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Aeci Limited - Group Interim Results For The Half-year Ended 30 June 2004

Release Date: 27/07/2004 07:00:29      Code(s): AFE
AECI LIMITED - GROUP INTERIM RESULTS FOR THE HALF-YEAR ENDED 30 JUNE 2004       
AECI LIMITED                                                                    
Share code AFE                                                                  
ISIN No. ZAE000000220                                                           
Group interim results                                                           
for the half-year ended 30 June 2004                                            
Specialty product and service solutions                                         
* Headline earnings per share up 5%                                             
* Dividend per ordinary share increased to 44c                                  
* Sales volumes and revenues up 6 and 3 per cent respectively                   
Commentary                                                                      
Performance                                                                     
Headline earnings for the first half year were 158 cents per ordinary share and 
7 cents or 5 per cent higher than in the first half of 2003. An increased       
dividend of 44 cents per ordinary share has been declared (42 cents in 2003)    
with a dividend cover of 3.6 (3.6 in 2003). The dividend declaration is         
published in full elsewhere.                                                    
Sales volumes and revenues of Group businesses were increased by 6 and 3 per    
cent respectively. While demand was better in most local markets, the 20 per    
cent appreciation of the average exchange rate of the rand against the US dollar
compared to the first half of 2003 led to reduced activity in some customer     
sectors and eroded both rand selling prices and the rand value of dollar-based  
revenues. The operating margin declined to 7.8 per cent from 8.2 per cent in the
same period last year. The 12 month return on average invested capital (ROIC)   
for the Group, excluding revaluation of land, was lower at 14 per cent from 15  
per cent in June 2003.                                                          
African Explosives achieved a pleasing gain in underlying trading profit as     
further growth in platinum and mining activity elsewhere in Africa more than    
offset some decline in sales to the local gold mining sector and negative       
exchange rate effects. Ongoing cost reduction remained a key focus and an R11   
million restructuring charge was recognised as an expense in the period. Imports
of state-subsidised initiators from China present an increasing competitive     
challenge and a number of actions are in hand to counter this potential threat  
to parts of the initiating systems market.                                      
Intensified product development of the new generation electronic detonator      
technology in advance of the global launch planned for the last quarter of 2004 
led to a small loss at DetNet. Implementation of the 50:50 joint venture with   
Dyno Nobel ASA is expected to be delayed to September 2004 pending regulatory   
clearance.                                                                      
Chemical Services experienced difficult trading conditions as the benefit of    
higher volumes, partly the result of acquisitions, was offset by significant    
pressure on rand prices in some markets. Rationalisation of costs to support    
margins in these business areas could include restructuring, plant relocations  
or selective closure in the second half.                                        
While the restructuring programme at SANS Fibres was progressed in line with    
plan, the further appreciation of the rand negated much of the benefit at       
trading profit level. The joint venture operations in Stoneville, North         
Carolina, achieved break-even in the period. SANS" performance will continue to 
be particularly sensitive to exchange rate movements in the short term.         
A strong performance by Dulux in South Africa more than compensated for lower   
profits from its African operations due to currency effects.                    
The property activities of Heartland delivered much improved results in         
favourable market conditions, with significant sales at both Modderfontein and  
Somerset West.                                                                  
Financial                                                                       
Capital expenditure of R116 million remained under tight control and was in line
with the depreciation charge for the period. Group working capital of R1 153    
million was well contained to 15 per cent of sales despite the inclusion of R130
million of property sales concluded but not yet transferred to purchasers.      
The Group"s net borrowings of R1 034 million were R23 million lower than at June
2003. Cash interest cover at 6.7 times was substantially higher than the 5.3    
times achieved in the first half of 2003 while gearing reduced to 41 per cent of
shareholders" funds from 46 per cent at June 2003 (40 per cent at December      
2003).                                                                          
Portfolio                                                                       
As announced in April, the acquisition of a 25.1 per cent interest in the       
Group"s explosives business by an empowerment consortium led by the Tiso Group  
Limited took effect on 1 July 2004. This post balance sheet event had no impact 
on the Group"s first-half results. While the transaction is not expected to have
a material effect on the Group consolidated balance sheet at year-end, modest   
earnings dilution is projected in the second half of the year.                  
