| Thu 18 Nov 2004, 8:34 | | REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004 |
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Illovo Sugar - Interim Report
ILLOVO SUGAR LIMITED
(Incorporated in the Republic of South Africa)
Company registration number 1906/000622/06
Share Code: ILV
ISIN: ZAE000003547
(`Illovo Sugar`)
INTERIM REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004
This report incorporates alternative financial statements which reflect both
actual results based on South African Statements of Generally Accepted
Accounting Practice and those determined on a sugar season basis which in the
directors` opinion is necessary to achieve fair presentation.
The accounting policies used for the actual results in all respects conform to
South African Statements of Generally Accepted Accounting Practice.
The sugar industry is a seasonal agriculturally based business and the payment
processes are such that cash flows throughout the season, which runs from 1
April to 31 March, are derived from the expected tonnages and prices that will
be achieved for the season as a whole. The effect of this is that product sales
tonnages and prices received, and raw material prices paid are provisional in
nature until the conclusion of the season. For this reason the directors
consider that profit figures based on actual cash flows may not represent a fair
presentation of the performance and the results for the period. In respect of
the sugar season basis results, operational profits from cane growing and sugar
production comprise the company`s view of the position at 30 September 2004 as
it relates to the season as a whole. All other results are based on actual
performance. The amounts disclosed in respect of cane growing and sugar
production operations are based on a profit forecast for the year ending 31
March 2005 which has been examined by our auditors, Deloitte & Touche. Their
unqualified accountants` report is available for inspection at the company`s
registered office.
The group has adopted AC501 (Accounting for Secondary Tax on Companies (STC))
with effect from 1 April 2004. As required by AC501, it has been
retrospectively applied, with the comparative figures from the previous year
being restated accordingly. The effect of this application on headline earnings
is an increase of R5.8 million for the current six month period, a reduction of
R9.4 million for the previous comparative six months, and a reduction of R18.9
million for the year ended 31 March 2004. In addition, the group has adopted
AC140 (Business Combinations). In terms of this statement, previously
recognised negative goodwill has been derecognised at the beginning of the
period with a corresponding adjustment to opening retained income.
In all other material respects the principal accounting policies have been
consistently applied.
Review
On a sugar season basis the group experienced disappointing results for the half
year with headline earnings of R65,4 million reflecting a 31,3% decline over the
same period in the previous year. Headline earnings per share of 19,6 cents
represents a 31,5% decrease. The results are however in line with previously
advised expectations of financial performance for the period. Actual profits,
headline earnings and headline earnings per share for the six months were also
impacted by the difficult trading conditions.
Group operating profits, which decreased by 36,5% to R210,8 million, were
severely affected by the continuing strong rand in respect of both sugar and
downstream exports and the translation of profits. Operating profits in Africa
increased in local currencies. The dry weather conditions in South Africa have
caused lower cane, sugar and furfural production, which together with the
difficult operating environment in the United States have also negatively
affected profits. In addition, as a result of the strong rand, local sugar
prices in both South Africa and Swaziland have remained at their previously
reduced levels.
Net financing costs have decreased by R65,8 million due to the cash inflow from
the sale of Gledhow sugar factory and cane growing estates, lower interest rates
and reduced core debt. Borrowings have decreased by R568,2 million compared to
the same period last year.
The contributions to operating profit by sugar production were 63%, cane growing
22% and downstream 15%, and by country were South Africa 3%, Malawi 37%, Zambia
41%, Swaziland 9%, Tanzania 23%, Mozambique (2%) and the United States (11%).
The results in South Africa were particularly disappointing.
In South Africa, the season to date has been characterised by dry conditions
which have resulted in the current sugar production estimate being 18% below
last year. Elsewhere in the group growing conditions have been favourable with
cane and sugar production forecast to exceed that achieved last year. In
general the sugar factories have performed well. Assuming normal growing and
operating conditions for the remainder of the season, group sugar production is
expected to be 1 825 000 tons which is around 100 000 tons lower than last year
excluding the Gledhow and Monitor operations which have been sold. Company cane
production is anticipated to be 5,3 million tons which is 70 000 tons below last
year when the Gledhow operations are excluded. A number of initiatives to
reduce operating costs in South Africa are in the process of implementation.
Downstream factory performance has been good but output of the furfural and
related plants has been negatively impacted by the reduced cane supplies arising
from the dry conditions in South Africa.
The world sugar price has continued to be volatile. However, in recent months
the price has been significantly better than earlier in the year with the
futures prices rising from US 6.50 cents/lb. in May to over US 9.0 cents/lb. by
the end of September. The South African industry has sold around 80% of
anticipated export raw sugar sales at US 7.14 cents/lb. Furfural and furfuryl
alcohol prices have continued to improve in US dollar terms as a result of
strong demand in China.
