Illovo Malawi_Annual Report 2010

7/28/2019 Illovo Malawi_Annual Report 2010

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ILLOVO SUGAR (MALAWI) LIMITED

ANNUAL REPORT 2010


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Above: Combined sugar production in

2009/10 amounted to 295 000 tons.

Left: Cane production of 2.1 million

tons was achieved by the agricultural

operations at Dwangwa and Nchalo in

2009/10.

Left: Approximately 66% of sugar produced

by Illovo Malawi is currently sold to local

industrial and consumer markets, with the

balance being exported into Regional, EU and

USA markets.

Right: During the year under review, operating

efficiencies at the factories were maintained.

Below: Amongst its many other social

investment activities, the company donated

medical equipment and an electricity

generator to the Makuwira Health Centre,

received on its behalf by the Vice-President of

Malawi, Right Honourable Joyce Banda.

Below: Following capital expenditure in excess of K 2 billion in 2008/09, a similar amount was again spent during the year to improve overall

agricultural and factory operations.

Below: Illovo continues to assist the

Governments national food security

programme by growing maize on the

Nchalo estate.


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CONTENTS

KEY FEATURES 1

GROUP PROFILE 2

GROUP STRUCTURE AND SHAREHOLDING 3

CORPORATE INFORMATION 3OPERATING LOCATIONS 4

DIRECTORATE AND SENIOR MANAGEMENT 5

DIRECTORS REPORT 6

CORPORATE GOVERNANCE 9

VALUE ADDED STATEMENT 13

FIVE YEAR REVIEW 14

ANNUAL FINANCIAL STATEMENTS 16

ANALYSIS OF SHAREHOLDERS AND SHAREHOLDERS DIARY 50

NOTICE OF MEETING 51

FORM OF PROXY

2010 2009

Results (K million)

Revenue 28 643 26 090Operating proft 10 915 9 740

Net proft or the year 7 116 6 353

Headline earnings 7 108 6 339

Share performance (tambala per share)

Headline earnings 996 889

Dividends paid/proposed 700 625

- Paid frst interim 287 240

- Declared second interim 393 370

- Proposed fnal 20 15Net worth 2 208 1 882

Year-end market price 11 000 11 000

Financial statistics

Return on average shareholders equity (%) 48.8 52.2

Return on net assets (%) 49.6 54.1

Interest cover (times) 16.4 16.3

Dividend cover (times) 1.4 1.4

KEY FEATURES

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GROUP PROFILE

Illovo Sugar (Malawi) Limited is listed on the Malawi Stock Exchange with the Illovo Sugar group o South Arica

holding 76% o the issued share capital. Old Mutual Lie Assurance Company (Malawi) Limited holds 9% whilstthe balance o the shares are held by the public and institutional investors.

Illovo is Malawis only sugar producer with signiicant agricultural and milling assets at the Dwangwa Sugar Estate

in the mid-central region and at the Nchalo Sugar Estate situated in the south o the country. In a normal season,

combined with supplies o cane rom Malawian growers, around 2.5 million tons o sugar cane can be produced

enabling an annual production o about 310 000 tons o sugar.

Cane growing operations are signiicantly enhanced at both estates by access to secure water sources or irrigation,

resulting in excellent annual cane yields and high levels o sucrose content in cane. Cane grown at Dwangwa is

irrigated rom the Rupashe River, supplemented by water rom Lake Malawi, whilst Nchalo sources water rom

the Shire River.

Approximately 66% o sugar produced is currently sold to local industrial and consumer markets, 21% into

markets in the European Union (EU) and the United States o America (USA), whilst the balance is sold into regional

markets. Both actory operations produce molasses as a by-product o the sugar manuacturing process. Molasses

is currently sold as a ermentation raw material to the Ethanol Company Limited and Presscane Limited, both uel

alcohol distilleries in Malawi.

Illovo Malawi is a signiicant earner o oreign currency and through direct and indirect taxes is a major source o

revenue to the Malawi iscus. The company has a 39% share o the market capitalisation on the Malawi Stock

Exchange. Its operations are o considerable beneit to the local economy, providing permanent and temporary

employment or more than 10 000 people, with many local industries who collectively employ large numbers

o people dependent upon Illovo or their ongoing sustainability. Social responsibility programmes undertaken

by the estates bring signiicant beneits to surrounding communities and are important contributors to Malawis

overall strategy or poverty alleviation.

Illovo Sugar (Malawi) Limited is part o the Illovo Sugar group, a leading, global, low-cost sugar producer and a

signiicant manuacturer o high-value downstream products. The Illovo group is Aricas biggest sugar producer

and has extensive agricultural and manuacturing operations in six Arican countries. Illovo Sugar is listed on the

JSE Limited and is a subsidiary o Associated British Foods plc which holds 51% o the issued share capital.

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Secretaries : Malawi Sugar Limited

Business address and : Illovo Sugar (Malawi) Limited,

registered office Illovo House, Churchill Road,

Limbe, Malawi

Postal address : Private Bag 580, Limbe, Malawi

Telephone : +265 (0)1 843 988

Fax : +265 (0)1 840 761

E-mail address : [email protected]

Website address : www.illovosugar.com

Transfer secretaries : First Merchant Bank Transer Secretaries,2nd Floor, Livingstone Towers,

Glyn Jones Road, Blantyre, Malawi

Postal address : Private Bag 122, Blantyre, Malawi

Telephone : +265 (0)1 822 150

Fax : +265 (0)1 823 314

E-mail address : [email protected]

Auditors : Deloitte

Attorneys : Chisanga and Tomoka

Savjani and Company

Principal bankers : National Bank o MalawiNedbank Malawi Limited

Standard Bank Limited

CORPORATE INFORMATION

GROUP STRUCTURE AND SHAREHOLDING

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OLD MUTUAL

LIFE ASSURANCE

COMPANY

9%

ILLOVO SUGAR MALAWI

100%

DWANGWA SUGAR CORPORATION

76%

51%

ILLOVO

SUGAR GROUP

ASSOCIATED

BRITISH FOODS

15%

PUBLIC AND

INSTITUTIONAL

INVESTORS


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NCHALO

DWANGWACHITIPA

KARONGA

MZUZU

DWANGWA

MCHINJI

MANGOCHI

MWANZA

BLANTYRE LIMBE

NSANJE

NCHALO

LAKE

M

ALAWI

KASUNGU

ZOMBA

MULANJE

LILONGWE

Cane estatesand sugarfactories

Cities

Distributiondepots

KEY

OPERATING LOCATIONS

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DIRECTORATE

NAME QUALIFICATIONS APPOINTED POSITION

CHAIRMAN

D G MacLeod (63) # BCom, AMP(Oxon) 1997 Deputy Chairman Illovo Sugar Limited

EXECUTIVE DIRECTORS

I G Parrott (43) # BCom, CIA 2003 Managing Director Illovo Sugar (Malawi) Limited

W A Cowden (31) BAcct(Hons), CA(SA) 2009 Finance Director Illovo Sugar (Malawi) L imited

E I Williams (63) GCC(Fact-Elec&Mech), SMSAIEE 2009 General Manager Nchalo

NON-EXECUTIVE DIRECTORS

Dr M A P Chikaonda (55) DipBus, BA(Hons), MBA, PhD 2006 Group Chie Executive Public Listed Company

G J Clark (54) *# BAcct(Hons), FCA(Aust) 1996 Managing Director Illovo Sugar Limited

S L G Malata (48) * BCom, MSc(Fin&Acc) 2003 General Management

D B Mawindo (52) LLB(Hons), MBA 2005 Management Consultant Private Company

A R Mpungwe (59) BA(Hons) 2006 Director o Companies

B M Stuart (62)# BCom, Dip(Sugar Tech), SEP 2007 Operations Director Illovo Sugar Limited

