (%) 21.9 22.0
Net asset value per share (cents) 1 372.3 981.7
Depreciation 250.4 215.2
Capital expenditure 1 328.6 1 881.4
- expansion capital 845.6 1 496.2
- replacement capital 181.1 169.5
1 026.7 1 665.7
- acquisition of business 249.9 -
- expansion of area under cane 40.9 200.3
- product registration costs 11.1 15.4
Capital commitments 3 414.5 2 330.5
- contracted 640.5 276.2
- approved but not contracted 2 774.0 2 054.3
Lease commitments 241.2 124.1
- land and buildings 151.1 69.0
- other 90.1 55.1
Contingent liabilities 48.7 13.5
ABRIDGED GROUP STATEMENT OF CASH FLOWS
Year Ended 31 March
2010 2009
Note Rm Rm
Cash flows from operating and
investing activities
Cash operating profit 1 443.1 1 206.9
Working capital (183.2) 362.8
requirements
Cash generated from 1 259.9 1 569.7
operations
Replacement capital (181.1) (169.5)
expenditure
Financing costs, taxation and (929.5) (863.2)
distributions
Net investment in ( 897.6) (1 711.9)
future operations
Research expenditure ( 23.2) ( 33.9)
Acquisition of 6 ( 249.9) -
business
Other 36.1 81.6
movements
Net cash outflow before financing ( 985.3) (1 127.2)
activities
Proceeds from rights issue, net of 2 950.5 -
associated costs
Borrowings (1 426.6) 652.6
(repaid)/raised
Other financing 262.0 6.5
activities
Net increase/(decrease) in cash 800.6 (468.1)
and cash equivalents
STATEMENT OF OTHER COMPREHENSIVE INCOME
Profit for the year 891.2 963.9
Other comprehensive
income
Adjustments in respect of cash (17.2) 16.8
flow hedges
Actuarial losses on post- (2.7) -
retirement obligations
Foreign currency translation (748.4) (26.3)
differences
Total comprehensive income for the 122.9 954.4
year
Attributable
to:
Shareholders of Illovo Sugar 24.6 722.9
Limited
Non-controlling 98.3 231.5
interest
122.9 954.4
ABRIDGED STATEMENT OF CHANGES IN EQUITY
Year ended 31 March
2010 2009
Note Rm Rm
Share capital and share premium
Balance at beginning of 367.5 361.0
the year
Issue of new shares 2 956.7 6.5
Transfer to ( 248.5) -
distribution reserve
Balance at end of the 3 075.7 367.5
year
Share-based payments
reserve
Balance at beginning of 13.1 12.6
the year
Share-based payment - 0.5
expense
Balance at end of the 13.1 13.1
year
Non-distributable
reserves
Balance at beginning of 396.5 412.4
the year
Realised (loss)/profit on disposal of (0.1) 0.3
property
Transfer of debit foreign currency 341.8 -
translation reserve
Transactions with non-controlling 121.2 -
shareholders
Total comprehensive
income:
- Foreign currency (618.1) (33.0)
translation
- Cash flow hedges (16.6) 16.8
Balance at end of the 224.7 396.5
year
Retained
surplus
Balance at beginning of 1 770.4 1 403.6
the year
Realised loss/(profit) on disposal of 0.1 (0.3)
property
Transfer of debit foreign currency (341.8) -
translation reserve
Transfer to (147.4) (372.0)
distribution reserve
Total comprehensive
income:
- Profit for the year 662.0 739.1
- Actuarial loss on post-retirement (2.7) -
obligations
Balance at end of the 1940.6 1 770.4
year
Distribution
reserve
Balance at beginning of 226.3 183.7
the year
Transfer from share 248.5 -
premium
Transfer from retained 147.4 372.0
surplus
Distributions (373.7) (329.4)
paid
Balance at end of the 248.5 226.3
year
Equity holders` 5 502.6 2 773.8
interest
Non-controlling
interest
Balance at beginning of 671.2 555.6
the year
Distributions (116.5) (119.8)
paid
Acquisition of business 6 41.9 -
Change in shareholding 117.2 3.9
Total comprehensive
income:
- Foreign currency (130.3) 6.7
translation
- Cash flow hedges (0.6) -
- Profit for the year 229.2 224.8
Balance at end of the 812.1 671.2
year
Total equity 6 314.7 3 445.0
SEGMENTAL ANALYSIS
Year ended 31 March
2010 2009
Rm % Rm %
BUSINESS SEGMENTS
Revenue
Sugar production 5 962.2 70 6 250.7 73
Cane growing 1 910.8 23 1 712.4 20
Downstream 594.9 7 638.6 7
8 467.9 8 601.7
Operating profit
Sugar production 890.3 59 716.1 52
Cane growing 505.2 34 503.5 36
Downstream 103.1 7 166.6 12
1 498.6 1 386.2
Total assets
Sugar production 4 037.9 49 4 250.3 53
Cane growing 3 949.9 47 3 476.6 43
Downstream 313.8 4 348.3 4
8 301.6 8 075.2
Note: Total assets excludes cash and cash equivalents and
financial instruments.
