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Aeci - Group Audited Results & Dividend Announcement

Release Date: 24/02/2004 07:00:02      Code(s): AFE
AECI - GROUP AUDITED RESULTS & DIVIDEND ANNOUNCEMENT                            
AECI                                                                            
Group audited results                                                           
for the year ended 31 December 2003                                             
Specialty product and service solutions                                         
Highlights                                                                      
*    Headline earnings per share up 5%                                          
*    Dividends for the year up 7% to 120 cents per share                        
*    Robust performance by resilient portfolio                                  
*    Increase in earnings per share targeted for 2004                           
Commentary                                                                      
Performance                                                                     
Headline earnings of 356 cents per ordinary share were 5 per cent higher than in
2002. This result was achieved after recognising a provision for restructuring  
in SANS Fibres equivalent to 11 cents per share. An increased final dividend of 
78 cents per ordinary share has been declared (72 cents in 2002) to bring the   
total dividends for the year to 120 cents (112 cents in 2002) with a dividend   
cover of 3.0 (3.0 in 2002). The dividend declaration is published in full       
elsewhere.                                                                      
Sales volumes of Group businesses, excluding those sold in 2002, increased by 3 
per cent while revenues were lower by 0.4 per cent. Demand improved in most     
local markets towards the year-end but the strong appreciation of the rand      
against the US dollar substantially eroded the rand value of dollar-based       
revenues with a particularly severe impact on trading margins at SANS Fibres.   
Nonetheless, enhanced efficiencies and a focus on higher value added business   
throughout the Group"s portfolio enabled a small improvement in trading margin  
to 9.0 per cent of sales from 8.9 per cent in 2002. The return on invested      
capital (ROIC) for the Group, excluding revaluation of land, was lower at 15 per
cent (16 per cent in 2002).                                                     
African Explosives posted an impressive 37 per cent gain in net trading profit  
as growth in the platinum sector, a favourable business mix and well contained  
costs more than offset lower rand returns from African operations. Chemical     
Services sustained its distinguished growth record with some increase in volumes
and the successful integration of the Senmin and Ondeo-Nalco acquisitions, which
contributed to a further increase in trading margin. Dulux achieved a most      
pleasing result for the year as demand for its branded products recovered       
strongly in the final quarter. The property activities of Heartland benefited   
from declining interest rates in the second half, which resulted in a much      
improved performance for the year.                                              
As forewarned in previous announcements, trading profit at SANS Fibres was      
progressively eroded by the strength of the rand throughout 2003. In dollar     
terms yarn revenue and gross margin increased from 2002 by 6 and 12 per cent    
respectively but declined by 24 and 20 per cent in rand. Such sharp margin      
reduction could not be offset by containing expenses and in October SANS        
announced the closure of the nylon apparel yarn business and a major            
restructuring of the other Bellville operations. The full cost of closure,      
estimated at R22 million before tax, has been recognised as an exceptional      
charge in 2003 while the estimated cost of restructuring of R15 million before  
tax has been charged against net trading income for the year.                   
The SANS" US joint venture operations in Stoneville, North Carolina approached  
break-even in the final quarter of 2003.                                        
Subject to the average exchange rate not appreciating significantly from 2003,  
the restructuring programme with its intense focus on product mix, margins,     
conversion efficiencies and cost reduction should enable SANS to deliver a      
meaningful improvement in performance in the full 2004 year.                    
Financial                                                                       
Capital expenditure of R241 million was controlled to a level slightly higher   
than the depreciation charge for the period. Investment expenditure was R883    
million. This included the acquisitions by Chemical Services of the mining and  
alkylate chemicals businesses of Sentrachem (R160 million) and the 50 per cent  
interest in Ondeo-Nalco SA which it did not already own (R120 million). It also 
included the cost of acquiring all the ordinary shares in Chemical Services not 
held by AECI Limited at the previous year-end (R602 million). Of this last      
amount, R335 million was settled by the issue of 13.3 million new AECI shares to
shareholders in Chemical Services.                                              
Notwithstanding the cash outlay of R548 million on investments, net borrowings  
at year-end were contained to R1 019 million. Group working capital was well    
managed at an impressive 14 per cent of sales. Cash interest cover improved     
further to 6.1 times while gearing increased from 35 to 40 per cent of          
shareholder funds.                                                              
Portfolio                                                                       
As announced in December, the Group has signed a heads of agreement with Dyno   
Nobel ASA of Norway regarding the establishment of an international 50:50 joint 
venture in electronic detonation systems. The joint venture represents a major  
step for AECI in gaining access to world markets for its innovative and leading 
electronic detonator technology with a partner who is the global leader in      
explosives initiation systems. Subject to completion of final agreements and    
regulatory approvals, it is expected that the joint venture will commence       
operations in the second quarter of 2004.                                       
Discussions are well advanced with selected parties regarding the participation 
of an empowered partner in the business of African Explosives Limited.          
