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AECI - Group Audited Financial Results for the Year Ended 31 December 2005

Release Date: 21/02/2006 07:49:44      Code(s): AFE
AECI - Group Audited Financial Results for the Year Ended 31 December 2005      
AECI Limited                                                                    
Incorporated in the Republic of South Africa                                    
(Registration No. 1924/002590/06)                                               
Share code AFE                                                                  
ISIN No. ZAE000000220                                                           
specialty product and service solutions                                         
GROUP AUDITED FINANCIAL RESULTS                                                 
FOR THE YEAR ENDED 31 DECEMBER 2005                                             
*Headline earnings per share up 23%                                             
*Dividend per share increased to 175 cents                                      
*Revenue up 11%                                                                 
*Return on invested capital (ROIC) higher at 18%                                
Headline earnings of 482 cents per ordinary share were 23 per cent higher than  
in 2004. Restructuring costs equivalent to 15 cents per share were incurred     
compared to 27 cents per share in 2004. An increased final dividend of 121 cents
per ordinary share has been declared (94 cents in 2004) to bring the total      
dividends for the year to 175 cents (138 cents in 2004) with a dividend cover of
2.7 (2.8 in 2004). The dividend declaration is published in full elsewhere.     
Sales revenues of Group businesses increased by 11 per cent from 2004, bolstered
in part by additions to the Chemical Services (Chemserve) portfolio. Revenue-   
weighted volume was some 2 per cent higher in aggregate. Demand from the local  
mining and manufacturing sectors continued to improve from the second quarter in
response to strong export markets and a somewhat weaker rand exchange rate      
against the US dollar. Gross margins were largely maintained despite the effect 
of high oil prices on many raw material costs. The ongoing containment of       
operating costs enabled a further increase in the overall trading margin to 10.1
per cent of sales from 9.4 per cent in 2004. The return on invested capital     
(ROIC) for the Group, excluding revaluation of land, was higher at 18 per cent  
(16 per cent in 2004).                                                          
In African Explosives (AEL), an outstanding performance by operations elsewhere 
in Africa more than offset the effects of a continuing decline in gold mining   
activity in South Africa. Local margins were pressured by the lagged recovery of
steep increases in ammonia costs. State-subsidised initiators from China        
continued to have a limited volume impact on some sectors of the South African  
initiating systems market during the year, but contributed to extreme resistance
to price adjustments by some gold mining customers. Commissioning of the first  
phase of automated production of initiating systems at Modderfontein is expected
in the first half of 2006.                                                      
DetNet, the 50:50 joint venture with Dyno Nobel ASA, recorded an improved result
for the period with accelerating international sales of the new generation      
electronic detonator in the second half of the year.                            
Chemserve again experienced varied trading conditions with buoyant growth in    
demand from suppliers to local markets outpacing that from export-dependent     
sectors. Highlights included a remarkable turnaround in automotive coatings     
following restructuring and new alliances with strong technology partners, an   
outstanding performance by the polyurethanes business, and a pleasing           
contribution from Chemiphos, the food-grade phosphate business acquired in May  
2005. Restructuring costs of R15 million were incurred in the period. The       
benefits of these and other actions are expected to enhance further the         
performance of the specialty chemicals portfolio in 2006.                       
SANS Fibres delivered a much improved result for the year with higher margins on
US dollar based sales to international markets supported by the disciplined     
containment of local manufacturing costs. Customer accreditation of new products
such as airbag yarns has proved a longer process than envisaged, and significant
sales of such products are not expected before 2007. The outlook for sales      
volumes and margins of existing products to international markets is positive.  
However, SANS" performance will continue to be sensitive to this dollar based   
business until the programme of initiatives to reduce this exposure is further  
Dulux again achieved excellent results in South Africa from significantly higher
sales volumes of its premium branded products, despite the impact of escalating 
raw material costs on margins.  Profits from its export and African operations  
were lower due to currency effects and unfavourable market conditions.          
The property activities of Heartland delivered impressive profits and cash flow 
in supportive market conditions. Further substantial sales of land for          
residential, commercial and light industrial use were recorded at Modderfontein,
Somerset West and Umbogintwini.                                                 
Profit from operations included restructuring costs of R23 million (R42 million 
in 2004), a R40 million top-up of the post-employment medical aid provision and 
an additional R28 million provision for environmental remediation. Mark-to-     
market adjustments related to interest rate hedging instruments were not        
material in the year. Taxation included a R11 million deferred tax charge       
consequent upon the reduction in the rate of corporate tax to 29 per cent.      
The increase in net profit attributable to outside shareholders reflected the   
25.1 per cent interest of the empowerment consortium led by the Tiso Group in   
the Group"s explosives business for a full year as opposed to six months in     
Net capital expenditure of R339 million during the year was R127 million higher 
than the depreciation charge. The investments comprised mainly expansion        
projects in AEL and Chemserve, which company in addition acquired five          
businesses to the value of  R207 million.  Group working capital increased to R1
373 million and 15.6 per cent of sales from 12 per cent of sales in 2004, a     
deterioration which will be the focus of management attention in 2006.          
