Wrap Text
Interim report for the six months ended 30 September 2014
ILLOVO SUGAR LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1906/000622/06)
Share Code: ILV
ISIN: ZAE000083846
INTERIM REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014
Salient Features
- Group revenue down 5% to R5 932 million, impacted by 9% lower sugar production and
reduced export market prices
- Operating profit down 14% to R1 393 million
- Downstream operating profit up R68 million to R130 million
- Headline earnings per share down 10% but distribution remains unchanged
- Record sugar production expected in Zambia and Mozambique
- Newly commissioned distillery in Tanzania operated consistently above design capacity
- Challenging trading conditions in EU, world and regional markets expected to continue
- Medium-term prospect of shift to global sugar production deficit.
Quote:
Gavin Dalgleish, Managing Director, commented:
"We have had a mixed season so far with lower sugar prices across our regional and export markets,
variable weather conditions and the effects of industrial action. Notwithstanding these challenges,
our operations in Zambia and Mozambique are expected to achieve record sugar and cane production for the year.
The company remains well placed for growth into the future with its significant operations in southern Africa,
attractive and sustainable domestic markets, strong balance sheet and healthy cash generation."
Enquiries:
Illovo Sugar Limited 031 508 4300
Gavin Dalgleish, Managing Director,
Mohammed Abdool-Samad, Financial Director,
Chris Fitz-Gerald, Group Communications Manager
Instinctif 011 447 3030
Nicholas Williams 082 600 2192
Review
The six months period ended 30 September 2014 presented both challenges and opportunities
for the Illovo group. Operating profit of R1 393 million (2013: R1 626 million) was impacted by a
fall in group cane and sugar production together with a decline in world, regional and European
(EU) market prices. This reduction was partially offset by a steady increase in domestic market
sales revenue, a weaker Rand benefitting export sales, meaningful cost-reduction
initiatives employed across the group and an increased profit contribution from Illovo's
downstream and co-generation businesses. The operating margin declined to 23.5% (2013:
26.1%) while profit after tax decreased to R944 million (2013: R1 116 million) resulting in a 10%
decline in headline earnings per share.
By country, Malawi's contribution to operating profit increased year-on-year to R560 million,
representing 41% (2013: 33%) of the group total for the period. The contributions from the other
countries were: Zambia 31% (2013: 30%), South Africa 12% (2013: 10%), Swaziland 9% (2013:
17%), Mozambique 8% (2013: 9%) and Tanzania -1% (2013: 1%).
Total cane harvested on the group's own estates amounted to 4.3 million tons
compared to 4.7 million tons in the same period last year. This reduced harvest resulted in
operating profit from the group's cane growing operations declining to R570 million from
R718 million in 2013. Own cane supply for the full year is expected to be similar year on year.
Combined with cane supplied to the group's factories by private cane growers, total cane
throughput amounted to 10.7 million tons, reflecting an 11% decrease compared to the same
period last year.
The season to date has been impacted by variable conditions across the countries in which we
operate, most notably in South Africa where operations were negatively impacted by a
combination of late summer rainfall, very dry winter conditions, frost damage in the KwaZulu-
Natal midlands as well as the sugar industry strike. The resulting significant cane yield
reduction and the effect of poor cane quality on recoveries, were offset partially by increased
sucrose levels and concerted efforts by Illovo's South African outgrower partners and its own
agricultural operations to limit cane losses. Cane production in Swaziland was also affected by
a decline in climatic potential compared to the long-term mean and by the industry strike.
There were positive improvements in operating performance and efficiency levels at most sugar
factories across the group, particularly in Zambia, Mozambique, Tanzania and Dwangwa in
Malawi. Conversely, the performance at Nchalo in Malawi was disappointing. Total group sugar
production for the period reduced by 9% to 1.3 million tons with the contribution to operating
profit derived from sugar production declining from R847 million in 2013 to R692 million in the period under
review.
Despite challenging circumstances faced generally by the group across its markets, increased
domestic sales were achieved in Malawi and Zambia. While total sales amounted to 798 000
tons, representing a 12% reduction when compared to the same period last year, the sales
outlook for the full year to March 2015 continues to be positive.
