SECTION A: CASE STUDIES - ATTEMPT ONE QUESTION (TOTAL: 20 marks) year. I also wish to express my profound gratitude to fellow directors for their guidance and the employees for their dedication." QUESTION 1 The following is an excerpt from the Chaiman's statement in the Zambia Sugar Ple Annual report for the year 2017: Restated Rostated Restated Production & Sales (Tons 000) 2017 2016 2015 2014 2013 "Dear Shareholders, Own estate cane produced 1,639 1.694 Total cane milled 3,007 3.102 1,965 3,417 1.9863 3.154 1,942 3,246 Sugar production Cane sugar ratio 359 380 8.38 8.16 424 8.06 392 8,03 404 8.03 426 On behalf of the Board of Directors, it gives me pleasure to present this annual report for Zambia Sugar for the financial year ended March 2017. In the year under review, the business faced some difficulties with local and international coonomic fundamentals and climate change headwinds adversely affecting the financial performance. Nevertheless, the business made progress in achieving long term strategies. The challenging operating environment predicted last year became a reality such that we were unable to deliver a strong performance. The year started on a positive note, however, persistent negative economic environment, poor rainfall and power cuts had a significant impact that resulted in the business year closing on a low note Sugar sales Local Export 361 153 20% 381 184 197 402 165 237 384 159 225 252 103 Molasses sales Local Export 104 49 55 42 61 111 47 64 94 44 50 97 45 52 FINANCIAL Statement of Comprehensive income (K'000) 2017 2016 2015 2014 As a consequence, canc supply was reduced leading to total sugar production decrease of 6% year on year, from 380,000 tons to 359.000 tons. Conversely, refined sugar production increased by 47% from 44,000 tons to 65,000 tons on the back of new state-of-the-art refinery that was commissioned on 6th July, 2016 2013 Total revenue, grew by 23% year on year, from K2.02 billion to K248 billion by optimizing sales into more remunerative markets. Domestic markets recorded a 17% drop in sales volumes. This was mainly driven by the generally challenging consumer market conditions and competitive pressure from illegal sugar imports. 2,479,348 410.508 (469,791) (59,283) (814) (60,097) (6.512) 2,015,435 327.416 (221,915) 105,501 19.906) 85,596 (5,461) 1.907, 169 323,034 (163,900) 159,134 (19,445) 139,689 (4,216) 1.778,172 1,534,573 212,513 316,189 (138.812) (141,683) 73,701 174,506 (27,475 (33,407) 46,226 141.099 (2.955) 14,277) Revenue Operating Profit Net Financing Costs (Loss profit before taxation Taxation (Loss profit for the year Protit attributable to non- controlling interest (Loss profit attributable to shareholders of Zambia Sugar Plc Other comprehensive income (loss) Total comprehensive (loss)/income for the year attributable to shareholders of Zambia Sugar Ple (66.609) 80,135 135,473 43,271 136,822 Operating profit increased by 25% from K327.4 million (2016) to K410.5 million (2017). This represents an operating margin of 17%. However, finance costs increased by 112% to K469.8 million on increased borrowings to finance refinery projects and a significant rise in local interest rates leading to a loss after tax of K60.1 million.... 39,902 19,938 (7,979) (33.152) 5,022 (26,807) 100,073 127,494 10,119 141,844 Current indications are that the future outlook for the business is promising. And I wish to thank our shareholders for the continued confidence in the business despite the challenges in the previous financial Reconciliation of headline earnings (K'000) 2 3 2017 2016 2015 2014 2013 (21.04) 36.12 44.64 39.00 43.17 (66,609) 80,135 135.473 43.271 136,822 23.00 20.00 21.60 Headline earnings per share Note 7) ngwe Dividend per share (Note 8) Ingwee) Dividend cover (Note 9) (times) Dividend paid (K'000) (Loss profit attributable to shareholders of Zambia Sugar Plc Gain on sale of property, land and equipment Headline carnings for the year 1.9 (170) 47.486 63,314 58,379 65.847 (66,609) 80,135 135,473 43.271 136,652 LUSE statisties 2017 2016 2015 2014 2013 Statement of financial position ('000) 2017 2016 2015 2014 2013 316,571 316,571 316.571 316,571 1,931.227 1,826,528 1,325,296 1.312,492 1.219.133 316,571 316,571 316,571 316,571 67.902 67,902 3.06 2.89 2.68 2.86 4.78 Ordinary shares in issue 316,571 (000) Weighted average number of 316,571 shares ('000) Net asset value per share 2.98 Note 10) (K) Market price per share at year 2.70 end (Note 11) (K) Dividend yield at yeur end 11% (Note 11 (%) Price: headline earnings ratio (12.8) (Note 12) (%) 6.00 Property, plant and equipment Intangible asset Cane roots Current assets Cash and hank balances Borrowings Deferred tax liability Current liabilities Nelissel value 5.83 5.20 67,902 57.902 67,902 196,552 939,318 599 591 660,822 77,884 56,352 47,351 (923.623) 1929,413) (978,364) (110.550) (96,955) (76,813) (462,912) 272043) (2.30,193) 913.31 847,926 906,390 3.8 2.9 1,376,091 160.365 (1,647,914) (127.585) (816,796) 943,290 4.2 1,308,641 77,694 (1,582,439) (129,091) (601,169) 968,065 13.2 13.4 17.5 120 Profitability and asset management 2017 2016 2015 2014 2013 Operating margin (%) Return on net assets (Note 1) 16.6 15.9 16.2 140 16.9 17.1 12.0 15.9 20.6 17.0 Liquidity and borrowings 2017 2016 2015 2014 2013 23 1.5 2.3 2.0 2.8 1.5 3.1 22 Current ratio (Note 2) (times) 1.9 Interest cover (Note 3) 0.9 (times) Net debt equity (Note 4) (%) 158 Gearing (Note 5) (%) 61 Notes to the five-year review: 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. Net debt: equity ratio - Interest-bearing liabilities (net of cash and cash equivalents) divided by total cquity 5. Gearing - Interest-bearing liabilities (net of cash and cash cquivalents) expressed as a percentage of total equity and interest-bearing liabilities (net of cash and cash equivalents) 6. Earnings per share - Profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue 7. Headline carnings per share - Headline earnings divided by the weighted average number of ordinary shares in issue 155 61 93 48 102 50 103 51 Earnings and dividends per share 2017 2016 2015 2014 2013 (21.04) 25.31 42.79 13.6 43.22 Earnings per share (Note 6) (ngwee) 4 5 8. Dividend by share - Dividends for the year (interim: paid and declared, final: proposed) divided by number of shares in issue 9. Dividend cover - Headline earnings per share divided by dividend 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: proposed) as a percentage of year-end market price. 12. Price: headline earnings ratio at year end - Year-end market price divided by headline earnings per share Required: (a) Given the information above, you are required to provide a detailed report of the weaknesses and strengths of Zambia Sugar Plc that are revealed by conducting a complete ratio analysis of the five-year period, using as many of the given ratios as possible and paying particular attention to the liquidity, debt, coverage and profitability ratios. (12 marks) (b) Identify any external and internal factors that the management of Zambia Sugar Plc should be aware of in their decision-making and recommend any course of action that you think will improve Zambia Sugar Plc's performance going forward. (8 marks) Total (20 marks) SECTION A: CASE STUDIES - ATTEMPT ONE QUESTION (TOTAL: 20 marks) year. I also wish to express my profound gratitude to fellow directors for their guidance and the employees for their dedication." QUESTION 1 The following is an excerpt from the Chaiman's statement in the Zambia Sugar Ple Annual report for the year 2017: Restated Rostated Restated Production & Sales (Tons 000) 2017 2016 2015 2014 2013 "Dear Shareholders, Own estate cane produced 1,639 1.694 Total cane milled 3,007 3.102 1,965 3,417 1.9863 3.154 1,942 3,246 Sugar production Cane sugar ratio 359 380 8.38 8.16 424 8.06 392 8,03 404 8.03 426 On behalf of the Board of Directors, it gives me pleasure to present this annual report for Zambia Sugar for the financial year ended March 2017. In the year under review, the business faced some difficulties with local and international coonomic fundamentals and climate change headwinds adversely affecting the financial performance. Nevertheless, the business made progress in achieving long term strategies. The challenging operating environment predicted last year became a reality such that we were unable to deliver a strong performance. The year started on a positive note, however, persistent negative economic environment, poor rainfall and power cuts had a significant impact that resulted in the business year closing on a low note Sugar sales Local Export 361 153 20% 381 184 197 402 165 237 384 159 225 252 103 Molasses sales Local Export 104 49 55 42 61 111 47 64 94 44 50 97 45 52 FINANCIAL Statement of Comprehensive income (K'000) 2017 2016 2015 2014 As a consequence, canc supply was reduced leading to total sugar production decrease of 6% year on year, from 380,000 tons to 359.000 tons. Conversely, refined sugar production increased by 47% from 44,000 tons to 65,000 tons on the back of new state-of-the-art refinery that was commissioned on 6th July, 2016 2013 Total revenue, grew by 23% year on year, from K2.02 billion to K248 billion by optimizing sales into more remunerative markets. Domestic markets recorded a 17% drop in sales volumes. This was mainly driven by the generally challenging consumer market conditions and competitive pressure from illegal sugar imports. 