| Wed 21 Jul 2010, 15:33 | | ILV - Illovo Sugar Limited - Annual general meeting - 21 July 2010 chairman`s |
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ILV
ILV
ILV - Illovo Sugar Limited - Annual general meeting - 21 July 2010 chairman`s
address and trading statement
ILLOVO SUGAR LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1906/000622/06)
Share Code: ILV
ISIN: ZAE000083846
ANNUAL GENERAL MEETING - 21 JULY 2010 CHAIRMAN`S ADDRESS AND TRADING STATEMENT
In respect of the year ended 31 March 2010, as already reported, group operating
profit increased by 8% to R1 499 million whilst headline earnings of R703
million showed a decline of 5% over the previous year. As a result of the
dilution effect of the rights issue, headline earnings per share fell by 19% to
171.2 cents.
The group continues with its drive to significantly increase its cane and sugar
production capacity outside of South Africa, and to become self-sufficient in
respect of power requirements for its operations as well as supplying power into
the national electricity grids in the various countries in which it operates.
The first step in the major growth phase was the Zambian expansion project which
was completed on schedule for the beginning of the 2009/10 season. The
expansion resulted in factory capacity increasing to a level which enables sugar
production to rise from 220 000 tons to 450 000 tons per annum. The plant has
settled down and is demonstrating its increased production capability. The
Zambian operation also acquired a large cane growing company, Nanga Farms PLC,
currently producing 325 000 tons cane per annum with the potential to further
increase output. The Maragra expansion project in Mozambique, which has
increased the factory capacity to around 150 000 tons of sugar per annum, was
completed for the start of the current season. Linked to this, the company is
currently involved in projects to increase cane supplies from both its own
estate and local growers.
The Ubombo factory expansion and co-generation project in Swaziland has
commenced with commissioning planned for the start of the 2011/12 season. The
project provides for an increase in annual sugar production from 220 000 tons to
over 300 000 tons, together with an increase in power generation capacity
utilising biomass as supplementary fuel for the factory boilers. The power plant
will enable the factory and estates to become self-sufficient in electricity
consumption. In addition, agreement in principle has been reached with the
Swaziland Electricity Company to supply power into the national grid for 48
weeks of each year. The project is linked to the completion of a major new dam
and canal system sponsored by the Swaziland Government which will facilitate the
development of some 5 000 hectares of new outgrower cane land in the medium-
term. Development of the first 880 hectares of this area is nearing completion
and will be harvested in 2011. A further 400 hectares of outgrower land is
planned for development during the current calendar year. Continued expansion
of cane production on the Ubombo estate is also progressing via the upgrading of
irrigation systems and the development of new areas to cane. An additional 485
hectares will be planted in the current year.
During the last two years, marginal factory capacity expansions have also been
undertaken at Dwangwa and Nchalo in Malawi, and at Kilombero in Tanzania.
Additional areas have also been developed to cane by both the company`s own
estates and outgrowers. New varieties of cane have been introduced and improved
irrigation installed in order to improve cane and sucrose yields. Opportunities
to further increase the area under cane and improve yields together with related
factory expansions are being explored in these countries. In addition,
opportunities for power co-generation are also being assessed. Illovo remains
the largest sugar producer in South Africa and the sugar refinery at Noodsberg
is to be expanded during the course of the current season to consolidate this
position.
The proposed greenfields project in Mali continues to be progressed, and various
pre-project activities are at an advanced stage. The Government of Mali has
provided significant support for the project and subject to the necessary
approvals for the funding of the project being substantially secured in the
second half of the calendar year, the process will advance to final project
preparation. The Malian operation would ultimately produce 195 000 tons of
sugar, 15 000 kilolitres of ethanol for fuel blending, and generate sufficient
electricity for the agricultural and factory operations, with additional
capacity to export power into the national grid.
This shareholders` meeting provides the opportunity to up-date you on the
outlook for the group`s operations in the current year.
Generally climatic conditions outside South Africa have been good and favourable
for crop growth. However, it has been very dry in KwaZulu-Natal and cane yields
are below expectation. Cane production from the group`s own operations is
presently expected to be about 0.7 million tons above last year at around 6.8
million tons.
The performance of the group`s sugar factories has in general been satisfactory
with the expanded factory at Nakambala in Zambia now operating at its new
capacity rating. For the group as a whole, sugar production is expected to be
around 1.8 million tons which is just over 100 000 tons above that of last year.
The downstream plants continue to perform well, with production at the Sezela
operation forecast to be slightly above last year, whilst the Merebank and
Glendale distilleries` output is anticipated to be marginally above last season.
The world sugar market continues to be volatile with futures prices currently
well below the high levels experienced in January / February 2010. This market
is now forecast to be moving into a small surplus for the 2010/11 sugar season,
following increased production estimates in both Brazil and India, and this is
introducing downward pressure on price expectations. The South African sugar
industry has however priced in excess of 60% of its current year`s anticipated
export availability at US19 cents/lb compared to prevailing spot prices of
around US17 cents/lb. Domestic market offtake and prices are expected to remain
positive.
Later in the meeting, shareholders will be asked to approve capital reduction
distributions out of share premium in lieu of dividends. Distributions of this
nature are not liable for Secondary Tax on Companies and should the resolution
be passed, then the effective tax rate for the year is likely to reduce from 30%
to approximately 28%.
Trading Statement
Overall, the forthcoming year is expected to be a difficult one for the company.
The results for the year will again be affected by the level of the rand
compared to other currencies, whilst drought in South Africa will also
negatively affect sugar production in that country. In addition, the weaker
value of the Euro will impact on downstream sales and sugar export earnings from
sales to the European Union. Accordingly, the company expects earnings and
headline earnings to be lower than achieved in the previous financial year.
Earnings per share and headline earnings per share, which will be further
affected by the full year dilution impact of the rights issue completed in
September 2009, are currently expected to be between 15% and 25%, and 20% and
30% lower respectively, than achieved in the financial year ended 31 March 2010.
The forecast financial information on which this trading statement is based has
neither been reviewed nor reported on by the company`s auditors.
Directorate
Brian Connellan and Martin Shaw both retire at this Annual General Meeting and I
thank them for their valuable contribution and wise counsel over the long period
they have been members of the Board.
R A Williams
Chairman
Mount Edgecombe
21 July 2010
Sponsor
J.P. Morgan Equities Limited
Date: 21/07/2010 15:33:08 Produced by the JSE SENS Department.
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