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Illovo - Audited Results for the year ended 31 March 2006
ILLOVO SUGAR LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1906/000622/06)
Share Code: ILV
ISIN: ZAE000003547
("Illovo" or "the company")
Audited results for the year ended 31 March 2006
*Group operating profit up 77% to R751.5 million
*Net financing costs down 34% to R100.9 million
*Headline earnings per share up 127% to 104.2 cents
*Cash generated from operations up 24% to R827.7 million
*Further reduction in group borrowings with gearing down to 24.3%
*Increased sugar production in SA and record output in the group"s other
countries of operation
*Further manufacturing operational improvements
*Investment in SA refinery expansions
*Total dividend per share up 145% to 62.5 cents
Don MacLeod, Managing Director, commented:
"These results are very pleasing on many accounts. We have had increased sugar
production in South Africa and record sugar output in all the group"s other
countries of operation and we have benefited from the efficiencies resulting
from the recent restructuring of our South African operations. With strong cash
generation, our borrowings and financing costs have reduced significantly. We
are confident about increasing our production once again in 2007 and with
improved sugar prices, expect to produce good growth in earnings."
18 May 2006
Enquiries:
Illovo Sugar 031 508 4300
Don MacLeod, Managing Director
Karin Zarnack, Financial Director
Chris Fitz-Gerald, Corporate Communications
College Hill 011 447 3030
PROFIT AND DIVIDEND ANNOUNCEMENT
Audited results for the year ended 31 March 2006
* Record production levels
* Strong growth in headline earnings and dividends
* Good cash generation
* Major reduction in borrowings and gearing
Review
During the past year the group achieved excellent results with headline earnings
increasing by 129% to R352.4 million and headline earnings per share increasing
by 127% to 104.2 cents. This was largely due to increased sugar production in
South Africa and record sugar output in all the group"s other countries of
operation, combined with a general improvement in domestic sales, a significant
increase in world and regional sugar prices, cost savings and a material
reduction in financing costs. The change in the value of growing cane, largely
as a result of increased sugar prices, enhanced earnings from cane growing.
In the financial year ended 31 March 2006, the group achieved turnover of R5.5
billion and operating profit of R751.5 million. Compared to the previous year,
and impacted by the sale of certain businesses in 2004/05, turnover increased by
7% and operating profit by 77%. Net financing costs decreased from R153.9
million to R100.9 million, whilst the effective tax rate, excluding material
items was 30.3%. Cash generation was strong with group borrowings of R441.0
million reflecting a major decrease of R360.6 million, resulting in gearing of
24.3%.
The contributions to operating profit were: sugar production 61%, cane growing
31% and downstream 8%. By country, contributions were: South Africa 21%, Malawi
39%, Zambia 20%, Swaziland 10%, Tanzania 9% and Mozambique 1%.
Group sugar and cane production of 1.87 million tons and 5.46 million tons
respectively were higher than that achieved in the previous season. Overall,
the season was characterised by variable weather conditions. The importance of
good irrigation sources and infrastructure was particularly evident in Zambia
and Swaziland where very dry conditions were offset by effective irrigation. As
a result of good cane yields, record cane production was achieved in Malawi,
Zambia and Mozambique.
Factory performance continued to improve with high levels of mechanical and
operational efficiency. Major refinery expansions have been undertaken at the
Pongola and Noodsberg factories which will enable refined sugar production in
South Africa to exceed the levels which existed prior to the sale of the
Umfolozi mill. The performance of the downstream operations across the group
was good, with record production of diacetyl and ethyl alcohol.
Sales of sugar and downstream products into domestic markets contributed 63% to
total revenue, whilst exports to 102 countries contributed the balance. A
strength of the group is that 69% of sugar by volume and 80% by value was sold
into the domestic or premium-priced export markets. Domestic sales of sugar
have shown an improvement across the group as a result of marketing initiatives
and improved distribution, particularly in rural areas. Despite the overall
improvement in domestic market offtake, it is of concern that illegal sugar
imports into some of the countries in Africa have again been an issue. However,
generally the authorities have responded positively to counter these illegal
imports. It is disappointing that in Tanzania the issue of government
protection to domestic producers of refined sugar remains unresolved. The
matter is receiving attention with support from the Sugar Board of Tanzania.
