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Illovo Sugar Limited - Interim Results for the six months ended

Release Date: 17/11/2006 07:05
Code(s): ILV
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Illovo Sugar Limited - Interim Results for the six months ended 30 September 2006 and dividend declaration ILLOVO SUGAR LIMITED (Incorporated in the Republic of South Africa) (Registration number 1906/000622/06) Share Code: ILV ISIN: ZAE000083846 Interim Results for the six months ended 30 September 2006 * Group operating profit up 64% to R516.1 million * Net financing costs down 25% to R32.9 million * HEPS up 73% to 75.7 cents * Interim dividend of 30 cents per share (2005: 20 cents per share) * Record sugar production forecast for Malawi and Zambia Don MacLeod, Managing Director said: "This is another pleasing set of results on the back of higher world sugar prices and greater efficiencies across the group. Our operations outside South Africa performed extremely well with record production in Malawi and Zambia, but in Tanzania there was an early season drought which affected our outgrowers. Production in South Africa was impacted by variable weather conditions. Overall we are set to have another year of solid growth." 16 November 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 Nicholas Williams 083 607 0761 Basis of preparation This report incorporates financial statements which reflect both actual results based on International Financial Reporting Standards ("IFRS") and those determined on a sugar season basis which in the directors" opinion provide a better basis for evaluating the financial performance of the company. The sugar industry is a seasonal agriculturally based business and the payment processes are such that cash flows throughout the season, which runs from 1 April to 31 March, are derived from the expected tonnages and prices that will be achieved for the season as a whole. The effect of this is that product sales tonnages and prices received, and raw material prices paid are provisional in nature until the conclusion of the season. For this reason the directors consider that profit figures based on actual cash flows may not represent the best basis for evaluating the performance and the results for the period. In respect of the sugar season basis results, operational profits for cane growing and sugar production comprise the company"s view of the position at 30 September 2006 as it relates to the season as a whole. All other results are based on actual performance. The amounts disclosed in respect of cane growing and sugar production operations are based on a profit forecast for the year ending 31 March 2007 which has been examined by our auditors, Deloitte & Touche. Their unqualified accountants" report is available for inspection at the company"s registered office. The unaudited actual results for the six months ended 30 September 2006 have been prepared using accounting policies that comply with IFRS and are prepared in accordance with IAS34 (Interim financial reporting). The accounting policies adopted are consistent with those of the previous financial period. Review On a sugar season basis the group has achieved pleasing results for the half year with headline earnings of R259.2 million reflecting a 75% improvement over the same period in the previous year. Headline earnings per share of 75.7 cents represents a 73% increase. Group operating profits which increased by 64% to R516.1 million benefited from a higher world sugar price, improved domestic market sales and prices, weaker exchange rates and operating cost reductions. Lower sugar production caused by adverse weather conditions in South Africa and Tanzania has partly offset these benefits. Net financing costs have reduced by R11.2 million whilst borrowings at R1 453.1 million are R20.0 million lower compared to the same period last year. The contributions to operating profit were: sugar production 65%, cane growing 28% and downstream 7%. By country contributions were: South Africa 24%, Malawi 33%, Zambia 23% Swaziland 9%, Tanzania 10% and Mozambique 1%. The season to date has been affected by variable weather conditions in South Africa and severe drought in Tanzania during the early growing season. However the rest of the group has experienced normal weather which with effective irrigation and long sunshine hours has been conducive to good cane growth. In