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ILV - Illovo Sugar Limited - Audited group results for the year ended 31
March 2011
ILLOVO SUGAR LIMITED
Company registration number: 1906/000622/06
Share code: ILV
ISIN: ZAE000083846
AUDITED GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2011
Highlights
* Earnings impacted by adverse weather conditions and currency movements
* Cash generation remains strong
* Swaziland expansion and co-generation project commissioned
Quote:
Graham Clark, Managing Director, commented:
"As predicted, the past year was very challenging for the company. This was
due to adverse weather conditions across most of our operations and also
detrimental currency movements which had a severe impact on our results.
Notwithstanding, our total cane production was at record levels although the
yields were affected by the weather. Sugar production in South Africa was
particularly hit by the drought but this was offset by increased production
elsewhere in the group, vindicating the company`s strategy of having
diversified operations across Africa. We will continue to invest in growth
opportunities in our operations and recently commissioned the major factory
expansion and co-generation project in Swaziland. We expect a marginal
increase in our sugar production in the current season."
Enquiries:
Illovo Sugar 031 508 4300
Graham Clark, Managing Director
Karin Zarnack, Financial Director
Chris Fitz-Gerald, Public Affairs Manager
College Hill 011 447 3030
Nicholas Williams 083 607 0761
Review
The past year was disappointing for the group. Despite the significantly
enhanced production capability of the business, the financial results were
adversely affected by a number of external factors. Operating profit of R1
029 million decreased by 31% compared to the previous year, whilst the
operating margin declined from 18% to 13%. Headline earnings of R516 million
declined by 27% whilst headline earnings per share fell by 35% to 112.2
cents.
The impact of adverse weather and currency movements combined to depress
group financial performance. Although sugar production was only marginally
below the previous year, the strength of the rand and strong local currencies
in Malawi and Zambia, together with a period of Euro weakness, collectively
impacted negatively on export earnings and the conversion of foreign
subsidiary profits into rand.
The contributions to operating profit were sugar production 72%, cane growing
19% and downstream 9%. By country, contributions were Malawi 41%, Zambia 24%,
South Africa 14%, Tanzania 12%, Swaziland 8% and Mozambique 1%.
Cash generation at R1 279 million was strong, further strengthening the group
balance sheet, notwithstanding the significant capital investments made by
the group in the past five years.
Illovo`s drive to increase the supply of cane to the group`s sugar factories
continued, with various developments in each country of operation. Total cane
production of 6.3 million tons was a new record for the group, and compared
to the 6.1 million tons produced in 2010, despite unseasonable weather.
Notwithstanding a rain-interrupted season in Zambia, record cane production
was achieved following the recent major expansion at Nakambala and this,
together with increased output in Tanzania, more than offset significant cane
supply losses in South Africa, and to a lesser extent, weather-affected
reductions in Malawi, Swaziland and Mozambique. The coming year should see
the results of several initiatives to increase cane production by 300 000
tons across the group, with a further increase of 200 000 tons expected to be
delivered by the group`s growers.
Group sugar production in 2010/11 of 1.639 million tons was marginally below
last year`s tonnage of 1.685 million tons. The loss of tonnage in South
Africa was almost fully offset by increased production in other group
operations, highlighting the strategic benefit of Illovo`s geographic spread
of operations. Record sugar production in Zambia of 385 000 tons, despite
weather-related disruptions during the year, and increased output in
Tanzania, mitigated the down-side. Factory performance across the group was
satisfactory.
The major factory expansion and co-generation project at Ubombo in Swaziland
was commissioned, within budget and on time, in April 2011 and, in its first
year of operation, with increased company and outgrower cane supplies, is
forecast to raise production by around 20% compared to last year. Over the
longer term, and linked to the ongoing development of the Lower Usuthu
Smallholder Irrigation Project, sugar production is forecast to increase from
around 220 000 tons of sugar to more than 300 000 tons. The power plant will
enable the factory and estates to become self-sufficient in electricity
consumption and will supply power into the Swaziland national grid on a
commercial basis.
