A N N U A L R E P O R T

Transcription

1 Zambia Sugar Plc

2 Top left: The agricultural operations incorporating Nanga Farms produced a record cane crop of 1.7 million tons in 2009/10, compared with produced in the previous season. Top right: In its first year of operation following the expansion of the factory, record sugar production of tons was achieved, representing a 62% increase in tonnage compared to the previous season. Zambia Sugar Plc Middle: left: Domestic market sugar demand increased by 10% compared to the previous year, driven by strong local economic fundamentals. Middle: Outgrower deliveries, including cane supplied by local small-scale farmers, amounted to approximately tons of cane, bringing total cane production to 2.6 million tons ( million tons), an increase of approximately one million tons compared to 2008/09. Right: 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 Nakambala estate. Below: In December 2009, Zambia Sugar s recent major expansion project was officially commissioned by His Excellencies President Jacob Zuma of the Republic of South Africa and President Rupiah Banda of the Republic of Zambia. The R1.7 billion project, which resulted in the development of an additional hectares of irrigated cane fields by the company and its supplying growers, along with the expansion of the factory s milling capacity, has increased annual sugar production from around tons to tons.

3 KEY FEATURES Revenue (ZK'million) Profit from operations (ZK'million) Profit for the year (ZK'million) Basic and diluted earnings per share (ZK) Headline earnings per share (ZK) Year-end market price (ZK) Price: headline 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 5 Analysis of shareholders 9 Corporate governance 12 Five year review 14 Value added statement 16 Statement of responsibility 18 Report of the independent auditors 19 Notice of meeting 45 Shareholders diary 46 Corporate information 46 Form of proxy 47 1

4 COMPANY PROFI LE Zambia Sugar Plc is listed on the Lusaka Stock Exchange. In 2009, the company completed a successful rights issue during which its principal shareholder, Illovo Sugar Limited of South Africa, partially renounced its rights and consequently reduced its shareholding in Zambia Sugar from 89.7% to 81.6%. This, in support of government policy to increase local participation in business, enables increased public ownership in the company. The balance of the issued share capital is held by institutional investors and members of the public, including employees. Zambia Sugar is based at the Nakambala Estate in the Mazabuka District of the Southern Province. Combined with good climatic and soil conditions, the company s cane growing operations are significantly enhanced by access to water from the Kafue River for full-scale irrigation of the crop, resulting in excellent cane yields and high sucrose content in cane. Approximately 60% of cane throughput for the factory is provided by these operations, with the balance supplied by private outgrowers. The sugar produced from cane supplied by local small-scale cane farmers, and exported to the European Union (EU), benefits from financial incentives granted under the Fairtrade label. The company is Zambia s largest sugar producer with the capacity to produce tons of high-quality sugar per annum. About 41% of current production is sold to domestic consumer and industrial markets, with the balance exported to preferential markets in the European Union (EU) and to regional markets. The company also manufactures a range of sugarbased specialty products. Molasses, a by-product of the sugar milling operation, is sold mainly as stock feed into both local and regional markets. All sugar is sold under the Whitespoon label and direct-consumption domestic market sugar is Vitamin-A fortified. Zambia Sugar is the single largest private agricultural and milling company, and employer in the Mazabuka region, and is regarded externally as a premier agricultural enterprise in Zambia. It currently employs around permanent employees and just over seasonal workers at peak periods. It is a significant earner of foreign exchange and indirectly supports the ongoing creation and existing viability of many local enterprises which supply goods and services to the company. Zambia Sugar administers an active social investment programme, delivering meaningful benefits to its surrounding communities. 2 Zambia Sugar s holding company, Illovo Sugar Limited, is a leading, global, low-cost sugar producer and a significant manufacturer of high-value downstream products. The group is Africa s biggest sugar producer and has extensive agricultural and manufacturing operations in six African countries. Downstream products include 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), diacetyl and 2.3-pentanedione (both used as highquality natural flavourants), Agriguard (an agricultural nematicide), BioMass Sugar (a sugar cane-based fertiliser), ethyl alcohol and lactulose (a natural laxative). Illovo is listed on the JSE Limited. It is a subsidiary of Associated British Foods plc which holds 51% of the issued share capital. OPERATING LOCATIONS HEAD OFFICE Mazabuka agricultural, sugar manufacturing, packing and distribution operations. SALES DEPOTS M o n g u S o l w e z i K a s u m b a l e s a N d o l a Zambia M a z a b u k a L i v i n g s t o n e M u m b w a L U S A K A L u a n g w a M a n s a N a k o n d e K a s a m a C h i p a t a

