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Afe - Aeci Limited - Unaudited Group Interim Financial Results For The Half-year

Release Date: 29/07/2008 07:05:05      Code(s): AFE
AFE - AECI Limited - Unaudited group interim financial results for the half-year
Ended 30 June 2008                                                              
AECI LIMITED                                                                    
(Incorporated in the Republic of South Africa)                                  
(Registration number 1924/002590/06)                                            
Share code: AFE     ISIN No: ZAE000000220                                       
("AECI" or "the Company")                                                       
UNAUDITED GROUP INTERIM FINANCIAL RESULTS FOR THE HALF-YEAR                     
ENDED 30 JUNE 2008                                                              
- Headline earnings per share up 35% to 325 cents                               
- Group revenue +43%                                                            
- Interim dividend per ordinary share increased to 90 cents                     
- Capital projects on track                                                     
INCOME STATEMENT                                                                
                                2008          2007         2007                 
First half    First half   Year                 
                       %        Unaudited     Unaudited    Audited              
                       change   R millions    R millions   R millions           
Continuing operations                                                           
Revenue(2)              +43       5 659         3 964        8 521              
Net operating costs               5 132         3 595        7 764              
Profit from operations  +43       527           369          757                
Net income from                                                                 
pension fund employer                                                           
surplus account                   6             24           30                 
Net income from plan              (3)           36           36                 
assets for post-                                                                
employment medical aid                                                          
liabilities                                                                     
                                 530           429          823                 
Fair value adjustments            3             4            5                  
on derivative                                                                   
instruments                                                                     
Interest paid (net of             (104)         (88)         (159)              
interest                                                                        
capitalised)(3)                                                                 
Interest received                 19            21           28                 
Income from associates            8             5            12                 
and investments                                                                 
456           371          709                 
Impairment of goodwill            (1)           (2)          (20)               
Restucturing costs,               (6)           3            2                  
disposals and other                                                             
impairments                                                                     
Profit before tax                 449           372          691                
Tax                               (146)         (119)        (218)              
Net profit from                   303           253          473                
continuing operations                                                           
Net profit from                   35            11           (6)                
discontinued                                                                    
operations                                                                      
Profit before tax                 40            27           46                 
Closure costs                     -            -             (117)              
Impairments and                   5             (9)          64                 
disposals                                                                       
Tax                               (10)          (7)          1                  
                                                                                
Net profit                        338           264          467                
Attributable to                   12            (3)          (12)               
preference and                                                                  
minority shareholders                                                           
Profit attributable to            350           261          455                
ordinary shareholders                                                           
Headline earnings are                                                           
derived from:                                                                   
Net profit                        350           261          455                
attributable to                                                                 
ordinary shareholders                                                           
Impairment of goodwill            1             2            20                 
Other impairments and             1             6            (66)               
disposals before tax                                                            
Tax effects of the                -             (2)          (17)               
above items                                                                     
Headline earnings                 352           267          392                
Per ordinary share                                                              
(cents):                                                                        
Headline earnings       +35       325           242          355                
Diluted headline                  323           239          352                
earnings(4)                                                                     
Attributable earnings             324           236          412                
Diluted attributable              321           234          408                
earnings(4)                                                                     
Continuing earnings               291           226          417                
Diluted continuing                289           224          414                
earnings(4)                                                                     
Dividends declared      +25       90            72           213                
Dividends paid                    141           141          213                
Ordinary shares                                                                 
(millions)(5)                                                                   
- in issue                        107           110          110                
- weighted average                108           110          110                
number of shares                                                                
- diluted weighted                109           112          111                
average number of                                                               
shares                                                                          
BALANCE SHEET                                                                   
at 30 June                                                                      
                                2008          2007         2007                 
                                30 June       30 June      31 December          
Unaudited     Unaudited    Audited              
                                R millions    R millions   R millions           
Assets                                                                          
Non-current assets                3 847         3 619        3 557              
Property, plant and equipment     1 871         1 721        1 567              
Investment property               410           412          411                
Goodwill                          978           1 015        986                
Pension fund surplus              232           220          226                
Investments                       134           132          124                
Deferred tax                      222           119          243                
Current assets                    6 237         4 471        4 699              
Inventory                         2 276         1 938        1 580              
Accounts receivable               2 668         2 139        2 024              
Assets classified as held for     772          -             667                
sale                                                                            
Cash and cash equivalents         521           394          428                

Total assets                      10 084        8 090        8 256              
Equity and liabilities                                                          
Ordinary capital and reserves     3 859         3 698        3 788              
Preference capital and minority                                                 
interest                                                                        
in subsidiaries                   135           134          141                
Total shareholders` interest      3 994         3 832        3 929              
Non-current liabilities           1 037         905          954                
Deferred tax                      73            32           78                 
Non-current borrowings            557           526          502                
Non-current provisions            407           347          374                
Current liabilities               5 053         3 353        3 373              
Accounts payable                  2 924         2 196        2 021              
Current borrowings                1 639         1 060        927                
Liabilities classified as held    325          -             250                
for sale                                                                        
Tax payable                       165           97           175                
Total equity and liabilities      10 084       8 090         8 256              
INDUSTRY SEGMENT ANALYSIS                                                       
for the half-year ended 30 June                                                 
                   Revenue            Profit from        Net assets             
                                      operations                                
               2008       2007        2008        2007   2008   2007            
Unaudited              Unaudited          Unaudited              
                   R millions             R millions         R millions         
                                                                                
