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ILV - Illovo Sugar Limited - Profit and Dividend Announcement
ILLOVO SUGAR LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1906/000622/06)
Share Code: ILV
ISIN: ZAE000083846
("Illovo" or "the company" or "the group")
PROFIT AND DIVIDEND ANNOUNCEMENT
Audited results for the year ended 31 March 2009
- Operating profit increased by 30%
- Headline earnings per share increased by 23%
- Dividend increased by 24%
- Strong operational cash generation
- Ongoing major capacity expansions / funding arrangements
Graham Clark, Managing Director, commented:
"These are good results overall, with increased earnings and higher production
achieved. The company continues to make significant investments to grow its
productive capacity, as part of which the major expansion project in Zambia was
completed in April. Production in the ensuing year is anticipated to reflect a
further increase, and the group is well positioned to benefit from duty-free,
quota-free access to the EU sugar market from October."
Enquiries:
Illovo Sugar: 031 508 4300
Graham Clark, Managing Director
Karin Zarnack, Financial Director
Chris Fitz-Gerald, Corporate Communications
College Hill: 011 447 3030
Nicholas Williams 082 600 2192
Review
The group achieved sound results for the year ended 31 March 2009 with headline
earnings increasing by 24% to R741.8 million, whilst headline earnings per share
rose by 23% to 211.6 cents. Group operating profit increased by 30% to R1 386
million. The group`s profits benefited from a number of factors, most notably,
improved domestic market sales, higher world and regional market sugar prices,
weaker exchange rates and good results from downstream operations. Lower sugar
production in Zambia, Swaziland and Tanzania partly offset these benefits.
Net financing costs of R183.7 million reflect a small increase compared to the
previous year, whilst taxation at R238.9 million remained relatively low mainly
due to the Zambian subsidiary being granted expansion-related tax allowances.
The group`s effective tax rate was 19.9% (2008: 15.7%).
The contributions to operating profit were sugar production 52%, cane growing
36% and downstream 12%. By country, contributions were South Africa 19%, Malawi
45%, Zambia 12%, Swaziland 9%, Tanzania 9% and Mozambique 6%.
Strong cash operating profit of R1 207 million was achieved. However, group
borrowings increased substantially from R1 168 million to R2 411 million as a
result of the expansion projects during the year, with the debt: equity ratio
rising from 40% to 70%.
The agricultural operations generally performed satisfactorily with cane
production in the 2008/09 season amounting to 5.1 million tons. Adverse weather
conditions in Swaziland and Tanzania impacted negatively on output in those
countries, whilst in Zambia the difficulties experienced during phase 1 of the
factory expansion resulted in a significant tonnage of cane being carried over
to the next season. Group sugar production of 1.824 million tons was 2% above
the previous season despite a 40 000 ton reduction in sugar production compared
to the previous year in Zambia following the delayed start to the season and the
disappointing mechanical performance of the plant after phase 1 of the factory
expansion. Phase 2 of the project was completed as planned in April 2009. The
performance levels of the other factories throughout the group were generally
good. The downstream plants have operated well, with output being similar to
last year. World prices of furfural and lactulose were strong during the year.
Domestic market sugar sales across the group were encouraging with all
operations achieving an improvement in offtake. Marketing initiatives and
improved distribution, particularly in the rural areas, together with efforts of
the authorities to control illegal imports were the main factors affecting the
growth in sales. Exports into premium-priced markets are very important to the
group`s business and sugar sales into these markets were around 220 000 tons.
Demand from the group`s regional markets remained at a satisfactory level
although slightly less than the prior year.
The world sugar price, although continuing to be very volatile, adjusted upwards
during the past year. The improvement in this price also resulted in a firming
of sugar revenue realisations in the regional markets supplied by Illovo. The
world price rose in the early part of the year as a result of a forecast deficit
in production, but then weakened in line with other commodities. However, in
recent months the price has increased strongly, driven by a significant
production decline in India, the success of the European Union (EU) Sugar Regime
reform in reducing output in that region, and capital constraints within the
sugar industry in Brazil. These factors have resulted in a material global
deficit in production being anticipated, thereby creating a platform for higher
sugar prices.