5 DIRECTORATE Name Qualifications Appointed Position NON-EXECUTIVE CHAIRMAN D G MacLeod (63)^# BCom, AMP(Oxon) 2001 Deputy Chairman Illovo Sugar Limited EXECUTIVE DIRECTORS S D Langton (48)# PrEng, BScEng 2008 Managing Director D M Kabunda (47) BA(PubAdmin), MBA 2008 Human Resources Director R M L Katowa (49) BA, MBA, MCIM, FZIM 2002 Marketing Director S S Munsamy (55) BTechMgt, MDP 2009 Operations Director D M Wellington (54) BAcc, CA 2008 Financial Director NON-EXECUTIVE DIRECTORS G J Clark (54)*^# BAcct(Hons), FCA(Aust) 2001 Managing Director Illovo Sugar Limited B M Stuart (62)# BCom, DipSugarTech, SEP 2009 Operations Director Illovo Sugar Limited K Zarnack (37)*# BCom, CA (SA) 2005 Financial Director Illovo Sugar Limited 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 (45) MScChemEng 1990 Factory L M Sievu (48) BAcc, ACMA, ACIS, FZICA 2004 Corporate affairs H P Veenstra (53) MAgMgt(AgEcon) 2003 Agriculture * - Audit Committee Member ^ - Remuneration Committee Member # - Risk Management Committee Member 3

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7 DIRECTORS REPORT PRINCIPAL AC TIVITIES 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 OPER ATIONS Zambia Sugar s operations recorded a net profit after taxation of ZK million for the year, having produced tons of sugar (2009: tons) and sold tons (2009: tons). Record cane and sugar production following the completion of Zambia Sugar s major expansion project in 2009 resulted in operating profit doubling from ZK78 billion in the previous year to ZK159 billion in 2009/10. Sales volume increased from tons to tons following strong demand for sugar in all markets. Realisations from export sales were, however, negatively impacted by the strength of the Kwacha, although the strong currency was of benefit to foreign currency denominated operating costs. Effective cost control and improved sales pricing and volumes benefited margins. In August 2009, the company completed a successful rights issue which raised US$50 million. During the process, the Illovo group partially renounced its rights and consequently reduced its shareholding in Zambia Sugar from 89.7% to 81.6%, this being supportive of the Government policy to increase local participation in businesses in Zambia. The proceeds were used to reduce borrowings related to the recent major expansion project and the acquisition of Nanga Farms PLC, a large cane growing company currently producing tons of cane with the potential to further increase output. During the year, the company spent capital of ZK million on the replacement of assets and ZK million on 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. Ag R I CULT URE The agricultural operations incorporating Nanga Farms produced a record cane crop of 1.7 million tons in 2009/10, compared with produced in the previous season. Heavy and unseasonal rainfall during the season, however, impacted negatively upon cane deliveries, resulting in an area of hectares of cane land being carried-over for processing in 2010/11. Outgrower deliveries amounted to approximately tons of cane, bringing total cane production to 2.6 million tons ( million tons), an increase of approximately one million tons compared to 2008/09. 5