During the period under review the sale of the Gledhow sugar factory and cane
growing estates on the north coast of KwaZulu-Natal to a broad-based BEE company
was concluded. The sale of the company`s shareholding in Monitor Sugar Company
in the United States was finalised on 30 September 2004 with the proceeds from
the sale being received on 5 October 2004. The company has also entered into
discussions with interested BEE parties regarding the possible sale of the
Umfolozi mill at Mtubatuba in KwaZulu-Natal. These actions are part of the
process to strengthen the balance sheet, re-align the assets and expand the
business through increased production in existing areas of operation in the rest
of Africa and through future acquisitions.
Proposals for reform of the European Sugar sector could have a significant
positive future impact on the company in respect of existing production and on
potential expansion. Negotiations are continuing and the company is actively
participating in the process and providing technical input to the discussions.
It is envisaged that the reform package will be finalised by the middle of 2005.
Dividend
An interim dividend of 12.0 cents per share (2003 : 18.0 cents) has been
declared. It is anticipated that for the full year, 60% of headline earnings
will be paid as a dividend.
Prospects
The results for the year will be considerably impacted by the level of the rand
compared to other currencies, particularly the US dollar. Operations in the
current year are progressing well although the dry conditions in South Africa
have influenced anticipated output of both sugar and downstream operations.
At current exchange rates it is anticipated that the percentage decline in
profit for the full year will be slightly higher than in the first six months on
a sugar season basis. Borrowings at the year end are anticipated to be
substantially less than at the end of the previous year. The profit forecast
has been examined by our auditors Deloitte & Touche and their unqualified
accountants` report is available for inspection at the company`s registered
office.
On behalf of the Board
R A Williams D G MacLeod Mount Edgecombe
Chairman Managing Director 17 November 2004
GROUP INCOME
STATEMENTS
Actual Sugar season Actual
Unaudited basis
Unaudited Audited
Six months ended Six months ended Year
ended
30 September 30 September 31
March
2004 2003 2004 2003 2004
Restated Restated Change Restat
d
Notes Rm Rm Rm Rm % Rm
Revenue 2 346.1 2 761.0 2 780.5 3 319.7 (16.2) 6 488.
Profit from 202.5 273.3 210.8 332.0 (36.5) 726.6
operations
Net financing costs 1 66.5 132.3 66.5 132.3 256.4
Profit before 136.0 141.0 144.3 199.7 (27.7) 470.2
abnormal items
Abnormal items 2 (68.3) 2.8 (68.3) 2.8 1.9
Profit before 67.7 143.8 76.0 202.5 472.1
taxation
Taxation 35.0 41.8 41.4 62.0 141.4
Profit after 32.7 102.0 34.6 140.5 330.7
taxation
Attributable to
outside
shareholders in
subsidiary 45.4 44.7 35.1 40.3 90.2
companies
Net (loss)/profit
attributable to
shareholders
in Illovo Sugar (12.7) 57.3 (0.5) 100.2 240.5
Limited
Headline earnings 53.2 52.3 65.4 95.2 (31.3) 237.6
Determination of
headline earnings :
Net (loss)/profit (12.7) 57.3 (0.5) 100.2 240.5
attributable to
shareholders
Adjusted for :
Net loss on sale of 65.6 - 65.6 - -
Gledhow and Monitor
Sugar
Loss/(profit) on 2.7 (2.8) 2.7 (2.8) (1.9)
disposal of
property
Profit on disposal (2.4) (1.6) (2.4) (1.6) (1.1)
of plant and
equipment
Amortisation of - (0.6) - (0.6) (1.1)
goodwill
Reorganisation of - - - - 1.2
long-term debt
Headline earnings 53.2 52.3 65.4 95.2 (31.3) 237.6
Number of shares in 334.4 333.3 334.4 333.3 333.8
issue (millions)
Weighted average
number of shares on
which headline
earnings per share
are based 334.0 333.1 334.0 333.1 333.3
(millions)
Headline earnings 15.9 15.7 19.6 28.6 ( 31.5) 71.3
per share (cents)
Diluted headline 15.9 14.6 19.4 27.5 68.0
earnings per share
(cents)
