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Aeci - Group Interim Financial Results For The Half-year Ended 30 June 2006

Release Date: 25/07/2006 07:00:12      Code(s): AFE
AECI - Group interim financial results for the half-year ended 30 June 2006     
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 2006            
*  Headline earnings per share up 95%                                           
*  Dividend per ordinary share increased to 64 cents                            
*  Revenue up 17%                                                               
*  Return on invested capital (ROIC) higher at 19%                              
Income statement                                                                
                                               2006        2005       2005      
                                         First half  First half       Year      
%         Unaudited   Unaudited    Audited      
                                change   R millions  R millions R millions      
Revenue (2)                     +17           4 666       3 998      8 768      
Profit from operations          +56             580         371        887      
Net financing costs                            (43)        (47)       (90)      
Income from associates and                                                      
investments                                       4           2          5      
                                                541         326        802      
Transitional provision for                                                      
post-employment medical                                                         
aid benefits (3)                                  -        (10)       (20)      
Impairment of goodwill                            -           -       (10)      
Exceptional items                               (2)           3       (27)      
Profit before tax                               539         319        745      
Tax                                           (111)        (94)      (225)      
Net profit                                      428         225        520      
Attributable to preference and                                                  
outside shareholders                           (13)        (16)       (34)      
Net profit attributable to                                                      
ordinary shareholders                           415         209        486      
Headline earnings are derived                                                   
from:                                                                           
Net profit attributable to                                                      
ordinary shareholders                           415         209        486      
Transitional provision for                                                      
post-employment medical                                                         
aid benefits (3)                                  -          10         20      
Impairment of goodwill                            -           -         10      
Exceptional items before tax                                                    
                                                  2         (3)         27      
Tax effects of the above items                    -         (3)       (13)      
Headline earnings                               417         213        530      
Per ordinary share (cents):                                                     
Headline earnings               +95             378         194        482      
Diluted headline earnings (4)                   372         190        473      
Attributable earnings                           376         190        442      
Diluted attributable earnings                                                   
(4)                                             370         186        434      
Dividends declared              +19              64          54        175      
Dividends paid                                  121          94        148      
Ordinary shares (millions) (5)                                                  
- in issue                                      110         110        110      
- weighted average number of                                                    
shares                                          110         110        110      
- diluted weighted average                                                      
number of shares (4)                            112         112        112      
     Notes                                                                      
     (1)  The interim financial results have been prepared in compliance        
with International Financial Reporting Standards. Accounting          
          policies are consistent with those applied in the previous            
          financial year.                                                       
     (2)  Includes foreign sales of R990 million (2005 - R887 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)  Calculated in accordance with IAS33. In 2005, the Company             
          purchased call options over AECI ordinary shares which will           
          obviate the need for the Company to issue new shares in terms of      
          the AECI share option scheme. Therefore, there will be no future      
dilution of earnings from this source.                                
     (5)  Net of 10 311 120 (2005 - 10 311 120) treasury shares held by a       
          subsidiary company.                                                   
Balance sheet                                                                   
at 30 June                                                                      
                                               2006        2005        2005     
                                            30 June     30 June      31 Dec     
                                          Unaudited   Unaudited     Audited     
R millions  R millions  R millions     
Assets                                                                          
Non-current assets                            3 210       2 941       3 056     
Property, plant and equipment                 1 849       1 693       1 723     
Goodwill                                      1 001         887         920     
Investments                                     101          69          91     
Deferred tax assets                             259         292         322     
Current assets                                4 024       3 327       3 559     
Inventory                                     1 497       1 352       1 372     
Accounts receivable                           2 182       1 622       1 778     
Cash and cash equivalents                       345         353         409     
Total assets                                  7 234       6 268       6 615     
Equity and liabilities                                                          
Ordinary capital and reserves                 3 186       2 744       2 857     
Preference capital and outside                                                  
shareholders" interest                                                          
in subsidiaries                                 109          58          83     
Total shareholders" interest                  3 295       2 802       2 940     
Non-current liabilities                       1 064       1 222       1 132     
Deferred tax liabilities                         26          22          31     
Long-term borrowings                            549         689         559     
Long-term provisions                            489         511         542     
Current liabilities                           2 875       2 244       2 543     
Accounts payable                              1 795       1 628       1 777     
Short-term borrowings                         1 046         587         648     
Tax                                              34          29         118     
Total equity and liabilities                  7 234       6 268       6 615     
Industry segment analysis for the half-year ended 30 June                       
Profit                            
                         Revenue          from operations       Assets          
                        2006      2005       2006     2005    2006     2005     
                       Unaudited            Unaudited         Unaudited         
R millions           R millions        R millions        
Mining solutions       1 152     1 089        105      116   1 037      923     
Specialty chemicals    2 082     1 696        210      176   2 219    1 807     
Specialty fibres         786       828       (28)       19     691      700     
Decorative coatings      297       267         13       13     168      135     
Property                 458       226        292       68     786      545     
Group services,                                                                 
intergroup and         (109)     (108)       (12)     (21)   (167)    (184)     
other                                                                           
                       4 666     3 998        580      371   4 734    3 926     
Assets consist of property, plant, equipment and goodwill, inventory,           
accounts receivable less accounts payable. Assets in the property segment       
include land revaluation of R404 million (2005 - R423 million).                 
