ILV - Illovo Sugar - Interim Report For The Six Months Ended 30 September 2008
Thu, 13 Nov 2008
ILV
ILV
ILV - Illovo Sugar - Interim Report For The Six Months Ended 30 September 2008
and dividend declaration
ILLOVO SUGAR LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1906/000622/06)
Share Code: ILV
ISIN: ZAE000083846
("Illovo" or "the company")
INTERIM REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2008
- Revenue up 30% to R4.5 billion
- HEPS up 35% to 109.9 cents
- Interim dividend
up 26% to 41.5 cents per share
Don MacLeod, Managing Director, commented:
"We are pleased with these results, which have benefited from strong domestic
sugar sales, higher world and regional sugar prices, weaker exchange rates, and
good performance from the downstream operations. We are particularly focused on
completing the second phase of our major expansion project in Zambia by the end
of March 2009, and the expansions in our operations in Malawi and Mozambique are
being progressed. Sugar production in Mali is expected to commence in October
2011. We anticipate good growth in earnings for the full year."
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
Basis of preparation
This report incorporates financial statements which reflect both actual results
based on accounting policies and methods of computation which are 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
2008 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 2009 which has been examined by our auditors, Deloitte & Touche. Their
unmodified accountants` report is available for inspection at the company`s
registered office.
The unaudited actual results for the six months ended 30 September 2008 have
been prepared using accounting policies and methods of computation that comply
with IFRS and are prepared in accordance with IAS34 (Interim financial
reporting). The accounting policies adopted are consistent with those of the
previous financial period.
Review
On a sugar season basis, the group achieved pleasing results for the half year,
with headline earnings of R384.8 million reflecting a 36% improvement over the
same period in the previous year. Headline earnings per share of 109.9 cents
represents a 35% increase.
Group operating profit which increased by 31% to R687.0 million benefited from
improved domestic market sugar sales, higher
world and regional sugar prices,
weaker exchange rates and good results from the downstream operations. Lower
sugar production in South Africa and lower than anticipated production in Zambia
following the first phase of the expansion project, partly offset these
benefits.
Net financing costs are similar to those of the previous year. Borrowings have
increased to R3 298.5 million as a result of major expansion capital expenditure
and increased seasonal working capital.
Taxation at R111.4 million remains relatively low mainly due to the Zambian
subsidiary being granted expansion-related tax allowances. The group`s effective
tax rate is 18.2% (2007: 19.9%).
The contributions to operating profit were sugar production 55%, cane growing
33% and downstream 12%. By country, contributions were South Africa
16%, Malawi
45%, Zambia 16%, Swaziland 8%, Tanzania 10% and Mozambique 5%.
The season to-date has been affected by variable weather conditions. Both South
Africa and Swaziland had a very dry winter, although South Africa has received
welcome spring rains. The rest of the group has experienced normal weather
which with effective irrigation and long sunshine hours has been conducive to
good cane growth.
In general, the sugar factories have performed satisfactorily. Phase 1 of the
factory expansion in Zambia has been difficult and the wet conditions
experienced in the offcrop period resulted in a delayed start to the season.
Mechanical performance of the plant was disappointing in the first few months of
the season, although the factory is now settling down and phase 2 of the project
is on line to commence operation in April 2009. This has restricted Zambian
sugar
production for the season which is forecast to be similar to that of last
year.
Assuming normal growing and operating conditions for the remainder of the
season, group sugar production is expected to be around 1.925 million tons which
is approximately 130 000 tons above last year. The increase in production has
occurred in all countries of operation, although the increase in South Africa
has arisen due to the repossession of the Umfolozi mill at the beginning of the
season. The mills in South Africa, where most of the cane is produced under
rainfed conditions, have seen a decline in production due to a decrease in cane
yields. The whole South African sugar industry has been similarly affected.
Downstream operations have performed well and output is anticipated to be
similar to that of last year. World prices of furfural and lactulose have been
strong.