The wider commercial environment for sugar in the medium term remains challenging,
influenced by low world sugar prices arising primarily out of a fourth year of global sugar
production surplus. In South Africa, domestic sugar revenues were eroded by prior season
sugar imports. However, since the increase in the government-instituted import tariff earlier this
year, imports have declined and their impact on Illovo for the full year is anticipated to be less
than in 2013. In Tanzania, sugar imports also negatively impacted sales volumes and
price, although a volume improvement on the previous year was achieved.
The sustained world sugar surplus has also put pressure indirectly on the prices the group is
able to achieve for its regional exports into neighbouring Southern African countries, as well as
directly on the group's bulk sugar export markets out of South Africa, undertaken by the
SA Sugar Association.
While the world sugar price traded at an average price of US16.5 cents/lb for the period, a level
well below the cost of production of most international sugar producers, there are increasing
indications that the global sugar balance is moving towards a production deficit. Supporting this
trend, is the continuous growth in international sugar consumption which is expected to increase
by 26 million tons by 2021 while in Africa, strong consumption growth is supported by growing
population and increasing GDP per capita, averaging between 3% and 6% per annum in Illovo's current and
potential new markets.
Similar to the world market, EU sugar prices have continued to trend downwards as industry
producers reposition themselves in the run up to the deregulation of its sugar industry in
September 2017. While these markets will remain outlets for the group, Illovo's Southern
African production and market footprint is ideally placed to take full advantage of increasing
domestic and regional demand from direct consumers and industrial customers.
Illovo's strategy to broaden revenue streams and strengthen the group business resulted in an
increased contribution from downstream activities to operating profit, which rose significantly
from R62 million in 2013 to R130 million in the current period despite lower furfural production
due to reduced cane supply. The manufacture of high quality potable and industrial-use
alcohols at both South African distilleries progressed well. In Tanzania, the newly-
commissioned distillery operated consistently above installed capacity and with strong demand
for potable alcohol in the East African region, operating profit from this business provided a
strong offset for the difficult trading conditions experienced by the sugar operation. These
positive circumstances provide the backdrop for an increase in alcohol volumes for the full year.
The electricity co-generation plant at the Ubombo mill in Swaziland continued to perform well
with increasing exports of surplus power into the national grid. Small amounts of power have
also been exported into the Mozambique grid from the Maragra mill.
On the commercial front, alcohol pricing and sales were in line with expectations while better
furfural and furfuryl alcohol prices were achieved for the period.
Outlook
Excellent agricultural performance in Zambia, with the Nakambala factory operating in excess of
design capacity, as well as an improvement in operations in Mozambique, should result in record
cane and sugar production in both countries of operation. However, declining sugar production
in South Africa, Swaziland and Nchalo in Malawi will result in total group sugar production
ending below that achieved to 31 March 2014.
Illovo's group-wide continuous improvement strategy continues to drive down controllable costs.
Ongoing productivity improvements geared towards unit cost reduction and a review of
structures across the business supply chain in an effort to unlock further value and other
initiatives are expected to bring meaningful cash benefits to the group in the short to medium
term.
Sugar market conditions across the group are expected to remain challenging but efforts to
improve the trading environments of the countries in which Illovo operates continue. Growth in
domestic sales and a better market mix in other parts of the group are expected to assist full
year earnings. Currency weaknesses, as were evident in the first six months, are likely to assist
export earnings for the full year. Good growth in downstream earnings is anticipated.
With significant cane, sugar and downstream assets in Southern Africa, attractive and
sustainable domestic markets, a strong balance sheet and healthy cash generation, the Illovo
Sugar Group remains well placed for growth into the future.
