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ILV - Illovo Sugar Limited - Audited group results for the year ended

Release Date: 28/05/2012 07:05
Code(s): ILV
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ILV - Illovo Sugar Limited - Audited group results for the year ended 31 March 2012 ILLOVO SUGAR LIMITED (Incorporated in the Republic of South Africa) (Registration number 1906/000622/06) Share Code: ILV ISIN: ZAE000083846 ("Illovo" or "the company") AUDITED GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2012 Highlights - Operating profit up 31% - Headline earnings increase by 18% - Strong cash generation - Mali project terminated Quote: Graham Clark, Managing Director, commented:- We are pleased to report much improved results for the year with operating profit up 31% and headline earnings per share up 18%. Production prospects for the group are positive with increased areas under cane and a return to more normal weather. Market conditions remain buoyant. The termination of our involvement in a potential greenfield project in Mali is disappointing but provides an opportunity to re-deploy a very experienced project team elsewhere in the group to pursue other growth opportunities. Enquiries: Illovo Sugar Limited 031 508 4300 Graham Clark, Managing Director Mohammed Abdool-Samad, Financial Director Chris FitzGerald, Public Affairs Manager College Hill 011 447 3030 Nicholas Williams 082 600 2192 Review The group achieved much improved results in the past year despite abnormal weather conditions and volatile exchange rates. In South Africa, the impact of a second year of drought in the dry land cane growing areas of KwaZulu-Natal was pronounced and depressed overall group sugar production, to a level below the previous year. Increased sugar production elsewhere was insufficient to offset the decline in South Africa. Despite lower sugar production, a drive to maximise opportunities in a favourable market environment, together with a focus on cost control, enabled the group to grow profit year-on-year. Group turnover grew by R1.1 billion to R9.2 billion, whilst sugar sales volumes fell by 5% as a consequence of the lower sugar production. Pleasingly, the group operating margin increased from 12.7% to 14.7% resulting in a 31% increase in operating profit from R1.03 billion to R1.35 billion. Net financing costs of R245 million reflected the cost of servicing the group`s expansion-related debt. The effective tax rate for the group normalised at 30.3%. Material items include the impairment of the group`s pre-production costs in Mali following the decision to terminate further involvement in the Markala Sugar Project. Headline earnings per share improved by 18.2% to 132.6 cents. The group`s return on net assets increased commensurately from 13.8% to 15.9%. The contributions to operating profit were sugar production 59%, cane growing 30%, downstream and power generation 11%. The country contributions were Malawi 39%, Zambia 33%, Tanzania 11%, South Africa 7%, Swaziland 6% and Mozambique 4%. The consolidation of Illovo`s own grown cane supply continued during 2011/12 and despite a climatically challenging season, a total of 6.2 million tons of cane was produced on the group`s estates. This was slightly lower than the record cane production of 2010/11. The marginal reduction was the result of a second consecutive drought-affected season in South Africa and lower cane yields experienced in Malawi and Zambia due to harvesting those crops at a younger age than normal. In the case of Zambia, this was necessary to re-align the expanded cane growing area with the significantly increased milling capacity. These cane crops will benefit in future from harvesting at an optimal age of twelve months. In Tanzania, an extended wet season disrupted harvesting and resulted in a large area not being harvested and carried-over for harvest in 2012/13. Significant increases in Swaziland and Mozambique were achieved reflecting good growing conditions and an expanded area under cane. Adequate summer rainfall and a return to normal weather should drive a recovery in South Africa, whilst elsewhere in the group growing conditions have been normal. This together with increased area under cane and irrigation upgrades will secure the anticipated higher cane volumes for the ensuing year. Sucrose levels in 2011/12 were generally well below expectation. The extended drought in South Africa adversely affected cane quality, but reduced sucrose levels elsewhere were likely the result of unusual climatic variations, with unseasonal rain also playing a part. Group sugar production fell in total by 7% in 2011/12, from 1.639 million tons to 1.526 million tons. In South Africa, the drought-impacted reduction was again material, sugar production being some 24% below 