The world sugar price has been extremely volatile. In the early part of the
year, prices were much stronger as a result of a forecast deficit in production;
however, during recent months, prices have fallen similarly to other
commodities. Overall, the revenue realised from exports to the world market is
significantly higher than in the previous year, and the improved world price has
also impacted favourably on export revenues from regional markets.
Domestic sugar market sales and prices in the countries of operation outside
South Africa have been strong, however in South Africa imports have had a
negative impact on sales volumes.
Subject to certain suspensive conditions, including approval by the Competition
Commission, Illovo has concluded an agreement with a company established by
local cane growers for the sale of its interest in the
Umfolozi mill with effect
from 31 March 2009.
The Mali project continues to make progress, albeit slowly, particularly the
environmental and social impact studies which are required in respect of the
concessional funding for the agricultural development. Sugar production is
expected to commence in October 2011. The growth plans in the other countries of
operation are on schedule.
Directorate
We are pleased to welcome Nosipho Molope to the Board as an independent, non-
executive director. Ms Molope has considerable financial and business
experience.
Don MacLeod, who has been Managing Director of Illovo since 1992, will be
retiring from this position on 31 March 2009. He will, however, remain a
member
of the Board as a non-executive director, and will assume the role of Deputy
Chairman from 1 April 2009.
Graham Clark, previously the Operations Director, has been appointed to succeed
Mr MacLeod as Managing Director on 1 April 2009.
John Russell, currently New Projects Director, will be retiring on 31 March
2009. In line with the company`s succession plan, David Haworth and Larry
Riddle have been appointed executive directors with effect from 1 April 2009.
Dividend
An interim dividend of 41.5 cents per share (2007: 33.0 cents) has been
declared. It is anticipated that for the full year the dividend will be twice
covered by headline earnings.
Prospects
Operations for the
current year are progressing well, but the results for the
year will be influenced by the level of the rand compared to other currencies,
the world sugar price and final sugar production. Provided there is no major
change to these factors, it is presently anticipated that for the full year
ending 31 March 2009, headline earnings will be between 15% and 25% higher than
in the previous financial year. The profit forecast has been examined by our
auditors, Deloitte & Touche, and their unmodified 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 12 November 2008
GROUP INCOME STATEMENT
Notes Actual Sugar Season
basis Change Actual
Unaudited Unaudited % Audited
Six months ended Six months ended Year ended
30 September 30 September 31 March
2008 2007 2008 2007 2008
Rm Rm Rm Rm Rm
Revenue 3 753.6 2 959.7 4 469.2 3 428.0 30 6 794.1
====== ====== ====== ====== ======
Operating
Profit 915.8 695.3 687.0 523.7 31 1 064.5
Net financing
costs 1 75.5 72.7 75.5 72.7 170.4
_______ ________ ________ ________ _______
Profit before
material
items 840.3 622.6 611.5 451.0 894.1
Material
items 2 0.6 0.8 0.6 0.8 (0.1)
