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ILV
ILV
ILV - Illovo Sugar Limited - Profit and dividend announcement
ILLOVO SUGAR LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1906/000622/06)
Share Code: ILV
ISIN: ZAE000083846
PROFIT AND DIVIDEND ANNOUNCEMENT
Audited results for the year ended 31 March 2007
*Operating profit exceeds R1 billion
*Headline earnings exceed R500 million
*Headline earnings per share increase by 43%
*Further reduction in borrowings and gearing
*Major expansion in Zambia
Don MacLeod, Managing Director, commented:
"This is another set of solid results with good increases in revenue,
earnings and margins. As reported in April, our overall sugar production
was impacted by adverse weather conditions in South Africa and Tanzania but
we achieved record production in Malawi. We are making a significant
investment in Zambia to almost double our production in that country in the
next two years. This is the first major step towards further expansion
into Africa as part of our strategy of being the leading, lowest-cost sugar
producer on the continent. We expect to report further growth in earnings
in the year ahead."
Enquiries:
Illovo Sugar 031 508 4300
Don MacLeod, Managing Director
Karin Zarnack, Financial Director
Chris Fitz-Gerald, Corporate Communications
College Hill 011 447 3030
Nick Williams
Review
During the past year, the group achieved good results with headline
earnings increasing by 46% to R515.3 million and headline earnings per
share increasing by 43% to 149.1 cents. This was attained through much
improved world and regional sugar prices, higher downstream product export
prices, strong domestic market sales, cost savings and the weaker rand.
These factors more than offset the negative impact of lower sugar
production, primarily in South Africa and Tanzania.
The group achieved turnover of R6.3 billion and operating profits of R1
034.3 million. Compared to the previous year, turnover increased by 15%,
whilst operating profit increased by 38%, enabling the operating margin to
grow from 13.7% to 16.5%. Net financing costs decreased slightly from
R100.9 million to R96.4 million which resulted in interest cover improving
to 10.7 times. The effective tax rate, excluding material items, was
30.6%. Cash generation was positive with group borrowings decreasing by
R169.3 million to R271.7 million, resulting in a gearing of 12.2%.
The contributions to operating profit were: sugar production 59%, cane
growing 33% and downstream 8%. By country contributions were: South Africa
21%, Malawi 39%, Zambia 22%, Swaziland 7%, Tanzania 9% and Mozambique 2%.
Group cane production of 5.44 million tons was similar to that achieved in
the previous season, whilst sugar production of 1.72 million tons was
significantly lower due to adverse weather conditions in South Africa and
Tanzania. The rest of the group experienced more normal weather, which,
with effective irrigation and above-average sunshine hours, was conducive
to good cane growth. Record cane production was achieved in Malawi.
Factory performance in general was satisfactory with high levels of
mechanical and operational efficiency being achieved. The operation in
Mozambique performed well and a number of records were established, whilst
record sugar production was attained by the operations in Malawi. The
recovery of sugar from cane was in general lower than in the previous year,
partly as a result of poorer cane quality. The downstream operations
performed well, with record output of ethyl alcohol, diacetyl and
lactulose.
The group supplies sugar and downstream products to domestic, regional and
world markets. Domestic sales are very important to the business, and it
is encouraging that they have shown an improvement across the group. Sales
into domestic markets contributed 64% to total revenue, whilst exports to
110 countries contributed the balance. A strength of the group is that 74%
of sugar production by volume and 80% by value was sold into the domestic
or premium-priced export markets.
The world sugar price, although continuing to be volatile, trended
downwards from a peak in February 2006. Increased sugar output by producers
around the globe, particularly India, Brazil, China and Thailand, resulted
in the global production deficits of the previous two years switching to a
surplus in the 2006/07 international sugar season which ends in September
2007. This combined with other factors, such as the lower than anticipated
production quota reductions forecast for 2007/08 in the European Union
(EU), resulted in sugar prices coming under pressure from May 2006 onwards
and were around the US10 cents/lb level at the end of the financial year.
Nevertheless, the group benefited from the much improved prices available
during the season, thereby improving revenues from both world and regional
markets. Improved refined premiums were also achieved. The near to medium-
term outlook will be dependent on a number of factors, including how much
of India`s increased production will be exported, the size of the
Brazilian cane crop and the amount of cane which is utilised for fuel-
alcohol production, the demand for fuel-alcohol in general, and the level
of sugar imports. Normal world consumption growth for sugar is around 2%
per annum, but last year with higher sugar prices, it is estimated that
consumption increased by only 1.8%, whereas at current lower prices,
estimates are that the increase in consumption will be greater than normal.