K Zarnack (37) *# BCom, CA(SA) 2005 Financial Director Illovo Sugar Limited

* Audit Committee Member

Remuneration Committee Member

# Risk Management Committee Member

SENIOR MANAGEMENT

NAME QUALIFICATIONS JOINED OPERATING RESPONSIBILITY

E M Banda (37) BA(PubAdm) 1998 Human Resources Nchalo

Dr H H Z Chakaniza (40) MBBS 2000 Medical Services Dwangwa

D W H Cousens (61) BScEng(Agric), MSc(Eng), MBL 2010 General Manager Expansion

D W Davey (61) ABP 2002 Finance Nchalo

D P R Davies (55) Dip(IMM) 2003 General Manager Marketing

G S Garson (55) BCom, MBL 2002 Company SecretaryC H Kyle (60) BCom, HDPM 2007 Group Human Resources Manager

G S McAdam (46) NHD(MechEng), GCC(Fact) 2006 Factory Dwangwa

I I Majamanda (43) BSc(Agric), MSc(AgricEng) 1998 Agriculture Nchalo

G M Mkandawire (63) BSc(Econ), MCom(Mkt) 2003 Commercial Manager

Dr A W Mkumbwa (40) MBBS, MPH 1998 Medical Services Nchalo

K G M Naidoo (53) BCom, MBL 2009 Finance Dwangwa

W Nyamilandu-Manda (39) BSocSc(Econ&Psych) 1999 Marketing - Limbe

J P Ngolombe (36) BSocSc(Econ) 2001 Human Resources - Dwangwa

D P R Piringu (54) DipBus, BCom(Acct) 1989 Finance Limbe

E T Rousseau (51) BCom, NHD(ChemEng) 2008 Factory Nchalo

A C Stewart (60) Cert(Agric) 1975 Agriculture Dwangwa

K M J Tembo (47) Dip(IndEng) 1992 General Manager Dwangwa

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OVERVIEW

Sugar production in 2009/10 amounted to 295 000 tons,

which was below the record output o 304 000 tons the

previous season. Production was aected by unavourable

weather conditions, lower sucrose content in cane and

reduced cane quality, together with a decline in outgrower

cane tonnage. The operational perormance o both actories

was reasonable. Sales volumes in general were constrained

by the reduced sugar production. However, regional

export prices were strong and proit ater tax or the year

amounted to a record K 7.1 billion, representing a 12%

increase year-on-year.

Sales revenue or the year increased rom K 26 billion in

2008/09 to K 28 billion. Combined with the beneits o

a continued ocus on the companys cost base, operating

proit increased by 12% to just under K 11 billion. Net proit

or the year increased by K 760 million to slightly in excess

o K 7 billion.

Following capital expenditure in excess o K 2 billion in

2008/09, a similar amount was again spent during the year

to improve overall agricultural and actory operations.

OPERATIONS

CANE GROWING

Total cane production o 2.1 million tons rom the agricultural

operations at Dwangwa and Nchalo was marginally above

that produced last year, although impacted by unavourable

weather conditions during the season. Outgrowers were

similarly aected, bringing combined cane production or

the season to 2.4 million tons. An expansion programme,

to increase land under irrigated cane by 1 300 hectares,

was completed and is expected to urther enhance cane

production in the orthcoming season.

SUGAR PRODUCTION

Combined sugar production in 2009/10 amounted to

295 000 tons, representing a 3% decline compared to last

years record production o 304 000 tons. Lower than orecast

sucrose content in cane, particularly at Nchalo, impacted

negatively on inal sugar output. Operating eiciencies at the

actories were maintained but were aected by mechanical

perormance. An enhanced ocus on plant maintenance

and operations management during the ocrop period has

addressed the identiied deiciencies.

MARKETING

Throughout the world, sugar is one o the most highly

protected agricultural commodities, with signiicant duty and

taris applied in all but a ew sugar producing countries. The

viability o even the worlds most eicient sugar producers

remains under threat rom dumped world market sugar,

which on average, is priced below the global production cost

o sugar. To saeguard their ongoing sustainability, almost

without exception, sugar producing countries protect their

domestic markets through taris in one orm or another.

Globally, sugar is recognised as a sensitive product and in

line with practices adopted by other regional trade partners,

import control measures are necessary to prevent the illegalimportation o sugar.

Malawis sugar industry has made and continues to make

signiicant investments in capital equipment and human skills

development programmes to improve its competitiveness

and today is recognised as being amongst the lowest ex-mill

cost cane sugar producers in the world. The preservation

o a stable domestic market is critical to the sugar industrys

long-term viability and to provide the base to allow urther

smallholder cane arm development. Sugar production is

important to the Malawian economy as a source o income

or local armers and a signiicant generator o tax revenueand oreign exchange or the Government.

Approximately 66% o sugar produced by Illovo Malawi

is currently sold to local industrial and consumer markets,

whilst 21% is exported to markets in the EU and USA. The

remainder is sold into regional markets.

DOMESTIC MARKET

Domestic sugar sales volumes or the year were constrained

by the reduced sugar production and amounted to 194 000

tons, with the market mix between raw and reined product

remaining constant. Sugar is readily available throughout

the country via a national distribution network with depots

established in all regions. The market is supplied without

the restriction o permits or quotas and is open to all

Malawians who wish to enter the wholesale or retail market.

The company equalises transport costs to the depots and

sugar is sold at a uniorm ex-depot price throughout the

country. Transporter price hikes related mainly to uel price

increases during the year continued to impact negatively on

distribution costs.

DIRECTORS REPORT

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EXPORT MARKET

An increase in sugar exports, particularly into the robust

Zimbabwe market, was achieved. Total exports amounted

to 100 204 tons. The companys ability to produce a

quality product which it is able to ship timeously to export

customers contributed to this improved perormance. 34%

o total sugar production is now sold onto the export market.

Preerential markets

Sales into the EU and USA markets accounted or 21% o

the total sales during the year. In respect o the EU market,

eective 1 October 2009, Malawi is entitled to ull duty-

ree, quota-ree access, albeit at the reduced EU price. The

country continues to experience high demand or its quality

speciality sugar exports into the EU.

Regional markets

Sugar sales into markets in the Arican/Indian Ocean region

increased during the year with the bulk o this being sold into

Zimbabwe at good prices. Other regional markets include

Burundi, the Democratic Republic o Congo (DRC), Kenya

and Rwanda.

QUALITY

Both agricultural and actory operations retained accreditation

under the ISO 9001:2008 quality management system.

The implementation o the Hazards Analysis and Critical

Control Points (HACCP) programme at both actories was

maintained with considerable attention being ocussed on

the production o quality products to support increased sales

into value-added markets, particularly in the EU.

FINANCIAL

Proit ater tax or the year was just in excess o K 7 billion

relecting a 12% increase over the record achievement in

2009. Continued cost control and a depreciation o the

Kwacha during the latter part o the year contributed to this

improvement.

Total revenue rom sugar and molasses sales amounted to

more than K 28 billion compared to K 26 billion in 2008/09,

despite a reduction in saleable sugar due to reduced

production and against a background o increasing input

costs.

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The Kwacha remained stable against the US Dollar or most

o the year but relected some depreciation towards the end

o 2009, marginally assisting the revenue stream. Forward

exchange contracts on Euro-based proceeds assisted revenue

inlows.

Abnormally high price increases in input costs during the

year, particularly in electricity and uel, continued to impact

negatively on proits. However, eective cost management

resulted in operating proit margins increasing slightly

year-on-year.

During the year, a marked shortage o oreign currency

in the country delayed payments to oreign creditors and

resulted in interest penalties. However, the close monitoringo inance costs during the season and the ability o the

company to negotiate preerential interest rates with its

partner banks resulted in a marginal increase in inance costs

compared to last year.

Almost K 2 billion was spent on capital projects during the

year to ensure the uture sustainabil ity o the business.

HUMAN RESOURCES

Malawian graduates continued to be developed under thecompanys management training programmes in the various

disciplines required or the uture sustainability and success

o the company and several initiatives were undertaken with

institutions o higher learning during the year to oster an

environment conducive to the improvement o standards

o graduates and technicians. Text books were donated

to some o these institutions to assist with their objectives

to deliver improved educational standards. The company

continued to ocus on skills improvement and transer and

to instil a culture o continuous improvement across all levels

o the organisation with employees in all spheres o the work

environment relecting a commitment to their respective

work areas.