8 DIRECTORS REPORT (continued) PRODUC T I O N In its first year of operation following the expansion of the factory, record sugar production of tons was achieved, representing a 62% increase in tonnage compared to the previous season. Overall, factory performance and efficiencies showed considerable improvement over the previous season, with the plant reaching its new rated capacity. 6 MAR K E T INg Domestic market sugar demand increased by 10% compared to the previous year, driven by strong local economic fundamentals. Regional sugar deficits were beneficial to export opportunities and prices. Despite a reduction in EU sugar prices, effective from 1 October 2009, the company benefited from increased and unrestricted market access to the EU by way of Zambia s duty-free and quota free access into this market. Consequently, exports to the EU increased from tons in the previous year to nearly tons in 2009/10. EXPANSION PROJEC T In December 2009, Zambia Sugar s recent major expansion project was officially commissioned by His Excellencies President Jacob Zuma of the Republic of South Africa and President Rupiah Banda of the Republic of Zambia. The R1.7 billion project, which resulted in the development of an additional hectares of irrigated cane fields by the company and its supplying growers, along with the expansion of the factory s milling capacity, has increased annual sugar production from around tons to tons. Amongst many other benefits, the project has also resulted in the development of the Magobbo and Manyonyo smallholder sugar cane schemes which will see the establishment of 438 hectares to irrigated cane land. A further major benefit of the expansion project was the installation of significantly increased electricity generating capacity, allowing all of the Zambia Sugar business, including its agricultural operations, to become self-sufficient in its own power requirements. A project to investigate the feasibility of erecting an ethanol plant to make use of the factory s increased molasses supplies has commenced. It is envisaged that this plant would supply ethanol for blending with petrol.

9 PROSPEC TS Good climatic conditions and increased land under cane will further increase sugar cane deliveries to the factory in 2010/11. The factory is positioned to further consolidate the expansion gains achieved in 2009/10 and another significant increase in sugar production is anticipated in the current season. Operating profit is anticipated to increase accordingly. Exchange rate movements and weather will continue to influence profits. Financing costs will continue to impact on earnings in the coming year. However, should the Kwacha remain at its current higher levels, the negative impact of increased financing costs will be mitigated by exchange rate gains relating to US dollardenominated expansion-related loans. 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 IIlovo 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. Key areas of human resources focus include best practice benchmarking, targeted manpower succession planning; talent and performance management; the maintenance of collaborative industrial relations; human resource development and business understanding; localisation programmes; and the health and welfare of employees and their dependants. Technology transfer and upgrading of local skills and mentorship remains a priority. 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 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 ongoing village electrification programme has continued. 7

10 DIRECTORS REPORT (continued) HEALT H, SAFE T Y AND welfar E The integrated Safety, Occupational Health and Environmental Management System (SHE) remains entrenched in all areas of operations with the company maintaining NOSA Four-star platinum awards for the factory and agricultural operations. The company continued to maintain 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 Zambian Ministry of Health for maintaining malaria positive incidences to below 50 per 1000 population on the Nakambala estate. In addition, under the HIV/AIDs and wellness programme, the company continued with vigorous Voluntary Counselling and Testing (VCT) with 70% of permanent workforce, 68% of the seasonal workforce and 42% of dependants having undergone VCT. In the period under review, our HIV/ AIDS management programme has been rated by the Ministry of Health as the best in the province. D IREC TO R AT E AND SECR E TARY The directors who held office during the year were: Non-Executive Directors 8 D G MacLeod#^ G J Clark*^# B M Stuart# K Zarnack*# Non-Executive and Independent Directors A B Chikwanda*^ F M Banda A R Mpungwe M D Mwanakatwe D Patel Executive Directors D M Kabunda R L Katowa S D Langton S S Munsamy D M Wellington * Member of the Audit Committee ^ Member of the Remuneration Committee # Member of Risk Management Committee : Chairman : Chairman of the Remuneration Committee : Chairman of the Risk Management Committee : Chairman of the Audit Committee : Human Resources Director : Marketing Director : Managing Director : Operations Director : Financial Director Company Secretary L M Sievu

