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Aeci - Group Audited Financial Results For The Year Ended 31 December 2004

Release Date: 22/02/2005 07:00:01      Code(s): AFE
AECI - Group audited financial results for the year ended 31 December 2004      
AECI Limited                                                                    
Incorporated in the Republic of South Africa                                    
(Registration No. 1924/002590/06)                                               
Share code AFE     ISIN No. ZAE000000220                                        
Group audited financial results                                                 
for the year ended 31 December 2004                                             
Specialty product and service solutions                                         
-    Headline earnings per share up 10%                                         
-    Dividends for the year up 15% to 138 cents per share                       
-    Sales volumes and revenues up 4% and 3%                                    
-    Return on invested capital (ROIC) higher at 16%                            
-    Gearing reduced from 40% to 24%                                            
Commentary                                                                      
Performance                                                                     
Headline earnings of 392 cents per ordinary share were 10 per cent higher than  
in 2003. This result was achieved after recognising charges for restructuring   
equivalent to 27 cents per share. An increased final dividend of 94 cents per   
ordinary share has been declared (78 cents in 2003) to bring the total dividends
for the year to 138 cents (120 cents in 2003) with a dividend cover of 2.8 (3.0 
in 2003). The dividend declaration is published in full elsewhere.              
Sales volumes and revenues of Group businesses increased by 4 and 3 per cent    
respectively from 2003. Growth slowed in many local markets in the second half  
of the year as the continued appreciation of the rand against the US dollar     
further pressured the mining and manufacturing industries. Gross margins were   
largely maintained despite a surge in many raw material prices caused by global 
demand growth and high energy costs. The ongoing improvement in operating costs 
and margins, together with pleasing results from the property portfolio,        
delivered an increase in the overall trading margin to 9.4 per cent of sales    
from 9.0 per cent in 2003. The return on invested capital (ROIC) for the Group, 
excluding revaluation of land, was higher at 16 per cent (15 per cent in 2003). 
African Explosives recorded a small gain in underlying trading profit from      
improvements in operating performance. Overall mining activity was down with    
reduced gold mining in South Africa partly offset by modest growth in platinum  
and other mining activities elsewhere in Africa. Restructuring costs of R33     
million were expensed in the year. Imports of state-subsidised initiators from  
China had a limited impact on some sectors of the initiating systems market in  
the second half of the year.                                                    
The 50:50 joint venture with Dyno Nobel ASA in electronic detonators was        
implemented in September 2004. International trials of the new generation       
detonator technology are now in progress.                                       
Chemical Services continued to experience mixed trading conditions with lower   
selling prices in some markets, pressured by the stronger rand, offsetting the  
benefit of higher volumes. Rationalisation of manufacturing facilities and tight
control of costs enabled margins to be maintained. Initiatives taken during the 
year to raise the performance of certain businesses in the portfolio,           
particularly automotive coatings, are expected to deliver positive results in   
2005.                                                                           
Dulux achieved excellent results in South Africa with higher volumes and an     
improved mix of its branded products. Profits from its export and African       
operations were lower due to currency effects and unfavourable market           
conditions.                                                                     
The restructuring programme at SANS Fibres was progressed in line with plan and 
a restructuring charge of R6 million was expensed in the second half of the     
year. Subject to the average exchange rate not appreciating significantly from  
2004, the progress made on new product development, conversion efficiencies and 
cost reduction should enable SANS to deliver an improving performance during the
course of 2005.                                                                 
The property activities of Heartland produced outstanding profits and cash flow 
in favourable market conditions. Substantial sales of land for residential,     
commercial and light industrial use were recorded at Modderfontein, Somerset    
West and Umbogintwini.                                                          
Financial                                                                       
An impairment charge of R13 million was raised primarily in respect of the      
Group"s residual investment in Botswana Ash. The exceptional charge of R23      
million also includes the closure of a resin plant in the automotive coatings   
business offset by gains arising from the sale of intellectual property to      
DetNet, the electronic detonator joint venture.                                 
Capital expenditure of R277 million was controlled to a level somewhat higher   
than the depreciation charge for the period. Group working capital of R960      
million was contained to 12 per cent of sales.                                  
Net borrowings of R633 million were R386 million lower than at December 2003    
with property activities contributing a net cash flow of R270 million in the    
year. Net financing costs of R139 million (R152 million in 2003) included R13   
million of non-cash mark-to-market adjustments related to interest rate hedging 
instruments in compliance with AC 133. Cash interest cover improved further to  
7.0 times while gearing reduced to 24 per cent of shareholder funds from 40 per 
cent at December 2003.                                                          
In view of the lower level of gearing, the Board has resolved to seek approval  
from shareholders for a general repurchase of up to 10 per cent of the ordinary 
shares in the Company, subject to market conditions from time to time. The      
appropriate resolution will be included in the Notice of the Annual General     
Meeting of the Company which is to be held on 23 May 2005.                      