Both estates devoted considerable time and eort to improve

the saety and health environment aecting the company

and maintained accreditation under both NOSA and

ISO 9001:2008.

The estates continued to provide basic inrastructural and

healthcare services to not only its own employees and

their dependents, but also to the broader communities

surrounding the areas o operation. In terms o social

responsibility, various projects were once again sponsored

and supported by the company in an attempt to uplitliving standards and the general well-being o the people.

In the continuation o a project commenced several years

ago, maize was once again grown to assist the Government

with its goal o achieving ood security within the country.

Assistance was also provided to victims o the devastating

earthquake that struck the Karonga District towards the end

o 2009. On-going support was also provided to various

eeding schemes within the country where school-going

children are provided with ortiied meals on a regular basis.

Substantial help was also extended to Government to assist

in its eorts to provide quality health services to its people

with several donations o medical supplies and equipment to

various health acilities throughout the country.

The company maintained its pro-active approach against

epidemics such as HIV/AIDS and malaria and awareness

and education programmes were undertaken to address the

negative impact o these and other diseases. The Governmenthas recognised the eectiveness o the companys malaria

prevention campaign and has held it up as a model in the

ight against this disease.

PROSPECTS

Given normal weather conditions, the expansion o company

and outgrower cane lands and a return to previously

achieved yields rom the companys outgrowers, a record

cane crop is expected in the coming season.

Higher anticipated crush rates at both actories and better

overall recovery o sugar rom cane, linked to improved plant

eiciencies, should provide the platorm or a resumption

to production growth in the coming year. The additional

cane crop, together with improved operational perormance,

should result in increased sugar production, which is expected

to exceed 310 000 tons in the year ahead.

Emphasis will continue to be placed on the control o costs in

all spheres o the business and it is envisaged that operating

margins will be at similar levels to the past year. Weather

patterns and exchange rate movements will continue to

inluence proits.

Approximately K 1.2 billion will be spent on capital projects

during the coming year to urther secure the ongoing growth

o the company.

DIRECTORS REPORT (continued)

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Listed companies on the Malawi Stock Exchange are required

to disclose the extent o their compliance or non-compliance

with the Code o Corporate Practices and Conduct contained

in either the Cadbury or King Reports. The directors are

committed to the implementation o and endorse the Code

o Corporate Practices and Conduct contained in the King

Report on Corporate Governance (King II).

ANNUAL FINANCIAL STATEMENTS

The ollowing statement, which should be read in conjunction

with the auditors report, is made or the purpose o clariying

to members the respective responsibilities o the directors

and the auditors in the preparation o annual inancial

statements.

The directors are required by the Companies Act, 1984, to

prepare inancial statements or each inancial year, which

give a true and air view o the state o aairs and proit or

loss o the company. The directors consider that, in preparing

the inancial statements, the group has used appropriate

accounting policies consistently applied and supported byreasonable and prudent judgements and estimates, and

conirm that all applicable accounting standards have been

ollowed.

Ater making appropriate enquiries, the directors have a

reasonable expectation that the company has adequate

resources to continue in operational existence in the year

ahead. For this reason, they continue to adopt the going-

concern basis in preparing the inancial statements. The

external auditors concur with this opinion.

The directors have responsibility or ensuring that the

company maintains accounting records which disclose with

reasonable accuracy at any time the inancial position o the

company and which enable them to ensure that the inancial

statements comply with the Companies Act, 1984. The

directors also have responsibility or saeguarding the assets

o the group and or the prevention and detection o raud

and other irregularities.

BOARD OF DIRECTORS

The company has a unitary Board o directors that is balanced

between executive and non-executive directors. The Board

supervises the management o the groups business and

aairs and is involved in all decisions that are material to the

business. In doing so, the Board acts at all times in the best

interest o the group.

The Board meets at least once in each quarter with additional

meetings held when appropriate. At each Board meeting

a complete update o the business and aairs o the group

is presented by executive management. In addition, the

companys Articles o Association provide or decisions taken

between meetings to be conirmed by way o directors

resolutions.

The roles o the chairman and the chie executive are

separated and the chairman is a non-executive director.

AUDIT COMMITTEE

The Audit Committee comprises three directors, all o whom

are non-executive. The Audit Committee meets at least twice

a year with management and has both external and internal

auditors in attendance.

The Committee reviews the interim inancial results, annual

audited inancial statements and the external and internal

auditors reports. The Committee reports its indings to

the Board or consideration when approving the inancial

statements or delivery to the shareholders.

CORPORATE GOVERNANCE

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REMUNERATION COMMITTEE

The Remuneration Committee comprises two directors, both

o whom are non-executive. The Committee is responsible

or reviewing compensation o the executive directors and

executive management o the company.

ETHICAL STANDARDS

The group has adopted a Code o Management Practices

that applies to the groups management and sta. The Code

provides a benchmark against which employee conduct can

be assessed to ensure that the highest ethical standards are

met.

FRAUD CONTROL

The group has a Fraud Hotline that enables employees and

members o the public to raise evidence o irregular activity

directly with an independent entity.

INTERNAL CONTROL

The Board has overall responsibility or the groups systems o

internal control and or monitoring their eectiveness. The

systems are designed to saeguard shareholders investments

and the groups assets.

The Audit Committee, on behal o the Board, reviews

the scope and coverage o internal audit together with

its indings. In addition, the groups external auditors are

granted unrestricted access to all inormation that may

be required in the execution o their duties. Reports rom

the external auditors are regularly monitored to assess the

eectiveness o the groups systems o internal control.

The directors and external auditor have not detected

any adverse inormation that would indicate a material

breakdown in systems o internal control during the year

under review.

RISK MANAGEMENT ASSESSMENT

The Risk Management Committee is chaired by a non-

executive director and consists o both non-executive and

executive directors and meetings are attended by senior

management. A comprehensive risk assessment audit is

undertaken twice per annum o actors which could have

a material impact on group results. As well as inancial

assessment, other audited areas include agricultural, electrical

and mechanical risk, environmental compliance and exposure

to changes in the political and economic environment. The

reports are reviewed by the Committee to ensure that risk

identiication, mitigation and management are undertaken.

EXECUTIVE MANAGEMENT

Executive management meets monthly to discuss issues

material to the operations o the group. To ensure that there

is adequate interaction between management and the Board,

three members o executive management are directors.

STAFF DEVELOPMENT PROGRAMMES

The group believes that an eective sta development

programme is important or sustainable development and asa consequence, it has instituted sta training programmes

as part o its business. The group carries out business

understanding programmes that assist in developing eective

sharing o relevant inormation, which enables employees

to gain a better understanding o the company. The

group also undertakes periodic discussions with employee

representatives which acilitates eective consultation by

management with the workorce beore taking decisions that

aect the workers and also helps in the speedy identiication

and eective resolution o conlict.

SOCIAL RESPONSIBILITY

The group seeks to do business in a manner that will make

it welcome and accepted in the communities in which it

operates. As an agricultural business, the group operates in

rural areas with high levels o poverty. Inrastructure, normally

provided by national government, is generally lacking and

thereore the group provides housing, water, electricity,

healthcare and schooling assistance to its employees and

their dependants. Both estates have their own clinics run

by medical doctors and staed by ully qualiied nurses. It

is estimated that over 70 000 people live on the groups

premises at Dwangwa and Nchalo. As part o the groups

social responsibility programme, Illovo Sugar (Malawi)

Limited supports inancially a wide-range o social welare

and community development activities. Examples o some o

the projects undertaken during the last year are outlined on

the page to the right:

CORPORATE GOVERNANCE (continued)

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RECIPIENT DETAILS

Central Junior Primary School Construction o a classroom block.

Chancellor College Donation o text books.

Chembwe Village Donation o building materials to construct a community court.

District Commissioner Chikhwawa Donation o tree seedlings.

Dwangwa Community Provision o mortuary unit and supply o medical services. Construction andmaintenance o street lighting. Provision o bicycles or community policing.