11 D IREC TO R S INTER E S T S 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 2010 were as follows: No of shares No of shares F M Banda A B Chikwanda D M Kabunda SHAR E C API TAL The 47th annual general meeting of members of the company passed a special resolution to increase the authorised share capital by creating a further new ordinary shares of 50 Ngwee each, thereby increasing the share capital of the Company from ordinary shares of K0.50 each to After a 6:1 renounceable rights issue, the issued share capital of the Company increased to ordinary shares of K0.50 each. ANALYSIS OF SHAREHOLDERS Number of holders Number of shares % Individuals and above Banks, Nominees and Trusts Pensions Funds Companies Illovo Sugar Coöperatief U.A Total

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13 D IVIDENDS The company has previously advised its intention to reduce dividend payouts to 50% of after tax profits whilst servicing the funding requirements arising from the expansion project. An interim dividend of ZK5.00 per share (2009: ZK5.60) was paid to shareholders on 8 January Notice is hereby given that a second interim dividend of ZK2.00 per share (2009: ZK6.00) has been declared in respect of the year ended 31 March This dividend is payable on 14 June 2010 to shareholders registered at the close of business on 14 May At the forthcoming Annual General Meeting to be held on 26 August 2010, the Directors will propose a final dividend for the year ended 31 March 2010 of ZK0.50 per share (2009: ZK1.00). This will result in a total dividend for the year of ZK7.50 per share (2009: ZK12.60) SOCIAL INVESTMEN T 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 recognized and in the past, the company has won the annual Zambia Institute of Marketing Best Corporate Social Responsible Company Award. EMPLOY EE S 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 (2009: ZK million) for the year ended 31 March RESEARCH AND DEVELOPMENT In order to optimise the return from existing installed capacity, the company continues to benefit from well-established inhouse group resources which provide technical expertise in agricultural production and sugar and downstream product manufacture to all operations. A centralised core of expertise exists to ensure technical standards are optimized and maintained for both existing equipment and new agricultural and factory installations, and to keep abreast with technical innovations. Benchmarking to improve productivity and reduce unit costs is a major area of attention in all operations, with additional resources recently having been allocated to enhance operational performance and benchmarking across the group. AUDITO R S Deloitte & Touche were the Company s auditors during the year. 11

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 COMMIT TEES 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 reviewing the performance of management against budgets and business plans, ensuring a comprehensive system of internal control policies and procedures operates and complies with sound corporate governance principles, and identifying key risk areas. The board is ultimately responsible for ensuring that the business is a going concern and to this end, effectively controls the Company and its management and is involved in all decisions that are material for this purpose. The board delegates the dayto-day management of the business to the managing director assisted by senior management. During the year, the board met to consider issues of operational strategy, capital expenditure and other matters having a material effect on the Company. The board of directors held four regular meetings in the past year where the management presented matters for board discussion and approval. There was full attendance at all meetings other than Mrs M D Mwanakatwe at the April 2009 meeting, Messrs GJ Clark, M D Mwanakatwe and D K Patel at the October 2009 meeting, and Ms K Zarnack at the February 2010 meeting. The directors gave satisfactory reasons to the board for not attending the 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. Members of the board have access to the advice of the Company secretary, and may, in appropriate circumstances, take independent professional advice at the Company s expense. AUDIT COMMIT TEE 12 The Audit Committee of the board comprises a chairman, who is a non-executive director, and two other non-executive board members. The Committee is responsible for maintaining an appropriate relationship with the external auditors and for reviewing the Company s internal audit resources, internal financial controls and the audit process. It aids the board in seeking to ensure that the financial and non-financial information supplied to shareholders presents a balanced assessment of the Company s position. The Committee reviews the objectivity and independence of the external auditors and also considers the scope of their work and fees paid for audit and non-audit services. The Committee has unrestricted access to Company documents and information, as well as to employees of the Company and the external auditors. Members of the committee may, in pursuit of their duties, take independent professional advice on any matter at the Company s expense. The committee chairman reports the outcome of meetings to the board. Both the external and internal auditors have unrestricted access to the Committee and its Chairman. The Committee has two meetings a year, and in the past year there was full attendance by its members at both meetings. R EMUNER AT I O N COMMIT T EE The Remuneration Committee comprises three non-executive directors. The Committee is responsible for reviewing compensation to attract, retain and motivate executives and senior managers of quality required for the business. The Committee assesses and approves the broad remuneration strategy of the Company, and is also responsible for developing and determining the Company s general policy on executive and senior management. The Committee plays an integral part in the succession planning relative to senior managers. The Committee met once during the past year and there was full attendance. R ISK MANAG EMEN T COMMIT T EE The Company s Risk Management Committee comprises three non-executive directors and one executive director and is chaired by a non-executive director. In general, risk management meetings held by the company are attended by all senior managers of the Company.