Progress on the capital investment opportunity in Mali continues, with the
remaining hurdle being to finalise and secure project funding for the
development. This greenfield project continues to receive high priority
support from the Government of Mali and will represent a major economic
milestone in the industrial transformation of that country. Once commissioned
and in steady state, the project will produce 200 000 tons of sugar, 15 000
kilolitres of fuel-blend ethanol and sufficient electrical power to be self-
sufficient plus export a small surplus to the national grid. It is
anticipated that, subject to funding being secured in terms of current
timelines, the project will commence towards the end of 2011, with first
sugar production likely in 2014/15.
The group`s domestic sugar markets are of major importance and in a year
impacted generally by restricted sugar availability, it was encouraging to
note that record offtake was achieved in the Zambian local market, whilst
domestic sales in South Africa performed strongly and those in Tanzania
showed a smaller improvement. Export sales were negatively affected by sugar
availability. Sales to the European Union (EU) and the United States of
America showed a slight increase over last year, whereas regional sales
volumes declined by 11%. EU and regional market prices firmed in line with
the higher world price and tight sugar supplies. With the focus on domestic
sales, and EU and regional markets, less than 90 000 tons of sugar produced
by Illovo was exported out of South Africa to the world raw sugar market.
World raw sugar prices began 2010/11 on a downward trend following a period
of sustained growth during 2009/10. This reversed as production expectations
deteriorated in Brazil and India, and prices returned to the highs of the
previous year. World sugar availability was extremely limited throughout the
year as stocks in major consumer countries were replenished, whilst at the
same time the increasing demand pipeline was supplied. A high level of
speculative activity also supported world sugar prices. Towards the end of
the 2010/11 season, news of improving production prospects began to soften
demand and sugar futures came under pressure. Predictions of a record crop in
Thailand also drove sentiment. Against this background, the South African
sugar industry exported 340 000 tons of sugar in 2010/11 and realised an
average price of US17.70 cents/lb compared to US16.53 cents/lb in the
previous year.
Drought in South Africa and its negative impact on cane supply reduced the
raw material throughput of Sezela`s furfural plant, resulting in production
levels of furfural and furfuryl alcohol falling below those of last year.
However, record production of ethyl alcohol was achieved with a good increase
in diacetyl production. Lactulose and syrup production were similar to last
year`s levels. Shortages of furfural and furfuryl alcohol in all major world
markets resulted in strong export prices, rising to record levels for
furfuryl alcohol whilst alcohol sales volumes remained steady with firmer
export alcohol prices prevailing throughout the season. Registration of
MultiGuard Protect, a furfural-based nematicide developed by Illovo, was
achieved in the United States for use on turf and golf courses in that
country, after which the product was launched at the US Golf and Turf Show in
Florida in February 2011.
CAPITAL REDUCTION DISTRIBUTION OUT OF SHARE PREMIUM IN LIEU OF DIVIDEND
Notice is hereby given that a final capital reduction distribution out of
share premium of 34.0 cents per share has been declared, in lieu of a
dividend, on the ordinary shares of the company in respect of the year ended
31 March 2011. This distribution, together with the interim capital reduction
distribution of 22.0 cents per share which was declared on 17 November 2010,
makes a total distribution in respect of the year ended 31 March 2011 of 56.0
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 capital distribution Friday, 1 July 2011
Shares commence trading ex the capital distribution Monday, 4 July 2011
Record date Friday, 8 July 2011
Payment of final capital distribution Monday, 11 July 2011
Share certificates may not be dematerialised/rematerialised between Monday, 4
July 2011 and Friday, 8 July 2011, both days inclusive.
Relative to this capital reduction distribution, the directors have confirmed
that the company will satisfy the solvency and liquidity test immediately
after completing such distribution.
PROSPECTS
The group`s prospects for 2011/12 are driven off an anticipated increase in
group sugar production compared to the past year. This is constrained by
South African sugar output which is forecast to be sharply lower than in
2010/11 following the extreme knock-on impact of the drought experienced in
KwaZulu-Natal. In this context, the Umzimkulu factory will not open for the
2011/12 season and the sugar cane from this area will be diverted to Sezela
and Eston to better utilise plant capacity. Assuming normal weather
conditions elsewhere, the fall in South African sugar production is expected
to be offset by increased sugar production in the group`s other operations.
This follows the recent major production expansions, and a focus on
performance optimisation to increase Illovo`s sugar production efficiency.