Donation o desks to schools.

Government o Malawi Growing o maize at Nchalo to contribute towards national ood security.

Maintenance and repair o lood damaged roads, culverts and bridges. Various cash

donations towards national unctions.

Kalulu Market Construction o various market buildings.

Karonga Earthquake Victims Cash donation.

Kasasa Primary School Cash donations or teachers training curriculum development and purchase o

school books.

Kasinthula Cane Growers Limited Operational support as well as subsidising interest payments.

Maale Health Centre Construction o a medical assistants house.

Maj iga Day Secondary School Construction o two classroom blocks, toilets and general building maintenance.

Malawi Charitable Organisations Donations o cash and sugar to various orphanages and eeding schemes.

Malawi Police Services Construction o a road block shelter and boom-gate. Donation o water pumps.

Maintenance o police housing and construction o police public toilets.

Malawi Sports Organisations Donations o cash and sports equipment and sponsorship o sporting events.

Matiki Community Construction o bus shelters, market ence and clinic Guardian shelters.

Matiki School Upgrade toilet and ablution acilities and maintenance o classrooms.

Mbewe Community Police Various donations towards policing operations.

Montord Hospital Subvention o salaries or doctor and other sta as well as cash donations or

purchase o medical supplies. Donation o a generator or the operating theatre.

Donation o an X-ray machine. Provision and maintenance o potable water acilities.

Mowe Youth Organisation Cash donations.

Nchalo Community Construction o market ence. Provision o desks to various local schools.

Nchalo Magistrates Court Construction o toilets.

Nchalo Police Victim Support Unit Various donations in cash and kind.

Ngabu Makande Headquarters Provision o support buildings.

Nkhotakota Community Radio Station Donation o communication equipment.

Nkhunga Community Day Secondary School Construction o a laboratory.

Nkhunga Magistrates Court Reurbishment o buildings.

Nyamvuu School Construction o school blocks.

Riverside School Subvention o salaries.

Sae Motherhood Initiative Donation o medical equipment and supplies to the Vice-President s Sae Motherhood

Initiative and reurbishment o a clinic in the Chikhwawa District.

Scottish International Relie Construction o eeding shelters or Marys Meals and donations towards school

eeding programmes.

Tomali Market Construction o various market buildings.

Ukasi Primary School Construction o two classroom blocks.

Walemera Secondary School Cash donations or use in adult li teracy programmes.

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SAFETY, HEALTH AND ENVIRONMENT

Saety standards and methods are continually monitoredand updated. The HIV/AIDS pandemic represents a major

challenge to the group and in this regard Illovo runs a

peer education and training acility, actively encourages

voluntary counselling and testing and operates a Wellness

Programme designed to improve the quality o lie o those

employees inected with HIV/AIDS. Antiretroviral drugs

are dispensed on behal o the Government through the

companys clinic network.

Constant monitoring o the saety environment and the

disabling injury requency rate (DIFR) and continued

education o the workorce in terms o saety remained anarea o prime attention during the year. Daily meetings

are undertaken to re-enorce saety measures and constant

eorts are applied to inculcate a saety mind-set throughout

all areas o the business. Saety irst is being emphasised to

instil a culture o saety awareness.

The group manages the environmental impact o its activities

and strives to maintain an environment which meets the needs

o current and uture generations and it also acknowledges

the growing public awareness concerning environmental

issues and the essential role that a managed and protected

environment plays in the growing o sugar cane used in the

production o sugar. The group will continue to ollow sound

environmental practices and develop its business in a sociallyresponsible manner.

Both sugar actories have upgraded their waste-water

discharge systems and water rom the milling process is

settled beore being recycled as irrigation water or the cane

crop. This process supplements river / lake water demand

and reduces the requirement rom these sources or crop

irrigation.

Fuel to power the sugar actories is sourced rom both bio-

mass (residual sugar cane matter ollowing harvesting) and

bagasse (residual sugar cane ibre ater crushing) which arerenewable energy sources. Should auxiliary uel supplies be

required, use is made o wood rom gum trees grown on the

estate or rom local plantation supplies. Nchalo continues to

support an indigenous tree reorestation project in the Lower

Shire Valley.

A 400-hectare reserve known as Nyala Park has been set

aside within the Nchalo estate boundary and is maintained

with species o the original lora and auna o the Shire Valley.

CORPORATE GOVERNANCE (continued)

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12


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2010K million

2009K million

Wealth created

Revenue 28 643 26 090

Income rom investments 8 -

Paid to growers or cane purchases (1 525) (1 263)

Cane growing and manuacturing costs (11 297) (10 870)

15 829 13 957

Wealth distributed

To employees as salaries, wages and other benefts 3 915 3 405

To lenders o capital as interest 666 596To shareholders as dividends 4 794 3 853

To the Government as taxation 2 263 1 893

11 638 9 747

Wealth reinvested

Retained profts in holding and subsidiary company 2 322 2 500

Depreciation 554 417

Deerred taxation 1 315 1 293

15 829 13 957

Analysis of taxes paid to and collected on behalf of the Government

Central and local Government

Current taxation 1 811 1 498Customs duties, import surcharges and other taxes 452 395

Total contribution to central and local Government 2 263 1 893

The above amount contributed excludes the following:

- employees taxation deducted rom remuneration 504 393

- net VAT amount collected on behal o the Government 1 172 1 214

- non-resident tax collected on behal o the Government 364 293

- withholding tax on dividends 465 369

2 505 2 269

Total contributed to Government 4 768 4 162

The value added statement shows the wealth the group has been able to create through manuacturing, trading and investment

operations and its subsequent distribution and reinvestment in the business.

25% To employees as

salaries, wages and

other beneits

30% To shareholders

as dividends

14% To theGovernment as

taxation

4% To lenders

o capital as

interest

4% Depreciation

8% Deerred

taxation

15% Retained proits

in holding and

subsidiary company

Wealth distributed (%)

To employees as salaries, wages

and other benefts 25

To lenders o capital as interest 4

To shareholders as dividends 30

To the Government as taxation 14

73

Wealth reinvested (%)

Retained profts in holding and

subsidiary company 15Depreciation 4

Deerred taxation 8

27

VALUE ADDED STATEMENT

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14

K million 2010 2009 2008 2007 2006

Consolidated statement of comprehensive income

Revenue 28 643 26 090 21 173 19 638 14 519

Operating proft 10 915 9 740 7 945 7 222 4 717

Net fnance costs (666) (596) (717) (345) (447)

Proft beore taxation 10 257 9 144 7 233 6 882 4 274

Net proft or the year 7 116 6 353 5 025 4 866 2 877

Headline earnings 7 108 6 339 5 004 4 854 2 867

Dividends paid (4 794) (3 853) (3 603) (2 554) (992)

Reconciliation of headline earnings

Net proft or the year 7 116 6 353 5 025 4 866 2 877

Adjusted or:

Net proft on sale o property, plant and equipment (8) (14) (21) (12) (10)Headline earnings 7 108 6 339 5 004 4 854 2 867

Consolidated statement of nancial position

Shareholders' equity 15 750 13 428 10 928 9 506 7 194

Deerred tax 7 239 5 924 4 631 3 907 3 152

Interest-bearing debt 977 668 402 543 668

Total unding 23 966 20 020 15 961 13 956 11 014

Property, plant and equipment 7 144 5 975 4 327 3 086 2 269

Cane roots 8 190 7 049 5 724 4 954 4 150

Investments and loans 563 545 515 442 390

Current assets - Cash 1 006 1 475 1 272 2 256 1 225

Current assets - Other 12 768 11 423 10 235 8 267 6 620

Total assets 29 671 26 467 22 073 19 005 14 654

Interest-ree liabilities (5 705) (6 447) (6 112) (5 049) (3 640)