Dividend per share 12.0 18.0 12.0 18.0 ( 33.3) 46.0
(cents)
BUSINESS SEGMENTAL ANALYSIS
Actual Sugar season Actual
Unaudited basis
Unaudited Audited
Six months ended Six months Year ende
ended
30 September 30 September 31 March
2004 2003 2004 2003 2004
Restated Restated Restated
Rm Rm Rm % Rm % Rm
Revenue
Sugar 1,481.6 1,770.5 2,101.2 76 2,542.1 77 4 892.1
production
Cane growing 652.1 740.3 466.9 17 527.4 16 1,040.7
Downstream 212.4 250.2 212.4 7 250.2 8 555.4
2 346.1 2 761.0 2 780.5 3 319.7 6 488.2
Profit from
operations
Sugar 145.6 166.4 132.7 63 198.8 60 424.7
production
Cane growing 25.5 79.0 46.7 22 105.3 32 236.8
Downstream 31.4 27.9 31.4 15 27.9 8 65.1
202.5 273.3 210.8 332.0 726.6
NOTES TO THE FINANCIAL STATEMENTS
Unaudited Audited
Six months Year end
ended
30 September 31 March
2004 2003 2004
Rm Rm Rm
1. Net financing costs
Interest paid 86.9 143.3 286.7
Interest received (18.6) (9.9) (27.7)
Dividend income (1.8) (1.1) (2.6)
66.5 132.3 256.4
2. Abnormal items
Net loss on sale of Gledhow (65.6) - -
and Monitor Sugar
(Loss) / profit on disposal of (2.7) 2.8 1.9
property
Abnormal (loss) / profit (68.3) 2.8 1.9
before taxation
Taxation - - (0.2)
Abnormal (loss) / profit attributable to shareholders
in Illovo Sugar Limited (68.3) 2.8 1.7
3. Discontinuance of United
States operation
Effective 30 September 2004, the group disposed of its investment in
Monitor Sugar Company. The total consideration of US$39.2 million was
settled partly in cash of US$36 million in October 2004 and the balance of
US$3.2 million by delivery of a ten year promissory note. Upon receipt of
the cash the group immediately settled liabilities in Monitor Sugar
Company of US$20.9 million. The consideration net of costs associated
with the disposal represents a deficit over the net asset value at 30
September 2004 of R242.7 million. In addition to the proceeds, the
borrowings in Monitor Sugar were taken over by the purchaser. At 31 March
2004 these amounted to US$48.7 million.
The results of the operations of Monitor Sugar Company to 30 September
2004 were as follows :
Actual Sugar season Actual
basis
Unaudited Unaudited Audited
Six months ended Six months Year ended
ended
30 September 30 September 31 March
2004 2003 2004 2003 2004
Restated Restated Restated
Rm Rm Rm Rm Rm
Revenue 334.5 374.4 334.5 415.7 727.3
Loss from (22.8) (7.6) (22.8) (7.0) (10.6)
operations
Net 2.9 3.5 2.9 3.5 7.3
financing
costs
Loss before (25.7) (11.1) (25.7) (10.5) (17.9)
taxation
Taxation (7.7) (3.1) (7.7) (2.9) (6.1)
Loss after (18.0) (8.0) (18.0) (7.6) (11.8)
taxation
The net cash flow attributable to Monitor Sugar
Company to 30 September 2004 was as follows :
Cash flow from 152.3 89.6 152.3 89.6 25.8
operating activities
Cash flow from 1.7 8.5 1.7 8.5 8.2
investing activities
Net cash flow before 154.0 98.1 154.0 98.1 34.0
financing activities
Cash flow from (156.3) (103.4) (156.3) (103.4) (42.6)
financing activities
Net (2.3) (5.3) (2.3) (5.3) (8.6)
movement in
cash
ABRIDGED GROUP BALANCE SHEETS
Actual Sugar season basis Actual
Unaudited Unaudited Audited
30 September
30 September 31 March
2004 2003 2004 2003 2004
Restate Restated Restated
d
Rm Rm Rm Rm Rm
ASSETS
Non-current assets 2 445.9 3 349.0 2 445.9 3 349.0 3 159.2
Property, plant and 1 916.4 2 781.3 1 916.4 2 781.3 2 581.2
equipment
Cane roots 442.1 460.8 442.1 460.8 518.4
Investments 87.4 129.6 87.4 129.6 80.6
Goodwill - (22.7) - (22.7) (21.0)
Current assets 2 438.7 2 685.2 2 438.7 2 685.2 1 802.1
Total assets 4 884.6 6 034.2 4 884.6 6 034.2 4 961.3
EQUITY AND LIABILITIES
Capital and reserves 1 174.5 1 309.7 1 186.7 1 352.6 1 295.1
Interest of outside 430.4 358.5 420.0 354.1 409.9
shareholders in
subsidiaries
Deferred taxation 482.4 556.4 488.8 576.9 608.5
Net borrowings 1 717.0 2 285.2 1 717.0 2 285.2 1 366.3
Current liabilities 1 080.3 1 524.4 1 072.1 1 465.4 1 281.5
Total equity and 4 884.6 6 034.2 4 884.6 6 034.2 4 961.3
liabilities
