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Illovo - Interim Results for the six months ended 30 September 2005
ILLOVO SUGAR LIMITED
(Incorporated in the Republic of South Africa)
Company registration number 1906/000622/06
Share Code: ILV
ISIN: ZAE000003547
("Illovo")
Interim Results for the six months ended 30 September 2005
*Group operating profit up 46.5% to R315.6 million
*Net financing costs down 34% to R44.1 million
*Headline earnings per share up 114.4% to 43.8 cents
*Record sugar production expected in operating countries outside South
Africa
*Interim dividend of 20.0 cents per share (2004: 12.0 cents)
Don MacLeod, MD commented:
"We have achieved good results for the half year due to increased
production, higher world sugar price and greater efficiencies in our
South African operations. Our balance sheet is strong with reduced debt
and lower gearing. Sugar and cane production for the season is expected
to exceed that of last year and we are well set to produce improved
results for the full year depending on the level of the rand."
16 November 2005
Enquiries:
Illovo Sugar
031 508 4300
Don MacLeod, Managing Director
Karin Zarnack, Financial Director
Chris Fitz-Gerald, Corporate Communications
College Hill: 011 447 3030
Nicholas Williams: 083 607 0761
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005
Basis of preparation
This report incorporates financial statements, which reflect both actual
results based on International Financial Reporting Standards ("IFRS")
and those determined on a sugar season basis, which in the directors"
opinion provide a better basis for evaluating the financial performance
of the company.
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 the best basis for
evaluating the performance and the results for the period. In respect
of the sugar season basis results, operational profits for cane growing
and sugar production comprise the company"s view of the position at 30
September 2005 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 2006, 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 changed its accounting policies to comply with IFRS2
(share-based payments), IAS16 (property, plant and equipment), IAS17
(operating leases) and IAS31 (interest in joint ventures) with effect
from 1 April 2004.
These standards have been retrospectively applied, with the comparative
figures from the previous year being restated accordingly. The effect
of the application of these standards on headline earnings is an
increase of R4,1 million for the current six month period, an increase
of R2,8 million for the previous comparative six months, and an increase
of R10,7 million for the year ended 31 March 2005.
In all other material respects the principal accounting policies have
been consistently applied.
Review
On a sugar season basis the group has achieved significantly improved
results for the half year with headline earnings of R147,7 million
reflecting a 116,6% improvement over the same period in the previous
year. Headline earnings per share of 43,8 cents represents a 114,4%
increase.
Group operating profits which increased by 46,5% to R315,6 million,
benefited from the higher world sugar price, increased sugar and
downstream production, the restructuring of operations in South Africa,
improved domestic market sales and the sale of the loss-making Monitor
Sugar. Net financing costs have decreased by R22,7 million whilst
borrowings are R249,1 million lower compared to the same period last
year.
The contributions to operating profit were: sugar production 70%, cane
growing 22% and downstream 8%. By country contributions were: South
Africa 19%, Malawi 34%, Zambia 26%, Swaziland 10%, Tanzania 12% and
Mozambique (1%).
The season to date has been characterised by dry conditions in all
countries of operation. In South Africa this has impacted negatively on
production potential, although output is much improved compared to last
year. However elsewhere in the group good irrigation and long sunshine
hours have resulted in favourable growing conditions 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 1 850 000 tons which is 200 000 tons above
last year, excluding the Umfolozi operations which were sold at the end
of the last season. The sugar production estimates in every country of
operation, except South Africa, represent record outputs. Company cane
production is anticipated to be 5,45 million tons which is 200 000 tons
above last year.
Downstream operations achieved good operating performance and production
levels are expected to be better than those achieved last season.
The world sugar price has increased significantly in the past few months
although it remains volatile. The price has risen from US8,5 cents/lb
in April to over US11,2 cents/lb by the end of September. The South
African sugar industry has sold around 85% of anticipated export raw
sugar sales at US9,32 cents/lb. Furfural and furfuryl alcohol prices in
the Far East and furfuryl alcohol prices in Europe have declined this
season due to increased production in China. However furfural prices in
Europe and the United States where the majority of Illovo"s products are
sold have been less affected. Furfural raw material prices in China
have recently increased significantly and the prices of both commodities
are therefore anticipated to rise to better levels.