15 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. The Committee gives particular focus to operational risks, including health and safety. The Committee meets twice a year. There was full attendance at all meetings other than Miss K Zarnak at the February 2010 meeting who gave satisfactory reasons for not attending. E XECU T IVE COMMIT T EE OF MANAG EMEN T The managing director and senior management meet on a weekly basis to review operational performance, capital programmes and other relevant issues. The Executive Committee of Management is responsible for implementing the strategies and policies determined by the board and managing the business and affairs of the Company. 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. E T HICS It is a fundamental policy of the company to conduct its business with honesty and integrity and in accordance with the highest legal and ethical standards. The Company has a Code of Conduct and Business Practices, determining the minimum standards required of all staff, which is disseminated throughout the Company and reviewed annually by senior management. The Code prescribes, inter alia, that the Company shall not make political donations and proscribes bribery and corruption. All managers are required to give written agreement to this Code. In any instance where ethical standards are called into question, the circumstances are investigated and resolved by the appropriate executive. Hotline facilities, encouraging people from within and outside the Company to anonymously report any wrongdoings are operated by independent forensic accountants, and all matters arising are then appropriately investigated and reported upon. INSIDER TR ADING 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 Statement of comprehensive income Revenue (net of VAT) Profit from operations Net financing costs Profit before taxation Taxation (59 068) (58 597) Profit for the year Attributable to non-controlling interest Profit attributable to ordinary shareholders Reconciliation of headline earnings Profit attributable to shareholders of Zambia Sugar Plc Adjusted for: (Gain)/loss on sale of property, plant and equipment (1 133) 688 (754) (580) (542) Headline earnings for the year Balance sheet Property, plant and equipment Intangible asset Cane roots Deferred tax assets Current assets Cash and bank balances Borrowings Deferred tax liabilities Retirement benefit obligation Current liabilities 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 Net debt : equity 4 % Gearing 5 % Earnings and dividends per share Basic and diluted earnings per share 6 ZMK ' Headline earnings per share 7 ZMK ' Dividend per share 8 ZMK Dividend cover 9 times Dividend paid ZMK 'm LUSE statistics Ordinary shares in issue Weighted average number of shares Net asset value per share 10 ZMK ' Market price per share at year end ZMK Dividend yield at year end 11 % Price : headline earnings ratio 12 %

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 financing costs. 4. Net debt : equity Interest-bearing liabilities, net of cash and cash equivalents, expressed as a percentage of total equity. 5. Gearing Interest-bearing liabilities, net of cash and cash equivalents, expressed as a percentage of total net debt plus equity. 6. Basic and diluted earnings per share Net profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue. 7. Headline earnings per share Headline earnings divided by the weighted average number of ordinary shares in issue. 8. Dividend per share Dividends per share (interim - paid and declared; final - proposed). 9. Dividend cover Headline earnings per share divided by dividends per share (interim - paid and declared; final - proposed). 10. Net asset value per share Total assets less total liabilities divided by the number of shares in issue. 11. Dividend yield at year end Dividends per share (interim - paid and declared; final - proposed) as a percentage of the year-end market price. 12. Price: headline earnings ratio Year-end market price divided by headline earnings per share. 15