Cash flow statement                                                             
                                               2006         2005        2005    
                                         First half   First half        Year    
Unaudited    Unaudited     Audited    
                                         R millions   R millions  R millions    
Cash generated by operations                    689          487       1 165    
Dividends received                                3            1           4    
Net financing costs paid                       (51)         (47)        (90)    
Taxes paid                                    (142)         (89)       (129)    
Changes in working capital                    (422)        (299)       (295)    
Expenditure relating to long-term                                               
provisions                                     (59)          (3)        (33)    
Expenditure relating to restructuring                                           
                                                  -          (6)         (9)    
Cash available from operating                                                   
activities                                       18           44         613    
Dividends paid                                (135)        (104)       (167)    
Cash (applied to)/retained from                                                 
operating activities                          (117)         (60)         446    
Cash utilised in investment activities        (354)        (276)       (530)    
Proceeds from disposal of investments                                           
and businesses                                    2           17          27    
Investments                                   (154)        (143)       (218)    
Net capital expenditure                       (202)        (150)       (339)    
Net cash utilised                             (471)        (336)        (84)    
Cash effects of financing activities            388          281         212    
Share options hedge premium paid                  -            -       (120)    
Proceeds from issue of new shares                 -            6           8    
(Decrease)/increase in cash and cash                                            
equivalents                                    (83)         (49)          16    
Cash and cash equivalents at the                                                
beginning of the period                         409          380         380    
Translation gain on cash and cash                                               
equivalents                                      19           22          13    
Cash and cash equivalents at the end of                                         
the period                                      345          353         409    
Statement of changes in equity                                                  
                                               2006         2005        2005    
                                         First half   First half        Year    
Unaudited    Unaudited     Audited    
                                         R millions   R millions  R millions    
Net profit                                      428          225         520    
Dividends paid                                (135)        (104)       (167)    
Revaluation of derivative instruments             -            1           -    
Foreign currency translation                                                    
differences net of                                                              
deferred tax                                     46           26           6    
Ordinary shares issued                            -            6           8    
Changes in the Group                             13            -          12    
Other                                             3            2           -    
Share options hedge premium net of                                              
deferred tax                                      -            -        (85)    
Net increase in equity for the period           355          156         294    
Equity at the beginning of the period         2 940        2 646       2 646    
Equity at the end of the period               3 295        2 802       2 940    
Made up as follows:                                                             
Share capital and share premium                 453          451         453    
Non-distributable reserves                      319          307         276    
Surplus arising on revaluation of                                               
property,                                                                       
plant and equipment                             263          279         268    
Foreign currency translation reserve                                            
net of deferred tax                              49           22           3    
Retained earnings of associates                   1            1           1    
Other                                             6            5           4    
Retained income                               2 414        1 986       2 128    
Preference capital                                6            6           6    
Outside shareholders" interest in                                               
subsidiaries                                    103           52          77    
                                              3 295        2 802       2 940    
Other salient features                                                          
2006         2005        2005    
                                         First half   First half        Year    
                                          Unaudited    Unaudited     Audited    
                                         R millions   R millions  R millions    
Capital expenditure                             210          152         351    
- expansion                                     142          108         235    
- replacement                                    68           44         116    
Capital commitments                             226          171          97    
- contracted for                                 50            6          23    
- not contracted for                            176          165          74    
Future rentals on property, plant                                               
and equipment leased                            236          183         235    
- payable within one year                        46           43          47    
- payable thereafter                            190          140         188    
Contingent liabilities and guarantees           238          283         292    
Net borrowings                                1 250          923         798    
Gearing (%)                                      38           33          27    
Current assets to current liabilities           1.4          1.5         1.4    
Net asset value per ordinary share                                              
(cents)                                       2 885        2 491       2 587    
Depreciation                                    106          113         212    
Commentary                                                                      
Performance                                                                     
Headline earnings for the first half-year were 378 cents per ordinary           
share, 95 per cent higher than in the first half of 2005. An unusually          
large disposal lifted profit from operations in the property segment to         
R292 million from R68 million in the comparable period last year,               
equivalent to an increase in earnings of approximately 180 cents per share.     