Proposals for reform of the European sugar sector could have a material
impact on the company in the medium to longer term. The EU sugar price
is anticipated to decline substantially over a period of time, but this
will be offset by increased access to the European market, which will
enable the group to expand its operations against a background of known
future prices. The European Commission is finalising its reform package
for consideration by the European Union Council of Agricultural
Ministers at the end of November 2005.
Directorate
Karin Zarnack has been appointed financial director, whilst the
executive responsibilities of John Russell have been changed from
financial director to new projects director. Robin Hamilton, who has
been a director for 17 years, has retired from the Board and we thank
him for his valued contribution to the Illovo group. We are pleased to
welcome Imogen Mkhize as a non-executive director of the company.
Dividend
An interim dividend of 20,0 cents per share (2004: 12,0 cents) has been
declared. It is anticipated that for the full year 60% of headline
earnings will be paid as a dividend.
Prospects
Operations for the current year are progressing well and good production
levels are anticipated. However results for the year will be influenced
by the level of the rand compared to other currencies and final sugar
production. For the full year to 31 March 2006, subject to the rand
continuing at around its present level, and as an up-date to the Trading
Statement issued on 14 September 2005, headline earnings are now
expected to be between 80% and 100% higher than in the previous
financial 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
Chairman
D G MacLeod
Managing Director
Mount Edgecombe
16 November 2005
Group Income Statements
Actual Sugar season basis Actual
Unaudited Unaudited Audited
Six months ended Six months ended Year
ended
30 September 30 September 31 March
2005 2004 2005 2004 Change 2005
Restated Restated Restated
Notes Rm Rm Rm Rm % Rm
Revenue 2 367.9 2,325.5 2 657.6 2 759.9 (3.7) 5 102.6
Profit from 367.8 207.2 315.6 215.5 46.5 424.6
operations
Net 4 44.1 66.8 44.1 66.8 154.0
financing
costs
Profit before 323.7 140.4 271.5 148.7 270.6
material items
Material 5 0.6 (68.3) 0.6 (68.3) (79.2)
items
Profit 324.3 72.1 272.1 80.4 191.4
before
taxation
Taxation 94.4 37.1 82.6 43.5 89.2
Profit 229.9 35.0 189.5 36.9 102.2
after
taxation
Attributa-
ble to
outside
sharehol-
ders in
subsidiary 64.4 44.9 40.9 34.6 50.8
companies
Net profit
/ (loss)
attribut-
able to
Sharehol- 165.5 (9.9) 148.6 2.3 51.4
ders in
Illovo
Sugar
Limited
Determina-
tion of
headline
earnings :
Net profit 165.5 (9.9) 148.6 2.3 51.4
/ (loss)
attributa-
ble to
sharehol-
ders
Adjusted
for :
Net loss on - 65.6 - 65.6 97.0
sale of
businesses
(Profit)/- (0.6) 2.7 (0.6) 2.7 6.5
loss on
disposal of
property
Profit on (0.3) (2.4) (0.3) (2.4) (1.4)
disposal of
plant and
equipment
Headline 164.6 56.0 147.7 68.2 116.6 153.5
earnings
Number of 337.5 334.4 337.5 334.4 337.2
shares in
issue
(millions)
Weighted
average
number of
shares on
which
headline
earnings 337.4 334.0 337.4 334.0 335.0
per share
are based
(millions)
Headline 48.8 16.8 43.8 20.4 114.4 45.8
earnings
per share
(cents)
Diluted 48.0 16.8 43.2 20.2 45.4
headline
earnings
per share
(cents)
Dividend 20.0 12.0 20.0 12.0 66.7 25.5
per share
(cents)
ABRIDGED GROUP BALANCE SHEETS
Actual Sugar season basis Actual
Unaudited Unaudited Audited
30 September 30 September 31 March
2005 2004 2005 2004 2005
Restated Restated Restated
Rm Rm Rm Rm Rm
Non-current assets 2 339.1 2 241.3 2 339.1 2 241.3 2 310.1
Property, plant 1 700.4 1,711.8 1 700.4 1,711.8 1 679.5