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 78% was distributed to employees, providers of capital and the Government. 36% 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. group COMPANY ZK'million 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 Wealth re-invested Retained profits Depreciation Deferred taxation (67 318) 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 Z a m b i a S u g a r P l c (Incorporated in Zambia) A N N U A L F I N A N C I A L S T A T E M E N T S for the year ended 31 March 2010 CONTENTS Statement of responsibility 18 Report of the independent auditor 19 Statements of comprehensive income 20 Statements of financial position 21 Statements of changes in equity 22 Statements of cashflows 23 Notes to the statements of cashflows 24 Notes to the financial statements 25 17

20 STATEMENT OF RESPONSIBILITY FOR ANNUAL FINANCIAL STATEMENTS Section 164(6) of the Companies Act, 1994 (as amended) requires the Directors to prepare financial statements for each financial year which give a true and fair view of the affairs of the Group and 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, Messrs 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: the statement of comprehensive income is drawn up so as to give a true and fair view of the profit of the Group and the Company for the financial year ended 31 March 2010; the statement of financial position is drawn up so as to give a true and fair view of the state of affairs of the Group and the Company as at 31 March 2010; and there are reasonable grounds to believe that the Group and the Company will be able to pay debts as and when they fall due. the financial statements have been prepared in accordance with International Financial Reporting Standards and the Companies Act, 1994 (as amended). Signed on behalf of the Board by: D G MacLeod Chairman S D Langton Managing Director 18

21 REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF ZAMBIA SUGAR Plc Report on the financial statements We have audited the annual financial statements and group financial statements of Zambia Sugar Plc, which comprise the statement of financial position and consolidated statement of financial position as at 31 March 2010, and the statement of comprehensive income and consolidated statement of comprehensive income, the statement of changes in equity and consolidated statement of changes in equity, statement of cash flows and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors responsibility for the financial statements The company s directors are responsible for overseeing the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and the Companies Act 1994 (as amended). 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 the Company and of the group at 31 March 2010, and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards and the Companies Act 1994 (as amended). Report on other legal requirements The Zambian Companies Act, 1994 (as amended) 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 19 ALICE JERE TEMBO PARTNER 29 APRIL 2010

22 STATEMENTS OF COMPREHENSIVE INCOME for the year ended 31 March 2010 Group COMPANY Notes ZK'million ZK'million ZK'million Revenue Cost of sales ( ) ( ) ( ) Gross profit Other gains and (losses) (688) Distribution expenses ( ) ( ) (86 231) Administration expenses ( ) ( ) ( ) Profit from operations Net finance costs 6 (46 285) (47 564) - Profit before taxation Taxation 7 (15 081) (13 055) Profit for the year Other comprehensive income Total comprehensive income for the year Profit attributable to: Shareholders of Zambia Sugar Plc Non-controlling interest Total comprehensive income attributable to: Shareholders of Zambia Sugar Plc Non-controlling interest Earnings per share 8 20 Basic and diluted earnings per share (ZK) Headline earnings per share (ZK)

23 STATEMENTS OF FINANCIAL POSITION as at 31 March 2010 Group COMPANY Notes 31 March 31 March 31 March ZK million ZK million ZK million ASSETS Non-current assets Property, plant and equipment Intangible asset Investment in subsidiary Cane roots Deferred tax assets Current assets Inventories Growing cane Factory overhaul costs Trade and other receivables Current tax asset Amounts due by related parties Cash and bank balances Total assets EQUITY AND LIABILITIES Equity attributable to shareholders of Zambia Sugar Plc Share capital and premium Capital redemption reserve Dividend reserve Retained earnings Non-controlling interest Total equity 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 Bank overdraft Provisions Total liabilities 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 44 were approved for issue by the Board of Directors on 29 April 2010 and were signed on its behalf by: D G MacLeod Chairman S D Langton Managing Director 21