Downstream production of furfural will increase due to the diversion of cane
to Sezela, and similar levels of alcohol production are estimated for the
coming year. Sugar markets will be primarily domestic-market driven, but with
increased sales to the EU where sugar prices have improved during the first
half of 2011. Continued advantage will be taken of downstream prices which
remain at good levels. However, the strength of local currencies will
continue to have a negative impact upon revenue realisations for both sugar
and downstream exports and the conversion of foreign subsidiary profits.
Overall, operating profit is anticipated to improve, but increased financing
costs, following the completion of the Swaziland expansion project, are
expected to be sharply higher.
DIRECTORATE
Karin Zarnack, the Financial Director, has resigned and will be leaving at
the end of May 2011 to pursue other business interests. We would like to
thank her for her contribution over the years and we wish her well in her
future endeavours.
On behalf of the Board
R A Williams G J Clark Mount Edgecombe
Chairman Managing Director 30 May 2011
AUDIT OPINION:
The independent auditors, Deloitte & Touche, have issued their opinion on the
group`s annual financial statements for the year ended 31 March 2011. 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
Change 2011 2010
Notes % Rm Rm
Revenue (4) 8 107.9 8 467.9
Operating profit (31) 1 029.3 1 498.6
Dividend income 2.1 3.9
Net financing costs 2 95.5 139.0
Profit before taxation and
Non-trading items 935.9 1 363.5
Share of loss from associates (3.6) (8.4)
Material items 3 30.2 (52.4)
Profit before taxation 962.5 1 302.7
Taxation 248.6 411.5
Profit for the year 713.9 891.2
Attributable to:
Shareholders of Illovo Sugar Limited (17) 546.2 662.0
Non-controlling interest 167.7 229.2
Determination of headline earnings:
713.9 891.2
Profit attributable to shareholders (17) 546.2 662.0
Adjusted for:
(Profit)/loss on disposal of business 3 (19.8) 37.3
Impairment of investment in
agricultural joint venture 3 - 15.0
(Profit)/loss arising on disposal of
property 3 (10.4) 0.1
Profit on disposal of plant and equipment (0.9) (2.9)
Total tax effect of adjustments 1.0 (10.0)
Total non-controlling interest effect
of adjustments - 1.0
Headline earnings (27) 516.1 702.5
Number of shares in issue (millions) 459.8 460.2
Weighted average number of shares on
which headline earnings per share is
based (millions) 459.8 410.3
Headline earnings per share (cents) (35) 112.2 171.2
Diluted headline earnings per
share (cents) 112.1 170.7
Basic earnings per share (cents) 118.8 161.4
Diluted basic earnings per
share (cents) 118.6 160.9
Distribution per share
(interim - paid; final - declared)(cents) 4 (35) 56.0 86.0
ABRIDGED GROUP STATEMENT OF FINANCIAL POSITION
31 March
2011 2010
Note Rm Rm
Assets
Non-current assets 6 409.4 5 722.8
Property, plant and equipment 4 984.5 4 262.7
Cane roots 1 087.9 1 100.2
Intangible assets 174.0 179.1
Investments 163.0 180.8
Current assets 3 396.3 3 925.1
Inventories 739.1 679.1
Growing cane 1 155.8 1 260.7
Trade and other receivables 768.5 639.0
Financial instruments 15.1 0.9
Cash and cash equivalents 717.8 1 345.4
Total assets 9 805.7 9 647.9
EQUITY AND LIABILITIES
Total equity 5 975.3 6 314.7
Equity holders` interest 5 191.2 5 502.6
Non-controlling interest 784.1 812.1
Non-current liabilities 960.2 1 117.9
Long-term borrowings 235.3 432.1
Deferred taxation 687.6 685.8
Other liabilities 37.3 -
Current liabilities 2 870.2 2 215.3
Short-term borrowings 994.7 700.1
Trade and other payables 1 871.5 1 513.4
Financial instruments 4.0 1.8
total equity and liabilities 9 805.7 9 647.9
OTHER SALIENT FEATURES
Operating margin (%) 12.7 17.7
Interest cover (times) 10.8 10.8
Effective tax rate (%) 26.6 30.2
Net debt: equity ratio 5 8.6 (3.4)
Return on net assets (%) 13.8 21.9
Net asset value per share (cents) 1 299.6 1 372.3
Depreciation 188.1 250.4
Capital expenditure 1 474.3 1 328.6
- Expansion capital 1 262.9 845.6
- Replacement capital 199.8 181.1
1 462.7 1 026.7