The world sugar price, although continuing to be volatile, made a most welcome
upward adjustment during the past year. The improvement in price also resulted
in a firming of sugar revenue realisations in the regional markets supplied by
Illovo. World raw sugar prices commenced the 2005/06 season at around US8.0
cents/lb, peaked at around US19.7 cents/lb in February 2006 and ended the
financial year in the US17.0 to US18.0 cents/lb range. The upward movement in
prices was fuelled by a number of factors, including a global production deficit
which is currently in its third year, the European Union (EU) sugar regime
reform, and growing world-wide interest in ethanol from sugar cane as a bio-
renewable energy source. In addition, weather-related factors in certain major
producing regions such as the United States, Thailand, China and Brazil impacted
on production in the current year. The increase in world consumption of around
2% per annum, together with the structural changes of the EU sugar regime, and
the increasing demand for ethanol, have created a positive background for
continuing stronger sugar prices compared to the more recent past. The EU
reform is expected to result in a decline in production in Europe of between
five and seven million tons of sugar per annum. The cost of new sugar
production to meet consumer demand around the world will also be impacted by
energy prices, as the installation of new productive capacity will be compared
with the alternative of using sugar cane for ethanol.
The reform of the EU sugar regime was finalised early in 2006. The
implementation date is 1 July 2006 and the new regime will be effective until 30
September 2015. The detailed rules and regulations to govern the regime are
currently being finalised. Illovo supports the reform of the EU sugar sector.
The EU raw sugar reference price payable to quota holders under the African,
Caribbean and Pacific (ACP) Sugar Protocol (in the case of Illovo, affecting
mainly its Swaziland operation) will reduce by 5% on 1 July 2006. This will
equalise the price paid for all raw sugar imported into the EU. The price for
all suppliers of raw sugar will then remain unchanged until 30 September 2008,
after which it will be reduced by 32.5% in two tranches on 1 October 2008 and 1
October 2009. As a result, no significant price reduction impact on Illovo is
expected until the 2009 financial year. Whilst the price cut will impact
negatively on revenue from existing export quotas into the EU, a phased
reduction in duty commencing from 2006 and culminating in duty-free and quota-
free access for exports from 2009 in respect of sugar supplied by Least
Developed Countries (including the group"s operations in Malawi, Zambia,
Tanzania and Mozambique) will provide Illovo with opportunities to both
substantially increase export volumes into the EU market and extend the range of
sugar products supplied. The finalisation of the reform package creates a
period of certainty in respect of the EU market until September 2015, which will
underpin the expansion plans of the group.
During the year, R120,8 million was spent on replacement of plant and equipment
to ensure that the group"s operating assets are maintained in a sound condition,
that strategic plant is adequately protected against breakdown, and that product
quality is of the highest standard. In addition, R84,2 million was invested in
expansion projects and on product registrations.
Details of the group"s compliance with the Code of Corporate Practices and
Conduct as contained in the King Report on Corporate Governance for South Africa
2002, are disclosed in the 2006 Annual Report which is to be issued in the third
week of June 2006.
Dividend
The final dividend has been increased to 42.5 cents per share (2005: 13.5 cents)
which results in a total distribution of 62.5 cents (2005: 25.5 cents) for the
full year.
Outlook
The existing factory and field operations have significant expansion potential
in the longer term. In the current year, the group will commence these
expansions which will be phased-in over a four year period. New investment
opportunities in Africa continue to be pursued. The group"s feasibility studies
on power generation are well advanced.
In the current year, own cane, sugar and downstream production are anticipated
to exceed the levels achieved in the past year. World sugar prices have
improved considerably, and world and regional sales will earn better prices than
those attained in the past year. The results for the current year will again be
impacted by the level of the rand compared to other currencies, particularly the
US dollar. However, good growth in earnings is anticipated at current exchange
rates and world sugar prices.
Firm intention to acquire 51% of Illovo Sugar Limited
Attention is drawn to the joint announcement by Illovo and Associated British
Foods plc (ABF) setting out the details of the firm intention by ABF to make an
offer to acquire 51% of the issued ordinary shares of Illovo for a cash
consideration of R21.00 per share through a scheme of arrangement or substitute
offer.
The Illovo board has considered the terms of the offer, and is of the opinion
that such terms are fair and reasonable to shareholders.
