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ILV - Illovo Sugar Limited - Profit and dividend announcement
ILLOVO SUGAR LIMITED
(Incorporated in the Republic of South Africa)
Company registration number 1906/000622/06
Share Code: ILV
ISIN: ZAE000083846
("Illovo")
PROFIT AND DIVIDEND ANNOUNCEMENT
Audited results for the year ended 31 March 2008
- Headline earnings of R600 million
- Headline earnings per share increase by 15%
- Strong operational cash generation
- Commencement of major expansionary phase
Don MacLeod, Managing Director, commented:
"This is a good set of results on the back of higher sugar production, improved
local market sales and prices, increased exports to preferential markets in the
European Union and a further improvement in furfural and furfuryl alcohol export
prices. Our growth plans are on track with the first phase of the expansion
project in Zambia now complete, along with smaller agricultural and factory
expansions in Malawi and Tanzania. Sugar production in Mali is expected to
commence in 2010. We anticipate further growth in earnings next year."
Enquiries:
Illovo Sugar 031 508 4300
Don MacLeod, Managing Director
Karin Zarnack, Financial Director
Chris Fitz-Gerald, Corporate Communications
College Hill 011 447 3030
Johannes van Niekerk 082 921 9110
Review
The group achieved good results in the past year with headline earnings
increasing by 16% to R599.6 million and headline earnings per share increasing
by 15% to 171.6 cents. This was due to a number of reasons including increased
sugar production in South Africa, Tanzania and Mozambique, improved domestic
market sugar sales and prices, increased exports to preferential markets in the
European Union, and a further improvement in furfural and furfuryl alcohol
export prices. In addition, profits benefited from a significant decrease in
the effective tax rate, due to a change in the rate applicable in Zambia and the
tax allowances in respect of the expansion project in that country. These
positive factors were offset to some extent by lower world and regional sugar
prices, rising input costs and a material increase in financing costs.
The group achieved turnover of R6.8 billion and operating profit of R1 065
million. Compared to the previous year, turnover increased by 8% whilst
operating profit increased by 3%. The operating margin declined slightly to
15.7%. Net financing costs increased from R96.4 million to R170.4 million,
mainly as a result of increased seasonal working capital requirements, expansion
capital expenditure and higher interest rates. The effective tax rate,
excluding material items, was 15.7%, due to the Zambian subsidiary being
recognised as an agricultural operation for tax purposes and also being granted
expansion-related tax allowances. This reclassification as an agricultural
operation gave rise to a one-off tax credit in respect of past tax years which
impacted the tax cost in the year under review. The group`s tax rate can be
expected to normalise at around 27% in the year ahead.
Strong operational cash generation of R1 055 million was achieved. However major
expansion capital expenditure has resulted in group borrowings increasing to R1
168 million, with gearing rising to 39.9%.
The contributions to operating profit were sugar production 57%, cane growing
30% and downstream 13%. By country, contributions were South Africa 25%, Malawi
41%, Zambia 12%, Swaziland 9%, Tanzania 9% and Mozambique 4%.
The performance of the operations across the group was generally satisfactory
despite the onset of early summer rains across the southern African region
which, in all countries of operation except Malawi, prevented the completion of
the harvesting programmes and resulted in the respective sugar factories having
to prematurely cease production for the season. Group cane production of 5.3
million tons was slightly less than in the previous season. Generally both cane
and sucrose yields reflected an improvement over the previous year. Group sugar
production of 1.79 million tons was 4% higher than in the previous year, despite
the early summer rains impacting negatively on the planned milling seasons. The
performance levels of the factories were generally good, with improved
recoveries of sugar from cane and better operational efficiency levels. The
performance of the Zambia factory, however, was disappointing which together
with the disruption caused by the early rains, resulted in reduced sugar
production and the carryover of a significant tonnage of cane on the group`s own
estate. The operation in Mozambique performed well and record cane throughput
and sugar production were achieved. The performance of the downstream
operations was good, with record production of ethyl alcohol and strong export
prices for both furfural and furfuryl alcohol.
The group supplies sugar and downstream products to domestic, regional and world
markets. Domestic sales and exports into premium-priced markets are very
important to the business and it is encouraging that such sales have shown an
improvement across the group. Sales into domestic markets contributed 65% to
total revenue whilst exports to 96 countries contributed the balance. A
strength of the group is that 78% of sugar by volume and 83% by value was sold
into the domestic or premium-priced export markets.
Against the background of a record global sugar surplus, the world raw sugar
price traded at much lower levels than in the previous year. The price remained
volatile and fell to a low of US8.37 cents/lb in June 2007 before rising to a
high of US15.02 cents/lb in March 2008. The South African sugar industry
achieved an average export price of US10.48 cents/lb in respect of world raw
sugar exports compared to US14.92 cents/lb in the previous year. The lower
world sugar price also impacted negatively on regional sales. The reduced
prices were the outcome of significant production increases by major sugar
producers, notably Brazil and India. However, against this background of weak
fundamental factors, the sugar prices rallied from December 2007 as a result of
increased interest of global investment funds in commodities, including sugar.
