Zambia Sugar A n n u a l R e p o r t

Transcription

1 Zambia Sugar A n n u a l R e p o r t

2 Zambia Sugar EXPANSION Zambia Sugar has been the focus of a major agricultural and milling expansion which was completed as planned on 1 April Included under the scope of the project was the development by the company and its supplying growers of an additional hectares of irrigated cane fields, representing a 50% increase in area. The agricultural expansion infrastructure is now complete with a network of dams, canals, pipelines, pump stations, roads and power reticulation to service the irrigated cane fields, which have all been planted to centre pivot irrigation systems. The project also included the significant expansion of the Nakambala factory to produce tons of sugar annually, an increase of approximately tons compared to production in the 2006/07 season. Amongst many other attitubutes, the expanded factory boasts new cane diffuser technology and a 160 tons steam boiler with supporting power generating plant capable of producing 30 Megawatts of power.

3 ZAMBIA SUGAR Plc KEY FEATURES Revenue (ZK million) Profit from operations (ZK million) Profit for the year (ZK million) Basic and diluted earnings per share (ZK) Year-end market price (ZK) Price: earnings ratio (%) Dividends per share (ZK) Number of shares in issue (000) CONTENTS Company profile and operating locations 2 Directorate and senior management 3 Directors report 4 Analysis of shareholders 9 Corporate governance 12 Five year review 14 Value added statement 16 Annual financial statements - contents 17 Statement of responsibility 18 Report of the independent auditors 19 Notice of meeting 42 Shareholders diary 43 Corporate information 43 Form of proxy 44 1

4 COMPANY PROFILE Zambia Sugar Plc is listed on the Lusaka Stock Exchange. Illovo Sugar Limited of South Africa, through its wholly owned subsidiary Illovo Sugar Cooperatief UA holds 89.7% of the issued share capital. The balance of the issued share capital is held by institutional investors and members of the public, including employees. Zambia Sugar is the largest sugar producer in Zambia based at Nakambala Estate in Mazabuka District. The company recently completed a major expansion project which has increased the factory capacity to tons of sugar per annum and cane area, ultimately, by an additional hectares between the company and outgrowers. The expansion project will result in the generation of 30 Megawatts of electricity, which under normal conditions will make the company self-sufficient in power during the crushing season. The company grows sugar cane at Nakambala Estate, with about 44% of the cane being supplied by outgrowers. Looking ahead, approximately a third of sugar produced will be sold on the local market for both industrial and domestic consumption, and the balance will be shared between the regional markets and the European Union under EBA sugar reform regime. The company also manufactures a range of sugar-based specialty products. Molasses, a by-product of the sugar milling operation, is sold mainly as stock feed into both local and regional markets. The company will consider the possibility of ethanol production in the future. All sugar is sold under the Whitespoon label and direct-consumption domestic market sugar is Vitamin-A fortified. The company has effective environmental control programmes and adheres to Environmental Council of Zambia regulations, guidelines and standards in its operations. In addition, the company Safety Health and Quality standards are underpinned by accreditation to the NOSA Platinum Standard and ISO The Illovo Group has extensive agricultural and manufacturing operations in six African countries. The group produces approximately 5.7 million tons of sugar cane from its own agricultural operations and produces around 2 million tons of sugar on an annual basis. Sugar is sold principally to domestic and preferential markets, as well as to regional and world markets. Value-added operations include the production of furfural (used mainly in lube oil refineries for the purification of oils), furfuryl alcohol (used mainly to produce a resin in the foundry industry as a binder for foundry sands), Agriguard (an agricultural nematicide), diacetyl and 2.3 Pentanedione (both used as high-quality natural flavourants), BioMass Sugar (a sugar cane-based fertiliser), ethyl alcohol, lactulose (a natural laxative), syrup and speciality sugars. OPERATING LOCATIONS 2 Nakonde HEAD OFFICE Mazabuka agricultural, sugar manufacturing, packing and distribution operations. Mongu SALES DEPOTS Solwezi Kasumbalesa Ndola Zambia Mumbwa Mazabuka Livingstone LUSAKA Luangwa Mansa Kasama Chipata