An increased dividend of 64 cents per ordinary share has been declared,         
giving a dividend cover of 5.9 times compared with 54 cents per share and       
3.6 times cover in 2005. The dividend declaration is published in full          
elsewhere.                                                                      
Revenues of Group businesses increased by 17 per cent over the same period      
last year. Excluding the effect of acquisitions, revenue increased by 12        
per cent. Demand from the local manufacturing sector improved in the second     
quarter largely due to the weaker rand exchange rate. Gross margins were        
under pressure from increases in oil-based and certain other raw material       
costs which could not be fully recovered in the market. The operating           
margin improved to 12.4 per cent of sales from 9.3 per cent in the same         
period last year and the 12 month return on average invested capital (ROIC)     
for the Group, excluding revaluation of land, was 19 per cent compared to       
16 per cent at June 2005.                                                       
African Explosives" detonator margins continued to be under pressure from       
imports of state-subsidised products from China which precluded any price       
adjustments in the South African market. However, operations elsewhere in       
Africa again delivered pleasing results, whilst the profitable exports of       
ammonium nitrate achieved in 2005 could not be sustained. Commissioning of      
the first phase of automated production of initiating systems at                
Modderfontein is well advanced with production expected in October. The         
second phase, estimated to cost R100 million, is underway with completion       
scheduled for the third quarter of 2007.                                        
DetNet, the 50:50 joint venture with Dyno Nobel, increased international        
sales and broadened international validation of the new generation              
electronic detonator.                                                           
Chemical Services posted an excellent result with profit from operations 19     
per cent higher than in 2005, supported by pleasing performances from the       
seven businesses acquired over the past 18 months. Demand from the local        
manufacturing sector was resilient and is expected to strengthen if the         
recent weaker tendency in the exchange rate is sustained. The acquisition       
of a 60 per cent interest in Resitec in Brazil, at a cost of R43 million,       
was completed with effect from 1 April. Further potential acquisitions in       
that country are being evaluated.                                               
The recovery programme at SANS Fibres was set back severely in the first        
quarter by two unexpected and extended power outages which impacted             
operations for weeks thereafter. An insurance claim covered only part of        
the overall cost. In addition, output of polyester polymer and PET was          
restricted for a period following a scheduled maintenance shutdown of the       
plants in March. Trading performance improved in the latter part of the         
period, assisted by the weaker exchange rate, and international demand for      
the company"s specialty fibres remains strong. Plant operating performance      
remains the key focus of the recovery programme. The joint venture              
operations in Stoneville, North Carolina further improved profitability in      
the period.                                                                     
At Dulux, higher sales volumes of its premium branded products in South         
Africa offset the effect of higher raw material costs on margins. Profits       
from its other African operations were higher than in 2005.                     
Realisation of property surplus to operating requirements substantially         
exceeded expectation with the sale by AECI Limited of the 61 hectare            
Milnerton site for R260 million. In addition, the property activities of        
Heartland recorded profit from operations of R38 million after recognising      
R37 million of remediation costs as an expense. The cash spend on               
remediation activities amounted to R90 million in the period.                   
Financial                                                                       
Capital expenditure of R210 million, incurred mainly on expansion projects      
in African Explosives and Chemical Services, was almost double the              
depreciation charge for the period. In addition, Chemical Services invested     
R145 million in several acquisitions during the half-year. Group working        
capital was inflated by the Milnerton property sale in June. Excluding this     
receivable, working capital increased to R1 624 million and 18 per cent of      
sales from 17 per cent of sales in June 2005.                                   