The scale and significant impact of this investment created a dislocation
between shorter-term market fundamentals and futures prices. The investment
funds were looking more at production cost trends of the major producers and
future supply / demand balances. In addition, the relationship between the oil
and sugar market continues to develop, with ethanol becoming an increasingly
important factor influencing sugar prices. The proportion of Brazil`s cane
production which is converted to ethanol, and the level of decline in production
in India following two consecutive record crops, could also have a marked impact
on future export availability and prices.
The reform of the European Union (EU) Sugar Regime continues to take effect and
since implementation, domestic sugar quota renunciations have amounted to 5.6
million tons. The EU Commission had set a target for quota withdrawals of six
million tons. It is open to the Commission to make a final "across-the-board"
cut in quotas in 2010 if there is an imbalance between supply and demand at that
time. However, it appears likely that following the latest renunciations, the
European market will stabilise as intended. Negotiations to establish a number
of interim regional Economic Partnership Agreements (EPA`s) between the EU and
the African Caribbean and Pacific (ACP) states have been concluded. These
interim EPA`s will be finalised during the course of 2008, but they became
operative on 1 January 2008. The existing ACP Sugar Protocol arrangements will
terminate on 30 September 2009, but ACP (non-Least Developed Countries (LDC`s))
states which are signatories to an EPA will be entitled to supply duty-free /
quota-free tonnages to the EU subject to various limits. This should benefit
Illovo`s Swaziland operations. From October 2009, LDC`s will have full duty-
free / quota-free access to the EU for sugar with no volume limits, subject only
to surveillance for fraud or abnormal volume surges. This access will be
available to the group`s operations in Malawi, Zambia, Mozambique and Tanzania.
The first phase of the major expansion project to increase the group`s
production facility in Zambia to 440 000 tons of sugar per annum has been
completed, and the benefits of the increased cane supply and factory upgrade
will result in sugar production increasing to around 300 000 tons in the 2008/09
season. The second and final phase of the project is making good progress and
is due to be completed in April 2009. Smaller factory and agricultural
expansions in Malawi and Tanzania have been completed during the recent offcrop
period. The Mali project is making slow progress and sugar production is now
only anticipated to commence in October 2010. The requisite concessional debt
funding for the agricultural development in Mali is being finalised. The Board
has approved a major expansion of the group`s production facilities in
Mozambique which will result in output from the operation doubling over the next
three years. The project will result in a significant area of new land being
developed to cane in co-operation with local communities.
During the year R154.9 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 R848.7 million was invested in
expansion projects and on product registrations.
As previously advised during April 2008, Illovo has taken back ownership of the
Umfolozi sugar mill and will be operating it during the current sugar season.
Discussions regarding future long-term ownership arrangements are continuing.
Directorate
We are pleased to welcome Mike Hankinson to the Board as an independent non-
executive director. Mr Hankinson has considerable experience in the corporate
sector and is a director of other listed companies.
Dividend
The final dividend has been increased to 52.5 cents per share (2007: 45.0 cents
per share) which results in a total distribution of 85.5 cents per share (2007:
75.0 cents per share) for the full year, which is in line with the objective of
dividends being twice covered by earnings.
Outlook
In the current year, own cane and sugar production are anticipated to exceed the
levels achieved in the past season, whilst downstream production is expected to
be at similar levels to those of last year. World sugar prices are presently
above last year`s levels but remain very volatile. If they remain at current
levels it will impact favourably on revenues from both world and regional
markets. The results for the current year will again be affected by the level
of the rand compared to other currencies. Overall, it is anticipated that
growth in earnings will be achieved in the year ahead.
Illovo`s existing factory operations have significant growth potential and
further expansions are being pursued across the group.