5 DIRECTORATE Name Qualifications Appointed Position NON-EXECUTIVE CHAIRMAN D G MacLeod (62)^# BCom, AMP(Oxon) 2001 Deputy Chairman Illovo Sugar Ltd EXECUTIVE DIRECTORS S D Langton (47)# PrEng, BScEng 2008 Managing Director D M Kabunda (46) BA(PubAdmin), MBA 2008 Human Resources Director R M L Katowa (48) BA, MBA, MCIM, FZIM 2002 Marketing Director S S Munsamy (54) BTechMgt, MDP 2009 Operations Director D M Wellington (53) BAcc, CA 2008 Financial Director NON-EXECUTIVE DIRECTORS G J Clark (53)*^# BAcct(Hons), FCA(Aus) 2001 Managing Director Illovo Sugar Ltd K Zarnack (36)*# CA(SA) 2005 Financial Director Illovo Sugar Ltd NON-EXECUTIVE INDEPENDENT DIRECTORS F M Banda ACIS, FCMA 2002 Director of companies A B Chikwanda*^ BSc(Econ) 2001 Director of companies A R Mpungwe BA(Hons) 2007 Director of companies M D Mwanakatwe BA, ACCA, FZICA 2005 Director of companies D Patel 2006 Director of companies SENIOR MANAGEMENT Name Qualifications Joined Operating responsibility J M Mukukwa (44) MScChemEng 1990 Factory L M Sievu (47) BAcc, ACMA, ACIS, FZICA 2004 Corporate affairs H P Veenstra (52) MAgMgt(AgEcon) 2003 Agriculture 3 * - Audit Committee Member ^ - Remuneration Committee Member # - Risk Management Committee Member

6 DIRECTORS REPORT PRINCIPAL ACTIVITIES The principal activities of the company are the cultivation of sugar cane and the production of sugar for sale into local and export markets. Review of operations The company s operations recorded a net profit after taxation of ZK million for the year, having produced tons of sugar (2008: tons) and sold tons (2008: tons), supplemented from existing stocks. During the year Zambia Sugar spent capital of ZK million on the replacement of assets and ZK million on the further expansion of the business. A total of ZK million was spent on the refurbishment and overhaul of factory plant and machinery to ensure that the factory is kept in sound condition, that strategic plant is adequately protected against breakdown and that product quality meets global standards. Agriculture Good agricultural conditions were generally experienced during the period under review. Unfortunately, the season proved difficult with milling constraints restricting cane harvested leading to large carry over areas. Consequently, cane production of tons was substantially less than that achieved last year. However, cane yields were high at tons cane per hectare. The total expansion area planted, between the estate and growers for the season, amounted to hectares which has extremely good cane potential and exceptional yields are expected. Production The late commissioning of the first phase of the expansion programme in May 2008, following unusually heavy rainfall at the peak of construction in January and February 2008, delayed the start of the 2008/09 season. This was compounded by delays in the commissioning of new equipment, protracted electricity interruptions from the national grid and a disappointing factory performance. The season ended in March 2009 and final sugar production reduced to tons from tons produced in the previous year. 4

7 Marketing The company s main objective is to provide Zambian consumers with sugar by supplying the local market with affordable and quality products. Continued improvement in the company s distribution and depot system and promotion of market-specific pack sizes resulted in higher sugar sales ( tons) compared to the previous year. Local sales benefited from strong macroeconomic fundamentals and the depreciation of the Kwacha in the latter part of the year restricted the illegal smuggling of sugar into the domestic market. There are opportunities to increase sugar sales volumes locally especially amongst the rural population as road infrastructure and incomes improve. Logistics are expected to improve following the outsourcing of the function to a reliable partner. Regional sugar demand continued to be buoyant but reduced production impacted negatively on sales. To help mitigate the impact of low stock availability, tons was sourced from an associate operation to meet industrial customer requirements. In the year under review, Zambia qualified to export additional sugar to the European Union (EU) under its Economic Partnership Agreement (EPA) with the EU. Preferential sugar sales to the EU continued within the constraints of available stocks. The company benefited from marketing synergies and logistics savings offered by Illovo Group s marketing services through consolidation of exports. EU Reform - update Reform of the EU Sugar Regime has been completed via a process of structural reform which has seen the reduction of EU export subsidies and the lowering of domestic farm support for European beet farmers. Annual domestic sugar production in the EU has reduced by nearly six million tons as a result of these measures which were also accompanied by a restructuring grant to affected EU producers. The price payable to suppliers of sugar into the EU was also reduced as part of the reform. However, the company will benefit from increased volumes flowing from quota-free and duty-free access into the EU sugar market. In addition, previous quality restrictions which limited imports to bulk raw sugar for refining will also be relaxed from 1 October 2009, and exporters to the EU, including Zambia, will in future be entitled to supply sugar of various qualities as required by different customers. The current expansion programme is underpinned by the EU sugar reform which will provide a floor premium price for sugar supplied to the EU by the company. In addition, the company will benefit from premium prices obtained for specialty sugars which, following completion of the Nakambala Expansion project, will be produced in greater volumes. The Illovo Group has concluded an investment in a UK-based joint venture with British Sugar and this will provide an effective route to the EU market for Zambia s export sugars from 1 October 2009, managed via the Illovo central export marketing structure. 5