OTHER SALIENT FEATURES
Operating margin (%) 8.6 9.9 7.6 10.0 11.2
Gearing (%) 107.0 137.0 106.9 133.9 80.1
Interest cover (times) 3.0 2.1 3.2 2.5 2.8
Net asset value per 351.2 392.9 354.9 405.8 388.0
share (cents)
Depreciation 109.3 117.5 109.3 117.5 236.2
Capital expenditure 104.5 97.1 104.5 97.1 198.5
- expansion 18.0 7.7 18.0 7.7 27.1
- product registration 1.7 3.2 1.7 3.2 12.5
costs
- replacement 84.8 86.2 84.8 86.2 158.9
Capital commitments 268.9 222.7 268.9 222.7 242.1
- contracted 35.9 29.8 35.9 29.8 19.4
- approved but not 233.0 192.9 233.0 192.9 222.7
contracted
Lease commitments 112.9 584.6 112.9 584.6 495.3
- land and buildings 40.5 518.4 40.5 518.4 429.7
- other 72.4 66.2 72.4 66.2 65.6
Contingent liabilities 13.4 8.3 13.4 8.3 16.0
ABRIDGED GROUP CASH FLOW
STATEMENTS
Actual Sugar season basis Actual
Unaudited Unaudited
Six months ended Six months ended
Audited
Year
ended
30 September 30 September 31 Marc
2004 2003 2004 2003 2004
Restated Restated Restat
Rm Rm Rm Rm Rm
Cash flows from operating and
investing activities
Cash 481.5 523.4 489.8 582.9 816.7
operating
profit
Working capital (1,055.9) (810.8) (1,064.2) (870.3) 42.3
requirements
Cash (utilised (574.4) (287.4) (574.4) (287.4) 859.0
by)/generated from
operations
Replacement (85.0) (86.2) (85.0) (86.2) (158.9)
capital
Interest, taxation and (202.8) (321.5) (202.8) (321.5) (600.4)
dividend
Net investment in future 395.5 (21.1) 395.5 (21.1) (46.4)
operations
Other 7.6 8.6 7.6 8.6 41.7
movements
Net cash (outflow) / inflow (459.1) (707.6) (459.1) (707.6) 95.0
before financing activities
STATEMENT OF CHANGES IN EQUITY
Share capital and share
premium
Balance at beginning of 264.3 259.9 264.3 259.9 259.9
the period
Movements during the 2.9 2.6 2.9 2.6 4.4
period
Balance at end of the 267.2 262.5 267.2 262.5 264.3
period
Non-
distributable
reserves
Balance at beginning of 109.4 91.7 109.4 91.7 91.7
the period
Effect of foreign (33.2) (283.6) (33.2) (283.6) (390.9)
currency translation
Effect of (4.2) - (4.2) - 4.2
cash flow
hedges
Transfer from retained 30.4 286.4 30.4 286.4 404.4
surplus
Balance at end of the 102.4 94.5 102.4 94.5 109.4
period
Retained
surplus
Balance at beginning of 921.4 1,283.5 921.4 1,283.5 1,264.6
the period
Restatement of prior - 21.9 - 21.9 21.9
year in terms of AC501
Reserve arising on - 16.3 - 16.3 (1.3)
implementation of AC133
Derecognition of 20.1 - 20.1 - -
negative goodwill
Dividends (93.5) (139.9) (93.5) (139.9) (199.9)
paid
Transfer to non- (30.4) (286.4) (30.4) (286.4) (404.4)
distributable reserves
Net (loss)/profit for (12.7) 57.3 (0.5) 100.2 240.5
the period
Balance at end of the 804.9 952.7 817.1 995.6 921.4
period
Ordinary shareholders` 1 174.5 1 309.7 1 186.7 1 352.6 1 295.1
equity
DECLARATION OF DIVIDEND NO. 26
Notice is hereby given that an interim dividend of 12.0 cents per share has been
declared on the ordinary shares of the company in respect of the six months
ended 30 September 2004.
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, 31 December 2004
Shares commence trading ex-dividend Monday, 3 January 2005
Record date Friday, 7 January 2005
Payment of dividend Monday, 10 January 2005
Share certificates may not be dematerialised/rematerialised between Monday, 3
January 2005 and Friday, 7 January 2005, both days inclusive.
By order of the Board
G D Knox Mount Edgecombe
Secretary 17 November 2004
Directors :
R A Williams (Chairman)*, D G MacLeod (Managing Director), G J Clark
(Australian), B P Connellan*, R D Hamilton*, N M Hawley, M I Hlatshwayo
(Swazi), D Konar*, P M Madi*, A R Mpungwe (Tanzanian)*, R A Norton*, J T
Russell, M J Shaw*, B M Stuart
*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 :
Computershare Investor Services 2004 (Pty) Ltd, 70 Marshall Street,
Johannesburg, 2001
Auditors :
Deloitte & Touche
Sponsor :
Cazenove South Africa (Proprietary) Limited
Date: 18/11/2004 08:02:02 AM
Produced by the JSE SENS Department