Reform of the EU Sugar Regime has been completed via a process of structural
reform which has seen the reduction of EU export subsidies and the lowering of
domestic farm support for European beet farmers. Annual domestic sugar
production in the EU has reduced by nearly six million tons as a result of these
measures which were also accompanied by a restructuring grant to affected EU
producers. The price payable to suppliers of sugar into the EU was also reduced
as part of the reform.
The net result of the reform will be to move the European sugar market from
surplus into deficit. This will enable traditional exporters of sugar to the EU,
mainly Least Developed Countries (LDCs) and member states of the African,
Caribbean and Pacific (ACP) trade group, to continue to export to the EU on
preferential terms such that the EU sugar market maintains equilibrium. Imports
into the EU from these traditional suppliers are projected to reach 3.5 to 4.0
million tons by 2015, with new market access arrangements coming into force from
1 October 2009. These arrangements provide duty-free, quota-free access to the
EU sugar market for qualifying LDC/ACP suppliers on the basis of unrestricted
access for LDCs, with ACP access being limited by a safeguard ceiling of 3.5
million tons. Previous quality restrictions which limited imports to bulk raw
sugar for refining will also be relaxed from 1 October 2009, and exporters to
the EU will in future be entitled to supply sugar of various qualities as
required by different customers. The new EU sugar arrangements have been
incorporated into the terms of new Economic Partnership Agreements (EPAs)
currently being negotiated between the EU and the supplying regions. These
market access changes are positive for the Illovo group, although the lower
prices received in these markets have impacted on export revenues. The company
has concluded an investment in a United Kingdom-based joint venture with British
Sugar which will provide an effective route to the EU market for Illovo`s export
sugars from 1 October 2009.
Illovo has embarked on a major drive to significantly increase its cane and
sugar productive capacity. The first step was the Zambian expansion project,
with phase 2 of the project being completed as planned on 1 April 2009. The
project increases the capacity of the Nakambala sugar mill to 450 000 tons sugar
per annum. The expanded factory is settling down and is operating at design
capacity. The group has, subject to approval by the Zambia Competition
Commission and other regulatory authorities, acquired a majority stake in a cane
growing company currently producing 325 000 tons cane per annum with the
potential to further increase output. This operation delivers its cane to the
Nakambala sugar mill. A rights offer has been announced by Zambia Sugar Plc, the
group`s Zambian subsidiary, to secure the future financing requirements of the
Zambian business.
The Mali project continues to progress, albeit slowly, particularly in respect
of the social and environmental impact studies which are required in respect of
the concessional funding for the agricultural development. The commercial
planting of sugar cane is expected to commence in the first quarter of 2010,
with sugar production anticipated to start in December 2011.
The expansion of the group`s sugar factory at Maragra in Mozambique, which will
result in output from that operation doubling to 150 000 tons sugar per annum
over the next three years, is progressing well with phase 1 completed in April
2009. The group has entered into a joint venture with the local community at
Maragra to develop 4 000 hectares of land to cane over the next two years at a
site located on the east bank of the Inkomati River approximately 40 kilometres
from the mill. The joint venture will produce 400 000 tons cane per annum and
the project is linked to the factory expansion. The company has also acquired
an option to purchase a 90% shareholding in the Buzi sugar estate situated near
Beira, which provides the opportunity to erect a sugar factory capable of
producing 150 000 tons sugar per annum in the future.
In Malawi the marginal factory expansion and increase in cane land area at
Nchalo was successfully completed prior to the commencement of the new sugar
season.
In South Africa, the company has undertaken a number of disposals and
investments which will result in a more streamlined business. The sale of the
Umfolozi sugar mill to a grower consortium was completed on 31 March 2009, with
payment received in full. An agreement to sell the Pongola sugar mill to TSB
Sugar RSA Limited has been concluded, subject to approval by the Competition
Commission. The company has acquired a 30% shareholding in and will provide
technical services to a new business entity which has purchased the Gledhow
sugar mill which was previously wholly-owned by Ushukela Milling (Pty) Limited
(Ushukela). The other shareholders in this new business entity comprise
Ushukela, a consortium of supplying cane growers and Sappi Manufacturing (Pty)
Limited.