8 6 Expansion Project Phase one of the factory expansion programme was completed in The second and final phase, which increased the capacity of the Nakambala sugar mill to tons sugar per annum, was completed as planned on 1 April In the year under review, new diffuser technology was introduced and a 160 tons steam per hour boiler commissioned with supporting power generating plant capable of producing 30 Megawatts of power. The agricultural expansion infrastructure is complete with a network of dams, canals, pipelines, pump stations, roads and power reticulation to service an additional hectares. All expansion areas have been planted to centre pivot irrigation systems. The expansion project adhered to the requirements of the Environmental Council of Zambia (ECZ) and the highest safety standards were observed. The expansion project enjoyed excellent co-operation between the company and the Government, with the Government being supportive throughout the project, making it possible for the project to be completed on schedule. Prospects The final phase of the expansion at Nakambala has been completed on schedule and the factory commenced operations as planned on 1 April Record cane yields are anticipated from the new expansion areas and factory capacity has increased by 60%. Increased power from new electricity generating equipment will enhance operational efficiency and security of electricity supply to the factory, as well as providing power for the full irrigation requirements of the growing crop into the future. A weaker exchange rate and the commencement of duty-free, quota-free access to the high priced EU market from 1 October 2009 will improve revenue prospects for the coming year. Given normal weather conditions for the balance of the season, sugar production is expected to exceed all previous records and is anticipated to increase to in excess of tons for the year. Borrowings associated with the expansion have significantly increased the level of gearing in the company. The costs of financing the debt, which during the course of the expansion were capitalized in terms of International Financial Reporting Standards, will become a material feature of the income statement going forward, until borrowings are reduced in the medium term. The company is, however, exploring alternative options for the financing of this debt. Taxation, which as a result of the expansion, has resulted in income tax credits in the last two years, will in future return to more normal levels of around 15%, as applicable to an agricultural business in Zambia. Whilst future profits from operations will reflect the expanded earnings capability of the company, headline earnings growth will remain constrained until the level of borrowings is reduced.

9 DIRECTORS REPORT (continued) HUMAN RESOURCES Human resource management and operational strategies are determined by the business needs of the company. These strategies embrace the macro-economic and labour environments and are aligned to the Ilovo Group s strategic intent. A work ethic of continuous improvement which encourages focused and skilled employees to realise their full potential and to make a difference in their areas of operation is a cornerstone of the company s policy. Employee development and performance management combine to elicit the best from employees and ensure equitable labour practices. The company encourages and proactively engages in dialogue and partnership with the Union. Various communication channels such as a Joint Consultative Council, in addition to the bargaining table are open and enhance good rapport between management and Union representatives. The mutual respect between the partners has been acknowledged and commended by the Ministry of Labour and Social Security. The continued development of employees through wide-ranging training initiatives to ensure that employee talents are harnessed in their areas of operation, both from a managerial and technical perspective, remains an area of focus. Technology transfer and upgrading of local skills was a priority in the period under review. While development programmes encompass positions at all levels, emphasis was again placed on the upliftment of artisans and operators. The company continues to benefit from participation in Illovo Group s training initiatives such as a Leadership and Development Programme for senior managers. Management trainees are following the group s programme developed for this category of employees. Several junior managers have benefited from periods of secondment and technical visits to sugar milling operations in South Africa. A Business Understanding Programme continues to be an important part of the company s employee involvement process. The upgrading of the estate infrastructure and amenities continued during the year, and an on going village electrification programme has continued. 7