Net assets 23 966 20 020 15 961 13 956 11 014

Earnings and dividends Note

Basic and diluted earnings per share 1 tambala 997.4 890.5 704.3 682.0 403.3

Headline earnings per share 2 tambala 996.3 888.5 701.4 680.4 401.9

Dividends paid and proposed tambala 700.0 625.0 490.0 475.0 282.0

Dividend cover on headline earnings 3 times 1.4 1.4 1.4 1.4 1.4

Financial statistics

Return on average shareholders' equity 4 % 48.8 52.2 49.2 58.3 46.0

Return on net assets 5 % 49.6 54.1 53.1 58.0 48.3

Gearing 6 % - - - - -

Interest cover 7 times 16.4 16.3 11.1 20.9 10.6

Net worth per share 8 tambala 2 208 1 882 1 532 1 332 1 008

FIVE YEAR REVIEW

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2010 2009 2008 2007 2006

Operational statistics

Hectares harvested 19 717 18 674 18 345 17 996 18 130

Nchalo 13 316 12 398 12 106 11 887 11 970

Dwangwa 6 401 6 276 6 239 6 109 6 160

Tons cane per hectare (weighted average) 108 114 104 116 107

Nchalo 108 114 101 118 106

Dwangwa 109 113 110 114 110

Cane crushed (tons) 2 360 821 2 330 152 2 115 075 2 298 964 2 134 520

Nchalo 1 440 667 1 413 352 1 221 107 1 399 336 1 263 217Dwangwa 695 104 708 219 688 543 694 864 679 815

Outgrowers 225 050 208 581 205 425 204 764 191 488

Sucrose percent (weighted average) 14.41 14.81 14.34 14.52 14.44

Nchalo 13.88 14.48 13.96 14.12 14.06

Dwangwa 15.36 15.41 14.92 15.22 15.02

Outgrowers 14.88 15.06 14.67 14.88 14.94

Sugar produced (tons) 294 952 303 774 265 788 288 460 269 526

Nchalo 178 647 186 991 154 581 176 636 161 788Dwangwa 116 305 116 783 111 207 111 824 107 738

Analysis of sugar sales by destination (tons '000) 295 300 268 285 264

Domestic market 195 202 182 195 175

Export market 100 98 86 90 89

Notes:

1 Basic and diluted earnings per share

Net proit or the year divided by the weighted average number o ordinary shares in issue.

2 Headline earnings per share

Headline earnings divided by the weighted average number o ordinary shares in issue.

3 Dividend cover on headline earnings

Headline earnings per share divided by dividends per share.

4 Return on average shareholders equity

Net proit or the year expressed as a percentage o average shareholders equity.

5 Return on net assets

Operating proit expressed as a percentage o average net operating assets.

6 Gearing

Interest-bearing debt (net o cash) expressed as a percentage o shareholders equity.

7 Interest coverOperating proit divided by net inancing costs.

8 Net worth per share

Shareholders equity divided by the number o shares in issue at the end o the year.

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1616

APPROVAL OF ANNUAL FINANCIAL STATEMENTS 17

INDEPENDENT AUDITORS REPORT 18

STATUTORY INFORMATION 19

ACCOUNTING POLICIES 21

STATEMENTS OF COMPREHENSIVE INCOME 28

STATEMENTS OF FINANCIAL POSITION 29

STATEMENTS OF CHANGES IN EQUITY 30

STATEMENTS OF CASH FLOWS 31

NOTES TO THE STATEMENTS OF CASH FLOWS 32

NOTES TO THE FINANCIAL STATEMENTS 33

ILLOVO SUGAR (MALAWI) LIMITED

ANNUAL FINANCIAL STATEMENTS

For the year ended 31 March 2010


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The directors o Illovo Sugar (Malawi) Limited are responsible or the preparation and the integrity o the annual inancial

statements o the group and the company, and the objectivity o other inormation presented in the annual inancial statements.

In order to ulil this responsibility, the group maintains internal accounting and administrative control systems designed to

provide reasonable assurance that assets are saeguarded and that transactions are executed and recorded in accordance with

the groups policies and procedures.

The going-concern basis has been adopted in preparing these inancial statements. The directors have no reason to believe that

the group and the company will not be a going-concern in the oreseeable uture.

The groups external auditors, Deloitte, audited the inancial statements and the auditors report is represented on page 18.

The annual inancial statements o the group and the company which appear on pages 21 to 49 were approved by the board o

directors on 28 April 2010 and are signed on its behal by:

D G MacLeod I G Parrott

Chairman Managing Director

28 April 2010

APPROVAL OF ANNUAL FINANCIAL STATEMENTS


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18

Independent auditors report to the members of Illovo Sugar (Malawi) Limited

We have audited the company and consolidated inancial statements o Illovo Sugar (Malawi) Limited and its subsidiary (the

group) as set out on pages 21 to 49, which comprise the statements o comprehensive income, the statements o inancial

position as at 31 March 2010, statements o changes in equity and statements o cash lows or the year then ended, and a

summary o signiicant accounting policies and other explanatory notes.

Managements responsibility for the financial statements

Management is responsible or the preparation and air presentation o these inancial statements in accordance with International

Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant

to the preparation and air presentation o inancial statements that are ree rom material misstatement, whether due to raud

or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the

circumstances.

Auditors responsibility

Our responsibility is to express an opinion on these inancial statements based on our audit. We conducted our audit in

accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and

plan and perorm the audit to obtain reasonable assurance whether the inancial statements are ree rom material misstatement.

An audit involves perorming procedures to obtain audit evidence about the amounts and disclosures in the inancial statements.

The procedures selected depend on the auditors judgement, including the assessment o the risks o material misstatement o

the inancial statements, whether due to raud or error. In making those risk assessments, the auditor considers internal control

relevant to the entities preparation and air presentation o the inancial statements in order to design audit procedures that are

appropriate in the circumstances, but not or the purpose o expressing an opinion on the eectiveness o the entities internal

control. An audit also includes evaluating appropriateness o accounting policies used and the reasonableness o accounting

estimates made by management, as well as evaluating the overall presentation o the inancial statements.

We believe that the audit evidence we have obtained is suicient and appropriate to provide a basis or our audit opinion.

Opinion

In our opinion, the inancial statements give a true and air view o the inancial position o the group as at 31 March 2010

and o its inancial perormance and its cash lows or the year then ended in accordance with International Financial Reporting

Standards and the Malawi Companies Act, 1984, so ar as concerns the members o the company.

Public Accountants

Blantyre, Malawi

7 May 2010

INDEPENDENT AUDITORS REPORT


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STATUTORY INFORMATION

1. NATURE OF BUSINESS

The principal activities o the company and its subsidiary are the growing o sugar cane and the manuacture o sugar.

This is more ully described under the group proile appearing on page 2.

2. REVIEW OF OPERATIONS

Detailed commentary is given in the directors report on pages 6 to 8.

3. ACQUISITIONS

There were no acquisitions in the current year.

4. SHARE CAPITAL

Full details o the current authorised and issued share capital are set out in the statement o changes in equity on page30 o the inancial statements. There have been no changes in the current year.

5. SHAREHOLDERS

An analysis o shareholders and their shareholdings is given on page 50.

The register o members relects ive beneicial shareholdings equal to or greater than 1% o the issued ordinary share

capital o the company. Details are given on page 50.

6. DIVIDENDS

A irst interim ordinary dividend o 287 tambala per share (2009: 240 tambala per share) was declared on

30 October 2009. A second interim ordinary dividend o 393 tambala per share (2009: 370 tambala per share) wasdeclared on 28 April 2010. The irst interim ordinary dividend was paid on 8 January 2010 and the second is payable

on 25 June 2010.

The directors recommend a inal dividend o 20 tambala per share (2009: 15 tambala per share) to be declared at the

orthcoming annual general meeting on 12 August 2010 to shareholders registered in the companys books at close

o business on 27 August 2010 and payable on 8 October 2010. The second interim and inal dividends have not

been included as a liability in these inancial statements. Total distribution or the year will be 700 tambala per share

(2009: 625 tambala per share).

The directors o the wholly owned and only subsidiary o the company, Dwangwa Sugar Corporation Limited, declared

and paid dividends o K 2.00 billion (2009: K 2.55 billion) to the company, during the year.