2,479,348 410.508 (469,791) (59,283) (814) (60,097) (6.512) 2,015,435 327.416 (221,915) 105,501 19.906) 85,596 (5,461) 1.907, 169 323,034 (163,900) 159,134 (19,445) 139,689 (4,216) 1.778,172 1,534,573 212,513 316,189 (138.812) (141,683) 73,701 174,506 (27,475 (33,407) 46,226 141.099 (2.955) 14,277) Revenue Operating Profit Net Financing Costs (Loss profit before taxation Taxation (Loss profit for the year Protit attributable to non- controlling interest (Loss profit attributable to shareholders of Zambia Sugar Plc Other comprehensive income (loss) Total comprehensive (loss)/income for the year attributable to shareholders of Zambia Sugar Ple (66.609) 80,135 135,473 43,271 136,822 Operating profit increased by 25% from K327.4 million (2016) to K410.5 million (2017). This represents an operating margin of 17%. However, finance costs increased by 112% to K469.8 million on increased borrowings to finance refinery projects and a significant rise in local interest rates leading to a loss after tax of K60.1 million.... 39,902 19,938 (7,979) (33.152) 5,022 (26,807) 100,073 127,494 10,119 141,844 Current indications are that the future outlook for the business is promising. And I wish to thank our shareholders for the continued confidence in the business despite the challenges in the previous financial Reconciliation of headline earnings (K'000) 2 3 2017 2016 2015 2014 2013 (21.04) 36.12 44.64 39.00 43.17 (66,609) 80,135 135.473 43.271 136,822 23.00 20.00 21.60 Headline earnings per share Note 7) ngwe Dividend per share (Note 8) Ingwee) Dividend cover (Note 9) (times) Dividend paid (K'000) (Loss profit attributable to shareholders of Zambia Sugar Plc Gain on sale of property, land and equipment Headline carnings for the year 1.9 (170) 47.486 63,314 58,379 65.847 (66,609) 80,135 135,473 43.271 136,652 LUSE statisties 2017 2016 2015 2014 2013 Statement of financial position ('000) 2017 2016 2015 2014 2013 316,571 316,571 316.571 316,571 1,931.227 1,826,528 1,325,296 1.312,492 1.219.133 316,571 316,571 316,571 316,571 67.902 67,902 3.06 2.89 2.68 2.86 4.78 Ordinary shares in issue 316,571 (000) Weighted average number of 316,571 shares ('000) Net asset value per share 2.98 Note 10) (K) Market price per share at year 2.70 end (Note 11) (K) Dividend yield at yeur end 11% (Note 11 (%) Price: headline earnings ratio (12.8) (Note 12) (%) 6.00 Property, plant and equipment Intangible asset Cane roots Current assets Cash and hank balances Borrowings Deferred tax liability Current liabilities Nelissel value 5.83 5.20 67,902 57.902 67,902 196,552 939,318 599 591 660,822 77,884 56,352 47,351 (923.623) 1929,413) (978,364) (110.550) (96,955) (76,813) (462,912) 272043) (2.30,193) 913.31 847,926 906,390 3.8 2.9 1,376,091 160.365 (1,647,914) (127.585) (816,796) 943,290 4.2 1,308,641 77,694 (1,582,439) (129,091) (601,169) 968,065 13.2 13.4 17.5 120 Profitability and asset management 2017 2016 2015 2014 2013 Operating margin (%) Return on net assets (Note 1) 16.6 15.9 16.2 140 16.9 17.1 12.0 15.9 20.6 17.0 Liquidity and borrowings 2017 2016 2015 2014 2013 23 1.5 2.3 2.0 2.8 1.5 3.1 22 Current ratio (Note 2) (times) 1.9 Interest cover (Note 3) 0.9 (times) Net debt equity (Note 4) (%) 158 Gearing (Note 5) (%) 61 Notes to the five-year review: 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. Net debt: equity ratio - Interest-bearing liabilities (net of cash and cash equivalents) divided by total cquity 5. Gearing - Interest-bearing liabilities (net of cash and cash cquivalents) expressed as a percentage of total equity and interest-bearing liabilities (net of cash and cash equivalents) 6. Earnings per share - Profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue 7. Headline carnings per share - Headline earnings divided by the weighted average number of ordinary shares in issue 155 61 93 48 102 50 103 51 Earnings and dividends per share 2017 2016 2015 2014 2013 (21.04) 25.31 42.79 13.6 43.22 Earnings per share (Note 6) (ngwee) 4 5 8. Dividend by share - Dividends for the year (interim: paid and declared, final: proposed) divided by number of shares in issue 9. Dividend cover - Headline earnings per share divided by dividend 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: proposed) as a percentage of year-end market price. 12. Price: headline earnings ratio at year end - Year-end market price divided by headline earnings per share Required: (a) Given the information above, you are required to provide a detailed report of the weaknesses and strengths of Zambia Sugar Plc that are revealed by conducting a complete ratio analysis of the five-year period, using as many of the given ratios as possible and paying particular attention to the liquidity, debt, coverage and profitability ratios. (12 marks) (b) Identify any external and internal factors that the management of Zambia Sugar Plc should be aware of in their decision-making and recommend any course of action that you think will improve Zambia Sugar Plc's performance going forward. (8 marks) Total (20 marks)