On behalf of the Board
R A Williams
Chairman
D G MacLeod
Managing Director
Mount Edgecombe
18 May 2006
GROUP INCOME STATEMENTS
Year ended 31 March
2006 2005
Restated Change
Notes Rm Rm %
Revenue 5468.8 5102.7 7
Profit from operations 751.5 423.7 77
Net financing costs 4 100.9 153.9
Profit before material items 650.6 269.8
Material items 5 3.5 (79.2)
Profit before taxation 654.1 190.6
Taxation 197.3 88.9
Profit after taxation 456.8 101.7
Attributable to outside 99.1 50.0
shareholders in subsidiary
companies
Net profit attributable to 357.7 51.7
shareholders in Illovo Sugar
Limited
Determination of headline
earnings :
Net profit attributable to 357.7 51.7
shareholders
Adjusted for :
Net loss on sale of businesses 5 - 97.0
(Profit)/loss on disposal of 5 (3.3) 6.5
property
Profit on disposal of plant (2.0) (1.4)
and equipment
Headline earnings 352.4 153.8 129
Number of shares in issue 340.1 337.2
(millions)
Weighted average number of
shares on which
headline earnings per share 338.2 335.0
are based (millions)
Headline earnings per share 104.2 45.9 127
(cents)
Diluted headline earnings per 101.4 45.4
share (cents)
Dividend per share (cents) 62.5 25.5 145
The results for the year ended 31 March 2006 have been audited by Deloitte &
Touche. Their unmodified audit opinion is available for inspection at the
registered office of the company
ABRIDGED GROUP BALANCE SHEETS
31 March
2006 2005
Restated
Rm Rm
ASSETS
Non-current assets 2 362.6 2 292.2
Property, plant and equipment 1 704.9 1 661.6
Cane roots 589.1 543.7
Investments 68.6 86.9
Current assets 1 633.5 1 519.7
Inventories 470.8 404.5
Growing cane 657.9 534.5
Accounts receivable 504.8 580.7
Total assets 3 996.1 3 811.9
EQUITY AND LIABILITIES
Total equity 1 813.5 1 465.9
Equity holders" interest 1,425.5 1,135.0
Minority shareholders" interest 388.0 330.9
Non-current liabilities 922.5 1 232.1
Deferred taxation 481.5 430.5
Net borrowings 441.0 801.6
Current liabilities 1 260.1 1 113.9
Accounts payable and provisions 1 170.7 1 021.7
Financial instruments 89.4 92.2
Total equity and liabilities 3 996.1 3 811.9
OTHER SALIENT FEATURES
Operating margin (%) 13.7 8.3
Gearing (%) 24.3 54.7
Interest cover (times) 7.4 2.8
Return on net assets (%) 25.2 11.1
Net asset value per share 533.2 434.7
(cents)
Depreciation 127.7 161.2
Capital expenditure 205.0 332.1
- expansion 75.4 18.5
- product registration costs 8.8 7.3
- operating leases - 172.2
- replacement 120.8 134.1
Capital commitments 284.2 245.4
- contracted 28.1 11.6
- approved but not contracted 256.1 233.8
Lease commitments 171.2 182.1
- land and buildings 102.8 115.2
- other 68.4 66.9
Contingent liabilities 10.5 14.4
ABRIDGED GROUP CASH FLOW STATEMENTS
Year ended 31
March
2006 2005
Restated
Rm Rm
Cash flows from operating and
investing activities
Cash operating profit 710.5 533.0
Working capital 117.2 134.7
requirements
Cash generated from 827.7 667.7
operations
Replacement capital (120.8) (306.3)
expenditure
Financing costs, taxation and dividend (341.3) (388.3)
Net investment in future (98.7) (43.2)
operations
Cash flow from businesses - 429.9
sold
Other movements 43.9 26.6
Net cash inflow before financing 310.8 386.4
activities
STATEMENT OF CHANGES IN EQUITY
Year ended 31 March
2006 2005
Restated
Rm Rm
Share capital and share premium
Balance at beginning of the period 282.5 264.3
Issue of new shares 15.9 18.2
Balance at end of the period 298.4 282.5
Share-based payments reserve
Balance at beginning of the period 4.4 -
Restatement of opening balance - 1.6
Share-based payment expense 3.7 2.8
Balance at end of the period 8.1 4.4
Non-distributable reserves
Balance at beginning of the period 95.4 109.4
Restatement of opening balance - (2.8)
Realised profit/(loss) on sale of 0.2 (1.5)
land
Effect of foreign currency 26.6 (31.3)
translation
Effect of cash flow hedges (0.1) (9.7)
Transfer from retained surplus -
Foreign Currency Translation Reserve - 31.3
(FCTR)
Balance at end of the period 122.1 95.4
Retained surplus
Balance at beginning of the 707.2 921.3