- Acquisition of business - 249.9
- Expansion of area under cane 8.2 40.9
- Product registration costs 3.4 11.1
Capital commitments 2 606.4 3 414.5
- Contracted 63.2 640.5
- Approved but not contracted 2 543.2 2 774.0
Lease commitments 300.3 241.2
Contingent liabilities 175.0 48.7
ABRIDGED GROUP STATEMENT OF CASH FLOWS
Year ended 31 March
2011 2010
Rm Rm
Cash flows from operating and investing
activities
Cash operating profit 1 132.9 1 419.9
Working capital movements 146.3 (183.2)
Cash generated from operations 1 279.2 1 236.7
Replacement capital expenditure (199.8) (181.1)
Financing costs, taxation and distributions (735.7) (929.5)
Net investment in future operations (1 274.5) (897.6)
Acquisition of business - (249.9)
Other movements 92.3 36.1
Net cash outflow before financing activities (838.5) (985.3)
Proceeds from rights issue, net of associated costs - 2 950.5
Borrowings raised/(repaid) 263.0 (1 426.6)
Other financing activities (26.7) 262.0
Net (decrease)/increase in cash and cash equivalents (602.2) 800.6
STATEMENT OF OTHER COMPREHENSIVE INCOME
Year ended 31 March
2011 2010
Rm Rm
Profit for the year 713.9 891.2
Other comprehensive income
Adjustments in respect of cash flow hedges, net of tax 10.1 (17.2)
Actuarial gains/(losses) on post-retirement obligations,
net of tax 3.2 (2.7)
Hedge of net investment in foreign subsidiary (2.1) -
Foreign currency translation differences (482.7) (748.4)
Total comprehensive income for the year 242.4 122.9
Attributable to:
Shareholders of Illovo Sugar Limited 155.0 24.6
Non-controlling interest 87.4 98.3
242.4 122.9
ABRIDGED STATEMENT OF CHANGES IN EQUITY
31 March
2011 2010
Rm Rm
Share capital and share premium
Balance at beginning of the year 3 075.7 367.5
(Repurchase)/issue of share capital (26.7) 2 956.7
Transfer to distribution reserve (257.5) (248.5)
Balance at end of the year 2 791.5 3 075.7
Share-based payments reserve
Balance at beginning and end of the year 13.1 13.1
Non-distributable reserves
Balance at beginning of the year 224.7 396.5
Realised profit/(loss) on disposal of property 9.9 (0.1)
Transfer of debit foreign currency translation reserve 403.8 341.8
Transactions with non-controlling shareholders (90.0) 121.2
Total comprehensive income for the year:
- Cash flow hedges 9.4 (16.6)
- Hedge of net investment in foreign subsidiary (2.1) -
- Foreign currency translation (401.7) (618.1)
Balance at end of the year 154.0 224.7
Retained earnings
Balance at beginning of the year 1 940.6 1 770.4
Realised (profit)/loss on disposal of property (9.9) 0.1
Transfer of debit foreign currency translation reserve (403.8) (341.8)
Transfer to distribution reserve - (147.4)
Total comprehensive income for the year:
- Profit for the year 546.2 662.0
- Actuarial gains/(losses) on post-retirement obligations 3.2 (2.7)
Balance at end of the year 2 076.3 1 940.6
Distribution reserve
Balance at beginning of the year 248.5 226.3
Transfer from share premium 257.5 248.5
Transfer from retained earnings - 147.4
Distributions paid (349.7) (373.7)
Balance at end of the year 156.3 248.5
equity holders` interest 5 191.2 5 502.6
Non-controlling interest
Balance at beginning of the year 812.1 671.2
Distributions paid (106.2) (116.5)
Acquisition of business - 41.9
Change in shareholding (9.2) 117.2
Total comprehensive income for the year:
- Profit for the year 167.7 229.2
- Cash flow hedges 0.7 (0.6)
- Foreign currency translation (81.0) (130.3)
Balance at end of the year 784.1 812.1
Total equity 5 975.3 6 314.7
SEGMENTAL ANALYSIS
Year ended 31 March
2011 2010
Rm % Rm %
BUSINESS SEGMENTS
Revenue
Sugar production 5 543.9 68 5 962.2 70
Cane growing 1 779.3 22 1 910.8 23
Downstream 784.7 10 594.9 7
8 107.9 8 467.9
Operating profit
Sugar production 742.8 72 890.3 59
Cane growing 193.9 19 505.2 34
Downstream 92.6 9 103.1 7
1 029.3 1 498.6
Total assets
Sugar production 4 595.7 51 4 037.9 49
Cane growing 3 708.1 41 3 949.9 47
Downstream 360.8 4 313.8 4
Co-generation 408.2 4 -
9 072.8 8 301.6
Note: Total assets excludes cash and cash equivalents and financial
instruments.