_______ ________ ________ _________ ________
Profit before
taxation 840.9 623.4 612.1 451.8 894.0
Taxation 165.6 126.2 111.4 89.9 140.7
________ ________ ________ _________ _______
Profit after
taxation 675.3 497.2 500.7 361.9 753.3
Attributable to
outside shareholders
in subsidiary
companies 167.3 103.4 115.2 76.3 153.5
_______ ________ ________ ________ _______
Net profit attributable
to shareholders in
Illovo Sugar
Limited 508.0 393.8 385.5 285.6 35 599.8
======= ======== ======== ======== =======
Determination of headline earnings:
IAS 33 net profit
Attributable to
shareholders 508.0 393.8 385.5 285.6 35 599.8
Adjusted for:
IAS 16 (profit)/loss on
Disposal of
Property (0.6) (0.8) (0.6) (0.8) 0.1
IAS 16 (profit)/loss on
Disposal of plant and
Equipment (0.1) (0.8) (0.1) (0.8) (0.3)
________ _________ _________ _________ ________
Headline
Earnings 507.3 392.2 384.8 284.0 36 599.6
======= ======== ======== ======== =======
Number of shares
in issue
(millions) 350.6 349.3 350.6 349.3 349.9
Weighted average
number of shares
on which headline
earnings per share
are based
(millions) 350.3 349.2 350.3 349.2 349.4
Headline earnings
per share
(cents) 144.8 112.3 109.9 81.3 35 171.6
Diluted headline
earnings per
share (cents) 144.0 111.5 109.4 80.9 170.5
Basic earnings
per share
(cents) 145.0 112.8 110.1 81.8 171.7
Diluted basic
earnings per
share (cents) 144.2 112.0 109.6 81.4 170.5
Dividend per
share (cents) 41.5 33.0 41.5 33.0 26 85.5
NOTES TO THE FINANCIAL STATEMENTS
Unaudited Audited
Six months ended Year ended
30 September 31 March
2008 2007 2008
Rm Rm Rm
1. Net financing costs
Interest paid 258.6 87.6 250.4
Less: capitalised (146.6) - (41.9)
______ _______ _______
112.0 87.6 208.5
Interest received (35.3) (18.4) (37.9)
Foreign exchange
(gains)/losses (0.8) 3.5 1.1
Dividend income (0.4) - (1.3)
_______ ______ _______
75.5 72.7 170.4
====== ====== ======
2. Material items
Profit/(loss) on disposal of
property 0.6 0.8 (0.1)
______ _______ _______
Material profit/(loss) before
taxation 0.6 0.8 (0.1)
Taxation - - -
______ ______ ______
Material profit/loss) attributable
to shareholders in Illovo Sugar
Limited 0.6 0.8 (0.1)
====== ====== =======
ABRIDGED GROUP BALANCE SHEET
Actual Sugar Season basis Actual
Unaudited Unaudited Audited
30 September 30 September 31 March
2008 2007 2008 2007 2008
Rm Rm Rm Rm Rm
ASSETS
Non-current
Assets 4 963.0 2 806.4 4 963.0 2 806.4 3 926.5
Property, plant
and equipment 3 904.1 2 064.2 3 904.1
2 064.2 3 014.5
Cane roots 938.9 691.5 938.9 691.5 821.7
Investments 120.0 50.7 120.0 50.7 90.3
Current assets 4 400.2 3 468.3 4 400.2 3 468.3 2 354.5
Inventories 2 056.3 1 676.8 2 056.3 1 676.8 605.1
Growing cane 1 084.4 733.0 1 084.4 733.0 948.5
Accounts
Receivable 1 201.2 1 058.5 1 201.2 1 058.5 782.7
Financial
instruments 58.3 - 58.3 - 18.2
_______ _______ _______ _______ _______
Total Assets 9 363.2 6 274.7 9 363.2 6 274.7 6 281.0
======= ======= ======= ======= =======
EQUITY AND LIABILITIES
Total equity 3 484.1 2 457.9 3 309.5 2 322.6 2 928.9
Equity holders`
Interest 2 803.6 1 965.8 2 681.1 1 857.6 2 373.3
Minority
shareholders`
interest 680.5 492.1 628.4 465.0 555.6
Non-current
liabilities 3 916.2 2 124.0 3 916.2 2 124.0 1 807.3
Deferred
taxation 617.7 546.6 617.7 546.6 639.0
Net borrowings 3 298.5 1 577.4 3 298.5 1 577.4 1 168.3
Current
liabilities 1 962.9 1 692.8 2 137.5 1 828.1 1 544.8