Outlook                                                                         
The rand exchange rate, with its linkage to inflation and interest rates, has   
become the predominant factor influencing the fortunes of most Group customers  
in South Africa and hence AECI as a whole. While exchange rates may remain      
unpredictable, a competitive and more stable rate is a must for most South      
African businesses. Whatever the value of the rand, however, the Group will     
continue to focus on delivering real growth with superior returns on assets     
managed by improving customer service, enhancing competitiveness and margins    
through efficiency gains, and investing selectively in value-adding specialty   
businesses related to the current portfolio.                                    
At prevailing exchange rates, and with a further contribution in prospect from  
property activities, management is targeting at least to maintain  headline     
earnings for the full 2004 financial year.                                      
Alan Pedder                   Schalk Engelbrecht                                
Chairman                      Chief executive                                   
Sandton, 26 July 2004                                                           
Income statement                                                                
                                2004        2003        2003                    
                                First half  First half  Year                    
                         %      Unaudited   Unaudited   Audited                 
change R millions  R millions  R                       
                                                        millions                
 Revenue (1)             +3     3 867       3 753       7 659                   
 Net trading profit      -3     300         309         691                     
Net financing costs            (61)        (79)        (150)                   
 Income from associates         1           3           4                       
 and investments                                                                
                                240         233         545                     
Transitional provision         (10)        (10)        (20)                    
 for post-employment                                                            
 medical aid benefits                                                           
 (2)                                                                            
Amortisation of                (52)        (34)        (75)                    
 goodwill                                                                       
 Exceptional items              (3)         -           (31)                    
 Net profit before              175         189         419                     
taxation                                                                       
 Taxation                       (63)        (61)        (135)                   
 Normal activities              (64)        (61)        (143)                   
 Exceptional items              1           -           8                       
Net profit                     112         128         284                     
 Attributable to                (1)         (20)        (45)                    
 preference and outside                                                         
 shareholders                                                                   
Normal activities              (1)         (27)        (59)                    
 Amortisation of                -           7           14                      
 goodwill                                                                       
 Net profit              +3     111         108         239                     
attributable to                                                                
 ordinary shareholders                                                          
 Headline earnings are                                                          
 derived from:                                                                  
Net profit                     111         108         239                     
 attributable to                                                                
 ordinary shareholders                                                          
 Transitional provision         10          10          20                      
for post-employment                                                            
 medical aid benefits                                                           
 (2)                                                                            
 Amortisation of                52          34          75                      
goodwill                                                                       
 Exceptional items              3           -           31                      
 Outside shareholders"          -           (7)         (14)                    
 share of the above                                                             
items                                                                          
 Tax effects of the             (4)         (3)         (14)                    
 above items                                                                    
                                172         142         337                     
Per ordinary share                                                             
 (cents):                                                                       
 Headline earnings       +5     158         151         356                     
 Diluted headline               154         146         345                     
earnings                                                                       
 Attributable earnings          102         115         252                     
 Diluted attributable           99          111         244                     
 earnings                                                                       
Dividends declared      +5     44          42          112                     
 Dividends paid                 78          72          95                      
 Ordinary shares                                                                
 (millions)                                                                     
- in issue                     109         94          108                     
 - weighted average             109         94          95                      
 number of shares                                                               
 - diluted weighted             112         98          98                      
average number of                                                              
 shares                                                                         
Notes                                                                           
(1) Includes foreign sales of R743 million (2003 - R772 million).               
(2) 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.                 