period
Restatement of opening balance (77.9)
Dividend reserve opening balance (93.5)
transfer
Realised (loss)/profit on disposal of (0.2) 1.5
land
Reserve arising out of IAS 39 0.2
Derecognition of negative goodwill 21.0
Transfer to dividend reserve (212.4) (85.8)
Transfer to non-distributable - (31.3)
reserves - FCTR
Net profit for the period 357.7 51.7
Balance at end of the period 852.3 707.2
Dividend reserve
Balance at beginning of the period 45.5 93.5
Transfer from retained surplus 212.4 85.8
Dividends paid (113.3) (133.8)
Balance at end of the period 144.6 45.5
Equity holders" interest 1,135.0
1,425.5
Minority shareholders" interest
Balance at beginning of the period 330.9 409.9
Restatement of opening balance (79.8)
Effect of foreign currency (6.7) (8.7)
translation
Dividends paid (37.6) (40.5)
Increase in shareholding 2.3 -
Net profit for the period 99.1 50.0
Balance at end of the period 388.0 330.9
Total equity 1 813.5 1465.9
SEGMENTAL ANALYSIS
Year ended 31 March
2006 2005
Restated
Rm % Rm %
BUSINESS SEGMENTS
Revenue
Sugar production 3 883.2 71 3 740.3 73
Cane growing 1 081.5 20 893.6 18
Downstream 504.1 9 468.8 9
5 468.8 5 102.7
Profit from operations
Sugar production 456.9 61 294.9 70
Cane growing 235.3 31 63.8 15
Downstream 59.3 8 65.0 15
751.5 423.7
Total assets
Sugar production 2 060.8 51 2 058.4 54
Cane growing 1 701.9 43 1 524.8 40
Downstream 233.4 6 228.7 6
3 996.1 3 811.9
GEOGRAPHICAL SEGMENTS
Revenue
South Africa 2 631.1 48 2 409.4 47
Malawi 938.0 17 722.9 14
Zambia 784.9 14 632.1 12
Swaziland 586.1 11 507.5 10
Tanzania 353.9 7 348.1 7
Mozambique 174.8 3 148.2 3
USA - 334.5 7
5 468.8 5 102.7
Profit from operations
South Africa 156.8 21 61.5 15
Malawi 293.3 39 140.4 33
Zambia 153.2 20 153.9 36
Swaziland 73.0 10 14.3 3
Tanzania 68.6 9 81.8 19
Mozambique 6.6 1 (5.4) (1)
USA - (22.8) (5)
751.5 423.7
NOTES TO THE FINANCIAL STATEMENTS
1 Basis of Preparation
The group has adopted IFRS with a transition date of 1 April 2004. The audited
results for the year ended 31 March 2006 have been prepared using accounting
policies that comply with IFRS and the comparatives have been restated
accordingly. The group is reporting under IFRS for the first time for the year
ended 31 March 2006.
The accounting policies adopted are consistent with those of the previous
financial period, except for those described in note 2.
2 New accounting policies adopted:
2.1 Share-based payments (IFRS 2)
In accordance with the transitional provisions, IFRS 2 has been applied to all
grants of equity-settled payments after 7 November 2002 that were unvested as at
1 January 2005. The group issued equity-settled instruments to certain
qualifying employees under an employee share option scheme to purchase shares in
the company"s authorised but unissued share capital. Equity share-based payments
are measured at the fair value of the equity instruments at the unissued share
capital. Equity share-based payments are measured at the fair value of the
equity instruments at the date of the grant. The deferred share-based
compensation is expensed over the vesting period, based on the company"s
estimate of the shares that are expected to eventually vest with a corresponding
credit to a share-based payments reserve in equity.
2.2 Property, plant and equipment (IAS 16)
In accordance with IAS 16, the group has adopted the componentisation approach
to property, plant and equipment. This requires amortisation to be determined
separately for each significant part of an item of property, plant and
equipment. In addition, costs relating to the moving and certain indirect costs
relating to the rehabilitation of items of property, plant and equipment which
were previously capitalised to the asset, are now written-off in the period in
which they are incurred. The group has made an election in terms of IFRS 1
(First-time adoption of IFRS) for certain items of property, plant and
equipment, whereby their fair value at the date of transition is deemed to be
cost.
