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Afe - Aeci Limited - Group Audited Financial Results For The Year Ended

Release Date: 20/02/2007 07:30:10      Code(s): AFE
AFE - AECI Limited - Group audited financial results for the year ended         
              31 December 2006 and dividend declaration                         
AECI LIMITED                                                                    
("AECI" or "the Company")                                                       
(Incorporated in the Republic of South Africa)                                  
Registration No. 1924/002590/06                                                 
Share code:  AFE                                                                
ISIN code:  ZAE000000220                                                        
AECI                                                                            
SPECIALTY PRODUCT AND SERVICE SOLUTIONS                                         
Group audited financial results for the year ended 31 December 2006             
-    Revenue exceeds R10 billion                                                
-    Profit from operations over R1 billion                                     
-    Headline earnings per share up 77%                                         
-    Return on invested capital (ROIC) higher at 19%                            
Commentary                                                                      
Performance                                                                     
Headline earnings of 853 cents per ordinary share were 77 per cent higher       
than in 2005. This included a non-recurring boost of 210 cents per share as     
a consequence of the previously announced agreement with the AECI Pension       
Fund which became effective in October. Without this once-off effect,           
headline earnings were 643 cents per share, an increase of 33 per cent on       
last year. An increased final dividend of 141 cents per ordinary share has      
been declared compared to 121 cents in 2005 to bring the total dividends for    
the year to 205 cents from 175 cents.                                           
Group revenue increased by 16 per cent in 2006, of which some 5 per cent was    
attributable to acquisitions by Chemical Services (Chemserve). Demand from      
the local mining and manufacturing sectors continued to improve in the          
second half in response to strong export markets and a somewhat weaker rand     
exchange rate. Gross margins were under pressure for much of the year           
because of increased oil-based and other raw material costs with some relief    
evident only in the last quarter. The operating margin improved to 10.8 per     
cent of sales from 10.1 per cent in 2005 and the return on invested capital     
(ROIC) for the Group, excluding revaluation of land, was 19 per cent            
compared to 18 per cent in 2005.                                                
African Explosives (AEL) recorded a steady performance despite intense          
competition from local and Chinese-sourced shocktube initiators in the South    
African narrow reef market. All other sectors delivered improved results        
with significant volume increases in open cast mines in South Africa and in     
other African markets. The first phase of automated production of initiating    
systems at Modderfontein was commissioned successfully in the last quarter      
of 2006.                                                                        
DetNet, the electronic initiating systems 50:50 joint venture with Dyno         
Nobel Limited, made disappointing progress. Management and marketing            
arrangements have been restructured to enhance the pace of customer             
conversion to electronic detonation, and an improved performance is expected    
in 2007.                                                                        
Chemserve posted an excellent result with operating profit 22 per cent up on    
2005, supported by a strong recovery in the local mining and manufacturing      
industries and continued growth in consumer-driven sectors. Substantial         
investments are being made to expand capacity in the high growth areas.         
Operating margins were largely maintained despite high and volatile prices      
of oil-based raw materials. Businesses acquired over the past two years have    
been integrated successfully into the Chemserve service model and accounted     
for around half of the growth in sales and profit for the year.                 
SANS Fibres (SANS) incurred a small loss in the year, a consequence of          
several adverse factors in the first eight months. Production and quality       
performance were severely disrupted by the impact of power outages in the       
Western Cape, two incidents of force majeure by the major supplier of nylon     
polymer and a carbon dioxide shortage which reduced local peak season PET       
demand. A substantial improvement in operations was sustained from August       
and the quality and productivity improvement programmes appear to be back on    
track. International demand for SANS`s key light industrial yarns remained      
strong. Early in 2007, Unifi Inc, the partner in the US-based joint venture     
gave notice of its intention to exercise its put option against SANS as         
provided for in the initial shareholders` agreement, and to exit the            
business in the first quarter of 2008. The opportunity will be taken to seek    
a strategic alliance with a partner which could add value to SANS`s business    
as a whole.                                                                     
Dulux extended its impressive performance trend with volume growth of 10 per    
cent and a 19 per cent increase in operating profit. Demand from the DIY        
market and the professional painting sector was particularly strong in the      
last quarter. The operating margin was maintained despite a marked              
escalation in raw material costs. Profits from African operations were lower    
due to currency effects and unfavourable market conditions.                     