In order to meet the ongoing financing requirements of the group, existing
facilities have been renewed. In addition, it is intended that a rights issue be
undertaken by the company to raise fresh capital to provide for current and
longer term growth plans. This initiative has the full backing of the holding
company which has indicated a willingness to support a rights offer to
shareholders at or around the prevailing share price. Shareholders will be
advised further as this matter is progressed.
Directorate
Don MacLeod, who was Managing Director of Illovo since 1992, retired from this
position on 31 March 2009. He, however, remains a member of the board as a non-
executive director, and assumed the role of Deputy Chairman from 1 April 2009.
Graham Clark, previously the Operations Director, succeeded Mr MacLeod as
Managing Director on 1 April 2009.
John Russell, previously New Projects Director, retired on 31 March 2009. In
line with the company`s succession plan, David Haworth and Larry Riddle were
appointed executive directors with effect from 1 April 2009.
Imogen Mkhize, who has been a non-executive director of the company since
November 2005, resigned from the board with effect from 31 March 2009, due to
other increasing demands on her time.
Dividend
The final dividend has been increased to 64.5 cents per share (2008: 52.5 cents
per share) resulting in a total distribution of 106.0 cents per share (2008:
85.5 cents per share) for the full year, which continues 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 last season, whilst downstream production is expected to
be at similar levels to those of last year. World sugar prices are anticipated
to remain above last year`s average levels but to continue to be volatile.
Provided they remain at current levels, it will be favourable for revenues from
both world and regional markets. Domestic market offtake is expected to remain
positive. The results for the current year will however be affected by the
level of the rand, which has strengthened this year, compared to other
currencies. Financing costs, as a result of increased borrowings related to the
major expansion projects, are anticipated to increase significantly. The
effective tax rate is expected to normalise at around 30%.
On behalf of the Board
R A Williams G J Clark Mount Edgecombe
Chairman Managing Director 26 May 2009
ABRIDGED GROUP INCOME STATEMENT
Notes Year ended
31 March
2009 2008 Change
Rm Rm %
Revenue 8 601.7 6 794.1 27
======== ======== =======
Operating profit 1 386.2 1 064.5 30
Net financing costs 2 183.7 170.4
-------- -------- -------
Profit before material items 1 202.5 894.1
Material items 3 0.3 ( 0.1)
-------- -------- -------
Profit before taxation 1 202.8 894.0
Taxation 238.9 140.7
-------- -------- -------
Profit after taxation 963.9 753.3
Attributable to outside 224.8 153.5
shareholders in subsidiary
companies
-------- -------- -------
Net profit attributable to 739.1 599.8 23
shareholders in Illovo Sugar
Limited
======== ======== =======
Determination of headline earnings:
Net profit attributable to 739.1 599.8
shareholders
Adjusted for:
(Profit)/loss on disposal of 3 ( 0.3) 0.1
properties
Loss/(profit) on disposal of 3.0 ( 0.3)
plant and equipment
-------- -------- -------
Headline earnings 741.8 599.6 24
======== ======== =======
Number of shares in issue 350.9 349.9
(millions)
Weighted average number of 350.5 349.4
shares on which headline
earnings per share are based
(millions)
Headline earnings per share 211.6 171.6 23
(cents)
Basic earnings per share 210.9 171.7
(cents)
Diluted basic earnings per 209.8 170.5
share (cents)
Diluted headline earnings per 210.6 170.5
share (cents)
Dividend per share (cents) 106.0 85.5 24
The independent auditors, Deloitte & Touche, have issued their opinion on the
group`s annual financial statements for the year ended 31 March 2009. 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 Listings Requirements of the JSE Limited. The
accounting policies adopted are consistent with those applied in the
previous financial year.