general the sugar factories have performed satisfactorily. Assuming normal growing and operating conditions for the remainder of the season, group sugar production is expected to be around 1.8 million tons which is 70 000 tons below that of last year. The main decrease in production has occurred in South Africa, where most of the cane is produced under rainfed conditions, which has seen a decline in both tons of cane per hectare and sucrose content in cane. The whole industry has been similarly affected. Production in Tanzania is down by 10% as a result of reduced cane production from the outgrowers who rely on seasonal rainfall. Record sugar production is forecast for both Malawi and Zambia. Group own cane production is anticipated to be 5.5 million tons which is 100 000 tons above that of last year. Downstream operations have performed well and with the exception of furfural, which has been impacted by the lower cane tonnage at Sezela in South Africa, production levels are expected to be slightly higher than those achieved last season. The world sugar price has been extremely volatile. Following a rise to almost US20 cents/lb earlier in the year it has declined to levels of around US12 cents/lb. Overall the average price is significantly higher than in the previous year. The South African sugar industry has sold around 80% of anticipated export raw sugar sales at US15.23 cents/lb. The improved world price has impacted favourably on export revenues from regional markets. Downstream product prices have improved in US dollar terms and the weaker rand has impacted favourably on export realisations. The majority of downstream output is exported. The finalisation of the EU reform package, which came into effect from 1 July 2006, has created a period of certainty in respect of the EU market until September 2015, and will underpin the expansion plans of the group. During the period under review expansion projects commenced in Malawi, Zambia and Swaziland, whilst the refinery capacity increases in South Africa were completed. The United States Environmental Protection Agency recently conditionally registered furfural as a pesticide product for non-food greenhouse usage in that country which is an important first step in the process of developing a new market for furfural. Nevertheless, it will take at least 18 months for the project to achieve a commercial status. Directorate As a result of the acquisition of 51% of the share capital of Illovo by ABF Overseas Limited, the following changes in directorate occurred on 5 September 2006: Dr Mark Carr, and Messrs David Langlands and Paul Lister were appointed as non-executive directors, whilst Messrs Ami Mpungwe, Nigel Hawley and Mandla Hlatshwayo resigned from the board. We thank those directors who have resigned for their valued contribution to the board. Nigel Hawley and Mandla Hlatshwayo remain members of the group executive committee. Dividend An interim dividend of 30.0 cents per share (2005 : 20.0 cents) has been declared. It is anticipated that for the full year the dividend will be twice covered by headline earnings. Prospects Operations for the current year are progressing well, but results for the year will be influenced by the level of the rand compared to other currencies, the world sugar price and final sugar production. Provided there is no major change to these factors and as an update to the trading statement issued on 13 September 2006, headline earnings for the full year to 31 March 2007 are expected to be between 35% and 45% higher than in the previous financial year. The profit forecast has been examined by our auditors, Deloitte & Touche, and their unqualified accountants" report is available for inspection at the company"s registered office. On behalf of the Board R A Williams D G MacLeod Mount Edgecombe Chairman Managing Director 16 November 2006 GROUP INCOME STATEMENTS Actual Sugar season Actual basis
Unaudited Unaudited Audited Six months ended Six months ended Year ended 30 September 30 September 31