The Group"s net borrowings of R798 million were R183 million higher than at     
December 2004 with property activities contributing net cash flow of R270       
million in the year. Cash interest cover improved further to 12 times while     
gearing increased to 27 per cent of shareholder funds from 23 per cent at       
December 2004.                                                                  
In late 2005 the Company purchased call options over 2.95 million AECI ordinary 
shares from a local bank for a total cash premium of R120 million. This will    
obviate the need for the Company to issue new shares when participants in the   
AECI share option scheme exercise their rights in terms of the scheme, and hence
will eliminate any future dilution of earnings per share from this source. No   
repurchases of shares were undertaken in the year.                              
The empowerment transaction involving the sale of a 25.1 per cent equity        
interest in ImproChem, a Chemserve business, to the Tiso Group became effective 
in September 2005. Chemserve also completed the acquisition of J E Orlick and   
Associates in October 2005 and announced the acquisition of Leochem, a producer 
of personal care intermediates, for a consideration of R100 million. This       
transaction will take effect in March 2006.                                     
The packaging coatings business has been included in the specialty chemicals    
segment of the portfolio, and the site services business at Umbogintwini is     
reported under property instead of Group services. Comparative figures for 2004 
have been restated.                                                             
The prevailing environment of GDP growth, firm commodity prices and rand        
exchange rate accompanied by low inflation and interest rates is not expected to
change materially in the year ahead, and the Group"s portfolio of businesses is 
well positioned to benefit in these conditions. The extent of land available for
sale during 2006 will be lower than in 2005.                                    
Nonetheless, provided the rand exchange rate does not strengthen substantially  
from the 2005 average, management is again targeting an increase in headline    
earnings for the full financial year.                                           
Alan Pedder CBE               Schalk Engelbrecht                                
Chairman                      Chief executive                                   
20 February 2006                                                                
Income statement                                                                
%      2005        2004                           
                              change R millions  R millions                     
Revenue (2)                   +11    8 768       7 911                          
Profit from operations        +19    887         743                            
Net financing costs                  (90)        (139)                          
Income from associates and           5           3                              
                                     802         607                            
Transitional provision for           (20)        (20)                           
post-employment medical aid                                                     
benefits (3)                                                                    
Impairment/amortisation of           (10)        (104)                          
Exceptional items                    (27)        (23)                           
Net profit before taxation           745         460                            
Taxation                             (225)       (173)                          
Normal activities                    (232)       (167)                          
Exceptional items                    7           (6)                            
Net profit                           520         287                            
Attributable to preference           (34)        (4)                            
and outside shareholders                                                        
Net profit attributable to           486         283                            
ordinary shareholders                                                           
Headline earnings are                                                           
derived from:                                                                   
Net profit attributable to           486         283                            
ordinary shareholders                                                           
Transitional provision for           20          20                             
post-employment medical aid                                                     
benefits (3)                                                                    
Impairment/amortisation of           10          104                            
Exceptional items                    27          23                             
Outside shareholders" share          -           (3)                            
of the above items                                                              
Tax effects of the above             (13)        -                              
Headline earnings                    530         427                            
Per ordinary share (cents):                                                     
Headline earnings             +23    482         392                            
Diluted headline earnings            473         383                            
Attributable earnings                442         260                            
Diluted attributable                 434         254                            
earnings (4)                                                                    
Dividends declared            +27    175         138                            
Dividends paid                       148         122                            
Ordinary shares (millions)                                                      
- in issue                           110         109                            
- weighted average number of         110         109                            
- diluted weighted average           112         111                            
number of shares (4)                                                            
Accounting policies are in accordance with International Financial Reporting    
Standards and 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.                                                              
Includes foreign sales of R1 817 million (2004 - R1 506 million).               
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) Calculated in accordance with IAS 33. The Company has purchased call options
over AECI shares which will obviate the need for the Company to issue new shares
in terms of the AECI share option scheme. In practice, therefore, there will be 
no future dilution of earnings from this source.                                