Year ended 31
March
2009 2008
Rm Rm
2. Net financing costs
Interest paid 489.0 250.4
Less: Capitalised ( 258.4) ( 41.9)
--------- -------
230.6 208.5
Interest received ( 44.5) ( 37.9)
Foreign exchange (gains)/losses ( 0.7) 1.1
Dividend income ( 1.7) ( 1.3)
--------- -------
183.7 170.4
========= =======
3. Material items
Profit/(loss) on disposal of properties 0.3 ( 0.1)
--------- -------
Material profit/(loss) before taxation 0.3 ( 0.1)
Taxation - -
--------- -------
Material profit/(loss) attributable to 0.3 ( 0.1)
shareholders in Illovo Sugar Limited
========= =======
ABRIDGED GROUP BALANCE SHEET
31 March
2009 2008
Rm Rm
ASSETS
Non-current assets 5 370.2 3 926.5
---------- ------------
Property, plant and equipment 4 087.7 3 014.5
Cane roots 1 132.3 821.7
Investments 150.2 90.3
---------- ------------
Current assets 2 894.2 2 354.5
---------- ------------
Inventories 725.8 605.1
Growing cane 1 222.9 948.5
Accounts receivable 756.3 782.7
Financial instruments 189.2 18.2
---------- ------------
---------- ------------
Total assets 8 264.4 6 281.0
========== ============
EQUITY AND LIABILITIES
Total equity 3 445.0 2 928.9
---------- ------------
Equity holders` interest 2 773.8 2 373.3
Minority shareholders` interest 671.2 555.6
---------- ------------
Non-current liabilities 3 112.2 1 807.3
---------- ------------
Deferred taxation 701.1 639.0
Net borrowings 2 411.1 1 168.3
---------- ------------
Current liabilities 1 707.2 1 544.8
---------- ------------
Accounts payable and provisions 1 702.0 1 536.2
Financial instruments 5.2 8.6
---------- ------------
---------- ------------
Total equity and liabilities 8 264.4 6 281.0
========== ============
OTHER SALIENT FEATURES
Operating margin (%) 16.1 15.7
Effective tax rate (%) 19.9 15.7
Debt : equity ratio 70.0 39.9
Interest cover (times) 7.5 6.2
Return on net assets (%) 22.0 24.1
Net asset value per share (cents) 981.7 837.2
Depreciation 215.2 151.7
Capital expenditure 1,881.4 1,003.6
----------- ------------
- expansion 1,696.5 837.0
- product registration costs 15.4 11.7
- replacement 169.5 154.9
----------- ------------
Capital commitments 2,330.5 3,140.4
----------- ------------
- contracted 276.2 798.2
- approved but not contracted 2,054.3 2,342.2
----------- ------------
Lease commitments 124.1 196.7
----------- ------------
- land and buildings 69.0 100.8
- other 55.1 95.9
----------- ------------
Contingent liabilities 13.5 5.0
ABRIDGED GROUP CASH FLOW STATEMENT
Year ended 31 March
2009 2008
Rm
Rm
Cash flows from operating and investing activities
Cash operating profit 1 206.9 1 055.0
Working capital requirements 362.8 46.2
-------------- -------------
Cash generated from operations 1 569.7 1 101.2
Replacement capital expenditure ( 169.5) ( 154.9)
Financing costs, taxation and ( 863.2) ( 708.9)
dividend
Net investment in future operations (1 745.8) ( 869.5)
Other movements 81.6 ( 13.1)
-------------- -------------
Net cash outflow before financing (1 127.2) ( 645.2)
activities
Net cash inflow from financing 659.1 737.8
activities
-------------- -------------
Net (decrease)/increase in cash and ( 468.1) 92.6
cash equivalents
============== =============
STATEMENT OF CHANGES IN EQUITY
Year ended 31 March
2009 2008
Rm Rm
Share capital and share premium
Balance at beginning of the year 361.0 354.5
Issue of new shares 6.5 6.5
-------------- -------------
Balance at end of the year 367.5 361.0
============== =============
Share-based payments reserve
Balance at beginning of the year 12.6 10.9
Share-based payment expense 0.5 1.7
-------------- -------------
Balance at end of the year 13.1 12.6
============== =============
Non-distributable reserves
Balance at beginning of the year 412.4 146.3