The property activities managed by Heartland delivered outstanding results      
with operating profit at a record R314 million net of R66 million of            
remediation costs. Net cash flow totalled R296 million after expenditure of     
R134 million on remediation. Sales of 160 hectares of land for residential,     
commercial and light industrial use were recorded at Modderfontein,             
Milnerton and Somerset West. In December an agreement regarding Gautrain was    
concluded with the Province of Gauteng. This provides for appropriate           
connectivity between the various parts of Modderfontein and recognises the      
desirability of a station on the property at some future date.                  
Financial                                                                       
The agreement with the AECI Pension Fund released R131 million from the         
existing post-employment medical aid provision and required the R196 million    
balance in the Employer Surplus Account in the Pension Fund at year-end to      
be recognised as an asset by AECI. Collectively this boosted operating          
profit by R327 million. Restructuring costs charged against profits totalled    
R5 million in 2006 compared to R23 million in 2005.                             
Expansion projects in AEL and Chemserve were the main components of net         
capital expenditure of R416 million which was R193 million higher than the      
Group depreciation charge. In addition, Chemserve invested R155 million and     
Dulux R20 million in the acquisition of new businesses. Group working           
capital increased to R1 745 million at year-end, which represents 17.1 per      
cent of annual sales from 15.7 per cent last year, and is a target for          
improvement in 2007.                                                            
The Group`s net borrowings of R940 million were R142 million higher than at     
December 2005. Cash interest cover improved to 13 times and gearing reduced     
to 25 per cent of shareholder funds from 27 per cent at December 2005. No       
repurchases of ordinary shares were undertaken during the year.                 
Portfolio                                                                       
In addition to the previously announced acquisitions of Leochem, a producer     
of personal care intermediates, and Resitec, a producer of oleo-chemicals in    
Brazil, Chemserve also acquired four small local businesses during the year.    
Dulux acquired Sent Packing, a supplier of specialist exterior coatings,        
with effect from July 2006. All these businesses have met or exceeded           
expectation since acquisition.                                                  
In line with the Group`s strategy of growing its presence in the provision      
of specialist services to the global mining industry, the Board in November     
approved a R230 million project with potentially attractive returns in the      
mining chemicals segment of the Chemserve portfolio, and has this month         
approved in principle a second such project at a cost of R380 million.          
Already approved expenditure of R180 million on AEL`s detonator automation      
programme is likely to be followed soon by a third and concluding phase at a    
cost of some R250 million. This R1 billion investment programme would           
clearly increase the prominence of specialist mining-related services as a      
major core business of the Group over the next few years.                       
Outlook                                                                         
The favourable international environment of increasing industrial production    
and firm commodity prices should support the local mining and manufacturing     
sectors and underpin steady and more balanced growth in South African GDP.      
Provided the rand exchange rate does not strengthen materially from recent      
levels, the Group`s operating businesses are well positioned to post further    
aggregate gains under these conditions.                                         
In the property segment, however, limited availability of land ready for        
release and sale during 2007 is likely to result in profit after tax from       
property activities being substantially below the record level of 2006.         