10 DIRECTORS REPORT (continued) Health, safety and welfare The integrated Safety, Occupational Health and Environmental Management System (SHE) has shown encouraging results with the company achieving NOSA 3-star and 4-star platinum awards for the Factory and Agriculture operations respectively. The company continued maintenance of SABS ISO 9001:2000 Quality Management System accreditation. Health care is provided to all employees mostly through access to company-run clinics. The company s integrated malaria control programme was awarded a certificate of excellence for Best Practices by the Ministry of Health for maintaining malaria positive incidences to below 50 per 1000 population on the Estate. In addition, under the HIV/AIDs and wellness programmes, the company continued with vigorous Voluntary Counselling and Testing (VCT) with 61% of permanent workforce, 48% of the seasonal workforce and dependants having undergone VCT. In the period under review, the Government accredited the company clinic to administer Anti Retroviral Drugs. Directorate and secretary The directors who held office during the year were: Non-Executive Directors 8 D G MacLeod #^ G J Clark ^*# K Zarnack #* Non-Executive and Independent Directors A B Chikwanda *^ F M Banda A R Mpungwe M D Mwanakatwe D Patel Executive Directors : Chairman : Chairman of the Remuneration Committee : Chairman of the Risk Management Committee : Chairman of the Audit Committee J P M de Robillard # : Managing Director (resigned March 2009) J A Blumberg : Financial Director (resigned October 2008) D M Kabunda R L Katowa : Human Resources Director : Marketing Director S D Langton : Managing Director (appointed March 2009) D M Wellington : Financial Director (appointed October 2008) S S Munsamy : Operations Director (appointed March 2009) * Member of the Audit Committee ^ Member of the Remuneration Committee # Member of Risk Management Committee Company Secretary L M Sievu

11 Directors interests No director had any material interest in any contract with the company during the year under review. The beneficial interests of the directors holding office at the end of the year under review in the issued ordinary share capital of the company as at 31 March 2009 were as follows: No of shares No of shares F M Banda A B Chikwanda D M Kabunda Share capital There was no change to the authorised and issued share capital of the company. Analysis of shareholders Number of holders Number of shares Individuals % Banks, Nominees and Trusts Pensions Funds Companies Illovo Sugar Cooperatief U.A Total Dividends An interim dividend of ZK5.60 per share (2008: ZK7.45) was paid to shareholders on the 4 January Notice is hereby given that a second interim dividend of ZK6.00 per share (2008: ZK6.45) has been declared in respect of the year ended 31 March This dividend is payable on the 12 June 2009 to shareholders registered at the close of business on 15 May At the forthcoming Annual General Meeting to be held on the 29 June 2009, the Directors will propose a final dividend for the year ended 31 March 2009 of ZK1.00 per share (2008: ZK1.00). This will result in a total dividend for the year of ZK12.60 per share (2008: ZK14.90).

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13 Social Investment The company has an active social investment programme structured to address the specific needs of its surrounding communities. Prospective projects are considered on the basis that they are motivated by members of the local community and designated company representatives. To gain company support, projects must be shown to be meaningful and sustainable, to reach and benefit as many people as possible, and to have on-going community participation. Ongoing projects are diverse in nature and include, either in the form of cash funding or direct assistance, the sponsorship of major sporting events and major cultural and traditional ceremonies, donations to the disabled, the uplifting of facilities at district hospitals, police stations, orphanages, government and mission schools, sports and social clubs, the local radio station, drainage works in high density and disease prone compounds and assisting in maintaining some of the municipal roads. The company s contribution to the well-being and uplifting of the surrounding community has been recognised and in the past, the company has won the annual Zambia Institute of Marketing Best Corporate Social Responsible Company Award. Employees The average number of employees employed throughout the year under review was as follows: April October May November June December July January August February September March The total remuneration and benefits paid in respect of the above employees was ZK million (2008: ZK million) for the year ended 31 March Research and Development The company benefits from group research and development initiatives and has access to in-house group resources, which offer well-established technical expertise in both agricultural and sugar production operations. The company is a member of the South African Sugarcane Research Institute and the Sugar Milling Research Institute of South Africa, and benefits from ongoing research undertaken by these institutions. 11 Auditors Deloitte & Touche were the Company s auditors during the year.

