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Preliminary report for the year ended 31 March 2015 and trading statement for the year ending 31 March 2016
ILLOVO SUGAR LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1906/000622/06)
Share Code: ILV
ISIN: ZAE000083846
("Illovo" or "the company")
PRELIMINARY REPORT FOR THE YEAR ENDED 31 MARCH 2015 AND TRADING
STATEMENT FOR THE YEAR ENDING 31 MARCH 2016
Salient features
- Difficult market conditions – low export sugar prices, currency volatility
- Operating profit decreases 12.3% and HEPS decreases 7.7% for the full year
- Group sugar production remains broadly level at 1.8 million tons due to adverse weather
conditions in South Africa
- Record sugar production in Zambia, Mozambique and at the Dwangwa mill in Malawi
- Diversification strategy bearing fruit - downstream products contribute 16% of operating
profits
- Record ethanol production in South Africa and Tanzania
- Record electrical cogeneration into the Swaziland national grid
Managing Director's Quote:
"Market conditions have not been easy over the last year. Despite strong domestic markets our
exposure to lower EU and world sugar prices and currency headwinds, in particular the sharp
weakening of the Euro, have affected earnings. Adverse weather conditions in South Africa also
resulted in considerable cane yield losses. Notwithstanding these factors, we continue to move
forward on a number of fronts to reposition the business. Our recently announced Zambia Sugar
refinery expansion and product alignment project and the increased contribution to operating
profit from our downstream activities are testament to these initiatives.
Whilst the already challenging market conditions are expected to become more difficult in the
year ahead, our longer term prospects look positive. We remain focused on capturing growth
opportunities in our African domestic and regional markets and with increasing world sugar
demand and less capacity investment globally, we expect medium-term price recovery from the
current six-year low in world sugar prices. Our investment initiatives and our continuing cost
reduction and continuous improvement programmes will also strengthen the business and
ensure long-term sustainability."
Gavin Dalgleish
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
Overview
The business continued to face headwinds of declining world and EU market pricing, currency
volatility and the impact of poor weather on the South African cane crop.
However, these challenges were partly offset by a number of initiatives, including the full-year
benefits of the new distillery in Tanzania, growing proceeds from electrical co-generation in
Swaziland, higher ethanol exports from South Africa and meaningful cost reduction from the
group's continuous improvement initiatives. We also benefited from better pricing in domestic
and some regional markets and improved market regulation in South Africa and Tanzania.
Overall it was a tough year with operating profit declining 12.3% from R1 886.9 million in 2013/14
to R1 655.1 million in 2014/15 and headline earnings per share (HEPS) declining 7.7% from 194
cents per share to 179 cents per share. The contribution to operating profits by country were
Malawi (38%), Zambia (35%), South Africa (13%), Tanzania (9%), Swaziland (4%) and
Mozambique (1%) and by activity sugar production (71%), cane growing (13%) and downstream
(16%).
Review 2014/15
Sugar production for the year of 1.76 million tons was affected by the drought and winter frost in
South Africa but was reasonably close to last year's 1.83 million tons with the benefit of record
sugar production in Zambia, Mozambique and at the Dwangwa mill in Malawi and a strong
performance improvement in Tanzania. This achievement once again underscores the value of
the geographic spread of our largely irrigated cane growing outside of South Africa and sugar
milling assets in mitigating climate risks.
The record outgrower yields in Mozambique were a particularly pleasing result. Developing
thriving economies that surround our operations is a key pillar of our long-term business
sustainability. We continue to engage multiple funding and community agencies in developing
and delivering successful outgrower schemes that enjoy increasingly international recognition.
Consistent milling operations in Tanzania supported strong output of potable alcohol at our
Kilombero distillery, comfortably exceeding the first full-year investment case assumptions.
Increased proceeds from electrical co-generation in Swaziland and record ethanol production at
South Africa's Merebank and Glendale distilleries supported the excellent downstream
performance, impacted only by the lower drought-affected furfural production at Sezela.
The group's commercial and trade advocacy teams continue to make sound progress in growing
domestic, regional and niche markets ahead of the EU market reform in 2017. Bulk raw exports
to the EU reduced by 73 000 tons compared to the previous year, while speciality sugar exports
to the EU continue to deliver a premium to regional markets. Regional sales increased by 42 000
tons.
