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

Release Date: 26/07/2005 07:29:40      Code(s): AFE
Aeci Limited - Group interim financial results for the half-year ended 30 June  
2005                                                                            
AECI LIMITED                                                                    
("AECI" or "the Company")                                                       
(Incorporated in the Republic of South Africa)                                  
Registration no. 1924/002590/06                                                 
Share code:  AFE                                                                
ISIN code:  ZAE000000220                                                        
Group interim financial results for the half-year ended 30 June 2005            
Specialty product and service solutions                                         
Headline earnings per share up 23%                                              
Dividend increased to 54 cents per ordinary share                               
Operating margin up from 7.8% to 9.3%                                           
Return on average invested capital (ROIC) increased to 16%                      
Commentary                                                                      
Performance                                                                     
Headline earnings for the first half-year were 194 cents per ordinary share, 23 
per cent higher than in the first half of 2004. An increased dividend of 54     
cents per ordinary share has been declared, giving a dividend cover of 3.6 times
compared with 44 cents per share and 3.6 times cover in 2004. The dividend      
declaration is published in full elsewhere.                                     
Sales revenues of Group businesses increased by 3 per cent over the same period 
last year though revenue-weighted volume was marginally lower in aggregate.     
Demand from the local mining and manufacturing sectors improved in the second   
quarter in response to a somewhat weaker rand exchange rate against the US      
dollar. Gross margins were maintained despite the effect of high oil prices on  
certain raw material costs whilst the operating margin increased to 9.3 per cent
from 7.8 per cent in the same period last year. The 12 month return on average  
invested capital (ROIC) for the Group, excluding revaluation of land, increased 
to 16 per cent from 14 per cent in June 2004.                                   
African Explosives achieved a pleasing result as an excellent performance by    
operations elsewhere in Africa together with the benefits of last year"s        
restructuring more than offset some decline in sales to the local gold mining   
sector. The competitive challenge posed by imports of state-subsidised          
initiators from China continued but was reasonably contained in the period.     
DetNet, the 50:50 joint venture with Dyno Nobel ASA, accelerated international  
trials of the new generation electronic detonator technology and sales are      
expected to gather pace in the second half of the year.                         
Chemical Services posted a solid result despite adverse trading conditions as   
customers in the mining and manufacturing sectors continued to wrestle with the 
effects of the strong exchange rate in the first quarter. Initiatives taken last
year to raise the performance of certain businesses in the portfolio,           
particularly automotive coatings, have been productive and further positive     
results are expected to accrue in the second half.                              
At SANS Fibres, the recovery programme of new product development, conversion   
efficiency and cost reduction delivered a much improved performance. The joint  
venture operations in Stoneville, North Carolina, USA, traded profitably in the 
period. In the short term, SANS" performance will continue to be sensitive to   
exchange rate movements.                                                        
A good performance by Dulux in South Africa more than compensated for lower     
profits from its other African operations.                                      
The property activities of Heartland delivered better than expected results as  
favourable market conditions persisted with significant sales at both           
Modderfontein and Umbogintwini.                                                 
Financial                                                                       
Capital expenditure of R152 million, incurred mainly on expansion projects in   
African Explosives and Chemical Services, was R39 million higher than the       
depreciation charge for the period. In addition, Chemical Services invested     
approximately R140 million in two acquisitions during the half-year. Group      
working capital was influenced in part by the weaker exchange rate at 30 June   
relative to December 2004 and increased to R1 349 million and 17 per cent of    
sales compared with 15 per cent in June 2004.                                   
The Group"s net borrowings of R941 million were R93 million lower than at June  
2004. Cash interest cover at 10.3 times was substantially higher than the 6.7   
times achieved in the first half of 2004 whilst gearing reduced to 34 per cent  
of shareholders" funds from 41 per cent at June 2004 (24 per cent at December   
2004).                                                                          
At the Annual General Meeting of the Company held on 23 May, shareholders       
authorised a general repurchase of up to 10 per cent of the ordinary shares in  
the Company. No repurchases were undertaken in the period.                      