14 CORPORATE GOVERNANCE The Directors and employees of Zambia Sugar strive to ensure that the Company is managed in an efficient, accountable, responsible and moral manner. The board of directors endorses the Lusaka Stock Exchange Corporate Governance Code for listed and quoted companies (The Code) and believes that in all material respects the Company complied with the principles of the Code throughout the year under review. THE BOARD AND BOARD COMMITTEES The Company has a unitary board of directors, which has a predominance of non-executive directors. The roles of the chairman and chief executive are separated and the Chairman is non-executive. The Company s board of directors is accountable to shareholders and responsible for ensuring compliance with standards of corporate governance comparable with international best practice and for ensuring that the Company s internal control system is regularly reviewed and is effective. The board of directors is responsible to the shareholders for setting the direction of the Company through the establishment of strategic objectives and key policies. During the year, the board has met to consider issues of operational strategy, capital expenditure, major projects and other matters having a material effect on the Company. The board of directors has four regular meetings a year where the Executive Committee of management present matters for board discussion and approval. There was full attendance at all meetings other than M D Mwanakatwe who, due to travel constraints only attended two meetings. In addition, there is provision in the Company s Articles of Association for decisions taken between meetings to be confirmed by way of directors resolution. 12 AUDIT COMMITTEE The Audit Committee of the board comprises a chairman, who is a non-executive director, and two other non-executive board members. The Committee operating within approved terms of reference, is responsible for the review of the procedures and policies of internal control and the review of the accounting principles and policies and practices adopted in the preparation of the statutory financial statements. The internal audit department operates under an approved Internal Audit Charter. Both the internal and external auditors have unrestricted access to the Audit Committee. The Committee has two meetings a year, and in the past year there was full attendance by its members at both meetings. REMUNERATION COMMITTEE The Remuneration Committee comprises three non-executive directors. The Committee is responsible for the review of compensation of executive directors and members of the executive Committee of management. The Committee met once during the past year and there was full attendance. RISK MANAGEMENT COMMITTEE The Company s Risk Management Committee comprises three non-executive directors and one executive director and is chaired by a non-executive director. Meetings are attended by all senior managers of the Executive Committee of Management. The Committee meets twice a year. The Committee has formal terms of reference approved by the board. The Committee is responsible for reviewing the Company s risk philosophy, strategy and policies, and ensuring compliance with such policies; reviewing the adequacy and overall effectiveness of the Company s risk management function; ensuring the implementation of an ongoing process for risk identification, mitigation and management; ensuring the establishment of a comprehensive system of controls; pursuing measures for increasing risk awareness throughout the Company; reviewing any significant legal matters; and reviewing the adequacy of insurance coverage. EXECUTIVE COMMITTEE OF MANAGEMENT The Executive Committee of Management is empowered and responsible for implementing the strategies and policies determined by the board, managing the business and affairs of the Company, prioritising the allocation of technical and human resources, and establishing best management practices.

15 MANAGEMENT REPORTING The Company has established management reporting procedures, which include the preparation of annual strategic plans and budgets. Actual results are reported monthly against approved budgets and compared to the prior year. Profit and cash flow projections are reviewed regularly whilst working capital and borrowing levels are monitored on an ongoing basis. INTERNAL CONTROL The control systems are designed to safeguard the Company s assets, maintain proper accounting records and ensure the reliability of management and financial information produced by the Company. Control systems are based on established Illovo Sugar Group policies and procedures and are implemented by trained personnel with an appropriate segregation of duties. The effectiveness of these internal controls and systems is monitored by the internal audit department and with the aid of selfassessment audit checklists. The independent auditors through the audit work they perform confirm that the abovementioned monitoring procedures are being effectively applied. Nothing has come to the attention of the directors or the independent auditors to indicate that any material breakdown in the functioning of abovementioned internal controls and systems has occurred during the year under review. ETHICS The Company has introduced a Code of Conduct and Business Practices to which all senior personnel must subscribe. The aim of the Code is for the Company to conduct business with honesty and integrity in accordance with the highest legal and ethical standards, and to provide guidance to employees to achieve these aims. INSIDER TRADING Directors and officers of the Company who have access to unpublished, price sensitive information in respect of the Company are prohibited from dealing in the shares of the Company during defined restricted periods, including those periods immediately prior to the announcement of interim and final financial results. 13