Hence management does not expect headline earnings per share in 2007 to         
exceed the 643 cents per ordinary share which were achieved in 2006             
excluding the non-recurring effect of the agreement entered into with the       
Pension Fund.                                                                   
Alan Pedder CBE                    Schalk Engelbrecht                           
Chairman                           Chief executive                              
Sandton                                                                         
19 February 2007                                                                
Income statement                                                                
                                 %            2006       2005                   
change       R millions R millions             
Revenue(2)                        +16          10 212     8 768                 
Profit from operations            +24          1 102      887                   
Creation of pension fund employer                                               
surplus account                                196        -                     
Release of provision for post-                                                  
employment medical aid benefits                131        -                     
                                              1 429      887                    
Net financing costs                            (103)      (90)                  
Income from associates and                                                      
investments                                    7          5                     
                                              1 333      802                    
Transitional provision for post-                                                
employment medical aid benefits                -          (20)                  
Impairment of goodwill                         (6)        (10)                  
Exceptional items                              (21)       (27)                  
Profit before tax                              1 306      745                   
Tax                                            (353)      (225)                 
Net profit                                     953        520                   
Attributable to preference and                                                  
minority shareholders                          (37)       (34)                  
Profit attributable to ordinary                                                 
shareholders                                   916        486                   
Headline earnings are derived                                                   
from:                                                                           
Profit attributable to ordinary                                                 
shareholders                                   916        486                   
Transitional provision for post-                                                
employment medical aid benefits                -          20                    
Impairment of goodwill                         6          10                    
Exceptional items before tax                   21         27                    
Tax effects of the above items                 (1)        (13)                  
Headline earnings                              942        530                   
Per ordinary share (cents):                                                     
Headline earnings                 +77          853        482                   
Diluted headline earnings(3)                   842        473                   
Attributable earnings                          829        442                   
Diluted attributable earnings(3)               819        434                   
Dividends declared                +17          205        175                   
Dividends paid                                 185        148                   
Ordinary shares (millions)(4)                                                   
- in issue                                     110        110                   
- weighted average number of                   110        110                   
shares                                                                          
- diluted weighted average number                                               
of shares(3)                                   112        112                   
Notes                                                                           
(1) Accounting policies are in accordance with International Financial          
Reporting Standards and are consistent with those applied in the previous       
financial year.                                                                 
(2) Includes foreign sales of R2 302 million (2005 - R1 817 million).           
(3) Calculated in accordance with IAS33. 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.       
(4) Net of 10 311 120 (2005 - 10 311 120) treasury shares held by a             
subsidiary company.                                                             
(5) The auditors KPMG Inc, have issued their opinion on the Group annual        
financial statements for the year ended 31 December 2006. A copy of the         
auditors` unqualified report is available for inspection at the Company`s       
registered office.                                                              
Balance sheet                                                                   
at 31 December                                                                  
                                          2006          2005                    
R millions    R millions              
Assets                                                                          
Non-current assets                         3 445         3 056                  
Property, plant and equipment              1 965         1 723                  
Goodwill                                   1 019         920                    
Pension fund surplus                       196           -                      
Investments                                119           91                     
Deferred tax assets                        146           322                    
Current assets                             4 350         3 559                  
Inventory                                  1 733         1 372                  
Accounts receivable                        2 242         1 778                  
Cash and cash equivalents                  375           409                    
Total assets                               7 795         6 615                  
Equity and liabilities                                                          
Ordinary capital and reserves              3 595         2 857                  
Preference capital and minority                                                 
shareholders`                                                                   
interest in subsidiaries                   132           83                     
Total shareholders` interest               3 727         2 940                  
Non-current liabilities                    942           1 132                  
Deferred tax liabilities                   35            31                     
Non-current borrowings                     518           559                    
Non-current provisions                     389           542                    
Current liabilities                        3 126         2 543                  
Accounts payable                           2 230         1 777                  
Current borrowings                         797           648                    
Tax payable                                99            118                    
Total equity and liabilities               7 795         6 615                  
Industry segment analysis                                                       
               Revenue              Profit from        Assets                   
                                    operations                                  
               2006      2005       2006        2005   2006   2005              
R millions           R millions         R millions               
Mining                                                                          
solutions       2 492     2 314      261         257    1 019  963              
Specialty                                                                       
chemicals       4 729     3 826      501         412    2 392  1 931            
Specialty                                                                       
fibres          1 780     1 619      (6)         32     835    713              
Decorative                                                                      
coatings        774       648        70          59     200    126              
Property        644       607        314         185    449    500              
Group services,                                                                 
intergroup and                                                                  
other            (207)    (246)      (38)        (58)   (166)  (217)            
               10 212    8 768      1 102       887    4 729  4 016             
Net assets consist of property, plant, equipment and goodwill, inventory,       
accounts receivable less accounts payable. Assets in the property segment       
include land revaluation of R405 million (2005 - R412 million).                 