Portfolio                                                                       
As previously announced, Chemical Services acquired UAP, a distributor of agro- 
chemicals, with effect from January 2005 and Chemiphos, a producer of food-grade
phosphates, with effect from May 2005. Both companies have performed in line    
with expectation since acquisition. Subject to regulatory approvals, Chemical   
Services will also acquire J E Orlick and Associates with effect from September 
2005.                                                                           
In a further empowerment transaction, negotiations are well-advanced regarding  
the sale by Chemical Services of a 25.1 per cent equity interest in ImproChem   
(Pty) Limited, a wholly-owned subsidiary engaged in the business of water       
treatment, to the Tiso Group. Tiso is the Group"s empowerment partner in African
Explosives. The transaction is expected to take effect in September 2005.       
Outlook                                                                         
The progressive benefit of actions taken in prior years in response to a        
relatively strong exchange rate and low inflation will continue to emerge in the
second half-year. If the current and somewhat more competitive level of the     
exchange rate were to be sustained it would be helpful to the Group"s export    
businesses and also to most of the local customer base.                         
Volatility in oil intermediates and hence raw material prices seems likely to   
continue for some time. Nonetheless, with a similar contribution in prospect    
from property activities in the second half, management is targeting a          
significant increase in headline earnings per share for the full 2005 financial 
year.                                                                           
Alan Pedder CBE               Schalk Engelbrecht                                
Chairman                      Chief executive                                   
Sandton                                                                         
25 July 2005                                                                    
Income statement                                                                
                              2005      2004       2004                         
First     First      Year                         
                              half      half                                    
                      %       Unaudited Unaudited  Audited                      
                      change  R         R          R                            
millions  millions   millions                     
Revenue (1)           +3      3 998     3 867      7 911                        
Profit from           +24     371       300        743                          
operations                                                                      
Net financing costs           (47)      (61)       (139)                        
Income from                   2         1          3                            
associates and                                                                  
investments                                                                     
326       240        607                          
Transitional                  (10)      (10)       (20)                         
provision for post-                                                             
employment medical                                                              
aid benefits (2)                                                                
Amortisation of               -         (52)       (104)                        
goodwill (3)                                                                    
Exceptional items             3         (3)        (23)                         
Profit before                 319       175        460                          
taxation                                                                        
Taxation                      (94)      (63)       (173)                        
Normal activities             (94)      (64)       (167)                        
Exceptional items             -         1          (6)                          
Net profit                    225       112        287                          
Attributable to               (16)      (1)        (4)                          
preference and                                                                  
outside shareholders                                                            
Normal activities             (16)      (1)        (7)                          
Amortisation of               -         -          2                            
goodwill                                                                        
Exceptional items             -         -          1                            
Net profit                    209       111        283                          
attributable to                                                                 
ordinary shareholders                                                           
Headline earnings are                                                           
derived from:                                                                   
Net profit                    209       111        283                          
attributable to                                                                 
ordinary shareholders                                                           
Transitional                  10        10         20                           
provision for post-                                                             
employment medical                                                              
aid benefits (2)                                                                
Amortisation of               -         52         104                          
goodwill (3)                                                                    
Exceptional items             (3)       3          23                           
Outside shareholders"         -         -          (3)                          
share of the above                                                              
items                                                                           
Tax effects of the            (3)       (4)        -                            
above items                                                                     
                              213       172        427                          
Per ordinary share                                                              
(cents):                                                                        
Headline earnings     +23     194       158        392                          
Diluted headline              190       154        383                          
earnings                                                                        
Attributable earnings         190       102        260                          
Diluted attributable          186       99         254                          
earnings                                                                        
Dividends declared    +23     54        44         138                          
Dividends paid                94        78         122                          
Ordinary shares                                                                 
(millions)                                                                      
- in issue                    110       109        109                          
- weighted average            110       109        109                          
number of shares                                                                
- diluted weighted            112       112        111                          
average number of                                                               
shares                                                                          
Notes                                                                           
(1) Includes foreign sales of R887 million (2004 - R743 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) The interim financial results have been prepared in accordance with South   
African Statements of Generally Accepted Accounting Practice and conform to     
International Financial Reporting Standards. Accounting policies are consistent 
with those applied in the previous financial year except for the adoption of    
IFRS 2 (Share-based payments) and IFRS 3 (Business combinations), IAS 16        
(Property, plant and equipment), IAS 36 (Impairment of assets) and IAS 38       
(Intangible assets). With the adoption of IFRS 3, the amortisation of goodwill  
has ceased with effect from the current financial year. The adoption of the     
other standards has not had a material impact on the Group"s financial results. 