2010/11. The reduction in South Africa was only partially offset by increased sugar production in Malawi, Mozambique and Swaziland, whilst small reductions were recorded in Zambia and in Tanzania, where an abnormally wet season restricted factory throughput. In South Africa, the reduced cane volume on the south coast of KwaZulu-Natal resulted in the Umzimkulu factory remaining closed for the season, with cane diverted to Sezela to optimise available factory capacity. Factory performance across the group was generally satisfactory, although the newly expanded factory in Swaziland experienced operational difficulties early in the season. A total of 64% of total sugar sales volumes was sold into domestic markets in 2011/12 via a range of bulk and pre-packed industrial and direct consumption sugars in both refined and brown sugar offerings. Logistics and distribution systems remain key to optimising domestic market realisations and the group continues to adapt to market requirements. Rural distribution outside of South Africa was effective and in South Africa work has commenced on the construction of a new custom-designed central warehouse in Pietermaritzburg, which will streamline storage and distribution to all segments of the domestic market at a lower cost. The operations in Zambia and Malawi are geographically well positioned to supply large deficit markets in east and central Africa. Advantage was taken of enhanced pricing in this region and a range of direct consumption and industrial sugar was supplied from Malawi and Zambia. Preferential exports to the European Union and the United States grew during the year. European sugar prices rose compared to the previous year and bulk raw sugar contracts with European refiners delivered higher prices than in 2010/11. Niche speciality sugars, including "Fairtrade" sugar continue to provide premium prices in Europe and the United States. World bulk raw sugar market sales from South Africa are only made via the single desk export marketing function of the South African Sugar Association. A significantly lower industry sugar crop in South Africa during 2011/12 resulted in only a small volume being sold on to the world market, with the Illovo group share amounting to 40 215 tons, priced at 25.8 US cents/lb. World market prices remain positively supported by longer-term supply and demand fundamentals and pricing of increased export availability for the 2012/13 season has commenced above 24 US cents/lb. The diversion of cane to the Sezela factory in South Africa enabled the sugar factory and associated downstream products plant to operate close to capacity in 2011/12. This resulted in a 20% increase in furfural production compared to the previous year, with furfuryl alcohol production matched to optimise demand opportunities. Pricing for furfural products has remained positive in 2011/12 and the group derived increased returns in this market, enhanced by a reputation for the reliable supply of high quality products. Diacetyl and lactulose production were matched to meet market demand. Production of potable and denatured ethanol was maximised at the Merebank and Glendale distilleries in South Africa from available molasses. Alcohol demand and pricing have been firm in both local and export markets. The group has started construction of a new potable alcohol distillery in Tanzania, designed to utilise all available molasses from the Kilombero factories, for the production of high quality potable alcohol which will be sold into the lucrative and growing East African market. Further molasses beneficiation opportunities are being evaluated. Co-generation of electricity is being progressed across the group in an effort to become self-sufficient in power for our own requirements and where attractive to commercially export electricity into the national grid. Commissioning of the co-generation plant in Swaziland has been successfully completed and surplus power is now sold into the national grid in Swaziland in terms of a power purchase agreement. Mali Further to the Mali project updates published on 22 March 2012, failure to finalise key elements required for the promotion of the Markala Sugar Project in Mali has resulted in a decision to terminate further group involvement in this project. Incomplete funding of the agricultural component of the project via bi-lateral concessional funding to the government of Mali and its inability to complete key undertakings for the project to proceed, together with the deteriorating security situation in Mali and the country`s uncertain political future have increased the project risks associated with a greenfield development of this size. Accordingly, the group`s investment in pre-project expenditure associated with this project totalling R173.5 million has been fully