GEOGRAPHICAL SEGMENTS
Revenue
Malawi 1 447.8 18 1 711.3 20
Zambia 1 829.9 23 1 468.1 17
South Africa 3 219.2 40 3 447.0 41
Tanzania 626.1 7 682.1 8
Swaziland 738.0 9 799.5 10
Mozambique 246.9 3 359.9 4
8 107.9 8 467.9
operating profit
Malawi 430.1 41 637.5 42
Zambia 242.4 24 264.3 18
South Africa 148.0 14 255.3 17
Tanzania 128.0 12 166.8 11
Swaziland 78.2 8 119.7 8
Mozambique 2.6 1 55.0 4
1 029.3 1 498.6
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The abridged report has been prepared in accordance with the framework
concepts and the measurement and recognition requirements of International
Financial Reporting Standards (IFRS), the AC 500 standards as issued by the
Accounting Practices Board, the information as required by IAS 34 Interim
Financial Reporting, 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 except for the
adoption of the revised IAS 7 Statement of Cash Flows, IFRS 2 Share-Based
Payments, IFRS 3 Business Combinations and the consequential amendments to
IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in
Associates and IAS 31 Interests in Joint Ventures. The adoption of these
revised standards has resulted in certain disclosure reclassifications but
has had no impact on the statement of financial position or the income
statement.
Year ended 31 March
2011 2010
Rm Rm
2. Net financing costs
Interest paid 144.0 307.6
Less: capitalised (26.1) (14.2)
117.9 293.4
Interest received (25.0) (30.5)
Foreign exchange losses/(gains) 2.6 (123.9)
95.5 139.0
3. Material items
Profit/(loss) on disposal of business 19.8 (37.3)
Impairment of investment in agricultural joint venture - (15.0)
Profit/(loss) arising on disposal of property 10.4 (0.1)
Material profit/(loss) before taxation 30.2 (52.4)
Taxation (0.7) 10.2
Material profit/(loss) attributable to shareholders of
Illovo Sugar Limited 29.5 (42.2)
4. Distribution per share
The distribution per share of 56.0 cents (2010: 86.0 cents) includes an
interim capital distribution of 22.0 cents paid out of share premium and a
final capital distribution of 34.0 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.
CORPORATE INFORMATION:
Company registration number: 1906/000622/06
Share code: ILV
ISIN: ZAE000083846
DIRECTORS:
R A Williams (Chairman)*, D G MacLeod (Deputy Chairman)*,
G J Clark (Managing Director) (Australian), M I Carr#*, M J Hankinson*,
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, B M Stuart, K Zarnack
#British *Non-executive
REGISTERED OFFICE:
Illovo Sugar Park
1 Montgomery Drive, Mount Edgecombe
KwaZulu-Natal, South Africa
CONTACT DETAILS:
Telephone: +27 31 508 4300
Telefax: +27 31 508 4535
Website: www.illovosugar.com
AUDITORS:
Deloitte & Touche
TRANSFER SECRETARIES:
Link Market Services South Africa (Pty) Limited
Rennie House, 13th Floor, 19 Ameshoff Street
Braamfontein, 2001
PO Box 4844, Johannesburg, 2000
SPONSOR:
J.P. Morgan Equities Limited
Date: 30/05/2011 07:05:30 Supplied by www.sharenet.co.za
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