and equipment
Cane roots 557.6 442.1 557.6 442.1 543.7
Investments 81.1 87.4 81.1 87.4 86.9
Current assets 2 589.8 2 467.9 2 589.8 2 467.9 1 522.5
Inventories 1 740.1 1 632.8 1 740.1 1 632.8 938.9
Accounts 849.7 835.1 849.7 835.1 583.6
receivable
Current 1 282.1 1 124.0 1 334.1 1 115.7 1 122.2
liabilities
Accounts payable 1 210.8 1 075.4 1 262.8 1 067.1 1 030.0
and provisions
Financial 71.3 48.6 71.3 48.6 92.2
instruments
Net current assets 1 307.7 1 343.9 1 255.7 1 352.2 400.3
Non-current liabilities
Deferred taxation 476.6 416.0 465.0 422.4 436.2
Net borrowings 1 473.1 1,722.2 1 473.1 1,722.2 800.8
Net assets 1 697.1 1 447.0 1 656.7 1 448.9 1 473.4
EQUITY
Equity holders" 1 313.5 1 100.6 1 296.6 1 112.8 1 140.5
interest
Minority 383.6 346.4 360.1 336.1 332.9
shareholders"
interest
Total equity 1 697.1 1 447.0 1 656.7 1 448.9 1 473.4
OTHER SALIENT FEATURES
Operating margin 15.5 8.9 11.9 7.8 8.3
(%)
Gearing (%) 86.8 119.0 88.9 118.9 54.4
Interest cover 8.3 3.1 7.2 3.2 2.8
(times)
Net asset value per 502.8 432.7 490.9 433.3 437.0
share (cents)
Depreciation 64.4 100.8 64.4 100.8 154.7
Capital expenditure 68.9 104.5 68.9 104.5 332.1
- expansion 27.8 18.0 27.8 18.0 18.5
- product 2.0 1.7 2.0 1.7 7.3
registration costs
- operating leases - - - - 172.2
- replacement 39.1 84.8 39.1 84.8 134.1
Capital commitments 175.7 268.9 175.7 268.9 245.4
- contracted 81.3 35.9 81.3 35.9 11.6
- approved but not 94.4 233.0 94.4 233.0 233.8
contracted
Lease commitments 169.1 195.4 169.1 195.4 182.1
- land and 88.1 107.4 88.1 107.4 115.2
buildings
- other 81.0 88.0 81.0 88.0 66.9
Contingent 11.2 13.4 11.2 13.4 14.4
liabilities
ABRIDGED GROUP CASH FLOW STATEMENTS
Actual Sugar season basis Actual
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 September 30 September 31 March
2005 2004 2005 2004 2005
Restated Restated Restated
Rm Rm Rm Rm Rm
Cash flows from
operating and
investing
activities
Cash operating 575.1 481.5 522.9 489.8 527.6
profit
Working capital (980.8) (1,055.9) (928.6) (1,064.2) 128.8
requirements
Cash (utilised (405.7) (574.4) (405.7) (574.4) 656.4
by)/generated from
operations
Replacement capital (39.1) (85.0) (39.1) (85.0) (298.0)
Finance costs, (165.1) (202.8) (165.1) (202.8) (390.1)
taxation and
dividend
Net investment in (45.9) (34.4) (45.9) (34.4) (35.9)
future operations
Cash flow from - 429.9 - 429.9 429.9
businesses sold
Other movements 2.6 7.6 2.6 7.6 17.5
Net cash (outflow) (653.2) (459.1) (653.2) (459.1) 379.8
/ inflow before
financing
activities
STATEMENT OF CHANGES IN EQUITY
Share capital and
share premium
Balance at 282.5 264.3 282.5 264.3 264.3
beginning of the
period
Issue of new shares 1.5 2.9 1.5 2.9 18.2
Balance at end of 284.0 267.2 284.0 267.2 282.5
the period
Share-based
payments reserve
Balance at 2.8 - 2.8 - -
beginning of the
period
Share-based payment 1.5 1.4 1.5 1.4 2.8
expense
Balance at end of 4.3 1.4 4.3 1.4 2.8
the period
Non-distributable
reserves
Balance at 98.5 109.4 98.5 109.4 109.4
beginning of the
period
Effect of foreign 50.0 (37.8) 50.0 (37.8) (32.5)
current translation
Effect of cash flow - (4.2) - (4.2) (9.7)
hedges
Transfer (to)/from (54.8) 30.4 (54.8) 30.4 31.3
retained surplus -
Foreign Currency
Translation Reserve
(FCTR)
Balance at end of 93.7 97.8 93.7 97.8 98.5
the period
Retained surplus
Balance at 711.2 921.3 711.2 921.3 921.3
beginning of the
period
Restatement of (73.6) (73.6) (73.6)
opening balance
Dividend reserve (93.5) (93.5) (93.5)
opening balance
transfer
Realised profit on - - 1.5
disposal of land
Adjustment for 0.2 0.2 0.2
AC133
Derecognition of 20.1 20.1 21.0
negative goodwill
Transfer to (67.5) (40.1) (67.5) (40.1) (85.8)
dividend reserve