GEOGRAPHICAL SEGMENTS
Revenue
Malawi 1 711.3 20 1 739.6 20
Zambia 1 468.1 17 1 150.0 13
South Africa 3 447.0 41 3 868.8 46
Tanzania 682.1 8 666.3 8
Swaziland 799.5 10 790.1 9
Mozambique 359.9 4 386.9 4
8 467.9 8 601.7
Operating profit
Malawi 637.5 42 634.0 45
Zambia 264.3 18 168.3 12
South Africa 255.3 17 256.6 19
Tanzania 166.8 11 118.6 9
Swaziland 119.7 8 127.7 9
Mozambique 55.0 4 81.0 6
1 498.6 1 386.2
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
This abridged report has been prepared using accounting policies
that comply with International Financial Reporting Standards, and
complies with IAS 34 Interim Financial Reporting, Schedule 4 of
the Companies Act, 1973, and the disclosure requirements of the
Listings Requirements of the JSE Limited. The accounting policies
adopted are consistent with those applied in the previous
financial year with the exception of the revised IAS 1
Presentation of Financial Statements and IFRS 8 Operating
Segments which were adopted during the year. The adoption of
these new and revised standards has resulted in certain
disclosure reclassifications, but has not resulted in any changes
in accounting policy.
Year ended 31 March
2010 2009
Rm Rm
2. Net financing costs
Interest paid 307.6 489.0
Less: capitalised ( 14.2) ( 258.4)
293.4 230.6
Interest received ( 30.5) ( 44.5)
Foreign exchange gains ( 123.9) ( 0.7)
139.0 185.4
3. Material items
Loss on disposal of business (37.3) -
Impairment of investment in
agricultural joint venture (15.0) -
(Loss)/profit arising on
disposal of property (0.1) 0.3
Material (loss)/profit
before taxation (52.4) 0.3
Taxation 10.2 -
Material (loss)/profit
attributable to shareholders
of Illovo Sugar Limited (42.2) 0.3
4. Distribution per share
The distribution per share of 86.0 cents includes an interim dividend of 32.0
cents paid out of distributable reserves and a final capital distribution of
54.0 cents declared out of share premium.
5. Net debt: equity ratio
The net debt: equity ratio is calculated as interest-bearing liabilities, net of
cash and cash equivalents, divided by total equity. A negative net debt: equity
ratio indicates that the group is in a net cash position.
6. Acquisition of business
On 1 June 2009, the group acquired an 85.7% interest in Nanga Farms PLC, a large
cane growing company in Zambia, for a cash consideration of R249.9 million. The
acquisition provides security over the cane supply for the Zambian operation for
which an intangible asset of R109.8 million was recognised. The acquisition
increased total assets by R405.0 million and total liabilities by R113.2
million. The non-controlling interest`s share in the net assets acquired was
R41.9 million.
Registered office:
Illovo Sugar Park, 1 Montgomery Drive, Mount Edgecombe,
KwaZulu-Natal, South Africa
Postal address:
P O Box 194, Durban, 4000
Telephone: +27 31 508 4300
Telefax: +27 31 508 4535
Website: www.illovosugar.com
Transfer Secretaries:
Link Market Services South Africa (Proprietary) Limited
11 Diagonal Street, Johannesburg, 2001
P O Box 4844, Johannesburg, 2000
Auditors:
Deloitte & Touche
Sponsor:
J P Morgan Equities Limited
31 May 2010
Date: 31/05/2010 07:05:04 Supplied by www.sharenet.co.za
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