CHANGE OF DIRECTORS
In terms of paragraph 3.59 of the JSE Listings Requirements, shareholders are advised that:
- Mr DG MacLeod has given notice of his intention to retire as a non-executive director and
chairman of the company with effect from the close of the annual general meeting to be held
on 15 July 2015; and
- Mr GM Rhodes resigned as a non-executive director of the company with effect from
31 October 2014.
CAPITAL DISTRIBUTION OUT OF SHARE PREMIUM IN LIEU OF DIVIDEND
Notice is hereby given that an interim capital distribution by way of a reduction of Contributed
Tax Capital of 37.0 cents per share has been declared, in lieu of a dividend, on the ordinary
shares of the company in respect of the six months ended 30 September 2014, to Illovo
shareholders recorded in the register on Friday 9 January 2015 ("the Distribution"). The
directors have determined that the capital 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 Distribution:
Last day to trade cum the capital distribution Friday, 2 January 2015
Shares commence trading ex the capital distribution Monday, 5 January 2015
Record date Friday, 9 January 2015
Payment of capital distribution Monday, 12 January 2015
Share certificates may not be dematerialised/rematerialised between 5 January 2015 and
9 January 2015, both days inclusive.
Relative to this Distribution, the directors have confirmed that the company will satisfy the
solvency and liquidity test immediately after completing the Distribution.
For income tax purposes, shareholders are advised that the Distribution will 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, and as it will be regarded as a return of capital,
consideration should be given to the potential capital gains tax consequences. Illovo
shareholders are, therefore, advised to consult their tax advisors with regard to how they may
be impacted by the Distribution.
On behalf of the Board
DG MacLeod GB Dalgleish Mount Edgecombe
Chairman Managing Director 1 December 2014
CORPORATE INFORMATION
Directors:
DG MacLeod (Chairman)*, GB Dalgleish (Managing Director), MH Abdool-Samad, MI Carr#*,
MJ Hankinson*, JP Hulley, D Konar*, PA Lister#*, PM Madi*, CW Molope*, AR Mpungwe (Tanzanian)*,
TS Munday*, LW Riddle.
# British * Non-executive
Registered office:
Illovo Sugar Park
1 Montgomery Drive, Mount Edgecombe
KwaZulu-Natal, South Africa
Postal address:
PO Box 194, Durban, 4000
Telephone: +27 31 508 4300
Telefax: +27 31 508 4535
Website: www.illovosugar.co.za
Transfer Secretaries: Link Market Services South Africa Proprietary Limited
Rennie House, 13th Floor, 19 Ameshoff Street, Braamfontein, 2001
PO Box 4844, Johannesburg, 2000
Auditors: Deloitte & Touche
Sponsor: J.P. Morgan Equities South Africa Proprietary Limited
CONDENSED GROUP INCOME STATEMENT
Unaudited Audited
Six months ended Year ended
30 September 31 March
2014 2013 Change 2014
Notes Rm Rm % Rm
Revenue 5 932.1 6 238.5 (5) 13 190.1
Operating profit 1 392.5 1 626.4 (14) 1 886.9
Dividend income - 0.6 5.1
Net financing costs 2 142.4 152.9 336.4
Profit before non-trading items 1 250.1 1 474.1 1 555.6
Share of profit from associates and joint ventures 12.3 15.1 25.2
Material items 3 1.5 2.6 24.5
Profit before taxation 1 263.9 1 491.8 1 605.3
Taxation 319.6 376.1 486.8
Profit for the period 944.3 1 115.7 1 118.5
Attributable to:
Shareholders of Illovo Sugar Limited 789.0 878.0 (10) 916.3
Non-controlling interest 155.3 237.7 202.2
944.3 1 115.7 1 118.5
Other comprehensive income
Items that will not be reclassified subsequently