16 FIVE year review PRODUCTION & SALES Tons '000 Tons '000 Tons '000 Tons '000 Tons '000 Own estate cane produced Total cane milled Sugar production Cane sugar ratio Sugar sales Local Export Molasses sales Local Exports FINANCIAL Notes ZK million ZK million ZK million ZK million ZK million Income statement Revenue (net of VAT) Profit from operations Net financing costs Profit before taxation Income tax (credit)/expense (59 068) (58 597) Profit for the year Balance sheet Property, plant and equipment Cane roots Deferred tax assets Current assets Cash and bank balances Deferred tax liabilities Retirement benefit obligation Current liabilities Borrowings Net asset value Profitability and asset management Operaring margin % Return on net assets 1 % Liquidity and borrowings Current ratio 2 times Interest cover 3 times Debt : equity 4 % Gearing 5 % Earnings and dividends per share (Loss)/gain on disposal of fixed assets ZMK ( 688) Basic and diluted earnings per share 6 ZMK ' Dividend per share 7 ZMK Dividend cover 8 times Dividend paid ZMK 'm LUSE statistics Ordinary shares in issue Net asset value per share 9 ZMK ' Market price per share at year end ZMK Dividend yield at year end 10 % Price : Earnings ratio 11 %

17 FIVE year review NOTES 1. Return on net assets Profit from operations expressed as a percentage of average net operating assets. 2. Current ratio Current assets divided by current liabilities. 3. Interest cover Profit from operations divided by net financing costs. 4. Debt : equity Long-term borrowings (net of cash) expressed as a percentage of total equity. 5. Gearing Long-term borrowings (net of cash) expressed as a percentage of total debt plus equity. 6. Basic and diluted earnings per share Profit for the year divided by the weighted average number of ordinary shares in issue. 7. Dividend per share Dividends (interim - paid and declared; final - proposed) divided by the weighted average number of ordinary shares in issue. 8. Dividend cover Earnings per share divided by dividends per share (interim - paid and declared; final - proposed). 9. Net asset value per share Total assets less total liabilities divided by the number of shares in issue Dividend yield at year end Dividends per share (interim - paid and declared; final - proposed) as a percentage of the year-end market price. 11. Price: earnings ratio Year-end market price divided by earnings per share.

18 VALUE ADDED STATEMENT The value added statement reflects the wealth the Company has generated through its agricultural, manufacturing and selling operations, and the subsequent distribution and reinvestment in the business. Wealth created in the current financial year was ZK million, of which 90% was distributed to employees, providers of capital and the Government. 56% of the wealth created was paid to employees. The balance of the wealth created was retained and reinvested in the company for the replacement of assets and the ongoing development of operations ZK'million ZK'million Wealth created Revenue Financing income Paid to outgrowers for cane ( ) ( ) Manufacturing and distribution costs ( ) ( ) Wealth distributed To employees as salaries, wages and other benefits To banking institutions as finance costs To shareholders as dividends To government as taxation (39 186) Wealth re-invested Retained profits Depreciation Deferred taxation (67 318) (19 411) Amounts paid to government for taxation excludes the following: Employees tax deducted from remuneration Net VAT amounts paid to government Customs and excise duties Withholding taxes collected on behalf of government

19 Zambia Sugar Plc ANNUAL FINANCIAL STATEMENTS for the year ended 31 March 2009 CONTENTS Statement of responsibility 18 Report of the independent auditors Income statement 20 Balance sheet 21 Statement of changes in equity 22 Cash flow statement 23 Notes to the financial statements 24

20 STATEMENT OF RESPONSIBILITY FOR ANNUAL FINANCIAL STATEMENTS Section 164(6) of the Companies Act, 1994 requires the Directors to prepare financial statements for each financial year which give a true and fair view of the affairs of the Company and the profit or loss for that period. The Directors are responsible for the maintenance of adequate accounting records and the preparation and integrity of the annual financial statements and related information, which have been audited by the independent external auditors, Deloitte & Touche. The Directors are also responsible for the systems of internal control. These are designed to provide reasonable, but not absolute, assurance as to the reliability of the financial statements, and to adequately safeguard, verify and maintain accountability for assets, and to prevent and detect material misstatements. The systems are implemented and monitored by suitably trained personnel with an appropriate segregation of authority and duties. Nothing has come to the attention of the Directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review. In the opinion of the Directors: 18 the income statement is drawn up so as to give a true and fair view of the profit of the Company for the financial year ended 31 March 2009; the balance sheet is drawn up so as to give a true and fair view of the state of affairs of the Company as at 31 March 2009; and there are reasonable grounds to believe that the Company will be able to pay debts as and when they fall due. Signed on behalf of the Board by: D G MacLeod Chairman S D Langton Managing Director