March 2006 2005 2006 2005 Change 2006 Notes Rm Rm Rm Rm % Rm Revenue 2 822.1 2 367.9 3 258.9 2 657.6 223 5 468.8 Operating 639.0 367.8 516.1 315.6 64 751.5 profit Net 1 32.9 44.1 32.9 44.1 100.9 financing costs 606.1 323.7 483.2 271.5 650.6 Profit before material items Material 2 0.4 0.6 0.4 0.6 3.5 items 606.5 324.3 483.6 272.1 654.1 Profit before taxation Taxation 191.8 94.4 159.1 82.6 197.3 414.7 229.9 324.5 189.5 456.8 Profit after taxation Attributabl e to outside shareholder s in subsidiary 86.8 64.4 64.7 40.9 99.1 companies Net profit attributabl e to shareholder 327.9 165.5 259.8 148.6 75 357.1 s in Illovo Sugar Limited Determinati on of headline earnings : Net profit 327.9 165.5 259.8 148.6 75 357.7 attributabl e to shareholder s Adjusted for: Profit on (0.4) (0.6) (0.4) (0.6) (3.3) disposal of property (0.2) (0.3) (0.2) (0.3) (2.0) Profit on disposal of plant and equipment 327.3 164.6 259.2 147.7 75 352.4 Headline earnings 348.7 337.5 348.7 337.5 340.1 Number of shares in issue (millions) Weighted average number of shares on which headline 342.3 337.4 342.3 337.4 338.2 earnings per share are based (millions) 95.6 48.8 75.7 43.8 73 104.2 Headline earnings per share (cents) 94.8 48.0 75.2 43.2 101.4 Diluted headline earnings per share (cents) Dividend 30.0 20.0 30.0 20.0 50 62.5 per share (cents) ABRIDGED GROUP BALANCE SHEETS Actual Sugar season basis Actual Unaudited Unaudited Audited 30 September 30 September 31 March 2006 2005 2006 2005 2006
Rm Rm Rm Rm Rm ASSETS Non-current 2 661.7 2 339.1 2 661.7 2 339.1 2 362.6 assets Property, plant 1 910.4 1 700.4 1 910.4 1 700.4 1 704.9 and equipment Cane roots 677.8 557.6 677.8 557.6 589.1 Investments 73.5 81.1 73.5 81.1 68.6 Current assets 3 082.1 2 589.8 3 082.1 2 589.8 1 633.5 Inventories 1 433.3 1 327.5 1 433.3 1 327.5 470.8 Growing cane 739.8 412.6 739.8 412.6 657.9 Accounts 840.4 849.7 840.4 849.7 504.8 receivable Financial 68.6 - 68.6 - - instruments Total assets 5 743.8 4 928.9 5 743.8 4 928.9 3 996.1 EQUITY AND LIABILITIES Total equity 2 161.9 1 697.1 2 071.7 1 656.7 1 813.5 Equity holders" 1 706.4 1 313.5 1 638.3 1 296.6 1 425.5 interest Minority 455.5 383.6 433.4 360.1 388.0 shareholders" interest Non-current 2 026.4 1 949.7 2 026.4 1 938.1 922.5 liabilities Deferred taxation 573.3 476.6 573.3 465.0 481.5 Net borrowings 1 453.1 1 473.1 1 453.1 1 473.1 441.0 Current 1 555.5 1 282.1 1 645.7 1 334.1 1 260.1 liabilities Accounts payable 1 555.5 1 210.8 1 645.7 1 262.8 1 170.7 and provisions Financial - 71.3 - 71.3 89.4 instruments Total equity and 5 743.8 4 928.9 5 743.8 4 928.9 3 996.1 liabilities OTHER SALIENT FEATURES Operating margin 22.6 15.5 15.8 11.9 13.7 (%) Gearing (%) 67.2 86.8 70.0 88.9 24.3 Interest cover 19.4 8.3 15.7 7.2 7.4 (times) Net asset value 620.0 502.8 594.1 490.9 533.2 per share (cents) Depreciation 72.7 64.4 72.7 64.4 127.7 Capital 108.1 68.9 108.1 68.9 205.0 expenditure - expansion 62.1 27.8 62.1 27.8 75.4 - product 3.7 2.0 3.7 2.0 8.8 registration costs - replacement 42.3 39.1 42.3 39.1 120.8 Capital 199.4 175.7 199.4 175.7 284.2 commitments - contracted 44.0 81.3 44.0 81.3 28.1 - approved but 155.4 94.4 155.4 94.4 256.1 not contracted Lease commitments 160.9 169.1 160.9 169.1 171.2 - land and 93.9 88.1 93.9 88.1 102.8 buildings - other 67.0 81.0 67.0 81.0 68.4 Contingent 6.3 11.2 6.3 11.2 10.5 liabilities ABRIDGED GROUP CASH FLOW STATEMENTS Actual Sugar season basis Actual Unaudited Unaudited Audited Six months ended Six months ended Year ended 30 September 30 September 31 March
2006 2005 2006 2005 2006 Rm Rm Rm Rm Rm Cash flows from operating and investing activities Cash 678.5 575.1 555.6 522.9 710.5 operating profit Working (1,001.9) (980.8) (879.0) (928.6) 117.2 capital requirements Cash (323.4) (405.7) (323.4) (405.7) 827.7 (utilised by)/generated from operations Replacement (42.3) (39.1) (42.3) (39.1) (120.8) capital expenditure Financing (350.6) (165.1) (350.6) (165.1) (341.3) costs, taxation and dividend Net (71.2) (45.9) (71.2) (45.9) (98.7) investment in future operations Other 2.3 2.6 2.3 2.6 43.9 movements Net cash (785.2) (653.2) (785.2) (653.2) 310.8 (outflow) / inflow before financing activities STATEMENT OF CHANGES IN EQUITY Share capital and share premium Balance at 298.4 282.5 298.4 282.5 282.5 beginning of the period Issue of new 55.3 1.5 55.3 1.5 15.9 shares Balance at 353.7 284.0 353.7 284.0 298.4 end of the period Share-based payments reserve 8.1 4.4 8.1 4.4 4.4 Balance at beginning of the period 2.7 1.5 2.7 1.5 3.7 Share-based payment expense Balance at 10.8 5.9 10.8 5.9 8.1 end of the period Non- distributable reserves Balance at 122.1 95.4 122.1 95.4 95.4 beginning of the period Realised - - - - 0.2 profit on disposal of land Effect of 80.8 55.5 80.8 55.5 26.6 foreign currency translation Effect of (40.7) - (40.7) - (0.1) cash flow