Domestic markets continue to be important for the group with strong demand growth particularly
in Zambia. The introduction of an effective dollar-based reference price import duty in
South Africa reduced sugar imports from 462 000 tons in the 2013/14 season to 137 000 tons in
2014/15, impacting positively on local industry sales. In Tanzania, the political recognition of the
long-term damage to the domestic economy of illegal sugar imports and the emerging measures
to control these trade flows, resulted in a significant recovery in domestic sales volumes. In
Malawi, the strong Kwacha, high interest rates and little or no economic growth in Malawi saw
domestic demand under significant pressure.
Prospects
A key principle of our strategy is to diversify product mix to offset the cyclicality in our business
caused by unfavourable weather conditions, world market influenced sugar pricing and currency
fluctuation. Initiatives, including the Zambian refinery expansion and product alignment project
announced during the year, to shift the group sugar export sales mix away from the EU are
progressing well and two further downstream investment projects are under review.
As part of our drive for greater operational efficiencies, structural cost reduction programmes will
continue to build on the good results achieved by the group-wide continuous improvement
programme during the year.
However, the already challenging market conditions are expected to become more difficult in the
year ahead.
Proceeds from EU sales are expected to fall due to the impact of a weaker Euro and the recent
depreciation in the Brazilian Real against the US Dollar has provided an export incentive to
Brazil's sugar producers which will impact an already over-supplied world market. The recent fall
in world prices to a six year low will indirectly impact regional market pricing.
Group sugar production in the 2015/16 season is expected to be marginally lower than the prior
year due mainly to the continuing effect of drought and frost in South Africa.
The consistent on-going growth in world and African demand (around 2% and 3% respectively) in
the absence of any new capacity investment, the benefits of the Zambia Sugar refinery
expansion and product alignment project, reduced exposure to the EU market and some crop
recovery in South Africa signal better longer term prospects.
Trading statement for the year ending 31 March 2016
Shareholders are advised that a reasonable degree of certainty exists that, as a result of the
difficult market and production conditions, earnings per share and headline earnings per share
(2015: 179 cents) are expected to decrease by between 25% (134 cents) and 45% (98 cents) for the
year ending 31 March 2016, compared to that for the period ended 31 March 2015.
The financial information in this trading statement has not been reviewed and reported on by
the Company's auditors.
Capital reduction distribution by way of a reduction of contributed tax capital in lieu of
dividend
Notice is hereby given that a final capital reduction distribution, by way of a reduction of
contributed tax capital, of 53.0 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 2015. This distribution,
together with the interim capital reduction distribution of 37.0 cents per share which was declared
on 28 November 2014, makes a total distribution in respect of the year ended 31 March 2015 of
90.0 cents per share. The directors have determined that this capital reduction 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. As the distribution will be regarded as a return
of capital and may have potential capital gains tax consequences, Illovo shareholders are
advised to consult their tax advisors regarding the impact of the distribution.
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, 26 June 2015
Shares commence trading ex the capital distribution Monday, 29 June 2015
Record date Friday, 3 July 2015
Payment of final capital distribution Monday, 6 July 2015
Share certificates may not be dematerialised/rematerialised between Monday, 29 June 2015 and
Friday, 3 July 2015, 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.
On behalf of the Board
D G MacLeod G B Dalgleish
Chairman Managing Director
Mount Edgecombe
25 May 2015
Directors:
D G MacLeod (Chairman)*, G B Dalgleish (Managing Director), M H Abdool-Samad, M I Carr#*,
J Cowper #*, M J Hankinson*, J P Hulley, D Konar*, P A Lister#*, P M Madi*, C W N Molope*,
A R Mpungwe (Tanzanian)*, T S Munday*, 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
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 South Africa Proprietary Limited.