to profit or loss:
Actuarial gains/(losses) on post-retirement obligations, net of
tax 0.4 (2.9) (0.4)
Items that will be reclassified subsequently
to profit or loss:
Foreign currency translation differences 100.5 402.8 209.7
Adjustments in respect of cash flow hedges, net of tax 86.4 (6.6) (48.2)
Hedge of net investment in foreign subsidiaries, net of tax 130.2 30.2 (230.1)
Total comprehensive income for the period 1 261.8 1 539.2 1 049.5
Attributable to:
Shareholders of Illovo Sugar Limited 1 037.4 1 211.4 821.8
Non-controlling interest 224.4 327.8 227.7
1 261.8 1 539.2 1 049.5
Headline earnings per share (cents) 4 171.1 190.1 (10) 194.0
Diluted headline earnings per share (cents) 171.0 190.1 194.0
Basic earnings per share (cents) 171.3 190.7 199.0
Diluted basic earnings per share (cents) 171.2 190.6 198.9
Distribution per share (cents) 5 37.0 37.0 - 97.0
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
Unaudited Audited
30 September 31 March
2014 2013 2014
Rm Rm Rm
ASSETS
Non-current assets 9 350.5 8 685.6 8 895.0
Property, plant and equipment 7 023.3 6 641.8 6 783.3
Cane roots 1 718.0 1 492.0 1 531.0
Intangible assets 305.0 281.5 288.0
Investments and loans 264.8 209.8 248.6
Deferred taxation asset 39.4 60.5 44.1
Current assets 7 858.3 7 351.5 4 924.8
Inventories and factory overhaul 3 850.8 3 681.8 1 337.5
Growing cane 1 709.4 1 573.8 1 662.5
Trade and other receivables 1 672.1 1 635.7 1 309.2
Financial instruments 62.4 14.5 18.5
Cash and cash equivalents 563.6 445.7 597.1
Total assets 17 208.8 16 037.1 13 819.8
EQUITY AND LIABILITIES
Total equity 8 560.3 8 175.4 7 468.6
Equity holders' interest 7 193.6 6 899.8 6 340.3
Non-controlling interest 1 366.7 1 275.6 1 128.3
Non-current liabilities 3 590.0 2 849.3 3 320.8
Long-term borrowings 1 960.3 1 407.8 1 824.8
Deferred taxation liability 1 312.7 1 138.3 1 189.9
Other liabilities 317.0 303.2 306.1
Current liabilities 5 058.5 5 012.4 3 030.4
Short-term borrowings 2 131.4 2 310.1 858.2
Trade and other payables 2 920.8 2 686.3 2 110.7
Financial instruments 6.3 16.0 61.5
Total equity and liabilities 17 208.8 16 037.1 13 819.8
OTHER SALIENT FEATURES
Note
Operating margin (%) 23.5 26.1 14.3
Interest cover (times) 9.8 10.6 5.6
Effective tax rate (%) 25.6 25.5 31.3
Net debt: equity ratio 6 41.2 40.0 27.9
Net asset value per share (cents) 1 858.1 1 775.3 1 621.4
Net borrowings 3 528.1 3 272.2 2 085.9
Depreciation 203.9 199.2 309.0
Capital expenditure 256.8 346.0 722.0
- Expansion capital 112.9 158.3 366.2
- Replacement capital 137.4 184.1 342.6
250.3 342.4 708.8
- Expansion of area under cane 0.7 1.5 7.9
- Product registration costs 5.8 2.1 5.3
Capital commitments 977.3 779.2 1 042.2
- Contracted 439.7 162.2 255.1
- Approved but not contracted 537.6 617.0 787.1
Lease commitments 317.6 212.0 220.7
Contingent liabilities 119.0 123.1 116.5
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Unaudited Audited
Six months ended Year ended
30 September 31 March
2014 2013 2014
Rm Rm Rm
Share capital and share premium
Balance at beginning of the period 1 609.9 2 055.4 2 055.4
Issue of share capital 0.8 0.8 1.3
Transfer to distribution reserve (170.5) (170.1) (446.8)
Balance at end of the period 1 440.2 1 886.1 1 609.9
Share-based payments reserve
Balance at beginning and end of the period 13.1 13.1 13.1
Non-distributable reserves
Balance at beginning of the period 5.8 42.3 42.3
Transfer of foreign currency translation reserve (176.4) (343.1) 64.9
Total comprehensive income:
- Foreign currency translation 46.5 313.4 165.0