Transfer from/(to) 54.8 (30.4) 54.8 (30.4) (31.3)
non-distributable
reserves - FCTR
Net profit / (loss) 165.5 (9.9) 148.6 2.3 51.4
for the period
Balance at end of 864.0 694.1 847.1 706.3 711.2
the period
Dividend reserve
Balance at 45.5 93.5 45.5 93.5 93.5
beginning of the
period
Transfer from 67.5 40.1 67.5 40.1 85.8
retained surplus
Dividends paid (45.5) (93.5) (45.5) (93.5) (133.8)
Balance at end of 67.5 40.1 67.5 40.1 45.5
the period
Equity holders" 1,313.5 1,100.6 1,296.6 1,112.8 1,140.5
interest
Minority
shareholders
interest
Balance at 332.9 409.9 332.9 409.9 409.9
beginning of the
period
Restatement of (79.0) (79.0) (79.0)
opening balance
Effect of foreign 1.1 (7.3) 1.1 (7.3) (6.6)
current translation
Dividends paid (14.8) (22.1) (14.8) (22.1) (42.2)
Net profit for the 64.4 44.9 40.9 34.6 50.8
period
Balance at end of 383.6 346.4 360.1 336.1 332.9
the period
Total equity 1 697.1 1 447.0 1 656.7 1 448.9 1 473.4
BUSINESS SEGMENTAL ANALYSIS
Actual Sugar season basis Actual
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 September 30 September 31 March
2005 2004 2005 2004 2005
Restated Restated Restated
Rm Rm Rm % Rm % Rm
Revenue
Sugar 1,368.2 1,481.6 1,933.0 73 2,101.2 76 3 740.3
production
Cane growing 787.8 652.1 512.7 19 466.9 17 893.6
Downstream 211.9 191.8 211.9 8 191.8 7 468.7
2 367.9 2 325.5 2 657.6 2 759.9 5 102.6
Profit from
operations
Sugar 257.0 152.0 220.5 70 139.1 64 295.8
production
Cane growing 86.1 25.5 70.4 22 46.7 22 63.8
Downstream 24.7 29.7 24.7 8 29.7 14 65.0
367.8 207.2 315.6 215.5 424.6
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The group has adopted IFRS with a transition date of 1 April 2004. The
unaudited actual results for the six months ended 30 September 2005 have
been prepared using accounting policies that comply with IFRS and are
prepared in accordance with IAS 34, Interim Financial reporting with the
comparatives restated accordingly. The group is reporting under IFRS for
the first time for the year ending 31 March 2006.
The accounting policies adopted are consistent with those of the
previous financial period, except for those described in note 2.
2. New accounting policies adopted:
2.1 Share-based payments (IFRS 2)
In accordance with the transitional provisions, IFRS 2 has been applied
to all grants of equity-settled payments after 7 November 2002 that were
unvested as at 1 January 2005. The group issued equity-settled
instruments to certain qualifying employees under an Employee Share
Option Scheme to purchase shares in the company"s authorised but
unissued share capital. Equity share-based payments are measured at the
fair value of the equity instruments at the date of the grant. The
deferred share-based compensation is expensed over the vesting period,
based on the company"s estimate of the shares that are expected to
eventually vest with a corresponding credit to a share-based payments
reserve in equity.
2.2 Property, plant and equipment (IAS 16)
In accordance with IAS 16, the group has adopted the componentisation
approach to property, plant and equipment. This requires amortisation to
be determined separately for each significant part of an item of
property, plant and equipment. In addition, costs relating to the moving
and certain indirect costs relating to the rehabilitation of items of
property, plant and equipment which were previously capitalized to the
asset, are now written-off in the period in which they are incurred. The
group has made an election in terms of IFRS 1 (First-time adoption of
IFRS) for certain items of property, plant and equipment whereby their
fair value at the date of transition is deemed to be cost.