SUMMARY CONSOLIDATED INCOME STATEMENT
Year ended 31 March
Change 2015 2014
Notes % Rm Rm
Revenue 0.6 13 266.5 13 190.1
Operating profit (12.3) 1 655.1 1 886.9
Dividend income 2.8 5.1
Net financing costs 3 355.8 336.4
Profit before non-trading items 1 302.1 1 555.6
Share of profit from joint venture 4.6 12.9
Share of profit from associates 22.1 12.3
Material items 4 3.0 24.5
Profit before taxation 1 331.8 1 605.3
Taxation 388.0 486.8
Profit for the year 943.8 1 118.5
Attributable to:
Shareholders of Illovo Sugar Limited (9.8) 826.4 916.3
Non-controlling interest 117.4 202.2
943.8 1 118.5
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Actuarial gains on post-retirement obligations 43.2 2.6
Tax effect of actuarial gains on post-retirement obligations (13.4) (3.0)
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences (408.9) 209.7
Adjustments in respect of cash flow hedges (13.7) (51.4)
Tax effect of cash flow hedges 2.3 3.2
Hedge of net investment in foreign subsidiaries (26.1) (231.3)
Tax effect of hedge of net investment in foreign subsidiaries 11.7 1.2
Total comprehensive income for the year 538.9 1 049.5
Attributable to:
Shareholders of Illovo Sugar Limited 431.1 821.8
Non-controlling interest 107.8 227.7
538.9 1 049.5
Headline earnings per share (cents) 5 (7.7) 179.0 194.0
Diluted headline earnings per share (cents) 179.0 194.0
Basic earnings per share (cents) (9.8) 179.4 199.0
Diluted basic earnings per share (cents) 179.4 198.9
Distribution per share (interim- paid; final- declared) (cents) 6 (7.2) 90.0 97.0
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Year ended 31 March
2015 2014
Rm Rm
ASSETS
Non-current assets 9 472.9 8 895.0
Property, plant and equipment 7 043.3 6 783.3
Cane roots 1 776.4 1 531.0
Intangible assets 311.9 288.0
Investments and loans 312.8 248.6
Deferred taxation asset 28.5 44.1
Current assets 5 353.6 4 924.8
Inventories 1 022.6 998.9
Growing cane 1 797.2 1 662.5
Trade and other receivables 1 660.9 1 309.2
Factory overhaul costs 372.0 338.6
Derivative financial instruments 24.4 18.5
Cash and cash equivalents 476.5 597.1
Total assets 14 826.5 13 819.8
EQUITY AND LIABILITIES
Total equity 7 675.7 7 468.6
Equity holders' interest 6 472.4 6 340.3
Non-controlling interest 1 203.3 1 128.3
Non-current liabilities 3 754.4 3 320.8
Long-term borrowings 2 042.9 1 824.8
Deferred taxation liability 1 412.6 1 189.9
Other liabilities 298.9 306.1
Current liabilities 3 396.4 3 030.4
Short-term borrowings 1 164.6 858.2
Trade and other payables 2 150.7 2 110.7
Derivative financial instruments 81.1 61.5
Total equity and liabilities 14 826.5 13 819.8
SALIENT FEATURES
Year ended 31 March
Note 2015 2014
Operating margin (%) 12.5 14.3
Interest cover (times) 4.7 5.6
Effective tax rate (%) 29.8 31.3
Distribution cover (times) 2.0 2.0
Net debt : equity ratio 8 35.6 27.9
Gearing (%) 26.2 21.8
Net asset value per share (cents) 1 666.1 1 621.4
Net borrowings 2 731.0 2 085.9
Depreciation 336.8 309.0
Capital expenditure 699.5 722.0
- Expansion / opportunity capital 318.3 366.2
- Replacement capital 365.6 342.6
683.9 708.8
- Expansion of area under cane 5.7 7.9
- Product registration costs 9.9 5.3
Capital commitments 1 868.4 1 042.2
- Contracted 326.9 255.1
- Approved but not contracted 1 541.5 787.1
Lease commitments 189.3 220.7
Contingent liabilities 155.9 116.5
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 March
2015 2014
Rm Rm
Share capital and share premium
Balance at beginning of the year 1 609.9 2 055.4
Issue of share capital 0.8 1.3
Transfer to distribution reserve (414.6) (446.8)
Balance at end of the year 1 196.1 1 609.9
Share-based payment reserve
Balance at beginning of the year 13.1 13.1
Purchase of shares in terms of forfeitable share plan (5.9) -
Balance at end of the year 7.2 13.1
Non-distributable reserves
Balance at beginning of the year 5.8 42.3
Transfer of foreign currency translation reserve 416.8 64.9
Total comprehensive income attributable to:
- Foreign currency translation differences (404.9) 165.0
- Cash flow hedges (9.7) (36.5)
- Hedge of net investment in foreign subsidiaries (11.9) (229.9)
Balance at end of the year (3.9) 5.8
Retained earnings
Balance at beginning of the year 4 435.1 3 576.8
Gain on part-disposal of shareholding in subsidiary 93.1 -
Gain on liquidation of subsidiary 59.9 -