impaired and written-off in the year under review. Prospects The current 2012/13 season should see a new record volume of group cane production. Sucrose levels look set to be more normal with early season trends supporting this likelihood. Therefore, an increase in anticipated sugar production is expected from a better season in South Africa, and further increases elsewhere in the group. Market opportunities remain positive and an ongoing focus on lowering costs of production should limit the impact of inflation on the group cost base. The Malawi Kwacha was officially devalued by approximately 50% against the US dollar on 7 May 2012. The devaluation will have a material negative influence on the operating cost base in Malawi, while export earnings will be enhanced in local currency, which will partially mitigate the impact of the currency devaluation. In accordance with group strategy to recover cost inflation from sugar pricing, an appropriate local sugar price increase was implemented in Malawi on 8 May 2012. This strategy will largely mitigate any material negative impact on group profits. Exchange rate volatility will continue to be a major influence on export earnings and the conversion of foreign subsidiary profits into rand. Strong cash generation will be deployed to reduce group debt and lower financing costs. Capital reduction distribution by way of a reduction of Contributed Tax Capital Notice is hereby given that a final capital reduction distribution by way of a reduction of Contributed Tax Capital of 43.0 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 2012. This distribution, together with the interim capital reduction distribution of 23.0 cents per share which was declared on 22 November 2011 makes a total distribution in respect of the year ended 31 March 2012 of 66.0 cents per share. The directors have determined that the capital reduction distribution shall be paid out of qualifying contributed tax capital as contemplated in the definition of "contributed tax capital" in section 1 of the Income Tax Act, 1962. 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, 29 June 2012 Shares commence trading ex the capital distribution Monday, 2 July 2012 Record date Friday, 6 July 2012 Payment of final capital distribution Monday, 9 July 2012 Share certificates may not be dematerialised/rematerialised between Monday, 2 July 2012 and Friday, 6 July 2012, 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. Directorate / Secretary During the year, Karin Zarnack resigned as financial director and was succeeded by Mohammed AbdoolSamad. Barry Stuart retired as operations director and was succeeded in that position by Gavin Dalgleish who was appointed as a director earlier in the year. Gordon Knox retired as company secretary and was succeeded by Jennifer Kunst. On behalf of the Board D G MacLeod G J Clark Mount Edgecombe Chairman Managing Director 25 May 2012 Audit Opinion: The independent auditors, Deloitte & Touche, have issued their opinion on the group`s annual financial statements for the year ended 31 March 2012. 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. Any reference to future financial performance included in this announcement has not been reviewed or reported on by the group`s external auditors. Directors: D G MacLeod (Chairman)*, G J Clark (Managing Director) (Australian), M H Abdool- Samad, M I Carr#*, G B Dalgleish, 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 # 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 Contact Details: Telephone: +27 31 508 4300 Telefax: +27 31 508 4535 Website: www.illovosugar.com Transfer Secretaries: Link Market Services South Africa (Proprietary) Limited Rennie House, 13th Floor, 19 Ameshoff Street, Braamfontein, 2001 P O Box 4844, Johannesburg, 2000 Auditors: Deloitte & Touche Sponsor: J.P. Morgan Equities Limited Corporate Information: Company registration number: 1906/000622/06 Share code: ILV ISIN: ZAE000083846 ABRIDGED GROUP INCOME STATEMENT Year ended 31 March 2012 2011 Change
Notes Rm Rm % Revenue 9 173.2 8 107.9 13 ======= =======
Operating profit 1 348.8 1 029.3 31 Dividend income 3.5 2.1 Net financing costs 2 244.6 95.5 -------- -------- Profit before taxation 1 107.7 935.9 and non-trading items Share of profit/(loss) 7.2 (3.6) from associates Material items 3 (163.7) 30.2 -------- --------
Profit before taxation 951.2 962.5 Taxation 344.8 248.6 -------- --------
Profit for the year 606.4 713.9 ======== ========
Attributable to: Shareholders of Illovo 443.1 546.2 (19) Sugar Limited Non-controlling interest 163.3 167.7 -------- -------- 606.4 713.9 ======== ========
STATEMENT OF OTHER COMPREHENSIVE INCOME Year ended 31 March 2012 2011
Rm Rm Profit for the year 606.4 713.9