24 STATEMENTS OF CHANGES IN EQUITY for the year ended 31 March 2010 Share capital and premium Capital redemption reserve Revaluation reserve Dividend reserve Retained earnings Attributable to shareholders of Zambia Sugar Plc Noncontrolling interests ZK million ZK million ZK million ZK million ZK million ZK million ZK million ZK million Total Group Balance at 31 March Total comprehensive income for the year Amortisation of revaluation reserve Transfer to dividend reserve (47 486) Dividends paid (69 646) - (69 646) - (69 646) Non-controlling interest arising from the acquisition of Nanga Farms PLC Issue of share capital Balance at 31 March COMPANY Balance at 31 March Total comprehensive income for the year Amortisation of revaluation reserve (14 568) Transfer to dividend reserve (68 380) Dividends paid (70 822) - (70 822) - (70 822) Balance at 31 March Total comprehensive income for the year Transfer to dividend reserve (47 486) Dividends paid (69 646) - (69 646) - (69 646) Issue of share capital Balance at 31 March The Capital Redemption Reserve was created on the redemption of preference shares in Zambia Sugar Plc acquired 85.73% of the ordinary shares in Nanga Farms Plc for a cash consideration of ZK million effective 27 May This transaction was funded through a rights issue that raised ZK million. The dividend per share, calculated on a cash basis, amounts to ZK11.65 (2009 : ZK13.05). The calculation is based on the dividends paid in the year of ZK million (2009: ZK million) divided by the weighted average number of ordinary shares in issue of (2009: ). The dividends declared and proposed amount to ZK million (2009 : ZK million). The calculation is based on the dividend declared of ZK2.00 per share (2009: ZK6.00) and the dividend proposed of ZK0.50 per share (2009: ZK1.00), multiplied by the number of ordinary shares in issue of (2009: ).

25 STATEMENTs OF CASH FLOwS for the year ended 31 March 2010 Group COMPANY Notes ZK million ZK million ZK million Cash flows from operating activities Profit from operations Adjustments for: Depreciation Change in fair value of cane roots (3 737) (2 877) (1 088) Change in fair value of growing cane (48 383) (42 637) (88 286) Provisions raised during the year Provisions utilised during the year (4 056) (4 056) (146) Factory overhaul costs expensed Loss/(gain) on disposal of property, plant and equipment (1 133) (533) 688 Operating cash flows before movements in working capital Working capital movements ( ) ( ) Increase in inventories (16 057) (16 796) (26 195) Factory overhaul costs incurred (25 928) (25 928) (20 256) Decrease in amounts due to related parties (44 846) (46 865) (Increase)/decrease in trade and other receivables (192) (3 160) (Decrease)/increase in trade and other payables (32 913) (28 678) (1 711) Cash generated from operations Net financing costs a ( ) ( ) - Income tax (paid)/refund (129) Dividends paid (69 646) (69 646) (70 822) Net cash outflows from operating activities ( ) ( ) (30 956) Investing activities Payments for property, plant and equipment ( ) ( ) ( ) Acquisition of business b ( ) - - Investment in subsidiary ( ) - Proceeds from disposal of property, plant and equipment Net cash outflows before financing activities ( ) ( ) ( ) Financing activities Net proceeds from issue of equity shares c Proceeds from borrowings Repayment of borrowings ( ) ( ) - Net decrease in cash and cash equivalents (60 632) (58 732) (29 606) Net cash and cash equivalents at beginning of year Net cash and cash equivalents at end of year

26 NOTES TO THE STATEMENTS OF CASH FLOwS for the year ended 31 March 2010 Group COMPANY ZK'million ZK'million ZK'million a Net financing costs Interest paid Interest received (592) (560) Less: Interest accrued and not paid (26 364) (26 364) b Acquisition of business The fair value of the assets acquired and liabilities assumed were as follows: Non current assets Property, plant and equipment Intangible asset Cane roots Non-current liabilities Borrowings (23 410) Deferred tax liability (32 363) Current assets Growing cane Inventories Trade & other receivables Current tax receivable 69 Current Liabilities Trade & other payables (6 172) Net value acquired Less: non-controlling interest (25 904) Cash cost of acquisition c Net proceeds from issue of equity shares During the year, the Company issued new shares through a rights issue Proceeds from the issue of equity shares Payment of share issue costs (8 633) (8 633)