7. ILLOVO SUGAR MALAWI EMPLOYEES SHARE PURCHASE SCHEME

During the year under review the trustees o the Scheme disposed o 600 (2009: 8 300) and purchased 70 000

(2009: 28 000) shares in the company bringing the total number o shares held to 484 046 (2009: 414 646).

8. SUBSIDIARY COMPANY

Inormation concerning the subsidiary o the company is set out on page 38 in note 8 to the inancial statements.

9. DIRECTORATE AND SECRETARIES

The names o the secretaries together with the companys business and postal addresses and the directors in oice at the

date o this report, are set out on pages 3 and 5 respectively. There were no changes to the directorate during the year.

In terms o the companys articles o association, a third o the non-executive directors retire by rotation at the

orthcoming annual general meeting. Accordingly, Messrs D G MacLeod, D B Mawindo and A R Mpungwe will retire and

being eligible oer themselves or re-election.


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20

Mr S L G Malata holds 96 736 (2009: 95 592) ordinary shares in the company at 31 March 2010.

The register o shares o the company is available or inspection at the registered oice.

No change in the interest o directors has occurred between the year-end and the date o approval o these inancial

statements.

10. DIRECTORS FEES

At the last annual general meeting held on 5 August 2009 shareholders approved the ees payable to each director and

the chairman to be K 500 000 per annum with eect rom 1 April 2009. At the orthcoming annual general meeting it

will be proposed that such ees be increased to K 750 000 per annum or the ensuing year.

11. HOLDING COMPANY

SUCOMA Holdings Limited (incorporated in Mauritius) is the holding company o Illovo Sugar (Malawi) Limited

(incorporated in Malawi) with a 75.98% interest in its issued share capital. Illovo Sugar Group (incorporated in the

Republic o South Arica) owns a 100% shareholding in SUCOMA Holdings Limited. The ultimate holding company is

Associated British Foods plc (incorporated in the United Kingdom).

12. AUDITOR

Deloitte will continue in oice in accordance with the provisions o Section 191(1) o the Companies Act, 1984.

13. SPECIAL RESOLUTIONS

There were no special resolutions adopted during the inancial year.

14. POST BALANCE SHEET EVENTS

There have been no matters o material interest to report on in the period between the end o the inancial year and the

date o approval o the inancial statements.

STATUTORY INFORMATION (continued)


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ACCOUNTING POLICIES

The principal accounting policies o the group conorm to International Financial Reporting Standards (IFRS) which have

been consistently applied.

1. COMPLIANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS

The inancial statements have been drawn up in accordance with International Financial Reporting Standards.

2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

In the current year, the group has adopted all o the new and revised Standards and Interpretations issued by the

International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee

(the IFRIC) o the IASB that are relevant to its operations and eective or annual reporting periods beginning on or ater

1 April 2009.

At the date o authorisation o these inancial statements, the ollowing relevant Standards and Interpretations were inissue but not yet eective:

IAS 7 Statement of Cash FlowsThe amendments speciy that only expenditures that result in a recognised asset in the statement o inancial

position can be classiied as investing activities in the statement o cash lows. Consequently, cash lows in

respect o development costs that do not meet the criteria in IAS 38 Intangible Assets or capitalisation as part

o an internally generated intangible asset (and, thereore, are recognised in proit or loss as incurred) have been

reclassiied rom investing to operating activities in the statement o cash lows. This amendment is eective or

the period beginning on or ater 1 January 2010 and is not expected to have a signiicant impact on the inancial

statements;

IAS 17 LeasesThe amendment clariies the classiication o leases o land and building. In determining whether the landelement is an operating or a inance lease, an important consideration is that land normally has an indeinite

economic lie. The amendment is eective or annual periods beginning on or ater 1 January 2010 and is not

expected to have a signiicant impact on the inancial statements;

IAS 39 Financial Instruments: Recognition and measurementThe amendments provide clariication on two issues in relation to hedge accounting identiying inlation

as a hedge risk and hedging with options. The amendment is eective or periods beginning on or ater

1 January 2010 and is not expected to have a signiicant impact on the inancial statements. The amendments to

IAS 39 permit reclassiication o certain non-derivative inancial assets recognised in accordance with IAS 39.

A inancial asset within the scope o these amendments can only be class iied out o the air value through proit

o loss (FVTPL) or available-or-sale (AFS) classiications i speciied criteria are met. The criteria vary depending on

whether the assets would have met the deinition o loans and receivables (L and R) had it not been classiiedas at FVTPL or AFS at initial recognition. The amendments are eective or periods beginning on or ater

1 January 2010 and are not expected to have a signiicant impact on the inancial statements;

IFRS 2 Share-based PaymentIn June 2009, the IASB issued amendments to IFRS 2 Share-based Payment. These amendments clariy the scope

o IFRS 2, as well as the accounting or group cash-settled share-based payment transactions in the separate

(or individual) inancial statements o an entity receiving the goods or services when another group entity or

shareholder has the obligation to settle the award. The amendments are eective or periods beginning on or

ater 1 January 2010 and are not expected to have a signiicant impact on the inancial statements;

IFRS 5 Non-current Assets Held for Sale and Discontinued OperationsThe amendment clariied that the disclosure requirements in Standards other than IFRS 5 do not generally apply

to non-current assets classiied as held-or-sale and discontinued operations. This amendment is eective or the

period beginning 1 January 2010 and is not expected to have a signiicant impact on the inancial statements;


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22

IFRS 9 Financial instruments - Classification and measurements

IFRS 9 was issued in November 2009 and replaces those parts o IAS 39 relating to the classiication andmeasurement o inancial assets. Key eatures are as ollows: Financial assets are required to be classiied into

two measurement categories; those to be measured subsequently at air value, and those to be measured

subsequently at amortised cost. The decision is to be made at initial recognition. This standard is eective or

periods on or ater 1 January 2013 and will have an impact on the disclosures in the inancial statements;

IFRIC 17 Distributions of non-cash assets to ownersIFRIC 17 was issued in November 2008. It addresses how non-cash dividends distributed to the shareholders

should be measured. A dividend obligation is recognised when the dividend was authorized by the appropriate

entity and is no longer at the discretion o the entity. This dividend obligation should be recognized at the air

value o the net assets to be distributed. The dierence between the dividend paid and the amount carried

orward o the net assets distributed should be recognized in proit and loss. This interpretation is eective

or period beginning on or ater 1 July 2009 and is not expected to have a signiicant impact on the inancial

statements;

IFRIC 18 Transfers of assets from customersIFRIC 18 was issued in January 2009. It clariies how to account or transers o items o property, plant and

equipment by entities that receives such transers rom their customers. This is eective or periods on or ater

1 July 2009 and is not expected to have a signiicant impact on the inancial statements;

IFRIC 19 Extinguishing Financial Liabilities with Equity InstrumentsThe interpretation addresses the accounting by the entity that issues equity instruments in order to settle, in ull

or in part, a inancial liability. This interpretation is eective or annual periods beginning on or ater 1 July 2010

and is not expected to have a signiicant impact on the inancial statements; and

There have also been additional terminology changes, clariications and amendments as part o the IASB annualimprovements project to: IAS 1, IAS 24, IAS 27, IAS 28, IAS 31, IAS 32, IAS 36, IAS 38, IAS 39 and IFRS 8, that

are not yet eective. The directors anticipate that these additional amendments are not expected to have a

signiicant impact on the companys inancial statements.

3. BASIS OF PREPARATION

The consolidated inancial statements have been prepared on the historical cost basis, except or the revaluation o

certain non-current assets and inancial instruments. No other procedures are adopted to relect the impact on the

inancial statements o speciic price changes or changes in the general level o prices.

The preparation o inancial statements in conormity with IFRS requires the use o certain critical accounting estimates.

It also requires management to exercise its judgement in the process o applying the groups accounting policies. The

areas involving a higher degree o judgement or complexity, or areas where assumptions and estimates are signiicant to

the consolidated inancial statements are disclosed in notes to the inancial statements number 1 on page 33.