Other comprehensive income Adjustments in respect of cash flow (2.7) 10.1 hedges, net of tax Actuarial (losses)/gains on post-retirement (6.7) 3.2 obligations, net of tax Recognition of asset for defined 7.3 - benefit pension fund Hedge of net investment in foreign (87.3) (2.1) subsidiary Foreign currency translation 307.8 (482.7) differences -------- --------
Total comprehensive income for the 824.8 242.4 year ======== ========
Attributable to: Shareholders of Illovo Sugar Limited 631.6 155.0 Non-controlling interest 193.2 87.4 -------- -------- 824.8 242.4 ======== ========
Headline earnings per share 4 132.6 112.2 18 (cents) Diluted headline earnings per 132.5 112.1 share (cents) Basic earnings per share (cents) 96.4 118.8 Diluted basic earnings per share 96.3 118.6 (cents) Distribution per share (interim - 5 66.0 56.0 18 paid; final - declared) (cents) ABRIDGED GROUP STATEMENT OF FINANCIAL POSITION 31 March 2012 2011 Note Rm Rm
ASSETS Non-current assets 6 900.4 6 440.3 Property, plant and equipment 5 328.0 4 984.5 Cane roots 1 216.3 1 087.9 Intangible assets 218.1 174.0 Investments 106.3 163.0 Deferred tax asset 31.7 30.9 Current assets 4 510.5 3 396.3 Inventories 881.9 739.1 Growing cane 1 346.7 1 155.8 Trade and other receivables 877.8 768.5 Financial instruments 14.0 15.1 Cash and cash equivalents 1 390.1 717.8 --------- ---------
Total assets 11 410.9 9 836.6 ========= ========= EQUITY AND LIABILITIES Total equity 6 465.3 5 975.3 Equity holders` interest 5 562.6 5 191.2 Non-controlling interest 902.7 784.1
Non-current liabilities 2 530.1 991.1 Long-term borrowings 1 545.4 235.3 Deferred taxation 854.0 718.5 Other liabilities 130.7 37.3 Current liabilities 2 415.5 2 870.2
Short-term borrowings 568.4 994.7 Trade and other payables 1 840.7 1 871.5 Financial instruments 6.4 4.0 --------- ---------
Total equity and liabilities 11 410.9 9 836.6 ========= ========= OTHER SALIENT FEATURES Operating margin (%) 14.7 12.7 Interest cover (times) 5.5 10.8 Effective tax rate (%) 30.3 26.6 Net debt : equity ratio 6 11.2 8.6 Return on net assets (%) 15.9 13.8 Net asset value per share 1 405.5 1 299.6 (cents) Depreciation 239.5 188.1 Capital expenditure 449.8 1 474.3 - Expansion capital 198.0 1 262.9 - Replacement capital 239.2 199.8 437.2 1 462.7 - Expansion of area under cane 0.2 8.2 - Product registration costs 12.4 3.4
Capital commitments 1 125.9 2 606.4 - Contracted 168.1 63.2 - Approved but not contracted 957.8 2 543.2
Lease commitments 284.7 300.3 Contingent liabilities 175.0 175.0 ABRIDGED GROUP STATEMENT OF CASH FLOWS Year ended 31 March 2012 2011 Rm Rm
Cash flows from operating and investing activities Cash operating profit 1 348.4 1 132.9 Working capital movements (291.6) 146.3 Cash generated from operations 1 056.8 1 279.2 Financing costs, taxation and distributions (820.4) (735.7) Deferred income 110.0 40.0
Net cash inflows from operating 346.4 583.5 activities Replacement capital expenditure (239.2) (199.8) Net investment in future operations (210.6) (1 274.5) Other movements (58.9) 52.3 Net cash outflows from investing (508.7) (1,422.0) activities
Net cash outflow before financing activities (162.3) (838.5) Borrowings raised 815.2 263.0 Other financing activities 1.9 (26.7) Net increase/(decrease) in cash and cash 654.8 (602.2) equivalents Cash and cash equivalents at the 717.8 1,345.4 beginning of the year
Exchange rate translation 17.5 (25.4) 717.8 Cash and cash 1 390.1 equivalents at the end of the year ABRIDGED STATEMENT OF CHANGES IN EQUITY Year ended 31 March
2012 2011 Rm Rm
Share capital and share premium Balance at beginning of the year 2 791.5 3 075.7 Issue/(repurchase) of share capital 1.9 (26.7) Transfer to distribution reserve (303.6) (257.5) --------- --------- Balance at end of the year 2 489.8 2 791.5 ========= ======== 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 154.0 224.7 Realised profit on disposal of property 4.2 9.9 Transfer of (credit)/debit foreign currency (190.3) 403.8 translation reserve Transactions with non-controlling shareholders - (90.0) Total comprehensive income for the year: - Cash flow hedges (2.4) 9.4 - Hedge of net investment in foreign subsidiary (87.9) (2.1) - Foreign currency translation 278.2 (401.7) --------- ---------
Balance at end of the year 155.8 154.0 ========= ========= Retained earnings Balance at beginning 2 076.3 1 940.6 of the year Realised profit on disposal of property (4.2) (9.9) Transfer of credit/(debit) foreign currency 190.3 (403.8) translation reserve Total comprehensive income for the year: - Profit for the year 443.1 546.2 - Actuarial (losses)/gains on post-retirement (6.7) 3.2 obligations - Recognition of asset for defined benefit pension 7.3 fund --------- --------- Balance at end of the year 2 706.1 2 076.3 ========= =========
Distribution reserve Balance at beginning of the year 156.3 248.5 Transfer from share premium 303.6 257.5 Distributions paid (262.1) (349.7) --------- ---------