In the longer-term, prices will be influenced by growth in sugar
consumption, the demand for fuel-alcohol, the impact of the changes to the
EU sugar regime and the ability of producers to meet the increase in
requirements. The cost of installing and the operating costs of new
production capacity, and the exchange rate in Brazil will be major drivers
in the price required by producers to meet future demand for both sugar and
fuel-alcohol.
The changes to the EU sugar regime have only partially achieved the
objective of reducing domestic sugar production, and the European
Commission is preparing to amend the domestic quota restructuring scheme in
the light of experience todate. The inadequate take-up of the scheme would
result in surplus production for both the current and future years, and
this has affected market stability. The new proposals are expected to make
voluntary quota renunciations more attractive to growers and manufacturers.
These amendments are aimed at re-establishing market equilibrium within the
EU prior to 2009, when increased imports from Least Developed Countries
(LDC`s) are expected. On the basis of reduced EU domestic sugar
production, increased access for African, Carribean and Pacific (ACP)
countries and LDC`s is also being provided. The consequent removal or
positive modifications to quota and tariff limitations has been tabled by
the European Commission for inclusion in the Economic Partnership Agreement
negotiations. These changes will not apply to South Africa, which is
currently not a beneficiary under the ACP Sugar Protocol.
The Board has approved a major expansion of sugar and cane production in
Zambia. An additional 10 500 hectares of irrigated cane will be developed
by the company and its growers, representing a 50% increase in area. The
factory at Nakambala is being expanded from 410 tons of cane per hour to
640 tons of cane per hour, which will enable it to produce 440 000 tons of
sugar per annum, an increase of around 200 000 tons compared to the past
year. The project, which commenced in April 2007, will be undertaken over
two years and will cost R1.4 billion. The first phase of the expansion to
465 tons of cane per hour will be completed in time for the commencement of
the 2008/09 sugar season. The long-lead time items of plant have been
ordered, and the installation of the irrigation infrastructure for the
company`s cane development and for certain growers` needs will be
undertaken during the current season. The project has had good support
from the Zambian Government which has granted a number of investment
incentives in terms of prevailing legislation. Smaller factory expansions
in both Malawi, at Dwangwa, and in Tanzania are planned during the current
financial year. In addition, extra areas will be planted to cane in Malawi
and Tanzania.
During the year R124.7 million was spent on replacement of plant and
equipment to ensure that the group`s operating assets are maintained in a
sound condition, that strategic plant is adequately protected against
breakdown, and that product quality is of the highest standard. In
addition R96.0 million was invested in expansion projects and on product
registrations.
Details of the group`s compliance with the Code of Corporate Practices and
Conduct as contained in the King Report on Corporate Governance for South
Africa 2002, and the Listings Requirements of the JSE Limited, are
disclosed in the 2007 Annual Report which is to be issued in the third week
of June 2007.
Dividend
The final dividend has been increased to 45.0 cents per share (2006: 42.5
cents) which results in a total distribution of 75.0 cents (2006: 62.5
cents) for the full year, which is in line with the objective of dividends
being twice covered by earnings.
Outlook
In the current year, own cane, sugar and downstream production are
anticipated to exceed the levels achieved in the past year. World prices
have declined from last year`s levels which will impact on revenues from
both world and regional markets. The results for the current year will
again be impacted by the level of the rand compared to other currencies,
particularly the US dollar. In recent weeks, the rand has strengthened
considerably which will impact negatively on profits. Overall, it is
anticipated that growth in earnings in real terms will be achieved in the
year ahead.
Illovo`s existing factory and field operations have significant growth
potential and the major expansion in Zambia is the first step in this
process. Further investments in Africa continue to be pursued.