On behalf of the Board
R A Williams D G MacLeod Mount Edgecombe
Chairman Managing Director 20 May 2008
ABRIDGED GROUP INCOME STATEMENT
Year ended 31 March
2008 2007
Change
Notes Rm Rm %
_____________________________ _____ _________ _ __________ _ ______
Revenue 6 794.1 6 263.6 8
========= ========== ======
Operating profit 1 064.5 1 034.3 3
Net financing costs 2 170.4 96.4
_________ __________ ______
Profit before material items 894.1 937.9
Material items 3 (0.1) 4.2
_________ __________ ______
Profit before taxation 894.0 942.1
Taxation 140.7 288.3
_________ __________ ______
Profit after taxation 753.3 653.8
Attributable to outside
shareholders in
subsidiary companies 153.5 137.3
_________ __________ ______
Net profit attributable to
shareholders
in Illovo Sugar Limited 599.8 516.5 16
========= ========== ======
_______________________________ _____ _________ _ __________ _ ______
Determination of headline
earnings :
IAS 33 net profit attributable to 599.8 516.5
shareholders
Adjusted for :
IAS 16 loss/(profit) on 3 0.1 (3.7)
disposal of property
IAS 16 (profit)/loss on disposal of (0.3) 2.5
plant and
equipment _________ __________ ______
Headline earnings 599.6 515.3 16
========= ========== ======
_______________________________ _____ _________ _ __________ _ ______
Number of shares in issue 349.9 348.9
(millions)
Weighted average number of shares on
which
headline earnings per share are based 349.4 345.5
(millions)
Headline earnings per share 171.6 149.1 15
(cents)
Basic earnings per share 171.7 149.5
(cents)
Diluted basic earnings per 170.5 148.0
share (cents)
Diluted headline earnings per 170.5 147.7
share (cents)
Dividend per share (cents) 85.5 75.0 14
_______________________________ _____ _________ _ __________ _ ______
The auditors, Deloitte & Touche, have issued their opinion on the group`s annual
financial statements for the year ended 31 March 2008. 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.
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, Schedule 4 of the
Companies Act, 1973, and the disclosure requirements of the
Listing Requirements of the JSE Limited. The accounting
policies adopted are consistent with those applied in the
previous financial year.
Year ended 31
March
2008 2007
Rm Rm
_____ ______________________________________ _______ _ _______
2. Net financing costs
Interest paid 250.4 153.4
Less : Capitalised (41.9) -
_______ _______
208.5 153.4
Interest received (37.9) (27.8)
Foreign exchange losses/(gains) 1.1 (27.8)
Dividend income (1.3) (1.4)
_______ _______
170.4 96.4
======= =======
3. Material items
(Loss)/profit on disposal of property (0.1) 4.2
_______ _______
Material (loss)/profit before taxation (0.1) 4.2
Taxation - (0.5)
_______ _______
Material (loss)/profit attributable to (0.1) 3.7
shareholders in Illovo Sugar Limited
======= =======
ABRIDGED GROUP BALANCE SHEET
31 March
2008 2007
Rm Rm
______________________________ _ _________ _ _ ________
ASSETS
Non-current assets 3 926.5 2 576.8
Property, plant and equipment 3 014.5 1 841.0
Cane roots 821.7 661.6
Investments 90.3 74.2
Current assets 2 354.5 1 891.4
Inventories 605.1 510.1
Growing cane 948.5 743.1
Accounts receivable 782.7 638.2
Financial instruments 18.2 -
_________ ________
Total assets 6 281.0 4 468.2
========= =========
EQUITY AND LIABILITIES
Total equity 2 928.9 2 228.3
Equity holders` interest 2 373.3 1 771.7
Minority shareholders` 555.6 456.6
interest
Non-current liabilities 1 807.3 846.0
Deferred taxation 639.0 574.3
Net borrowings 1 168.3 271.7
Current liabilities 1 544.8 1 393.9
Accounts payable and provisions 1 536.2 1 303.3
Financial instruments 8.6 90.6
_________ _________
Total equity and liabilities 6 281.0 4 468.2
========= =========
______________________________ _ _________ _ _ _________
OTHER SALIENT FEATURES
______________________________ _ _________ _ _ _________
Operating margin (%) 15.7 16.5
Gearing (%) 39.9 12.2
Interest cover (times) 6.2 10.7
Return on net assets (%) 24.1 28.5
Net asset value per share (cents) 837.2 638.7
Depreciation 151.7 140.4
Capital expenditure 1,003.6 220.7
- expansion 837.0 90.5
- product registration costs 11.7 5.5
- replacement 154.9 124.7
Capital commitments 3,140.4 1,799.0
- contracted 798.2 29.2
- approved but not contracted 2,342.2 1,769.8
Lease commitments 196.7 137.1
- land and buildings 100.8 74.8
- other 95.9 62.3
Contingent liabilities 5.0 5.2
ABRIDGED GROUP CASH FLOW STATEMENT
Year ended 31 March
2008 2007
Rm Rm
________ _______ _______ _______ ________ _ _ ________
Cash flows from operating and
investing activities