21 REPORT OF THE INDEPENDENT AUDITORS To the members of Zambia Sugar Plc Report on the financial statements We have audited the accompanying financial statements of Zambia Sugar Plc, which comprise of the balance sheet as at 31 March 2009, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors responsibility for the financial statements The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud 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 financial 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 perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of Zambia Sugar Plc as of 31 March 2009, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Report on other legal requirements 19 The Zambian Companies Act, 1994 requires that in carrying out our audit, we consider and report to you on the following matter: we confirm that, in our opinion, the accounting and other records and registers required by the Act have been properly kept in accordance with the Act. DELOITTE & TOUCHE CHARTERED ACCOUNTANTS ALICE JERE TEMBO PARTNER 24 APRIL 2009

22 INCOME STATEMENT for the year ended 31 March 2009 Notes ZK'million ZK'million Revenue Cost of sales ( ) ( ) Gross profit Administrative costs ( ) ( ) Distribution costs (86 230) (82 229) (Loss)/gain on disposal of property, plant and equipment ( 688) 754 Profit from operations Net finance costs 6 - ( 446) Profit before taxation Income tax credit Profit for the year Basic and diluted earnings per share (ZK)

23 BALANCE SHEET at 31 March 2009 Notes 31 March 31 March ZK'million ZK'million ASSETS Non-current assets Property, plant and equipment Cane roots Deferred tax assets Current assets Inventories Growing cane Factory overhaul costs Trade and other receivables Current tax assets Cash and bank balances Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Capital redemption reserve Revaluation reserve Dividend reserve Retained earnings Non-current liabilities Long term borrowings Deferred tax liabilities Current liabilities Trade and other payables Current portion of long term borrowings Amounts due to related parties Provisions Total equity and liabilities The responsibilities of the Company's Directors with regard to the preparation of the financial statements are set out on page 18. The financial statements on pages 20 to 41 were approved for issue by the Board of Directors on 24 April 2009 and were signed on its behalf by: D G MacLeod Chairman S D Langton Managing Director

24 STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2009 Capital Share redemption Revaluation Dividend Retained capital reserve reserve reserve earnings Total ZK'million ZK'million ZK'million ZK'million ZK'million ZK'million Balance at 31 March Profit for the year Amortisation of revaluation reserve (1 821) Transfer to dividend reserve (80 862) - Dividends paid (83 304) - (83 304) Balance at 31 March Profit for the year Amortisation of revaluation reserve (14 568) Transfer to dividend reserve (68 380) - Dividends paid (70 822) - (70 822) Balance at 31 March The Capital Redemption Reserve was created on the redemption of preference shares in The dividend per share, calculated on a cash basis, amounts to ZK13.05 (2008 : ZK15.35). The calculation is based on the dividends paid in the year of ZK million (2008: ZK million) divided by the number of ordinary shares in issue of The dividends declared and proposed amount to ZK million (2008 : ZK million). The calculation is based on the dividend declared of ZK6.00 per share (2008: ZK6.45) and the dividend proposed of ZK1.00 per share (2008: ZK1.00), multiplied by the number of ordinary shares in issue of

25 CASH FLOW STATEMENT for the year ended 31 March 2009 ZK'million ZK'million Operating activities Profit from operations Adjustments for: Depreciation Change in fair value of cane roots (1 088) (6 091) Change in fair value of growing cane (88 286) (1 263) Provisions raised during the year Provisions utilised during the year ( 146) ( 306) Factory overhaul costs expensed Retirement benefits utilised during the year - (2 075) Loss/(gain) on disposal of property, plant and equipment 688 ( 754) Operating cash flows before movements in working capital Working capital movements (12 653) Increase in inventories (26 195) (1 003) Factory overhaul costs incurred (20 256) (19 500) Increase in amounts due to related parties Decrease/(increase) in trade and other receivables (2 958) (Decrease)/increase in trade and other payables (1 711) Cash generated from operations Net financing costs - ( 446) Income tax refund Dividends paid (70 822) (83 304) Net cash from operating activities (30 956) Investing activities Payments for property, plant and equipment ( ) ( ) Proceeds from disposal of property, plant and equipment Net cash inflow before financing activities ( ) ( ) Financing activities Proceeds from borrowings Net increase in cash and cash equivalents (29 606) Net cash and cash equivalents at beginning of year Net cash and cash equivalents at end of year