hedges Transfer to retained surplus - Foreign - (58.8) - (58.8) - Currency Translation Reserve (FCTR) Balance at 162.2 92.1 162.2 92.1 122.1 end of the period Retained surplus Balance at 852.3 707.2 852.3 707.2 707.2 beginning of the period Realised loss - - - - (0.2) on disposal of land Transfer to (103.2) (67.5) (103.2) (67.5) (212.4) dividend reserve Transfer from - 58.8 - 58.8 - non- distributable reserves - FCTR Net profit 327.9 165.5 259.8 148.6 357.7 for the period Balance at 1,077.0 864.0 1,008.9 847.1 852.3 end of the period Dividend reserve Balance at 144.6 45.5 144.6 45.5 45.5 beginning of the period Transfer from 103.2 67.5 103.2 67.5 212.4 retained surplus Dividends (145.1) (45.5) (145.1) (45.5) (113.3) paid Balance at 102.7 67.5 102.7 67.5 144.6 end of the period Equity 1,706.4 1,313.5 1,638.3 1,296.6 1,425.5 holders" interest Minority shareholders" interest Balance at 388.0 330.9 388.0 330.9 330.9 beginning of the period Effect of 24.9 3.1 24.9 3.1 (6.7) foreign currency translation Dividends (47.1) (14.8) (47.1) (14.8) (37.6) paid Increase in 2.9 - 2.9 - 2.3 shareholding Net profit 86.8 64.4 64.7 40.9 99.1 for the period Balance at 455.5 383.6 433.4 360.1 388.0 end of the period Total equity 2 161.9 1 697.1 2 071.7 1 656.7 1 813.5 SEGMENTAL ANALYSIS Actual Sugar season basis Actual Unaudited Unaudited Audited Six months ended Six months ended Year
ended 30 September 30 September 31 March 2006 2005 2006 2005 2006 Rm Rm Rm % Rm % Rm
BUSINESS SEGMENTS Revenue Sugar 1,672.1 1,368.2 2,348.1 72 1,933.0 73 3 883.2 production Cane growing 910.4 787.8 671.2 21 512.7 19 1,081.5 Downstream 239.6 211.9 239.6 7 211.9 8 504.1 2 822.1 2 367.9 3 258.9 2 657.6 5 468.8
Operating profit Sugar 224.8 257.0 336.5 65 220.5 70 456.9 production Cane growing 380.4 86.1 145.8 28 70.4 22 235.3 Downstream 33.8 24.7 33.8 7 24.7 8 59.3 639.0 367.8 516.1 315.6 751.5 Total assets Sugar 3 549.0 3 225.1 3 549.0 62 3 225.1 65 2 060.8 production Cane growing 1 882.4 1 465.7 1 882.4 33 1 465.7 30 1 701.9 Downstream 312.4 238.1 312.4 5 238.1 5 233.4 5 743.8 4 928.9 5 743.8 4 928.9 3 996.1 GEOGRAPHICAL SEGMENTS Revenue South Africa 1 175.2 919.2 1 477.5 46 1 268.3 47 2 631.1 Malawi 443.7 468.9 535.1 16 442.2 17 938.0 Zambia 484.9 384.7 592.3 18 389.3 15 784.9 Swaziland 370.7 381.0 321.7 10 290.0 11 586.1 Tanzania 176.9 86.5 232.6 7 181.9 7 353.9 Mozambique 170.7 127.6 99.7 3 85.9 3 174.8 2 822.1 2 367.9 3 258.9 2 657.6 5 468.8 Operating profit South Africa 107.5 30.0 126.4 24 59.3 19 156.8 Malawi 179.8 156.9 171.6 33 107.2 34 293.3 Zambia 198.0 37.1 119.8 23 83.4 26 153.2 Swaziland 71.0 82.1 44.4 9 31.6 10 73.0 Tanzania 36.8 39.7 50.4 10 36.4 12 68.6 Mozambique 45.9 22.0 3.5 1 (2.3) (1) 6.6 639.0 367.8 516.1 315.6 751.5
NOTES TO THE FINANCIAL STATEMENTS Unaudited Audited Six months ended Year ended 30 September 31 March
2006 2005 2006 Rm Rm Rm 1. Net financing costs Interest paid 92.6 80.8 159.6 Interest received ( 47.0) ( 43.7) ( 46.0) Foreign exchange gains and ( 11.6) 7.8 ( 11.7) losses Dividend income ( 1.1) ( 0.8) ( 1.0) 32.9 44.1 100.9 2. Material items Profit on disposal of 0.4 0.6 3.5 property Material profit before 0.4 0.6 3.5 taxation Taxation - - ( 0.2) Material profit attributable to shareholders in Illovo Sugar Limited 0.4 0.6 3.3 DECLARATION OF DIVIDEND NO.30 Notice is hereby given that an interim dividend of 30.0 cents per share has been declared on the ordinary shares of the company in respect of the six months ended 30 September 2006. 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 Thursday, 28 December 2006 Shares commence trading ex-dividend Friday, 29 December 2006 Record date Friday, 5 January 2007 Payment of dividend Monday, 8 January 2007 Share certificates may not be dematerialised / rematerialised between Friday, 29 December 2006 and Friday, 5 January 2007, both days inclusive. By order of the Board G D Knox Mount Edgecombe Company Secretary 16 November 2006 Directors: R A Williams (Chairman)*, D G MacLeod (Managing Director), M I Carr#*. G J Clark (Australian), B P Connellan*, D Konar*, D R Langlands#*, P A Lister#*, P M Madi*, I N Mkhize*, R A Norton*, J T Russell, M J Shaw*, B M Stuart, K Zarnack # British * 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: 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 Date: 17/11/2006 07:05:22 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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