Balance at end of the year 197.8 156.3 ========= ========= --------- --------- Equity holders` interest 5 562.6 5 191.2 ========= ========= Non-controlling interest
Balance at beginning of the year 784.1 812.1 Distributions paid (108.2) (106.2) Acquisition of business 0.0 Change in shareholding 33.6 (9.2) Total comprehensive income for the year: - Profit for the year 163.3 167.7 - Cash flow hedges (0.3) 0.7 - Hedge of net investment in foreign subsidiary 0.6 - Foreign currency translation 29.6 (81.0) --------- --------- Balance at end of the year 902.7 784.1 ========= ========= --------- --------- Total equity 6 465.3 5 975.3 ========= =========
SEGMENTAL ANALYSIS Year ended 31 March 2012 2011 Rm % Rm %
BUSINESS SEGMENTS Revenue Sugar production 6 310.1 69 5 543.9 68 Cane growing 1 995.9 22 1 779.3 22 Downstream & Co-generation 867.2 9 784.7 10 --------- --------- 9 173.2 8 107.9 ========= =========
Operating profit Sugar production 803.4 59 742.8 72 Cane growing 398.7 30 193.9 19 Downstream & Co-generation 146.7 11 92.6 9 --------- ---------
1 348.8 1 029.3 ========= ========= Total assets Sugar production 5 237.3 53 4 595.7 51 Cane growing 3 984.0 40 3 708.1 41 Downstream & Co-generation 753.8 7 769.0 8 --------- --------- 9 975.1 9 072.8 ========= =========
Note: Total assets excludes cash and cash equivalents and financial instruments. GEOGRAPHICAL SEGMENTS Revenue
Malawi 1 686.8 18 1 447.8 18 Zambia 2 208.3 24 1 829.9 23 Tanzania 702.1 8 626.1 7 South Africa 3 129.2 34 3 219.2 40 Swaziland 989.1 11 738.0 9 Mozambique 457.7 5 246.9 3 --------- --------- 9 173.2 8 107.9
========= ========= Operating profit
Malawi 530.9 39 430.1 41 Zambia 445.8 33 242.4 24 Tanzania 144.6 11 128.0 12 South Africa 89.2 7 148.0 14 Swaziland 78.4 6 78.2 8 Mozambique 59.9 4 2.6 1 --------- --------- 1 348.8 1 029.3
========= ========= NOTES TO THE FINANCIAL STATEMENTS 1. Basis of preparation These condensed consolidated financial statements have been prepared under the supervision of M Abdool-Samad CA(SA). The condensed consolidated financial statements have been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board (IASB) in issue and effective for the group at 31 March 2012 and the AC 500 standards issued by the Accounting Practices Board or its successor. The results are presented in terms of IAS 34 Interim Financial Reporting and comply with the Listings Requirements of the JSE Limited and the Companies Act 71 of 2008. These abridged group annual financial statements were approved by the board of directors on 24 May 2012. The accounting policies adopted are consistent with those applied in the previous financial year except for the adoption of the revised IFRS 3 Business Combinations, IAS 24 Related Party Disclosures, IFRIC 14 Prepayments of a Minimum Funding Requirement and IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments. The adoption of these revised standards has had no impact on the financial statements. Year ended 31 March 2012 2011 Rm Rm
2. Net financing costs Interest 274.4 144.0 paid Less: - (26.1) capitalised --------- --------- 274.4 117.9
Interest (20.7) (25.0) received Foreign exchange (gains)/losses (9.1) 2.6 --------- --------- 244.6 95.5 ========= =========
3. Material items Profit on disposal of business - 19.8 Impairment of investment in Mali (173.5) - project Profit arising on disposal of 9.8 10.4 property --------- --------- Material (loss)/profit before taxation (163.7) 30.2 Taxation (0.3) (0.7) --------- --------- Material (loss)/profit attributable to (164.0) 29.5 Shareholders of Illovo Sugar Limited ========= ========= 4. Headline earnings Determination of headline earnings: Profit attributable to shareholders 443.1 546.2 Adjusted for: Profit on disposal of business - (19.8) Impairment of investment in Mali 173.5 - project Profit arising on disposal of (9.8) (10.4) property Profit/(loss) on disposal of plant 1.7 (0.9) and equipment Total tax effect of adjustments (0.2) 1.0 Total non-controlling interest effect 1.5 - of Adjustments --------- --------- Headline earnings 609.8 516.1 ========= =========
Number of shares in issue (millions) 460.0 459.8 Weighted average number of shares which 459.9 459.8 headline earnings per share are based (millions) Headline earnings per share (cents) 132.6 112.2 5. Distribution per share The distribution per share of 66.0 cents (2011: 56.0 cents) includes an interim capital distribution of 23.0 cents paid out of share premium and a final capital distribution of 43.0 cents declared out of share premium. 6. 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. 28 May 2012 Sponsor: J.P. Morgan Equities Limited Date: 28/05/2012 07:05:06 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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