The Group"s net borrowings of R1 250 million were R327 million higher than      
at June 2005. Cash interest cover at 13 times was substantially higher than     
the 10 times achieved in the first half of 2005. Gearing increased to 38        
per cent of shareholders" funds from 33 per cent at June 2005 (27 per cent      
at December 2005).                                                              
At the Annual General Meeting of the Company held on 23 May, shareholders       
authorised a general repurchase of up to 5 per cent of the ordinary shares      
in the Company. No repurchases were undertaken in the period.                   
Post balance sheet event                                                        
On 19 July the Trustees of the AECI Pension Fund resolved to establish a        
general reserve account of R750 million within the Fund, and to effect          
transfers on a regular basis from that reserve to an employer surplus           
account, on condition that the Company undertakes at least to maintain for      
10 years the present rate of contribution to the Fund in respect of             
employee members. The employer surplus account would be utilised primarily      
to fund an allowance to each pensioner older than 65 equivalent to the          
portion of the medical aid contribution paid by the Company on behalf of        
the pensioner. The Board resolved today to give this undertaking. The           
effect of the arrangement will be to reduce in future years the amount of       
medical aid contributions paid by the Company on behalf of retired              
employees, and hence the value of the provision for post-employment medical     
aid benefits in the balance sheet. The quantum of the reduction in the          
provision has not been finalised by the independent actuary. No adjustment      
to the provision was made at 30 June.                                           
Portfolio                                                                       
As previously announced, Chemical Services acquired Leochem, a producer of      
personal care intermediates, with effect from March 2006 and Resitec, a         
producer of oleo-chemicals in Brazil, with effect from April 2006. Both         
companies have performed in line with expectation since acquisition.            
Outlook                                                                         
Global growth appears robust despite heightened geo-political uncertainty       
in the Middle East and an upward tendency in interest rates. Maintaining        
and improving margins through timeous response to volatile raw material         
prices and exchange rates represents the major challenge for the Group in       
the second half of the year.                                                    
The contribution from property activities is likely to be substantially         
lower in the second half than in 2005 as the stock of land immediately          
available for sale is currently limited. However, earnings may be boosted       
by the release of part of the provision for post-employment medical aid         
benefits following the agreement with the AECI Pension Fund. Excluding this     
release, management is targeting a second half result similar to that of        
2005.                                                                           
Alan Pedder CBE                    Schalk Engelbrecht                           
Chairman                           Chief executive                              
Sandton                                                                         
24 July 2006                                                                    
Notice to shareholders                                                          
Interim ordinary dividend no. 145                                               
NOTICE IS HEREBY GIVEN that on Monday, 24 July 2006 the directors of AECI       
Limited declared an interim ordinary dividend of 64 cents per share, in         
respect of the financial year ending 31 December 2006, payable on Monday,       
18 September 2006 to ordinary shareholders recorded in the books of the         
Company at the close of business on Friday, 15 September 2006.                  
The last day to trade cum dividend will be Friday, 8 September 2006 and         
shares will commence trading ex dividend as from Monday, 11 September 2006.     
Any change of address or dividend instruction must be received on or before     
Friday, 8 September 2006.                                                       
Share certificates may not be dematerialised or rematerialised from Monday,     
11 September 2006 to Friday, 15 September 2006, both days inclusive.            
This announcement will be mailed to all recorded shareholders on or about       
Tuesday, 25 July 2006.                                                          
By order of the Board                                                           
E A Rea                                                                         
Acting secretary                                                                
Sandton                                                                         
24 July 2006                                                                    
Directorate                                                                     
AE Pedder CBE* (Chairman), S Engelbrecht (Chief executive), NC Axelson+, CB     
Brayshaw, MJ Leeming, LM Nyhonyha, F Titi, LC van Vught                         
*British   +Executive                                                           
www.aeci.co.za                                                                  
Specialty product and service solutions                                         
Mining solutions                                                                
Development, manufacture and supply of value-adding services, initiating        
systems and explosives to the mining, quarrying, and allied industries.         
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.                                                         
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.                                        
Property                                                                        
Heartland manages the realisation of land and related assets that have          
become surplus to the Group"s requirements.                                     
Sponsor: J.P.Morgan Equities Limited                                            
Date: 25/07/2006 07:00:21 AM Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                                             
                                                                                
                                                                                
                                                                                



                                        
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