Shareholders will be advised when the key features of such participation have   
been finalised.                                                                 
The Group"s segmental reporting has been amended to include "Decorative and     
packaging coatings" as a distinct and ongoing component of the business         
portfolio. Revenue and trading profit from non-core businesses sold during 2002 
have been included in the segment "Group services, intergroup and other" for    
that year.                                                                      
Outlook                                                                         
Rising global commodity prices are indicative of an incipient but still patchy  
recovery in the world"s major economies which should underpin demand for South  
Africa"s export-oriented mining and manufacturing sectors. With local interest  
rates and inflation set to remain at levels supportive of domestic consumption, 
demand conditions for the Group seem likely to be favourable in the year ahead. 
Assuming no material strengthening of the rand exchange rate from the 2003      
average which would further pressure margins at SANS, management is targeting an
increase in headline earnings for the full 2004 financial year.                 
Alan Pedder    Schalk Engelbrecht                                               
Chairman       Chief Executive                                                  
Sandton, 23 February 2004                                                       
INCOME STATEMENT                                                                
                                             %      2003        2002            
                                             change R millions  R millions      
Revenue (2)                                  -2     7 659       7 818           
Net trading profit                           -1     691         698             
Net financing costs                                 (150)       (164)           
Income from associates and investments              4           8               
545         542             
Transitional provision for post-employment                                      
medical aid benefits (3)                            (20)        (20)            
Amortisation of goodwill                            (75)        (59)            
Exceptional items                                   (31)        (19)            
Net profit before taxation                          419         444             
Taxation                                            (135)       (155)           
Normal activities                                   (143)       (156)           
Exceptional items                                   8           1               
Net profit                                          284         289             
Attributable to preference and outside              (45)        (49)            
shareholders                                                                    
Normal activities                                   (59)        (62)            
Amortisation of goodwill                            14          13              
Net profit attributable to                                                      
ordinary shareholders                               239         240             
Headline earnings are derived from:                                             
Net profit attributable to ordinary                 239         240             
shareholders                                                                    
Transitional provision for post-employment                                      
medical aid benefits (3)                            20          20              
Amortisation of goodwill                            75          59              
Exceptional items                                   31          19              
Outside shareholders" share of the above            (14)        (13)            
items                                                                           
Tax effects of the above                            (14)        (7)             
                                                    337         318             
Per ordinary share (cents):                                                     
Headline earnings                            +5     356         340             
Diluted headline earnings                           345         328             
Attributable earnings                               252         257             
Diluted attributable earnings                       244         248             
Dividends declared                           +7     120         112             
Dividends paid                                      114         95              
Ordinary shares (millions)                                                      
- in issue                                          108         94              
- weighted average number of shares                 95          93              
- diluted weighted average number of shares         98          97              
Notes                                                                           
1 Accounting policies are in accordance with South African Statements of        
Generally Accepted Accounting Practice, conform to International Accounting     
Standards and are consistent with those applied in the previous financial year. 
2 Includes foreign sales of R1 483 million (2002 - R1 875 million).             
3 The transitional provision for post-employment medical aid benefits has been  
excluded from the calculation of headline earnings in terms of circular 7/2002  
issued by the South African Institute of Chartered Accountants.                 
4 The auditors, KPMG Inc, have issued their opinion on the Group financial      
statements for the year ended 31 December 2003. A copy of the auditors"         
unqualified report is available for inspection at the Company"s registered      
office.                                                                         
Industry segment analysis                                                       
                      Revenue            Net trading profit   Assets            
2003     2002      2003       2002      2003   2002       
                      R millions         R millions           R millions        
Mining solutions      2 076    1 904     241        176       817    869        
Specialty chemicals   3 197    3 037     372        318       1 490  923        
Specialty fibres      1 714    2 082     22         173       761    905        
Decorative and                                                                  
packaging coatings    661      657       52         41        116    103        
Property              207      180       39         26        671    612        
Group services,                                                                 
intergroup and other  (196)    (42)      (35)       (36)      (142)  (88)       
                      7 659    7 818     691        698       3 713  3 324      
Assets consist of property, plant, equipment and goodwill, inventory, accounts  
receivable less accounts payable. Assets in the property segment include land   
revaluation of R493 million (2002 - R493 million).                              