Transfer of foreign currency translation reserve (416.8) (64.9)
Total comprehensive income attributable to:
- Profit for the year 826.4 916.3
- Actuarial gains on post-retirement obligations 31.2 6.9
Balance at end of the year 5 028.9 4 435.1
Distribution reserve
Balance at beginning of the year 276.4 280.9
Transfer from share premium 414.6 446.8
Distributions paid (446.9) (451.3)
Balance at end of the year 244.1 276.4
Equity holders' interest 6 472.4 6 340.3
Non-controlling interest
Balance at beginning of the year 1 128.3 1 006.2
Distributions paid (129.0) (105.6)
Change in shareholding 96.2 -
Total comprehensive income attributable to:
- Foreign currency translation differences (4.0) 44.7
- Hedge of net investment in foreign subsidiary (2.5) (0.2)
- Cash flow hedges (1.7) (11.7)
- Actuarial losses on post-retirement obligations (1.4) (7.3)
- Profit for the year 117.4 202.2
Balance at end of the year 1 203.3 1 128.3
Total equity 7 675.7 7 468.6
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 March
2015 2014
Rm Rm
Cash flows from operating activities
Cash operating profit 1 663.7 1 922.4
Working capital movements (314.1) 105.2
Cash generated from operations 1 349.6 2 027.6
Net financing costs (355.8) (336.4)
Taxation paid (252.7) (298.6)
Dividend income 2.8 5.1
Distributions/dividends paid (575.9) (556.9)
Net cash inflows from operating activities 168.0 840.8
Cash flows from investing activities
Replacement capital expenditure (365.6) (342.6)
Expansion/opportunity capital expenditure (333.9) (379.4)
Proceeds on disposal of property, plant and equipment 9.6 8.7
Movement on investments and loans 21.5 (17.1)
Acquisition of business - 15.6
Proceeds on disposal of shareholding in joint ventures - 9.5
Net cash outflows from investing activities (668.4) (705.3)
Net cash (outflows)/inflows before financing activities (500.4) 135.5
Cash flows from financing activities
Borrowings raised 196.6 51.6
Issue of share capital 0.8 1.3
Purchase of shares in terms of forfeitable share plan (5.9) -
Proceeds on part-disposal of shareholding in subsidiary 189.3 -
Net cash inflows from financing activities 380.8 52.9
Net (decrease)/increase in cash and cash equivalents (119.6) 188.4
Cash and cash equivalents at beginning of the year 597.1 453.5
Exchange rate translation (1.0) (44.8)
Cash and cash equivalents at end of the year 476.5 597.1
NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The summarised consolidated financial statements are prepared in accordance with the requirements of the
Listings Requirements of the JSE Limited for preliminary reports and the requirements of the South African
Companies Act, 71 of 2008 applicable for summarised financial statements. The Listings Requirements of the JSE
Limited for the preliminary reports require them to be prepared 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, and also, as a minimum, to contain the
information required by IAS 34 Interim Financial Reporting.
The accounting policies applied in preparation of these summarised consolidated financial statements are in terms
of IFRS and are consistent with those applied in the previous consolidated annual financial statements.
The audited summarised consolidated financial statements have been prepared under the supervision of the group
financial director, Mohammed Abdool-Samad CA(SA). The summarised consolidated financial statements were
approved by the board of directors on 21 May 2015.
The full consolidated annual financial statements from which these summarised consolidated financial statements
were derived are electronically available on the group's website www.illovosugar.com.
2. AUDIT OPINION
These summarised consolidated financial statements for the year ended 31 March 2015 have been audited by
Deloitte & Touche, who expressed an unmodified opinion thereon. The auditor also expressed an unmodified
opinion on the full consolidated financial statements for the year ended 31 March 2015, from which these
summarised consolidated financial statements were derived. A copy of the auditor's report on the summarised
consolidated financial statements and of the auditor's report on the full consolidated financial statements are
available for inspection at the company's registered office, together with the financial statements identified in the
respective auditor's reports.