(3) Accounting policies are in accordance with South African Statements of      
Generally Accepted Accounting Practice, conform to International Financial      
Reporting Standards and are consistent with those applied in the previous       
financial year.                                                                 
Industry segment analysis for the half-year ended 30 June                       
Revenue        Net trading   Assets                           
                                 profit                                         
                  2004    2003   2004   2003   2004    2003                     
                  Unaudited      Unaudited     Unaudited                        
R millions     R millions    R millions                       
Mining solutions  1 045   987    101    94     892     881                      
Specialty         1 615   1 537  169    164    1 388   1 163                    
chemicals                                                                       
Specialty fibres  810     935    1      45     746     849                      
Decorative and    301     291    12     11     115     91                       
packaging                                                                       
coatings                                                                        
Property          168     84     37     14     657     620                      
Group services,                                                                 
intergroup and    (72)    (81)   (20)   (19)   (108)   (80)                     
other                                                                           
3 867   3 753  300    309    3 690   3 524                    
Assets consist of property, plant, equipment and goodwill, inventory, accounts  
receivable less accounts payable. Assets in the property segment include land   
revaluation of R460 million (2003 - R493 million).                              
Balance sheet at 30 June                                                        
                         2004        2003        2003                           
                         30 June     30 June     31 Dec                         
                         Unaudited   Unaudited   Audited                        
R millions  R millions  R millions                     
Assets                                                                          
Non-current assets       3 018       2 685       3 110                          
Property, plant and      1 685       1 696       1 708                          
equipment                                                                       
Goodwill                 852         537         916                            
Investments              89          83          87                             
Deferred taxation        392         369         399                            
assets                                                                          
Current assets           2 931       3 052       2 911                          
Inventory                1 081       1 232       1 170                          
Accounts receivable      1 442       1 381       1 280                          
Cash and cash            408         439         461                            
equivalents                                                                     
Total assets             5 949       5 737       6 021                          
Equity and liabilities                                                          
Ordinary capital and     2 507       2 093       2 494                          
reserves                                                                        
Preference capital and   13          218         27                             
outside shareholders"                                                           
interest in                                                                     
subsidiaries                                                                    
Total shareholders"      2 520       2 311       2 521                          
interest                                                                        
Non-current liabilities  771         1 731       756                            
Deferred taxation        45          18          46                             
liabilities                                                                     
Long-term borrowings     215         1 198       209                            
Long-term provisions     511         515         501                            
Current liabilities      2 658       1 695       2 744                          
Accounts payable         1 370       1 322       1 361                          
Provision for            21          26          48                             
restructuring                                                                   
Short-term borrowings    1 227       298         1 271                          
Taxation                 40          49          64                             
Total equity and         5 949       5 737       6 021                          
liabilities                                                                     
Statement of changes in shareholders" equity                                    
                         2004        2003        2003                           
                         First half  First half  Year                           
Unaudited   Unaudited   Audited                        
                         R millions  R millions  R millions                     
Net profit attributable  111         108         239                            
to ordinary shareholders                                                        
Dividends paid           (85)        (68)        (107)                          
Revaluation of           4           (5)         (7)                            
derivative instruments                                                          
Foreign currency                                                                
translation differences                                                         
net of deferred taxation (18)        (30)        (50)                           
Ordinary shares issued   6           2           340                            
Other                    (5)         -           (7)                            
Net increase in equity   13          7           408                            
for the period                                                                  
Equity at the beginning  2 494       2 086       2 086                          
of the period                                                                   
Equity at the end of the 2 507       2 093       2 494                          
period                                                                          
Made up as follows:                                                             
Share capital and share  443          98         437                            
premium                                                                         
Non-distributable        311          355        347                            
reserves                                                                        
Surplus arising on       307         330         329                            
revaluation of property,                                                        
plant and equipment                                                             
Foreign currency         -           24          18                             
translation reserve net                                                         
of deferred taxation                                                            
Retained earnings of     1           1           1                              
associates                                                                      
Other                    3           -           (1)                            
Retained income          1 753       1 640       1 710                          
                         2 507       2 093       2 494                          
Cash flow statement                                                             
                         2004        2003        2003                           
First half  First half  Year                           
                         Unaudited   Unaudited   Audited                        
                         R millions  R millions  R millions                     
Cash generated by        404         418         898                            