The auditors, KPMG Inc, have issued their opinion on the Group financial        
statements for the year ended 31 December 2005. A copy of the auditors"         
unqualified report is available for inspection at the Company"s registered      
Balance sheet                                                                   
at 31 December                                                                  
2005        2004                           
                                     R millions  R millions                     
Non-current assets                   3 056       2 917                          
Property, plant and equipment        1 723       1 659                          
Goodwill                             920         822                            
Investments                          91          76                             
Deferred tax assets                  322         360                            
Current assets                       3 559       2 960                          
Inventory                            1 372       1 160                          
Accounts receivable                  1 778       1 420                          
Cash and cash equivalents            409         380                            
Total assets                         6 615       5 877                          
Equity and liabilities                                                          
Ordinary capital and reserves        2 857       2 605                          
Preference capital and outside                                                  
interest in subsidiaries             83          41                             
Total shareholders" interest         2 940       2 646                          
Non-current liabilities              1 132       1 422                          
Deferred tax liabilities             31          33                             
Long-term borrowings                 559         899                            
Long-term provisions                 542         490                            
Current liabilities                  2 543       1 809                          
Accounts payable                     1 777       1 632                          
Short-term borrowings                648         96                             
Taxation                             118         81                             
Total equity and liabilities         6 615       5 877                          
Industry segment analysis                                                       
                           Revenue         Profit                               
                                           from operations                      
                           2005    2004    2005      2004                       
R millions      R millions                           
Mining solutions           2 314   2 140   257       212                        
Specialty chemicals        3 826   3 363   412       388                        
Specialty fibres           1 619   1 595   32        3                          
Decorative coatings        607     610     59        51                         
Property                   648     467     185       137                        
Group services,                                                                 
intergroup and other       (246)   (264)   (58)      (48)                       
8 768   7 911   887       743                        
                                 2005      2004                                 
                                 R millions                                     
Mining solutions                 963       842                                  
Specialty chemicals              1 931     1 463                                
Specialty fibres                 713       661                                  
Decorative coatings              126       118                                  
Property                         500       531                                  
Group services,                                                                 
intergroup and other             (217)     (186)                                
                                 4 016     3 429                                
Assets consist of property, plant, equipment and goodwill, inventory, accounts  
receivable less accounts payable. Assets in the property segment include land   
revaluation of R412 million (2004 - R432 million).                              
Cash flow statement                                                             
2005        2004                           
                                     R millions  R millions                     
Cash generated by operations         1 165       964                            
Dividends received                   4           2                              
Net financing costs                  (90)        (126)                          
Taxes paid                           (129)       (128)                          
Changes in working capital           (295)       113                            
Expenditure relating to long-term    (42)        (57)                           
provisions and restructuring                                                    
Cash available from operating        613         768                            
Dividends paid                       (167)       (135)                          
Cash retained from operating         446         633                            
Cash utilised in investment          (530)       (233)                          
Proceeds from disposal of            27          58                             
investments and businesses                                                      
Investments                          (218)       (22)                           
Net capital expenditure              (339)       (269)                          
Net cash (utilised)/generated        (84)        400                            
Cash effects of financing activities 212         (485)                          
Share options hedge (4)              (120)       -                              
Proceeds from issue of new ordinary  8           8                              
Increase/(decrease) in cash and cash 16          (77)                           
Cash and cash equivalents at the     380         474                            
beginning of the year                                                           
Translation gain/(loss) on cash and  13          (17)                           
cash equivalents                                                                
Cash and cash equivalents at the end 409         380                            
of the year                                                                     
Statement of changes in equity                                                  
                                     2005        2004                           
                                     R millions  R millions                     
Net profit                           520         287                            
Dividends paid                       (167)       (135)                          
Revaluation of derivative            -           5                              
Foreign currency translation         6           (53)                           
differences net of deferred tax                                                 
Ordinary shares issued               8           8                              
Changes in the Group                 12          13                             
Share options hedge net of deferred  (85)        -                              
tax (4)                                                                         
Net increase in equity for the year  294         125                            
Equity at the beginning of the year  2 646       2 521                          
Equity at the end of the year        2 940       2 646                          
Made up as follows:                                                             
Share capital and share premium      453         445                            
Non-distributable reserves           276         289                            
Surplus arising on revaluation of    268         288                            
property, plant and equipment                                                   
Foreign currency translation reserve 3           (3)                            
net of deferred tax                                                             
Retained earnings of associates      1           1                              
Other                                4           3                              
Retained earnings                    2 128       1 871                          
Preference capital                   6           6                              
Outside shareholders" interest in    77          35                             
                                     2 940       2 646                          
Other salient features                                                          
2005        2004                           
                                     R millions  R millions                     
Capital expenditure                  351         277                            
- expansion                          235         157                            
- replacement                        116         120                            
Capital commitments                  97          188                            
- contracted for                     23          25                             
- not contracted for                 74          163                            
Future rentals on property, plant                                               
equipment leased                     235         196                            
- payable within one year            47          43                             
- payable thereafter                 188         153                            
Net contingent liabilities and       292         278                            
Net borrowings                       798         615                            
Gearing (%)                          27          23                             
Current assets to current            1.4         1.6                            
Net asset value per ordinary share   2 587       2 381                          
Depreciation                         212         224                            
AE Pedder CBE* (Chairman), S Engelbrecht (Chief executive), NC Axelson +, CB    
MJ Leeming, F Titi, LC van Vught                                                
*British   +Executive                                                           
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 
Sans Fibres                                                                     
Specialty fibres                                                                
Production, marketing and distribution of specialty nylon and polyester yarn for
local and export markets; production of PET bottle polymer.                     
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 manages the realisation of land and related assets that have become   
surplus to the Group"s requirements.                                            
J.P.Morgan Equities Limited                                                     
Date: 21/02/2006 07:49:53 AM Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                                             

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