Industry segment analysis for the half-year ended 30 June                       
                    Revenue        Profit from   Assets                         
operations                                   
                    2005   2004    2005    2004  2005   2004                    
                    Unaudited      Unaudited     Unaudited                      
                    R millions     R millions    R millions                     
Mining solutions    1 089  1 045   116     101   923     892                    
Specialty           1 670  1 615   174     169   1 803   1 388                  
chemicals                                                                       
Specialty fibres    828    810     19      1     700     746                    
Decorative and      293    301     15      12    139     115                    
packaging coatings                                                              
Property            174    168     68      37    531     657                    
Group services,     (56)   (72)    (21)    (20)  (167)   (108)                  
intergroup and                                                                  
other                                                                           
                    3 998  3 867   371     300   3 929   3 690                  
Assets consist of property, plant, equipment and goodwill, inventory, accounts  
receivable less accounts payable. Assets in the property segment include land   
revaluation of R423 million (2004 - R460 million).                              
Balance sheet at 30 June                                                        
                         2005        2004        2004                           
30 June     30 June     31 Dec                         
                         Unaudited   Unaudited   Audited                        
                         R millions  R millions  R millions                     
Assets                                                                          
Non-current assets       2 959       3 018       2 935                          
Property, plant and      1 693       1 685       1 659                          
equipment                                                                       
Goodwill                 887         852         822                            
Investments              87          89          94                             
Deferred taxation assets 292         392         360                            
Current assets           3 309       2 931       2 942                          
Inventory                1 352       1 081       1 160                          
Accounts receivable      1 622       1 442       1 420                          
Cash and cash            335         408         362                            
equivalents                                                                     
Total assets             6 268       5 949       5 877                          
Equity and liabilities                                                          
Ordinary capital and     2 744       2 507       2 605                          
reserves                                                                        
Preference capital and   58          13          41                             
outside shareholders"                                                           
interest in subsidiaries                                                        
Total shareholders"      2 802       2 520       2 646                          
interest                                                                        
Non-current liabilities  1 222       771         1 426                          
Deferred taxation        22          45          33                             
liabilities                                                                     
Long-term borrowings     689         215         899                            
Long-term provisions     511         511         494                            
Current liabilities      2 244       2 658       1 805                          
Accounts payable         1 625       1 370       1 619                          
Provision for            3           21          9                              
restructuring                                                                   
Short-term borrowings    587         1 227       96                             
Taxation                 29          40          81                             
Total equity and         6 268       5 949       5 877                          
liabilities                                                                     
Statement of changes in equity                                                  
                         2005        2004        2004                           
                         First half  First half  Year                           
Unaudited   Unaudited   Audited                        
                         R millions  R millions  R millions                     
Net profit               225         112         287                            
Dividends paid           (104)       (86)        (135)                          
Revaluation of           1           4           5                              
derivative instruments                                                          
Foreign currency         26          (18)        (53)                           
translation differences                                                         
net of deferred taxation                                                        
Ordinary shares issued   6           6           8                              
Changes in the Group     -           (14)        13                             
Other                    2           (5)         -                              
Net increase in equity   156         (1)         125                            
for the period                                                                  
Equity at the beginning  2 646       2 521       2 521                          
of the period                                                                   
Equity at the end of the 2 802       2 520       2 646                          
period                                                                          
Made up as follows:                                                             
Share capital and share  451         443         445                            
premium                                                                         
Non-distributable        307         311         289                            
reserves                                                                        
Surplus arising on       279         307         288                            
revaluation of property,                                                        
plant and equipment                                                             
Foreign currency         22          -           (3)                            
translation reserve net                                                         
of deferred taxation                                                            
Retained earnings of     1           1           1                              
associates                                                                      
Other                    5           3           3                              