Realised profit on disposal of land 0.3 -
Effect of foreign currency (33.0) 269.5
translation
Effect of cash flow hedges 16.8 (3.4)
-------------- -------------
Balance at end of the year 396.5 412.4
============== =============
Retained surplus
Balance at beginning of the year 1,403.6 1,103.0
Realised profit on disposal of land (0.3) -
Transfer to dividend reserve (372.0) (299.2)
Net profit for the year 739.1 599.8
-------------- -------------
Balance at end of the year 1,770.4 1,403.6
============== =============
Dividend reserve
Balance at beginning of the year 183.7 157.0
Transfer from retained surplus 372.0 299.2
Dividends paid (329.4) (272.5)
-------------- -------------
Balance at end of the year 226.3 183.7
============== =============
-------------- -------------
Equity holders` interest 2,773.8 2,373.3
============== =============
Minority shareholders` interest
Balance at beginning of the year 555.6 456.6
Effect of foreign currency 6.7 56.8
translation
Dividends paid (119.8) (114.4)
Increase in shareholding 3.9 3.1
Net profit for the year 224.8 153.5
-------------- -------------
Balance at end of the year 671.2 555.6
============== =============
-------------- -------------
Total equity 3 445.0 2 928.9
============== =============
SEGMENTAL ANALYSIS
Year ended 31 March
2009 % 2008 %
Rm Rm
BUSINESS SEGMENTS
Revenue
Sugar production 6 250.7 73 4 859.9 72
Cane growing 1 712.4 20 1 358.2 20
Downstream 638.6 7 576.0 8
-------- ---- -------- -----
8 601.7 6 794.1
======== ==== ======== =====
Operating profit
Sugar production 716.1 52 602.4 57
Cane growing 503.5 36 317.0 30
Downstream 166.6 12 145.1 13
-------- ---- -------- -----
1 386.2 1 064.5
======== ==== ======== =====
Total assets (excluding financial
instruments)
Sugar production 4 250.3 53 3 301.1 53
Cane growing 3 476.6 43 2 669.8 42
Downstream 348.3 4 291.9 5
-------- ---- -------- -----
8 075.2 6 262.8
======== ==== ======== =====
GEOGRAPHICAL SEGMENTS
Revenue
South Africa 3 868.8 46 3 104.1 46
Malawi 1 739.6 20 1 162.7 17
Zambia 1 150.0 13 1 076.1 16
Swaziland 790.1 9 693.0 10
Tanzania 666.3 8 482.8 7
Mozambique 386.9 4 275.4 4
-------- ---- -------- -----
8 601.7 6 794.1
======== ==== ======== =====
Operating profit
South Africa 256.6 19 263.4 25
Malawi 634.0 45 434.0 41
Zambia 168.3 12 125.1 12
Swaziland 127.7 9 98.2 9
Tanzania 118.6 9 94.2 9
Mozambique 81.0 6 49.6 4
-------- ---- -------- -----
1 386.2 1 064.5
======== ==== ======== =====
DECLARATION OF DIVIDEND NO. 35
Notice is hereby given that a final dividend of 64.5 cents per share has been
declared on the ordinary shares of the company in respect of the year ended 31
March 2009. This dividend, together with the interim dividend of 41.5 cents per
share which was declared on 12 November 2008, makes a total distribution in
respect of the year ended 31 March 2009 of 106.0 cents per share.
In accordance with the settlement procedures of Strate, the company has
determined the following salient dates for the payment of the dividend:
Last day to trade cum-dividend Friday, 3 July 2009
Shares commence trading ex-dividend Monday, 6 July 2009
Record date Friday, 10 July 2009
Payment of dividend Monday, 13 July 2009
Share certificates may not be dematerialised / rematerialised between Monday, 6
July 2009 and Friday, 10 July 2009, both days inclusive.
By order of the Board
G D Knox Mount Edgecombe
Company Secretary 26 May 2009
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*, D R Langlands#*, P A Lister#*, P M Madi*, C W N Molope*, R A
Norton*, L W Riddle, 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: 27/05/2009 07:05:02 Supplied by www.sharenet.co.za
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