2.3 Operating leases (IAS 17)
In accordance with Circular 7/2005 of SAICA in respect of the accounting
treatment of operating leases, the group now reports all operating leases with
fixed rate escalations as an expense on a straight-line basis over the period of
the lease.
2.4 Interests in Joint Ventures (IAS 31)
In accordance with IAS 31, the group now accounts for investments in jointly
controlled entities using the proportionate consolidation method, whereas
previously the group accounted for these entities using the full consolidation
method.
NOTES TO THE FINANCIAL STATEMENTS
(continued)
3. Reconciliation of changes in
accounting policies
Actual IFRS
Audited transition
Year date
ended
31 1 April
March
2005 2004
Rm Rm
Balance sheet
Equity holders" interest
As previously reported 1,200.3 1,295.0
Effect of IAS 16 (note 2.2) (80.2) (79.1)
Effect of IAS 17 (note 2.3) 1.1 -
Effect of IFRS 2 (note 2.1) 2.8 -
Effect of changes on the income 11.0 -
statement
As restated 1,135.0 1,215.9
Minority shareholders" interest
As previously reported 408.4 409.9
Effect of IAS 16 (note 2.2) (57.6) (59.5)
Effect of IAS 31 (note 2.4) (20.5) (20.3)
Effect of IFRS 2 (note 2.1) (0.1) -
Effect of changes on the income 0.7 -
statement
As restated 330.9 330.1
Income Statement
Net profit as previously reported 40.7
Effect of IFRS 2 (note 2.1) (2.6)
Effect of IAS 16 (note 2.2) 14.1
Effect of IAS 17 (note 2.3) (0.5)
As restated 51.7
Year ended 31 March
2006 2005
Restated
Rm Rm
4. Net financing costs
Interest paid 161.4 191.8
Interest received (59.5) (35.3)
Dividend income (1.0) (2.6)
100.9 153.9
5. Material items
Net loss on sale of businesses - (72.7)
Profit / (loss) on disposal of 3.5 (6.5)
property
Material profit/(loss) before 3.5 (79.2)
taxation
Taxation (0.2) (24.3)
Material profit/(loss) 3.3 (103.5)
attributable to shareholders in
Illovo Sugar Limited
DECLARATION OF DIVIDEND NO. 29
Notice is hereby given that a final dividend of 42.5 cents per share has been
declared on the ordinary shares of the company in respect of the year ended 31
March 2006. This dividend, together with the interim dividend of 20.0 cents per
share which was declared on 16 November 2005, makes a total distribution in
respect of the year ended 31 March 2006 of 62.5 cents per share.
In accordance with the settlement procedures of STRATE, the company has
determined the following salient dates for the payment of the dividend:
Last day to trade cum-dividend Friday, 30 June 2006
Shares commence trading ex-dividend Monday, 3 July 2006
Record date Friday, 7 July 2006
Payment of dividend Monday, 10 July 2006
Share certificates may not be dematerialised / rematerialised between Monday, 3
July 2006 and Friday, 7 July 2006, both days inclusive.
By order of the Board
G D Knox
Company Secretary
Mount Edgecombe
18 May 2006
Directors:
R A Williams (Chairman)*, D G MacLeod (Managing Director), G J Clark
(Australian), B P Connellan*, N M Hawley, M I Hlatshwayo (Swazi), D Konar*, P M
Madi*, I N Mkhize*, A R Mpungwe (Tanzanian)*, R A Norton*, J T Russell, M J
Shaw*, B M Stuart, K Zarnack
* Non-executive
Registered office:
Illovo Sugar Park, 1 Montgomery Drive, Mount Edgecombe, KwaZulu-Natal, South
Africa
Postal address:
P O Box 194, Durban, 4000
Website: www.illovosugar.com
Transfer Secretaries:
Ultra Registrars (Proprietary) Limited
11 Diagonal Street, Johannesburg, 2001
P O Box 4844, Johannesburg, 2000
Auditors:
Deloitte & Touche
Sponsor:
J.P.Morgan Equities Limited
19 May 2006
Date: 19/05/2006 08:00:19 AM Supplied by www.sharenet.co.za
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