4. BASIS OF CONSOLIDATION

The consolidated inancial statements incorporate the inancial statements o the company and its subsidiary. Where

necessary, adjustments are made to the inancial statements o the subsidiary to bring its accounting policies into line

with those used by the group. All signiicant intercompany transactions and balances are eliminated on consolidation.

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.

Cost includes proessional ees and, or qualiying assets, borrowing costs capitalised in accordance with the groups

accounting policy.

Depreciation is charged so as to write-o the cost o assets over their estimated useul lives, using the straight-line

method. Depreciation commences when the assets are ready or their intended use and is calculated at rates appropriate

in terms o managements current assessment o useul lives and residual values. Land is not depreciated.

ACCOUNTING POLICIES (continued)


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Buildings 40 years

Plant, equipment, vehicles and urniture 4 - 20 years

Management reviews the residual values annually taking into consideration market conditions and projected disposal

values. In the annual assessment o useul lives, maintenance programmes and technological innovations are considered.

Borrowing costs expended on new productive capacity prior to commencement o production are capitalised where such

expenditure is incurred over a period in excess o 12 months.

6. CANE ROOTS AND GROWING CANE

Cane roots and growing cane are valued at air value determined on the ollowing basis:

Cane roots - the escalated average cost, using appropriate inlation related indices, o each year o

planting adjusted or the remaining expected lie.

Growing cane - the estimated sucrose content at 31 March valued at the estimated sucrose price or

the ollowing season, less the estimated costs or harvesting and transport.

7. LEASED ASSETS

Leases are classiied as inance leases whenever the conditions o the lease transers substantially all risks and rewards o

ownership to the lessee. All other leases are classiied as operating leases.

Assets subject to inance lease agreements are capitalised at their cash cost equivalent and the corresponding liabilities

are raised. Lease payments are apportioned between inance charges and reduction o the lease obligation so as to

achieve a constant rate o interest on the remaining balance o the liability.

The cost o the asset is depreciated at appropriate rates on the straight-line basis over the estimated useul lie o the

asset. Lease inance charges are charged to operating proit as they are incurred.

Rentals payable under operating leases are charged to proit or loss on a straight-line basis over the term o the relevant

lease. Beneits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line

basis over the lease term.

8. INVENTORIES

Inventories are stated at the lower o cost and net realisable value. The basis o determining cost is the average method.

The cost o inished goods comprises all costs o purchase, cost o conversion and other costs incurred in bringing such

inventories to their present location and condition.

Maintenance stores are valued at average cost with obsolete items being written-o. Redundant and slow-moving

inventories are identiied and written-down to their net realisable values.

9. FACTORY OVERHAUL COSTS

Factory overhaul costs represent expenditure actually incurred on plant and equipment or the overhaul o the actory

in preparation or the new sugar season commencing ater the year-end. This expenditure is ully written-o in the

ollowing year.

10. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist o cash resources which comprise cash on hand, balances with bankers and investments

in short-term money market instruments.


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11. INVESTMENTS

Investments are stated at cost to the group less amounts written-o to give recognition to declines in value.

12. FOREIGN CURRENCY ASSETS AND LIABILITIES

The individual inancial statements o the group are presented in the currency o the primary economic environment in

which the entity operates (its unctional currency). For the purpose o the consolidated inancial statements, the results

and inancial position o each entity are expressed in Malawi Kwacha, which is the unctional currency o the group and

the presentation currency or the consolidated inancial statements.

In preparing the inancial statements o the individual companies, transactions in currencies other than the groups

unctional currency (oreign currencies) are recorded at the rates o exchange prevailing on the dates o the transactions.

At each reporting date, monetary items denominated in oreign currencies are retranslated at the rates prevailing on the

reporting date.

Non-monetary items carried at air value that are denominated in oreign currencies are retranslated at the rates

prevailing on the date when the air value was determined. Non-monetary items that are measured in terms o historical

cost in a oreign currency are not retranslated.

Exchange dierences arising on the settlement o monetary items, and on the retranslation o monetary items, are

included in proit or loss or the period. Exchange dierences arising on the retranslation o non-monetary items carried

at air value are included in proit or loss or the period except or dierences arising on the retranslation o non-monetary

items in respect o which gains and losses are recognised directly in equity. For such non-monetary items, any exchange

component o that gain or loss is also recognised directly in equity.

13. FINANCIAL INSTRUMENTS

Financial assets and inancial liabilities are recognised on the groups statement o inancial position when the group

becomes a party to the contractual provisions o the instrument.

Investments are recognised at air value, plus directly attributable transaction costs at date o purchase.

At subsequent reporting dates, debt securities that the group has with the expressed intention and ability to

hold-to-maturity (held-to-maturity debt securities) are measured at amortised cost using the eective interest rate

method, less any impairment loss recognised to relect irrecoverable amounts. An impairment loss is recognised in

proit or loss when there is objective evidence that the asset is impaired, and is measured as the dierence between the

investments carrying amount and the present value o estimated uture cash lows discounted at the eective interest

rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the

investments recoverable amount can be related objectively to an event occurring ater the impairment was recognised,

subject to the restriction that the carrying amount o the investment at the date the impairment is reversed shall not

exceed what the amortised cost would have been had the impairment not been recognised.

Investments other than held-to-maturity debt securities are classiied as either investments held-or-trading or as

available-or-sale, and are measured at subsequent reporting dates at air value, except to the extent that the air value

is not accurately estimatable, where cost is used. Where securities are held or trading purposes, gains and losses arising

rom changes in air value are included in proit or loss or the period. For available-or-sale investments, gains and losses

arising rom changes in air value are recognised directly in equity, until the security is disposed o or is determined to

be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the proit or loss

or the period. Impairment losses recognised in proit or loss or equity investments classiied as available-or-sale are not

subsequently reversed through proit or loss. Impairment losses recognised in proit or loss or debt instruments classiied

as available-or-sale are subsequently reversed i an increase in the air value o the instrument can be objectively related

to an event occurring ater the recognition o the impairment loss.

Trade receivables are measured at initial recognition at air value. Appropriate allowances or estimated irrecoverable

amounts are recognised in proit or loss when there is objective evidence that the asset is impaired.



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Financial liabilities and equity instruments issued by the group are classiied according to the substance o the contractual

arrangements entered into and the deinitions o a inancial liability and an equity instrument. An equity instrument is any

contract that evidences a residual interest in the assets o the group ater deducting all o its liabilities. The accounting

policies adopted or speciic inancial liabilities and equity instruments are set out below.

Interest-bearing bank loans and overdrats are initially measured at air value and are subsequently measured at

amortised cost, using the eective rate method. Any dierence between the proceeds (net o transaction costs) and

settlement or redemption o borrowings is recognised over the term o the borrowings in accordance with the groups

accounting policy or borrowing costs (see notes 5 and 16 on pages 22 and 40 respectively).

Trade and other payables are measured at air value. Derivative instruments are measured at air value. It is the policy

o the group not to trade in derivative inancial instruments or speculative purposes. Equity instruments issued by the

group are recorded at the proceeds received, net o direct issue costs. Gains and losses arising rom a change in the air

value o inancial instruments that are not part o a hedging relationship are included in net proit or loss in the periodin which the change arises. Financial assets and liabilities are oset and the net amount reported in the statement o

inancial position when the group has a legally enorceable right to set o the recognised amounts, and intends either

to settle on a net basis, or to realise the asset and settle the liability simultaneously.

14. TAXATION

Income tax expense represents the sum o the tax currently payable and deerred tax.

The tax currently payable is based on taxable proit or the year. Taxable proit diers rom proit as reported in the

statement o comprehensive income because it excludes items o income or expense that are taxable or deductible in

other years and it urther excludes items that are never taxable or deductible. The groups liability or current tax is

calculated using tax rates that have been enacted or substantively enacted by the reporting date.

Deerred tax is recognised on dierences between the carrying amounts o assets and liabilities in the inancial statements

and the corresponding tax bases used in the computation o taxable proit, and is accounted or using the liability

method. Deerred tax liabilities are generally recognised or all taxable temporary dierences, and deerred tax assets

are recognised to the extent that it is probable that taxable proits will be available against which deductible temporary

dierences can be utilised. Such assets and liabilities are not recognised i the temporary dierence arises rom goodwill

or rom the initial recognition (other than in a business combination) o other assets and liabilities in a transaction that

aects neither the taxable proit nor the accounting proit.