Accounts payable
and provisions 1 962.9 1 558.4 2 137.5 1 693.7 1 536.2
Financial
instruments - 134.4 - 134.4 8.6
_______ _______ _______ _______ _______
Total equity and
liabilities 9 363.2 6 274.7 9 363.2 6 274.7 6 281.0
======= ======= ======= ======= =======
OTHER SALIENT FEATURES
Operating
margin (%) 24.4 23.5 15.4 15.3
15.7
Effective tax
rate (%) 19.7 20.2 18.2 19.9 15.7
Gearing (%) 94.7 64.2 99.7 67.9 39.9
Interest cover
(times) 12.1 9.6 9.1 7.2 6.2
Net asset value per
share (cents) 993.8 703.7 944.0 664.9 837.2
Depreciation 132.7 92.4 132.7 92.4 151.7
Capital
Expenditure 920.2 281.7 920.2 281.7 1 003.6
- expansion 804.2 200.6 804.2 200.6 837.0
- product registration
costs 7.9 7.6 7.9 7.6 11.7
- replacement 108.1 73.5 108.1 73.5 154.9
Capital commit-
ments 2 463.7 2 861.7 2 463.7 2 861.7 3 140.4
- contracted 476.8 873.3 476.8 873.3 798.2
- approved but not
contracted 1 986.9 1 988.4 1 986.9 1 988.4 2 342.2
Lease commit-
ments 137.3 65.0 137.3 65.0 196.7
- land and
buildings 71.4 19.3 71.4 19.3 100.8
- other 65.9 45.7 65.9 45.7 95.9
Contingent
Liabilities 4.2 4.6 4.2 4.6 5.0
ABRIDGED GROUP CASH FLOW STATEMENT
Actual Sugar Season basis Actual
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 September 30 September 31 March
2008 2007 2008 2007 2008
Rm Rm Rm Rm Rm
Cash flows from operating and investing activities
Cash operating
Profit 850.2 728.4 621.4 556.8 1 055.0
Working capital
requirements (1 515.2) (1 382.2) (1 286.4) (1 210.6) 46.2
_________ _________ _________ _________ ________
Cash (utilised by)/
generated from
operations (665.0) (653.8) (665.0) (653.8) 1 101.2
Replacement capital
expenditure (108.1) (73.5) (108.1) (73.5) (154.9)
Financing costs,
taxation and
dividend (514.9) (433.0) (514.9) (433.0) (708.9)
Net investment in
future opera-
tions
(849.7) (196.1) (849.7) (196.1) (869.5)
Other move-
ments 1.9 2.7 1.9 2.7 (13.1)
________ ________ ________ ________ _________
Net cash outflow
before financing
activities (2 135.8) (1 353.7) (2 135.8) (1 353.7) (645.2)
Net cash inflow from
financing
activities 1 573.9 916.8 1 573.9 916.8 737.8
________ ________ ________ ________ ________
Net (decrease)/increase
in cash and cash
equivalents (561.9) (436.9) (561.9) (436.9) 92.6
======== ======== ======== ======== ========
STATEMENT OF CHANGES IN EQUITY
Share capital and share premium
Balance at beginning
of the period 361.0 354.5 361.0 354.5 354.5
Issue of new
shares 4.2 3.0 4.2 3.0 6.5
________ ________ ________ ________ ________
Balance at end of
the period 365.2 357.5 365.2 357.5 361.0
======== ======== ======== ======== ========
Share-based payments reserve
Balance at beginning
of the period 12.6 10.9 12.6 10.9 10.9
Share-based pay-
ment expense 0.2 0.7 0.2 0.7 1.7
________ ________ ________ ________ ________
Balance at end of
the period 12.8 11.6 12.8 11.6 12.6
======== ======== ======== ======== ========
Non-distributable reserves
Balance at beginning
of the period 412.4 146.3 412.4 146.3 146.3
Realised profit on
disposal of
land - 0.8 - 0.8 -
Effect of foreign
currency trans-
lation 57.4 (41.9) 57.4 (41.9) 269.5
Effect of cash flow
hedges 39.0 (4.5) 39.0 (4.5) (3.4)
________ _________ ________ _________ _________
Balance at end
of the period 508.8 100.7 508.8 100.7 412.4
======== ======== ======== ======== ========
Retained surplus
Balance at beginning