- Cash flow hedges 69.2 (5.9) (36.5)
- Hedge of net investment in foreign subsidiaries 129.9 29.7 (229.9)
Balance at end of the period 75.0 36.4 5.8
Retained earnings
Balance at beginning of the period 4 435.1 3 576.8 3 576.8
Transfer of foreign currency translation reserve 176.4 343.1 (64.9)
Transactions with non-controlling shareholders 91.5 - -
Total comprehensive income:
- Profit for the period 789.0 878.0 916.3
- Actuarial gains/(losses) on post-retirement obligations 2.8 (3.8) 6.9
Balance at end of the period 5 494.8 4 794.1 4 435.1
Distribution reserve
Balance at beginning of the period 276.4 280.9 280.9
Transfer from share premium 170.5 170.1 446.8
Distributions paid (276.4) (280.9) (451.3)
Balance at end of the period 170.5 170.1 276.4
Equity holders' interest 7 193.6 6 899.8 6 340.3
Non-controlling interest
Balance at beginning of the period 1 128.3 1 006.2 1 006.2
Distributions paid (83.5) (58.4) (105.6)
Change in shareholding 97.5 - -
Total comprehensive income:
- Foreign currency translation 54.0 89.4 44.7
- Hedge of net investment in foreign subsidiary 0.3 0.5 (0.2)
- Cash flow hedges 17.2 (0.7) (11.7)
- Actuarial (losses)/gains on post-retirement obligations (2.4) 0.9 (7.3)
- Profit for the period 155.3 237.7 202.2
Balance at end of the period 1 366.7 1 275.6 1 128.3
Total equity 8 560.3 8 175.4 7 468.6
CONDENSED GROUP STATEMENT OF CASH FLOWS
Unaudited Audited
Six months ended Year ended
30 September 31 March
2014 2013 2014
Rm Rm Rm
Cash flows from operating and investing activities
Cash operating profit 1 528.9 1 846.8 1 922.4
Working capital requirements (2 137.5) (2 106.3) 105.2
Cash (utilised by)/generated from operations (608.6) (259.5) 2 027.6
Replacement capital expenditure (137.4) (184.1) (342.6)
Net financing costs and dividend income (142.4) (152.3) (331.3)
Taxation paid (160.2) (174.6) (298.6)
Distributions/dividends paid (359.9) (339.3) (556.9)
Net investment in future operations (119.4) (161.9) (379.4)
Acquisition of business - - 15.6
Proceeds on disposal of shareholding in joint ventures - - 9.5
Proceeds on disposal of partial interest in a subsidiary 195.6 - -
Other movements (24.3) 10.3 (8.4)
Net cash (outflows)/inflows before financing activities (1 356.6) (1 261.4) 135.5
Borrowings raised 1 306.5 1 230.3 51.6
Other financing activities 0.8 0.8 1.3
Net (decrease)/increase in cash and cash equivalents (49.3) (30.3) 188.4
Cash and cash equivalents at the beginning of the year 597.1 453.5 453.5
Exchange rate translation 15.8 22.5 (44.8)
Cash and cash equivalents at the end of the year 563.6 445.7 597.1
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Basis of preparation
These unaudited condensed interim results for the six months ended 30 September 2014 have been prepared and
presented in accordance with the framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards ("IFRS"), the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee, and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council,
the Listing Requirements of the JSE Limited, the information as required by IAS 34: Interim Financial Reporting, and the
requirements of the South African Companies Act No 71 0f 2008. The accounting policies applied in preparation of these
condensed interim results are in terms of IFRS and are consistent with those applied in the previous annual financial
statements. The report was prepared under the supervision of the Group Financial Director, Mr M H Abdool-Samad,
CA(SA) and has not been audited by the Group's external auditors.