2.3 Operating leases (IAS 17)
In accordance with Circular 7/2005 of SAICA in respect of the accounting
treatment of operating leases, the group now reports all operating
leases with fixed rate escalations as an expense on a
straight line basis over the period of the lease.
2.4 Interests in Joint Ventures (IAS 31)
In accordance with IAS 31 the group now accounts for investments in
jointly controlled entities using the proportionate consolidation method
whereas previously the group accounted for these entities using the full
consolidation method.
3. Reconciliation of changes
in accounting policies
Actual Sugar Actual IFRS
season
basis
Unaudited Unaudited Audited Transition
date
Six Six Year
months months ended
ended ended
30 30 31 1 April
September September March
2004 2004 2005 2004
Rm Rm Rm Rm
Balance sheet
Equity holders"
interest
As previously 1,174.5 1,186.7 1,200.3 1,295.0
reported
Effect of IAS 16 (73.6) (73.6) (73.6) (73.6)
(note 2.2)
Share-based 1.4 1.4 2.8 -
payments reserve
Effect of (4.5) (4.5) 0.3 -
foreign currency
translation
Effect of 2.8 2.8 10.7 -
changes on the
income statement
As restated 1,100.6 1,112.8 1,140.5 1,221.4
Minority
shareholders"
interest
As previously 430.3 420.0 408.4 409.9
reported
Effect of IAS 16 (58.7) (58.7) (58.7) (58.7)
(note 2.2)
Effect of IAS 31 (20.3) (20.3) (20.3) (20.3)
(note 2.4)
Effect of (4.4) (4.4) 2.0 -
foreign currency
translation
Effect of (0.5) (0.5) 1.5 -
changes on the
income statement
As restated 346.4 336.1 332.9 330.9
Income
Statement
Net (12.7) (0.5) 40.7
(loss)/profit as
previously
reported
Effect of IFRS 2 (1.3) (1.3) (2.6)
(note 2.1)
Effect of IAS 16 4.7 4.7 14.6
(note 2.2)
Effect of IAS 17 (0.6) (0.6) (1.3)
(note 2.3)
As restated (9.9) 2.3 51.4
Unaudited Audited
Six months ended Year ended
30 September 31 March
2005 2004 2005
Rm Rm Rm
4. Net financing
costs
Interest paid 88.6 87.2 188.8
Interest received (43.7) (18.6) (32.2)
Dividend income (0.8) (1.8) (2.6)
44.1 66.8 154.0
5.Material items
Net loss on sale of - (65.6) (72.7)
businesses
Profit / (loss) on 0.6 (2.7) (6.5)
disposal of property
Material 0.6 (68.3) (79.2)
profit/(loss) before
taxation
Taxation - - (24.3)
Material
profit/(loss)
attributable to
shareholders
in Illovo 0.6 (68.3) (103.5)
Sugar Limited
DECLARATION OF DIVIDEND NO.28
Notice is hereby given that an interim dividend of 20.0 cents per share
has been declared on the ordinary shares of the company in respect of
the six months ended 30 September 2005.
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: Thursday, 29 December 2005
Shares commence trading ex-dividend: Friday, 30 December 2005
Record date: Friday, 6 January 2006
Payment of dividend: Monday, 9 January 2006
Share certificates may not be dematerialized / rematerialised between
Friday, 30 December 2005 and Friday, 6 January 2006, both days
inclusive.
By order of the Board
G D Knox
Company Secretary
Mount Edgecombe
16 November 2005
Directors:
R A Williams (Chairman)*,
D G MacLeod (Managing Director),
G J Clark (Australian),
B P Connellan*,
N M Hawley,
M I Hlatshwayo (Swazi),
D Konar*,
P M Madi*,
I N Mkhize*,
A R Mpungwe (Tanzanian)*,
R A Norton*,
J T Russell,
M J Shaw*,
B M Stuart,
K Zarnack
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:
Ultra Registrars (Proprietary) Limited:
11 Diagonal Street,
Johannesburg, 2001,
P O Box 4844,
Johannesburg,
2000
Auditors:
Deloitte & Touche
Sponsor:
J.P. Morgan Equities Limited
Date: 17/11/2005 07:00:33 AM Produced by the JSE SENS Department
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