Cash operating profit 1 055.0 1 058.7
Working capital 46.2 (61.0)
requirements
________ ________
Cash generated from 1 101.2 997.7
operations
Replacement capital (154.9) (124.7)
expenditure
Financing costs, taxation and (708.9) (608.4)
dividend
Net investment in future (869.5) (113.2)
operations
Other movements (13.1) 30.4
________ ________
Net cash (outflow)/inflow before (645.2) 181.8
financing activities
Net cash inflow from financing 737.8 169.1
activities
________ ________
Net increase in cash and cash 92.6 350.9
equivalents
======== ========
STATEMENT OF CHANGES IN EQUITY
Year ended 31 March
2008 2007
Rm Rm
________ ________ ________ ________ _______ __ ________
Share capital and share premium
Balance at beginning of the 354.5 298.4
year
Issue of new shares 6.5 56.1
_______ ________
Balance at end of the year 361.0 354.5
======== ========
Share-based payments reserve
Balance at beginning of the 10.9 8.1
year
Share-based payment expense 1.7 2.8
________ ________
Balance at end of the year 12.6 10.9
======== ========
Non-distributable reserves
Balance at beginning of the 146.3 122.1
year
Realised profit on disposal - 3.7
of land
Effect of foreign currency 269.5 13.2
translation
Effect of cash flow hedges (3.4) 7.3
________ ________
Balance at end of the year 412.4 146.3
======== ========
Retained surplus
Balance at beginning of the 1 103.0 852.3
year
Realised profit on disposal - (3.7)
of land
Transfer to dividend reserve (299.2) (262.1)
Net profit for the year 599.8 516.5
________ ________
Balance at end of the year 1 403.6 1 103.0
======== ========
Dividend reserve
Balance at beginning of the 157.0 144.6
year
Transfer from retained 299.2 262.1
surplus
Dividends paid (272.5) (249.7)
________ _________
Balance at end of the year 183.7 157.0
======== =========
________ _________
Equity holders` interest 2,373.3 1,771.7
======== =========
Minority shareholders`
interest
Balance at beginning of the 456.6 388.0
year
Effect of foreign currency 56.8 13.1
translation
Dividends paid (114.4) (84.5)
Increase in shareholding 3.1 2.7
Net profit for the year 153.5 137.3
________ _________
Balance at end of the year 555.6 456.6
======== =========
________ _________
Total equity 2 928.9 2 228.3
======== =========
SEGMENTAL ANALYSIS
Year ended 31 March
2008 2007
Rm % Rm %
________ ________ ________ ________ ___ ________ ___
BUSINESS SEGMENTS
Revenue
Sugar production 4 859.9 72 4 410.7 70
Cane growing 1 358.2 20 1 344.8 22
Downstream 576.0 8 508.1 8
________ ___ ________ ___
6 794.1 6 263.6
======== === ======== ===
Operating profit
Sugar production 602.4 57 605.6 59
Cane growing 317.0 30 341.0 33
Downstream 145.1 13 87.7 8
________ ___ ________ ___
1 064.5 1 034.3
======== === ======== ===
Total assets (excluding financial
instruments)
Sugar production 3 301.1 53 2 253.1 51
Cane growing 2 669.8 42 1 930.9 43
Downstream 291.9 5 284.2 6
________ ___ ________ ___
6 262.8 4 468.2
======== === ======== ===
GEOGRAPHICAL SEGMENTS
Revenue
South Africa 3 104.1 46 2 824.1 45
Malawi 1 162.7 17 1 137.5 18
Zambia 1 076.1 16 1 053.1 17
Swaziland 693.0 10 612.8 10
Tanzania 482.8 7 423.3 7
Mozambique 275.4 4 212.8 3
________ ___ ________ ___
6 794.1 6 263.6
======== === ======== ===
Operating profit
South Africa 263.4 25 213.1 21
Malawi 434.0 41 408.5 39
Zambia 125.1 12 232.3 22
Swaziland 98.2 9 68.9 7
Tanzania 94.2 9 93.6 9
Mozambique 49.6 4 17.9 2
________ ___ ________ ___
1 064.5 1 034.3
======== === ======== ===
DECLARATION OF DIVIDEND NO. 33
Notice is hereby given that a final dividend of 52.5 cents per share has been
declared on the ordinary shares of the company in respect of the year ended 31
March 2008. This dividend, together with the interim dividend of 33.0 cents per
share which was declared on 13 November 2007, makes a total distribution in
respect of the year ended 31 March 2008 of 85.5 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, 4 July 2008
Shares commence trading ex-dividend Monday, 7 July 2008
Record date Friday, 11 July 2008
Payment of dividend Monday, 14 July 2008
Share certificates may not be dematerialised / rematerialised between Monday, 7
July 2008 and Friday, 11 July 2008, both days inclusive.
By order of the Board
G D Knox Mount Edgecombe
Company Secretary 20 May 2008
Directors:
R A Williams (Chairman)*, D G MacLeod (Managing Director), M I Carr#*, G J Clark
(Australian), B P Connellan*, M J Hankinson*, 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: 21/05/2008 07:05:02 Supplied by www.sharenet.co.za
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