Cash flow statement                                                             
                                              2006       2005                   
                                              R millions R millions             
Cash generated by operations                   1 385      1 165                 
Dividends received                             7          4                     
Net financing costs                            (114)      (90)                  
Taxes paid                                     (202)      (129)                 
Changes in working capital                     (265)      (295)                 
Expenditure relating to non-current                                             
provisions                                     (130)      (33)                  
Expenditure relating to restructuring          (13)       (9)                   
Cash available from operating activities       668        613                   
Dividends paid                                 (206)      (167)                 
Cash retained from operating activities        462        446                   
Cash utilised in investment activities         (612)      (530)                 
Proceeds from disposal of investments and                                       
businesses                                     3          27                    
Investments                                    (199)      (218)                 
Net capital expenditure                        (416)      (339)                 
Net cash utilised                              (150)      (84)                  
Cash effects of financing activities           99         212                   
Share options hedge premium paid               -          (120)                 
Proceeds from issue of new shares              -          8                     
(Decrease)/increase in cash and cash                                            
equivalents                                    (51)       16                    
Cash and cash equivalents at the beginning of                                   
the year                                       409        380                   
Translation gain on cash and cash equivalents  17         13                    
Cash and cash equivalents at the end of the                                     
year                                           375        409                   
Statement of changes in equity                                                  
2006        2005                    
                                            R millions  R millions              
Profit for the year                          953         520                    
Dividends paid                               (206)       (167)                  
Revaluation of derivative instruments        6           -                      
Foreign currency translation differences                                        
net of deferred tax                          17          6                      
Ordinary shares issued                       -           8                      
Changes in the Group                         14          12                     
Share options hedge premium net of deferred                                     
tax                                          -           (85)                   
Other                                        3           -                      
Net increase in equity for the year          787         294                    
Equity at the beginning of the year          2 940       2 646                  
Equity at the end of the year                3 727       2 940                  
Made up as follows:                                                             
Issued ordinary capital                      453         453                    
Non-distributable reserves                   295         276                    
Surplus arising on revaluation of property,                                     
plant and equipment                          261         268                    
Foreign currency translation reserve net of                                     
deferred tax                                 20          3                      
Retained earnings of associates              1           1                      
Other                                        13          4                      
Retained income                              2 847       2 128                  
Preference capital                           6           6                      
Minority interest                            126         77                     
                                            3 727       2 940                   
Other salient features                                                          
                                            2006        2005                    
                                            R millions  R millions              
Capital expenditure - property, plant and                                       
equipment                                    433         351                    
- expansion                                  239         235                    
- replacement                                194         116                    
Capital commitments                          650         97                     
- contracted for                             91          23                     
- not contracted for                         559         74                     
Future rentals on property, plant and                                           
equipment leased                             290         235                    
- payable within one year                    65          47                     
- payable thereafter                         225         188                    
Net contingent liabilities and guarantees    121         281                    
Net borrowings                               940         798                    
Gearing (%)                                  25          27                     
Current assets to current liabilities        1.4         1.4                    
Net asset value per ordinary share (cents)   3 255       2 587                  
Depreciation                                 223         212                    
Notice to shareholders                                                          
Final ordinary dividend no. 146                                                 
Notice is hereby given that on Monday, 19 February 2007 the directors of        
AECI Limited declared a final dividend of 141 cents per share, in respect of    
the financial year ending 31 December 2006, payable on Monday, 23 April 2007    
to ordinary shareholders recorded in the books of the Company at the close      
of business on Friday, 20 April 2007.                                           
The last day to trade cum dividend will be Friday, 13 April 2007 and shares     
will commence trading ex dividend as from Monday, 16 April 2007.                
Any change of address or dividend instruction must be received on or before     
Friday, 13 April 2007.                                                          
Share certificates may not be dematerialised or rematerialised from Monday,     
16 April 2007 to Friday, 20 April 2007, both days inclusive.                    
This announcement will be mailed to all recorded shareholders on or about       
Tuesday, 20 February 2007.                                                      
By order of the Board                                                           
E A Rea                                                                         
Acting secretary                                                                
Directorate                                                                     
AE Pedder CBE* (Chairman), S Engelbrecht (Chief executive), NC Axelson#, FPP    
Baker#, CB Brayshaw, RMW Dunne*, GN Edwards#, MJ Leeming, LM Nyhonyha, 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 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.                                     
20 February 2007                                                                
Sponsor:  J.P.Morgan Equities Limited                                           
Date: 20/02/2007 07:30:09 Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                             .                  



                                        
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