operations                                                                      
Dividends received       1           3           3                              
Net financing costs      (61)        (79)        (150)                          
Taxes paid               (81)        (69)        (119)                          
Changes in working       (62)        (93)        111                            
capital                                                                         
Expenditure relating to  (4)         (5)         (21)                           
long-term provisions                                                            
Expenditure relating to  (30)        (29)        (43)                           
restructuring                                                                   
Cash available from      167         146         679                            
operating activities                                                            
Dividends paid           (86)        (77)        (123)                          
Cash retained from       81          69          556                            
operating activities                                                            
Cash utilised in         (97)        (300)       (1 064)                        
investment activities                                                           
Acquisition of                                                                  
remaining shares in                                                             
Chemical Services        -           (49)        (602)                          
Limited                                                                         
Investments              (2)         (160)       (281)                          
Net capital expenditure  (95)        (91)        (181)                          
Proceeds from            -           1           1                              
disinvestment and                                                               
restructuring                                                                   
Net cash utilised        (16)        (230)       (507)                          
Cash effects of          (38)        40          9                              
financing activities                                                            
Proceeds from issue of   6           2           340                            
new shares                                                                      
Decrease in cash and     (48)        (188)       (158)                          
cash equivalents                                                                
Cash and cash            461         642         642                            
equivalents at the                                                              
beginning of the period                                                         
Translation loss on      (5)         (15)        (23)                           
cash and cash                                                                   
equivalents                                                                     
Cash and cash            408         439         461                            
equivalents at the end                                                          
of the period                                                                   
Other salient features                                                          
                         2004        2003        2003                           
First half  First half  Year                           
                         Unaudited   Unaudited   Audited                        
                         R millions  R millions  R millions                     
Capital expenditure      116         109         241                            
- expansion              63          73          159                            
- replacement            53          36          82                             
Capital commitments      179         134         189                            
- contracted for         25          73          23                             
- not contracted for     154         61          166                            
Future rentals on        156         154         158                            
property, plant and                                                             
equipment leased                                                                
- payable within one     41          40          41                             
year                                                                            
- payable thereafter     115         114         117                            
Net contingent           234         187         223                            
liabilities and                                                                 
guarantees                                                                      
Net borrowings           1 034       1 057       1 019                          
Gearing (%)              41          46          40                             
Current assets to        1.1         1.8         1.1                            
current liabilities                                                             
Net asset value per      2 302       2 223       2 305                          
ordinary share (cents)                                                          
Depreciation             111         108         223                            
Directorate                                                                     
AE Pedder* (Chairman), S Engelbrecht (Chief executive), NC Axelson+, CB         
Brayshaw,                                                                       
MJ Leeming, TH Nyasulu, CML Savage, LC van Vught                                
*British   +Executive                                                           
AECI Limited                                                                    
Incorporated in the Republic of South Africa (Registration No. 1924/002590/06)  
Share code AFE     ISIN No. ZAE000000220                                        
www.aeci.co.za                                                                  
LOGOS                                                                           
AEL                                                                             
Mining solutions                                                                
Development, manufacture and supply of value-adding services, initiating systems
and explosives to the mining, quarrying, and allied industries.                 
Chemical Services                                                               
Limited                                                                         
Specialty chemicals                                                             
Largest specialty chemical operation in southern Africa, supplying a diverse    
range of specialties, raw materials and related services to a broad spectrum of 
industries.                                                                     
Sans Fibres                                                                     
Specialty fibres                                                                
Production, marketing and distribution of specialty nylon and polyester yarn for
local and export markets; production of PET bottle polymer.                     
Dulux                                                                           
Decorative coatings                                                             
A leading decorative coatings supplier in southern Africa. Dulux enjoys a strong
market position as an innovator and supplier of high performance products to a  
wide variety of customers.                                                      
Heartland                                                                       
Property                                                                        
Heartland Properties manages the realisation of land and related assets that    
have become surplus to the Group"s requirements.                                
Date: 27/07/2004 07:00:46 AM Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                                             
                                                                                
                                                                                
                                                                                



                                        
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