26 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), on a basis consistent with previous years. These financial statements are presented in Zambian Kwacha in units of Millions of Kwacha. During the year, the Company adopted all relevant new and revised standards and interpretations issued by the International Accounting Standards Board (IASB). The adoption of these has not resulted in changes to the Company s policies. The principal accounting policies are set out below: 1.1 Revenue Revenue is measured at fair value of the consideration received or receivable and comprises the selling value of goods delivered during the year net of discounts and sales related taxes. Revenue is recognised when goods are delivered and title has passed. 1.2 Property, plant and equipment 24 Commercial leasehold land and buildings and fixed plant and machinery are stated in the balance sheet at cost or valuation less accumulated depreciation and any impairment losses. Cost including professional fees and, for qualifying assets, capitalised borrowing costs. Valuations are performed as and when the Directors deem it necessary to do so but with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date. Movable plant and machinery, fixtures and fittings and motor vehicles are stated in the balance sheet at cost less accumulated depreciation and any impairment losses. Increases arising from revaluations of property, plant and equipment are credited to revaluation reserves and form part of equity, except to the extent that a revaluation increase reverses a revaluation decrease for the same asset, and that decrease was recognised as an expense. In this case, the increase is credited to the income statement to the extent of the decrease previously charged. A transfer is made from the revaluation reserve each year equivalent to the difference between the actual depreciation charge for the year and the depreciation charge based on historical values. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the properties revaluation is transferred directly to retained earnings. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant asset. Assets under construction are carried at cost, less any identified impairment loss. Such assets are initially shown as capital work in progress and transferred to the relevant class of assets when commissioned. Cost includes all costs incurred to bring the asset into use and, where necessary, borrowing costs. Depreciation is calculated on a straight line basis at rates estimated to write down the asset to its residual value. Depreciation commences when the assets are ready for their intended use. Effective annual rates of depreciation are : Leasehold buildings 2-5% Canals and domestic water works 2-2.5% Furniture, fittings and equipment 25% Plant and machinery 5-10% Motor vehicles - Commercial 25% Motor vehicles - Non Commercial % Management reviews the residual values annually, considering market conditions and projected disposal values. In the annual assessment of useful lives, maintenance programmes and technological innovations are considered. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit and loss.

27 In Zambia, land is held on lease from the Government of the Republic of Zambia for a period of 99 years. In line with the requirements of IAS 17 - Leases, since the lease does not transfer substantially all the risks and ownership of the land, the lease is treated as an operating lease. Any advance payment is treated as a prepayment and amortised over the period of the lease on a straight line basis. 1.3 Cane roots and growing cane Cane roots are valued at fair value determined by the escalated average cost, using appropriate inflation related indices, of each year of planting adjusted for the remaining expected life. The fair value of growing cane is determined annually based on the estimated sucrose content in cane at 31 March valued at the estimated sucrose price for the following season, less estimated costs for harvesting and cane haulage. 1.4 Factory overhaul costs Factory overhaul costs comprise expenditure actually incurred on plant and equipment for the overhaul of the factory in preparation for the new sugar season commencing after financial year end. This expenditure is written off in full over its expected useful life. 1.5 Inventories Sugar inventories are valued at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bring the inventories to their present location and condition. Net realisable value is the estimate of the selling price in the ordinary course of business, less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. The basis of determining cost is the average method. Maintenance inventory is valued at average cost with obsolete items being written off. Redundant and slow moving inventories are identified and written down to their net realisable value. 1.6 Provisions Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are measured at the directors best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material. 1.7 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit and loss in the period in which they are incurred. 1.8 Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Tax currently payable is based on the results for the year as adjusted for items which are non-assessable or disallowed for tax purposes. Deferred taxation liabilities are recognised for all taxable temporary differences. Temporary differences can arise from the recognition for tax purposes of items of income or expense in a different accounting period from that in which they are recognised for financial accounting purposes. The tax effect of these temporary timing differences is computed by applying enacted statutory tax rates to any differences between carrying values per the financial statements and their tax base, and accounted for as deferred tax. Deferred taxation assets are recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. 25