Deloitte & Touche has not audited future financial performance and expectations expressed by management
included in the commentary in the accompanying preliminary report and accordingly do not express an opinion
thereon. The auditor's report does not necessarily report on all of the information contained in this preliminary
report. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's
engagement, they should obtain a copy of the auditor's report together with the accompanying financial information
from the issuer's registered office or the group's website.
Year ended 31 March
2015 2014
Rm Rm
3. NET FINANCING COSTS
Interest paid 362.9 353.5
Less: capitalised to property, plant and equipment (4.0) (20.8)
358.9 332.7
Interest received (13.4) (8.3)
Foreign exchange losses 10.3 12.0
355.8 336.4
Year ended 31 March
2015 2014
Rm Rm
4. MATERIAL ITEMS
Profit on disposal of property 3.0 1.3
Profit on disposal of previously impaired assets - 0.1
Gain on bargain purchase - 2.2
Proceeds received from insurance claim - 19.1
Disposal and deregistration of businesses - 1.8
Material items 3.0 24.5
5. DETERMINATION OF HEADLINE EARNINGS
Profit attributable to shareholders of Illovo Sugar Limited 826.4 916.3
Adjusted for:
- Profit on disposal of property (3.0) (1.3)
- Profit on disposal of previously impaired assets - (0.1)
- Gain on bargain purchase - (2.2)
- Proceeds received from insurance claim - (19.1)
- Disposal and deregistration of businesses - (1.8)
Total tax effect of adjustments - 1.4
Total non-controlling interest effect of adjustments 1.2 0.4
Headline earnings 824.6 893.6
Number of shares in issue (millions) 460.7 460.6
Weighted average number of shares on which headline
earnings per share is based (millions) 460.7 460.5
Headline earnings per share (cents) 179.0 194.0
6. DISTRIBUTION PER SHARE
The distribution per share of 90.0 cents (2014: 97.0 cents) includes an interim capital distribution of 37.0 cents and
a final capital distribution of 53.0 cents, both declared out of share premium.
7. FINANCIAL INSTRUMENTS
The fair values of financial instruments are determined using inputs that are observable, either directly (i.e. as
prices) or indirectly (i.e. 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.
This report does not include the information required to paragraph 16A(j) of IAS 34 - Interim Financial Reporting.
The full consolidated annual financial statements will be available for inspection on the group's website, together
with the required disclosures.
8. 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.
9. POST-BALANCE SHEET EVENTS
No material change has taken place in the affairs of the group between the end of the financial year and the date of
this report.
Year ended 31 March
2015 2014
Rm % Rm %
10. SEGMENTAL ANALYSIS
Business Segments
Revenue
Sugar production 9 242.3 70 9 355.7 71
Cane growing 2 848.3 21 2 856.2 22
Downstream and co-generation 1 175.9 9 978.2 7
13 266.5 13 190.1
Operating profit
Sugar production 1 179.8 71 1 320.3 70
Cane growing 207.4 13 388.8 21
Downstream and co-generation 267.9 16 177.8 9
1 655.1 1 886.9
Geographical Segments
Revenue
Malawi 2 362.7 18 2 341.5 18
Mozambique 593.3 4 552.8 4
South Africa 4 481.6 34 4 504.1 34
Swaziland 1 396.5 11 1 601.1 12
Tanzania 1 247.4 9 924.7 7
Zambia 3 185.0 24 3 265.9 25
13 266.5 13 190.1
Operating profit
Malawi 625.3 38 762.0 39
Mozambique 24.6 1 32.5 2
South Africa 215.2 13 265.8 14
Swaziland 68.7 4 257.5 14
Tanzania 145.0 9 11.0 1
Zambia 576.3 35 558.1 30
1 655.1 1 886.9
Total assets
Malawi 2 878.7 20 2 052.8 15
Mozambique 944.7 7 918.9 7
South Africa 2 857.6 20 2 658.7 20
Swaziland 2 033.2 14 2 046.0 16
Tanzania 1 598.8 11 1 690.3 13
Zambia 3 984.1 28 3 793.4 29
14 297.1 13 160.1
Note: Total assets exclude cash and cash equivalents, deferred tax and derivative financial instruments.
Date: 25/05/2015 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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