Unaudited Audited
Six months ended Year ended
30 September 31 March
2014 2013 2014
Rm Rm Rm
2. Net financing costs
Interest paid 149.5 173.1 353.5
Less: capitalised (1.2) (19.4) (20.8)
148.3 153.7 332.7
Interest received (4.5) (2.9) (13.4)
Foreign exchange (gains)/losses (1.4) 1.5 12.0
142.4 152.3 331.3
3. Material items
Profit on disposal of property 1.5 0.4 1.3
Profit on previously impaired assets - 0.5 0.1
Gain on bargain purchase - 1.7 2.2
Proceeds received from insurance claim - - 19.1
Disposal and deregistration of businesses - - 1.8
Material profit before taxation 1.5 2.6 24.5
Taxation - - (1.4)
Non-controlling interest (0.6) (0.2) (0.4)
Material profit attributable to shareholders
of Illovo Sugar Limited 0.9 2.4 22.7
4. Determination of headline earnings
Profit attributable to shareholders 789.0 878.0 916.3
Adjusted for:
- Profit on disposal of property (1.5) (0.4) (1.3)
- Profit on disposal of previously impaired assets - (0.5) (0.1)
- Disposal and deregistration of businesses - - (1.8)
- Gain on bargain purchase - (1.7) (2.2)
- Proceeds received from insurance claim - - (19.1)
Total tax effect of adjustments - - 1.4
Total non-controlling interest effect
of adjustments 0.6 0.2 0.4
Headline earnings 788.1 875.6 893.6
Number of shares in issue (millions) 460.7 460.5 460.6
Weighted average number of shares on which
headline earnings per share are based (millions) 460.7 460.5 460.5
Headline earnings per share (cents) 171.1 190.1 194.0
5. Distribution per share
The distribution per share of 37.0 cents represents an interim capital distribution declared out of share premium
(2013: interim distribution of 37.0 cents).
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.
7. Financial instruments
The fair values of financial instruments are determined using inputs that are observable, either directly, (ie, as prices) or
indirectly (ie, derived from prices), other than quoted prices in an active market and therefore fall into the level 2 fair
value category. The fair values of non-financial assets are determined using inputs that are unobservable, using the best
information available in the circumstances for using the assets and therefore fall into the level 3 fair value category.
8. Segmental analysis
Unaudited Audited
Six months ended Year ended
30 September 31 March
2014 2013 2014
Rm % Rm % Rm
BUSINESS SEGMENTS
Revenue
Sugar production 3 267.8 55 3 663.0 59 9 355.7
Cane growing 2 109.1 36 2 178.6 35 2 856.2
Downstream and co-generation 555.2 9 396.9 6 978.2
5 932.1 6 238.5 13 190.1
Operating profit
Sugar production 691.9 50 846.5 52 1 320.3
Cane growing 570.3 41 717.5 44 388.8
Downstream and co-generation 130.3 9 62.4 4 177.8
1 392.5 1 626.4 1 886.9
GEOGRAPHICAL SEGMENTS
Revenue
Malawi 1 175.0 20 1 024.3 16 2 341.5
Mozambique 454.4 8 497.4 8 552.8
South Africa 1 465.0 25 1 565.3 25 4 504.1
Swaziland 897.9 15 1 111.4 18 1 601.1
Tanzania 500.3 8 424.6 7 924.7
Zambia 1 439.5 24 1 615.5 26 3 265.9
5 932.1 6 238.5 13 190.1
Operating profit
Malawi 559.5 41 544.2 33 762.0
Mozambique 109.8 8 153.4 9 32.5
South Africa 170.2 12 159.8 10 265.8
Swaziland 123.8 9 273.7 17 257.5
Tanzania (8.5) (1) 11.5 1 11.0
Zambia 437.7 31 483.8 30 558.1
1 392.5 1 626.4 1 886.9
Total assets
Malawi 2 934.2 18 2 441.3 16 2 052.8
Mozambique 1 005.0 6 872.9 6 918.9
South Africa 4 290.9 26 3 919.1 25 2 658.7
Swaziland 2 043.1 12 2 079.3 13 2 046.0
Tanzania 1 675.5 10 1 575.3 10 1 690.3
Zambia 4 594.7 28 4 628.5 30 3 793.4
16 543.4 15 516.4 13 160.1
Note: Total assets excludes cash and cash equivalents, deferred taxation and financial instruments.
Date: 01/12/2014 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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