The carrying amount o deerred tax assets is reviewed at each reporting date and reduced to the extent that it is no

longer probable that suicient taxable proits will be available to allow all or part o the asset to be recovered.

Deerred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the assetrealised. Deerred tax is charged or credited to proit or loss, except when it relates to items charged or credited directly

to equity, in which case the deerred tax is also dealt with in equity.

Deerred tax assets and liabilities are oset when there is a legally enorceable right to set o current tax assets against

current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends

to settle its current tax assets and liabilities on a net basis.

15. REVENUE RECOGNITION

Revenue is measured at the air value o the consideration received or receivable and represents amounts receivable or

goods and services provided in the normal course o business, net o discounts and sales related taxes. Sales o goods

are recognised when goods are delivered and title is passed.


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16. DIVIDEND AND INTEREST REVENUE

Dividend revenue rom investments is recognised when the shareholders right to receive payment has been established.

Interest revenue is accrued on a time basis by reerence to the principal outstanding and at the eective interest rate

applicable, which is the rate that exactly discounts estimated uture cash receipts through the expected lie o the

inancial asset to that assets net carrying value.

17. RETIREMENT BENEFITS

The group provides retirement beneits or its employees through two deined contribution plans, the SUCOMA Group

Pension Scheme and the SUCOMA Group Non-contributory Pension Fund.

Contributions by group companies to deined contribution retirement plans are recognised as an expense in the year in

which the related services are rendered by employees. Severance liabilities in terms o the Employment Act regulationsare assessed annually and provided or where applicable.

18. EARNINGS PER SHARE

The calculation o basic and diluted earnings per share is based on the net proit attributable to the shareholders and

the weighted average number o ordinary shares in issue during the year. Where new equity shares are issued or no

consideration, the proit is apportioned over the shares in issue ater the issue and the corresponding igures or the

earlier periods are adjusted accordingly.

19. DIVIDENDS PER SHARE

Dividends on ordinary shares are recognised in equity in the period in which they are approved by the companys board

o directors.

Dividends or the year that are declared ater the reporting date are dealt with in a note.

The calculation o dividend per share is based on the dividends paid to shareholders during the period divided by the

number o ordinary shareholders on the register o shareholders on the date o payment.

20. PROVISIONS

Provisions are recognised when the group has a present obligation (constructive or legal) as a result o a past event and

it is probable that the group will be required to settle that obligation and a reliable estimate can be made o the amount

o the obligation.

The amount recognised as a provision is the best estimate o the consideration required to settle the present obligationat the reporting date. Where a provision is measured using the cash lows estimated to settle the present obligation, its

carrying amount is the present value o those cash lows.

When some or all o the economic beneits required to settle a provision are expected to be recovered rom a third party,

the receivable is recognised as an asset i it is virtually certain that reimbursement will be received and the amount o the

receivable can be measured reliably.

21. ASSET IMPAIRMENT REVIEW

At each reporting date, the group reviews the carrying amounts o its tangible and intangible assets to determine

whether there is any indication that those assets have suered an impairment loss. I any such indication exists, the

recoverable amount o the asset is estimated in order to determine the extent o the impairment loss (i any). Where it

is not possible to estimate the recoverable amount o an individual asset the group estimates the recoverable amount o

the cash-generating unit to which the asset belongs.



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Recoverable amount is the higher o air value less costs to sell and value in use. In assessing value in use, the estimated

uture cash lows are discounted to their present value using a pre-tax discount rate that relects current market

assessments o the time value o money and the risks speciic to the asset.

I the recoverable amount o an asset (or cash-generating unit) is estimated to be less than its carrying amount,

the carrying amount o the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is

recognised immediately in proit or loss.

Where an impairment loss subsequently reverses, the carrying amount o the asset (cash-generating unit) is

increased to the revised estimate o its recoverable amount so that the increased carrying amount does not exceed

the carrying amount that would have been determined had no impairment loss been recognised or the asset

(cash-generating unit) in prior years. A reversal o an impairment loss is recognised immediately in proit or loss.

22. COMPARATIVE FIGURES

When accounting policies are changed with retrospective eect, comparative igures are restated in accordance with the

new policies. In addition, comparative igures are adjusted to conorm to changes in presentation in the current year.

23. BORROWING COSTS

Borrowing costs are recognised in proit and loss in the period in which they are incurred, except as detailed in

accounting policy note 5 on page 35.

24. SEGMENTAL ANALYSIS

Segmental reporting is presented in respect o the groups business segments. The primary ormat is based on the groups

management and internal reporting structure and combines businesses with common characteristics. Inter-segmentpricing is determined on an arms length basis.

Assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable

basis. Segmental capital expenditure is the total costs incurred during the period to acquire segment assets that are

expected to be used or more than one year.

The group is comprised o the ollowing business segments:

Cane growing - the growing o sugar cane or use in the sugar production

process; and

Sugar production - the manuacture o sugar rom sugar cane.


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GROUP COMPANY

2010 2009 2010 2009

Notes K million K million K million K million

Revenue 2 28 643 26 090 17 320 16 059

Operating prot 3 10 915 9 740 6 874 6 447

Dividend income 8 - 2 000 2 550

Finance costs 4 (872) (830) (567) (402)

Interest income 4 206 234 206 234

Prot before taxation 10 257 9 144 8 513 8 829

Taxation 5 (3 141) (2 791) (2 004) (1 918)

Net prot for the year 7 116 6 353 6 509 6 911

Other comprehensive income - - - -

Total comprehensive income 7 116 6 353 6 509 6 911

Basic earnings per share (tambala) 28 997 890

STATEMENTS OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 MARCH 2010


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GROUP COMPANY

2010 2009 2010 2009

Notes K million K million K million K million

ASSETS

Non-current assets

Property, plant and equipment 6 7 144 5 975 5 078 3 937

Cane roots 7 8 190 7 049 6 144 5 352

Investment in subsidiary company 8 - - 324 324

Other investments 9 - - - -

Loans receivable 10 563 545 563 545

15 897 13 569 12 109 10 158

Current assets

Inventories 11 2 026 1 634 1 094 964Growing cane 12 9 044 7 532 5 814 4 778

Factory overhaul costs 13 772 551 431 347

Accounts receivable 14 926 1 706 595 1 336

Cash and cash equivalents 15 1 006 1 475 994 1 475

13 774 12 898 8 928 8 900

Total assets 29 671 26 467 21 037 19 058

EQUITY AND LIABILITIES

Capital and reserves

Share capital and premium 782 782 782 782

Retained earnings 14 968 12 646 10 243 8 528

15 750 13 428 11 025 9 310

Non-current liabilities

Long-term borrowings 16 180 227 180 227

Deerred tax 17 7 239 5 924 5 184 4 122

Post-retirement benefts 18 747 709 349 349

8 166 6 860 5 713 4 698

Current liabilities

Accounts payable 19 2 966 3 276 2 360 2 626

Holding company and ellow subsidiaries 20 663 936 727 942

Short-term borrowings 21 47 75 47 75

Bank overdrats 15 750 366 750 366

Taxation payable 1 210 1 438 326 975

Provisions 22 119 88 89 66

5 755 6 179 4 299 5 050

Total equity and liabilities 29 671 26 467 21 037 19 058

The fnancial statements were authorised or issue by the Board o Directors on 28 April 2010 and were signed on its behal by:

D G MacLeod (Chairman) I G Parrott (Managing Director)

STATEMENTS OF FI NANCIAL POSITIONAS AT 31 MA RC H 20 10


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STATEMENTS OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 MARCH 2010

Share Share Retained TotalCapital Premium Earnings

K million K million K million K million

GROUP

Balance at 31 March 2008 14 768 10 146 10 928

Proft or the

Illovo Malawi_Annual Report 2010

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Transcript of Illovo Malawi_Annual Report 2010