Retained income          1 986       1 753       1 871                          
Preference capital       6           6           6                              
Outside shareholders"    52          7           35                             
interest in subsidiaries                                                        
2 802       2 520       2 646                          
Cash flow statement                                                             
                         2005        2004        2004                           
                         First half  First half  Year                           
Unaudited   Unaudited   Audited                        
                         R millions  R millions  R millions                     
Cash generated by        487         404         957                            
operations                                                                      
Dividends received       1           1           2                              
Net financing costs      (47)        (61)        (126)                          
Taxes paid               (89)        (81)        (128)                          
Changes in working       (299)       (62)        120                            
capital                                                                         
Expenditure relating to  (3)         (4)         (21)                           
long-term provisions                                                            
Expenditure relating to  (6)         (30)        (36)                           
restructuring                                                                   
Cash available from      44          167         768                            
operating activities                                                            
Dividends paid           (104)       (86)        (135)                          
Cash (applied            (60)        81          633                            
to)/retained from                                                               
operating activities                                                            
Cash utilised in         (276)       (97)        (238)                          
investment activities                                                           
Proceeds from disposal   17          -           58                             
of investments and                                                              
businesses                                                                      
Investments              (143)       (2)         (27)                           
Net capital expenditure  (150)       (95)        (269)                          
Net cash                 (336)       (16)        395                            
(utilised)/generated                                                            
Cash effects of          281         (38)        (485)                          
financing activities                                                            
Proceeds from issue of   6           6           8                              
new shares                                                                      
Decrease in cash and     (49)        (48)        (82)                           
cash equivalents                                                                
Cash and cash            362         461         461                            
equivalents at the                                                              
beginning of the period                                                         
Translation gain/(loss)  22          (5)         (17)                           
on cash and cash                                                                
equivalents                                                                     
Cash and cash            335         408         362                            
equivalents at the end                                                          
of the period                                                                   
Other salient features                                                          
2005        2004        2004                           
                         First half  First half  Year                           
                         Unaudited   Unaudited   Audited                        
                         R millions  R millions  R millions                     
Capital expenditure      152         116         277                            
- expansion              108         63          157                            
- replacement            44          53          120                            
Capital commitments      171         179         294                            
- contracted for         6           25          25                             
- not contracted for     165         154         269                            
Future rentals on        183         156         196                            
property, plant and                                                             
equipment leased                                                                
- payable within one     43          41          43                             
year                                                                            
- payable thereafter     140         115         153                            
Contingent liabilities   283         234         278                            
and guarantees                                                                  
Net borrowings           941         1 034       633                            
Gearing (%)              34          41          24                             
Current assets to        1.5         1.1         1.6                            
current liabilities                                                             
Net asset value per      2 491       2 302       2 381                          
ordinary share (cents)                                                          
Depreciation             113         111         224                            
Directorate                                                                     
AE Pedder CBE* (Chairman), S Engelbrecht (Chief executive)+, NC Axelson+, CB    
Brayshaw,                                                                       
MJ Leeming, TH Nyasulu, F Titi, 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                                                                  
AEL                                                                             
Mining solutions                                                                
Development, manufacture and supply of value-adding services, initiating systems
and explosives to the mining, quarrying, and allied industries.                 
Chemical Services                                                               
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: 26/07/2005 07:30:09 AM Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                                             
                                                                                
                                                                                
                                                                                



                                        
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