On behalf of the Board
R A Williams D G MacLeod
Chairman Managing Director
Mount Edgecombe
21 May 2007
GROUP INCOME STATEMENT
Year ended 31 March
2007 2006
Change
Notes Rm Rm %
Revenue 6 263.6 5 468.8 15
Operating profit 1 034.3 751.5 38
Net financing costs 2 96.4 100.9
Profit before material items 937.9 650.6
Material items 3 4.2 3.5
Profit before taxation 942.1 654.1
Taxation 288.3 197.3
Profit after taxation 653.8 456.8
Attributable to outside
shareholders in
subsidiary companies 137.3 99.1
Net profit attributable
to shareholders
in Illovo Sugar Limited 516.5 357.7 44
Determination of headline
earnings:
Net profit attributable to 516.5 357.7 44
shareholders
Adjusted for :
Profit on disposal of property 3 (3.7) (3.3)
Loss/(profit) on disposal of plant and 2.5 (2.0)
equipment
Headline earnings 515.3 352.4 46
Number of shares in issue (millions) 348.9 340.1
Weighted average number of
shares on which
headline earnings per share are based 345.5 338.2
(millions)
Headline earnings per share (cents) 149.1 104.2 43
Diluted headline earnings per share 147.7 101.4
(cents)
Dividend per share (cents) 75.0 62.5 20
The auditors, Deloitte & Touche, have issued their opinion on the group`s
annual financial statements for the year ended 31 March 2007. 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
condensed financial statements have been derived from and are consistent in
all material respects with the group`s annual financial statements.
ABRIDGED GROUP BALANCE SHEET
31 March
2007 2006
Rm Rm
ASSETS
Non-current assets 2 576.8 2 362.6
Property, plant and equipment 1 841.0 1 704.9
Cane roots 661.6 589.1
Investments 74.2 68.6
Current assets 1 891.4 1 633.5
Inventories 510.1 470.8
Growing cane 743.1 657.9
Accounts receivable 638.2 504.8
Total assets 4 468.2 3 996.1
EQUITY AND LIABILITIES
Total equity 2 228.3 1 813.5
Equity holders` interest 1,771.7 1,425.5
Minority shareholders` interest 456.6 388.0
Non-current liabilities 846.0 922.5
Deferred taxation 574.3 481.5
Net borrowings 271.7 441.0
Current liabilities 1 393.9 1 260.1
Accounts payable and provisions 1 303.3 1 170.7
Financial instruments 90.6
89.4
Total equity and liabilities 4 468.2 3 996.1
OTHER SALIENT FEATURES
Operating margin (%) 16.5 13.7
Gearing (%) 12.2 24.3
Interest cover (times) 10.7 7.4
Return on net assets (%) 28.5 25.2
Net asset value per share (cents) 638.7 533.2
Depreciation 140.4 127.7
Capital expenditure 220.7 205.0
- expansion 90.5 75.4
- product registration costs 5.5 8.8
- replacement 124.7 120.8
Capital commitments 1 799.0 284.2
- contracted 29.2 28.1
- approved but not contracted 1 769.8 256.1
Lease commitments 92.9 115.2
- land and buildings 30.6 46.8
- other 62.3
68.4
Contingent liabilities 5.2
10.5
ABRIDGED GROUP CASH FLOW STATEMENT
Year ended 31 March
2007 2006
Rm Rm
Cash flows from operating
and investing activities
Cash operating profit 1 058.7 710.5
Working capital (61.0) 117.2
requirements
Cash generated from 997.7 827.7
operations
Replacement capital (124.7) (120.8)
expenditure
Financing costs, taxation (608.4) (341.3)
and dividend
Net investment in future (113.2) (98.7)
operations
Other movements 30.4 43.9
Net cash inflow before 181.8 310.8
financing activities
STATEMENT OF CHANGES IN EQUITY
Year ended 31 March
2007 2006
Rm Rm
Share capital and share premium
Balance at beginning of the period 298.4 282.5
Issue of new shares 56.1 15.9
Balance at end of the period 354.5 298.4
Share-based payments reserve
Balance at beginning of the period 8.1 4.4
Share-based payment expense 2.8 3.7
Balance at end of the period 10.9 8.1
Non-distributable reserves
Balance at beginning of the period 122.1 95.4
Realised profit on disposal of land 3.7 0.2
Effect of foreign currency translation 13.2 26.6
Effect of cash flow hedges 7.3 (0.1)
Balance at end of the period 146.3 122.1
Retained surplus
Balance at beginning of the period 852.3 707.2
Realised profit on disposal of land (3.7) (0.2)