Balance sheet at 31 December                                                    
                                                    2003         2002           
R millions   R millions     
Assets                                                                          
Non-current assets                                  3 110        2 643          
Property, plant and equipment                       1 708        1 734          
Goodwill                                            916          467            
Investments                                         87           82             
Deferred taxation assets                            399          360            
Current assets                                      2 911        3 211          
Inventory                                           1 170        1 248          
Accounts receivable                                 1 280        1 321          
Cash and cash equivalents                           461          642            
Total assets                                        6 021        5 854          
Equity and liabilities                                                          
Ordinary capital and reserves                       2 494        2 086          
Preference capital and outside shareholders"                                    
interest in subsidiaries                            27           229            
Total shareholders" interest                        2 521        2 315          
Non-current liabilities                             756          1 712          
Deferred taxation liabilities                       46           14             
Long-term borrowings                                209          1 196          
Long-term provisions                                501          502            
Current liabilities                                 2 744        1 827          
Accounts payable                                    1 361        1 446          
Provision for restructuring                         48           56             
Short-term borrowings                               1 271        260            
Taxation                                            64           65             
Total equity and liabilities                        6 021        5 854          
Statement of changes                                                            
in shareholders" equity                                                         
                                                    2003         2002           
                                                    R millions   R millions     
Headline earnings                                   337          318            
Amortisation of goodwill net of outside             (61)         (46)           
shareholders" interest                                                          
Transitional provision for post-employment medical  (14)         (14)           
aid benefits net of taxation                                                    
Exceptional items net of taxation and outside       (23)         (18)           
shareholders" interest                                                          
Net profit attributable to ordinary shareholders    239          240            
Dividends paid                                      (107)        (89)           
Fair value adjustments                              (7)          -              
Foreign currency translation differences net of     (50)         (127)          
deferred taxation                                                               
Ordinary shares issued                              340          4              
Other                                               (7)          -              
Net increase in equity for the year before share    408          28             
buy-back                                                                        
Expenditure in respect of repurchasing own shares   -            (206)          
Equity at the beginning of the year                 2 086        2 264          
Equity at the end of the year                       2 494        2 086          
Made up as follows:                                                             
Share capital and share premium                     437          97             
Non-distributable reserves                          347          390            
Surplus arising on revaluation of property, plant   329          330            
and equipment                                                                   
Foreign currency translation reserve net of         18           54             
deferred taxation                                                               
Retained earnings of associates                     1            1              
Other                                               (1)          5              
Retained income                                     1 710        1 599          
2 494        2 086          
Cash flow statement                                                             
                                                   2003         2002            
                                                   R millions   R millions      
Cash generated by operations                       898          899             
Dividends received                                 3            8               
Net financing costs                                (150)        (164)           
Taxes paid                                         (119)        (94)            
Changes in working capital                         111          (99)            
Expenditure relating to long-term provisions       (21)         (16)            
Expenditure relating to restructuring              (43)         (32)            
Cash available from operating activities           679          502             
Dividends paid                                     (123)        (103)           
Cash retained from operating activities            556          399             
Cash utilised in investment activities             (1 064)      (148)           
Acquisition of remaining shares in Chemical        (602)        -               
Services Limited                                                                
Investments                                        (281)        (20)            
Net capital expenditure                            (181)        (128)           
Proceeds from disinvestment and restructuring      1            167             
Expenditure in respect of repurchasing own shares  -            (206)           
Net cash (utilised)/generated                      (507)        212             
Cash effects of financing activities               9            (108)           
Proceeds from issue of new shares                  340          4               
Decrease/(increase) in cash and cash equivalents   (158)        108             
Cash and cash equivalents at the beginning of the  642          577             
year                                                                            
Translation loss on cash and cash equivalents      (23)         (43)            
Cash and cash equivalents at the end of the year   461          642             
Other salient features                                                          
                                                    2003         2002           
                                                    R millions   R millions     
Capital expenditure                                 241          202            
- expansion                                         159          110            
- replacement                                       82           92             
Capital commitments                                 189          243            
- contracted for                                    23           51             
- not contracted for                                166          192            
Future rentals on property, plant and equipment     158          147            
leased                                                                          
- payable within one year                           41           35             
- payable thereafter                                117          112            
Net contingent liabilities and guarantees           223          152            
Net borrowings                                      1 019        814            
Gearing (%)                                         40           35             
Current assets to current liabilities               1.1          1.8            
Net asset value per ordinary share (cents)          2 305        2 222          
Depreciation                                        223          221            
Directorate                                                                     
AE Pedder* (Chairman), S Engelbrecht (Chief Executive), NC Axelson, CB Brayshaw,
MJ Leeming, TH Nyasulu, CML Savage, LC van Vught                                
*British                                                                        
AECI Limited                                                                    
Incorporated in the Republic of South Africa                                    
(Registration No. 1924/002590/06)                                               
Share code: AFE     ISIN No: ZAE000000220                                       
www.aeci.co.za                                                                  
AEL                                                                             
Chemical Services Limited                                                       
SANS Fibres                                                                     
Dulux                                                                           
Date: 24/02/2004 07:00:11 AM Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                                             
                                                                                
                                                                                
                                                                                



                                        
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