Portfolio                                                                       
As previously announced, the 50:50 joint venture in electronic detonation       
systems with Dyno Nobel ASA of Norway became effective in September 2004, and   
the acquisition of a 25.1 per cent interest in the Group"s explosives business  
by an empowerment consortium led by the Tiso Group took effect on 1 July 2004.  
Both transactions have met Group expectations to date.                          
In December 2004, Chemical Services announced the acquisition of UAP, a         
distributor of agro-chemicals, with effect from January 2005 and of Chemiphos, a
producer of food-grade phosphates, for a total consideration of R150 million.   
The latter transaction remains subject to regulatory approvals.                 
Outlook                                                                         
The Group"s portfolio of businesses has demonstrated its robustness and has     
responded effectively to the changing environment of relatively strong commodity
prices and rand exchange rate accompanied by low inflation and interest rates.  
This environment is not expected to change significantly in the year ahead and  
the progressive benefits of actions taken to align each business with these     
conditions should accordingly emerge more fully in 2005.                        
Assuming no material strengthening of the rand exchange rate from the 2004      
average, and with a further contribution in prospect from property activities,  
management is targeting an increase in headline earnings for the full 2005      
financial year.                                                                 
Alan Pedder CBE               Schalk Engelbrecht                                
Chairman                      Chief executive                                   
Sandton                                                                         
21 February 2005                                                                
Income statement                                                                
                                             %       2004       2003            
                                             change  R millions R millions      
Revenue (2)                                  +3      7 911      7 659           
Net trading profit                           +8      743        691             
Net financing costs                                  (139)      (150)           
Income from associates and investments               3          4               
607        545             
Transitional provision for post-employment                                      
medical aid benefits                                 (20)       (20)            
Amortisation of goodwill                             (104)      (75)            
Exceptional items                                    (23)       (31)            
Net profit before taxation                           460        419             
Taxation                                             (173)      (135)           
Normal activities                                    (167)      (143)           
Exceptional items                                    (6)        8               
Net profit                                           287        284             
Attributable to preference and outside               (4)        (45)            
shareholders                                                                    
Normal activities                                    (7)        (59)            
Amortisation of goodwill                             2          14              
Exceptional item                                     1          -               
Net profit attributable to ordinary                  283        239             
shareholders                                                                    
Headline earnings are derived from:                                             
Net profit attributable to ordinary                  283        239             
shareholders                                                                    
Transitional provision for post-employment                                      
medical                                                                         
aid benefits (3)                                     20         20              
Amortisation of goodwill                             104        75              
Exceptional items                                    23         31              
Outside shareholders" share of the above             (3)        (14)            
items                                                                           
Tax effects of the above                             -          (14)            
427        337             
Per ordinary share (cents):                                                     
Headline earnings                            +10     392        356             
Diluted headline earnings                            383        345             
Attributable earnings                                260        252             
Diluted attributable earnings                        254        244             
Dividends declared                           +15     138        120             
Dividends paid                                       122        114             
Ordinary shares (millions)                                                      
- in issue                                           109        108             
- weighted average number of shares                  109        95              
- diluted weighted average number of shares          111        98              
Notes                                                                           
(1) 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.                                                                 
(2) Includes foreign sales of R1 506 million (2003 - R1 483 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 2004. 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                
               2004      2003       2004       2003       2004      2003        
R millions           R millions            R millions            
Mining         2 140     2 076      212        241        842       817         
solutions                                                                       
Specialty      3 302     3 197      380        372        1 459     1 490       
chemicals                                                                       
Specialty      1 595     1 714      3          22         667       761         
fibres                                                                          
Decorative and                                                                  
packaging                                                                       
coatings       671       661        59         52         122       116         
Property       352       207        130        39         520       671         
Group                                                                           
services,                                                                       
intergroup                                                                      
and other      (149)     (196)      (41)       (35)       (168)     (142)       
               7 911     7 659      743        691        3 442     3 713       
Assets consist of property, plant, equipment and goodwill, inventory, accounts  
receivable less accounts payable. Assets in the property segment include land   
revaluation of R432 million (2003 - R493 million).                              