Transfer to dividend reserve (262.1) (212.4)
Net profit for the period 516.5 357.7
Balance at end of the period 1 103.0 852.3
Dividend reserve
Balance at beginning of the period 144.6 45.5
Transfer from retained surplus 262.1 212.4
Dividends paid (249.7) (113.3)
Balance at end of the period 157.0 144.6
Equity holders` interest 1 771.7 1,425.5
Minority shareholders` interest
Balance at beginning of the period 388.0 330.9
Effect of foreign currency translation 13.1 (6.7)
Dividends paid (84.5) (37.6)
Increase in shareholding 2.7 2.3
Net profit for the period 137.3 99.1
Balance at end of the period 456.6 388.0
Total equity 2 228.3 1 813.5
SEGMENTAL ANALYSIS
Year ended 31 March
2007 2006
Rm % Rm %
BUSINESS SEGMENTS
Revenue
Sugar production 4 410.7 70 3 883.2 71
Cane growing 1 344.8 22 1 081.5 20
Downstream 508.1 8 504.1 9
6 263.6 5 468.8
Operating profit
Sugar production 612.4 59 463.9 62
Cane growing 340.8 33 235.3 31
Downstream 81.1 8 52.3 7
1 034.3 751.5
Total assets
Sugar production 2 253.1 51 2 060.8 51
Cane growing 1 930.9 43 1 701.9 43
Downstream 284.2 6 233.4 6
4 468.2 3 996.1
GEOGRAPHICAL SEGMENTS
Revenue
South Africa 2 824.1 45 2 631.1 48
Malawi 1 137.5 18 938.0 17
Zambia 1 053.1 17 784.9 14
Swaziland 612.8 10 586.1 11
Tanzania 423.3 7 353.9 7
Mozambique 212.8 3 174.8 3
6 263.6 5 468.8
Operating profit
South Africa 213.1 21 156.8 21
Malawi 408.5 39 293.3 39
Zambia 232.3 22 153.2 20
Swaziland 68.9 7 73.0 10
Tanzania 93.6 9 68.6 9
Mozambique 17.9 2 6.6 1
1 034.3 751.5
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The audited results for the year ended 31
March 2007 have been prepared using
accounting policies that comply with
International Financial Reporting
Standards and are consistent with those of
the previous financial period.
Year ended 31 March
2007 2006
Rm Rm
2. Net financing costs
Interest paid 153.4 159.6
Interest received (27.8) (46.0)
Foreign exchange gains (27.8) (11.7)
Dividend income (1.4) (1.0)
96.4 100.9
3. Material items
Profit on disposal of property 4.2 3.5
Material profit before taxation 4.2 3.5
Taxation (0.5) (0.2)
Material profit attributable to 3.7 3.3
shareholders in Illovo Sugar Limited
DECLARATION OF DIVIDEND NO. 31
Notice is hereby given that a final dividend of 45.0 cents per share has
been declared on the ordinary shares of the company in respect of the year
ended 31 March 2007. This dividend, together with the interim dividend of
30.0 cents per share which was declared on 16 November 2006, makes a total
distribution in respect of the year ended 31 March 2007 of 75.0 cents per
share.
In accordance with the settlement procedures of STRATE, the company has
determined the following salient dates for the payment of the dividend:
Last day to trade cum-dividend Friday, 29 June 2007
Shares commence trading ex-dividend Monday, 2 July 2007
Record date Friday, 6 July 2007
Payment of dividend Monday, 9 July 2007
Share certificates may not be dematerialised / rematerialised between
Monday, 2 July 2007 and Friday, 6 July 2007, both days inclusive.
By order of the Board
G D Knox
Company Secretary
Mount Edgecombe
21 May 2007
Directors:
R A Williams (Chairman)*, D G MacLeod (Managing Director), M I Carr#*, G J
Clark (Australian), B P Connellan*, D Konar*, D R Langlands#*, P A
Lister#*, P M Madi*, I N Mkhize*, R A Norton*, J T Russell, M J Shaw*, B M
Stuart, K Zarnack
# British * Non-executive
Registered office:
Illovo Sugar Park, 1 Montgomery Drive, Mount Edgecombe,
KwaZulu-Natal, South Africa
Postal address:
P O Box 194, Durban, 4000
Website: www.illovosugar.com
Transfer Secretaries:
Link Market Services South Africa (Proprietary) Limited:
11 Diagonal Street, Johannesburg, 2001
P O Box 4844, Johannesburg, 2000
Auditors:
Deloitte & Touche
Sponsor:
J.P.Morgan Equities Limited
Date: 22/05/2007 07:00:03 Produced by the JSE SENS Department.
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