Balance sheet at 31 December                                                    
2004        2003            
                                                    R millions  R millions      
Assets                                                                          
Non-current assets                                  2 935       3 110           
Property, plant and equipment                       1 659       1 708           
Goodwill                                            822         916             
Investments                                         94          87              
Deferred taxation assets                            360         399             
Current assets                                      2 942       2 911           
Inventory                                           1 160       1 170           
Accounts receivable                                 1 420       1 280           
Cash and cash equivalents                           362         461             
Total assets                                        5 877       6 021           
Equity and liabilities                                                          
Ordinary capital and reserves                       2 605       2 494           
Preference capital and outside shareholders"                                    
interest in subsidiaries                            41          27              
Total shareholders" interest                        2 646       2 521           
Non-current liabilities                             1 426       756             
Deferred taxation liabilities                       33          46              
Long-term borrowings                                899         209             
Long-term provisions                                494         501             
Current liabilities                                 1 805       2 744           
Accounts payable                                    1 619       1 361           
Provision for restructuring                         9           48              
Short-term borrowings                               96          1 271           
Taxation                                            81          64              
Total equity and liabilities                        5 877       6 021           
Statement of changes in shareholders" equity                                    
                                                    2004        2003            
                                                    R millions  R millions      
Net profit attributable to ordinary shareholders    283         239             
Ordinary dividends paid                             (133)       (107)           
Fair value adjustments                              5           (7)             
Foreign currency translation differences net of     (52)        (50)            
deferred taxation                                                               
Ordinary shares issued                              8           340             
Other                                               -           (7)             
Net increase in equity for the year                 111         408             
Equity at the beginning of the year                 2 494       2 086           
Equity at the end of the year                       2 605       2 494           
Made up as follows:                                                             
Share capital and share premium                     445         437             
Non-distributable reserves                          289         347             
Surplus arising on revaluation of property, plant   288         329             
and equipment                                                                   
Foreign currency translation reserve net of         (3)         18              
deferred taxation                                                               
Retained earnings of associates                     1           1               
Other                                               3           (1)             
Retained income                                     1 871       1 710           
                                                    2 605       2 494           
Cash flow statement                                                             
                                                   2004         2003            
                                                   R millions   R millions      
Cash generated by operations                       957          898             
Dividends received                                 2            3               
Net financing costs                                (126)        (148)           
Taxes paid                                         (128)        (119)           
Changes in working capital                         120          109             
Expenditure relating to long-term provisions       (21)         (21)            
Expenditure relating to restructuring              (36)         (43)            
Cash available from operating activities           768          679             
Dividends paid                                     (135)        (123)           
Cash retained from operating activities            633          556             
Cash utilised in investment activities             (238)        (1 063)         
Acquisition of remaining shares in Chemical        -            (602)           
Services Limited                                                                
Proceeds from disposal of investments and          58           1               
businesses                                                                      
Investments                                        (27)         (281)           
Net capital expenditure                            (269)        (181)           
Net cash generated/(utilised)                      395          (507)           
Cash effects of financing activities               (485)        9               
Proceeds from issue of new shares                  8            340             
Decrease in cash and cash equivalents              (82)         (158)           
Cash and cash equivalents at the beginning of the  461          642             
year                                                                            
Translation loss on cash and cash equivalents      (17)         (23)            
Cash and cash equivalents at the end of the year   362          461             
Other salient features                                                          
                                                   2004         2003            
                                                   R millions   R millions      
Capital expenditure                                277          241             
- expansion                                        157          159             
- replacement                                      120          82              
Capital commitments                                294          189             
- contracted for                                   25           23              
- not contracted for                               269          166             
Future rentals on property, plant                                               
and equipment leased                               231          158             
- payable within one year                          49           41              
- payable thereafter                               182          117             
Net contingent liabilities and guarantees          282          223             
Net borrowings                                     633          1 019           
Gearing (%)                                        24           40              
Current assets to current liabilities              1.6          1.1             
Net asset value per ordinary share (cents)         2 381        2 305           
Depreciation                                       224          223             
Directorate                                                                     
AE Pedder CBE* (Chairman), S Engelbrecht (Chief executive), NC Axelson+, CB     
Brayshaw,                                                                       
MJ Leeming, TH Nyasulu, CML Savage, LC van Vught                                
*British   +Executive                                                           
www.aeci.co.za                                                                  
AEL Logo                                                                        
Mining solutions                                                                
Development, manufacture and supply of value-adding services, initiating systems
and explosives to the mining, quarrying, and allied industries.                 
Chemical Services Logo                                                          
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 Logo                                                                
Specialty fibres                                                                
Production, marketing and distribution of specialty nylon and polyester yarn for
local and export markets; production of PET bottle polymer.                     
Dulux Logo                                                                      
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 Logo                                                                  
Property                                                                        
Heartland Properties manages the realisation of land and related assets that    
have become surplus to the Group"s requirements.                                
Date: 22/02/2005 07:00:07 AM Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                                             
                                                                                
                                                                                
                                                                                



                                        
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