Continuing                                                                      
operations                                                                      
Mining           1 655      1 294       92          86     1      1 223         
solutions                                                 693                   
Specialty        3 863      2 581       386         256    3      2 567         
chemicals                                                 141                   
Property        292         212         88          41     525    409           
Group                                                                           
services,                                                                       
intergroup                                                                      
and other       (151)       (123)       (39)        (14)   (75)   (116)         
               5 659       3 964       527         369    5      4 083          
                                                         284                    
Discontinued    858         1 446       41          29     413    946           
operations                                                                      
Decorative      -           369        -            17    -       219           
coatings                                                                        
Specialty       -           15         -            (3)   -      -              
chemicals                                                                       
Specialty       858         1 062       41          15     413    727           
fibres                                                                          

               6 517       5 410       568         398    5      5 029          
                                                         697                    
Net assets consist of property, plant, equipment, investment property and       
goodwill, inventory, accounts receivable less accounts payable.                 
The net assets of the specialty fibres segment in 2008 are assets, and directly 
related liabilities, classified as held for sale.                               
CASH FLOW STATEMENT                                                             
2008         2007         2007               
                                   First half   First half   Year               
                                   Unaudited    Unaudited    Audited            
                                   R millions   R millions   R millions         
Cash generated by operations         715          536          1 122            
Dividends received                   7            4            12               
Financing costs                      (117)        (91)         (173)            
Interest received                    20           22           30               
Taxes paid                           (151)        (107)        (196)            
Changes in working capital           (282)        (166)        (601)            
Expenditure relating to non-         (26)         (31)         (67)             
current provisions                                                              
Expenditure relating to              (102)        (12)         (1)              
restructuring                                                                   
Cash available from operating        64           155          126              
activities                                                                      
Dividends paid                       (152)        (156)        (237)            
Cash flows from operating            (88)         (1)          (111)            
activities                                                                      
Cash flows from investing            (372)        (255)        74               
activities                                                                      
Proceeds from disposal of           -             5            17               
investments and businesses                                                      
Proceeds from disposal of           -             22           761              
discontinued operations                                                         
Investments                          (1)          (7)          (59)             
Net capital expenditure              (371)        (275)        (645)            
Expenditure on repurchasing own      (237)       -            -                 
shares                                                                          
Net cash utilised                    (697)        (256)        (37)             
Cash flows from financing            767          271          108              
activities                                                                      
Increase/(decrease) in cash and      70           15           71               
cash equivalents                                                                
Cash and cash equivalents at the     428          375          375              
beginning of the period                                                         
Translation gain/(loss) on cash      39           4            (5)              
and cash equivalents                                                            
Classified as held for sale          (16)        -             (13)             
Cash and cash equivalents at the     521          394          428              
end of the period                                                               
STATEMENT OF CHANGES IN EQUITY                                                  
                                2008          2007          2007                
                                First half    First half    Year                
Unaudited     Unaudited     Audited             
                                R millions    R millions    R millions          
Profit for the period             338           264           467               
Dividends paid                    (152)         (156)         (237)             
Revaluation of derivative         19            (3)           (1)               
instruments                                                                     
Foreign currency translation      96            4             (8)               
differences net of deferred tax                                                 
Changes in the Group             -             -              (17)              
Other                             1             (4)           (2)               
Net increase in equity for the    302           105           202               
period before share repurchase                                                  
Repurchase of own shares          (237)        -              -                 
Equity at the beginning of the    3 929         3 727         3 727             
period                                                                          
Equity at the end of the period   3 994         3 832         3 929             
Made up as follows:                                                             
Issued ordinary capital           216           453           453               
Non-distributable reserves        374           289           271               
Surplus arising on revaluation                                                  
of property, plant                                                              
and equipment                     236           257           243               
Foreign currency translation      89            24            17                
reserve net of deferred tax                                                     
Retained earnings of associates   1             1             1                 
Derivative revaluation reserve    19            -             -                 
Other                             29            7             10                
Retained income                   3 269         2 956         3 064             
Preference capital                6             6             6                 
Minority interest                 129           128           135               
                                 3 994         3 832         3 929              
OTHER SALIENT FEATURES                                                          
2008          2007          2007                
                                First half    First half    Year                
                                Unaudited     Unaudited     Audited             
                                R millions    R millions    R millions          
Capital expenditure - property,   395           282           688               
plant and equipment                                                             
- expansion                       260           170           381               
- replacement                     135           112           307               
Capital commitments               1 379         1 264         1 251             
- contracted for                  887           17            340               
- not contracted for              492           1 247         911               
Future rentals on property,       211           298           253               
plant and equipment leased                                                      
- payable within one year         36            64            77                
- payable thereafter              175           234           176               
Net contingent liabilities and    141           117           140               
guarantees                                                                      
Net borrowings                    1 675         1 192         1 001             
Gearing (%)                       42            31            25                
Current assets to current         1,2           1,3           1,4               
liabilities                                                                     
Net asset value per ordinary      3 608         3 349         3 430             
share (cents)                                                                   
Depreciation - continuing         100           79            164               
operations                                                                      
- discontinued operations        -              35            69                
NOTES                                                                           
(1) Basis of preparation                                                        
The Group interim financial results have been prepared in accordance with the   
historic cost convention except for certain financial instruments, which have   
been stated at fair value.                                                      
Accounting policies have been applied consistently by all entities in the Group 
and are consistent with those applied in the previous financial year.           
The Group interim financial results and accounting policies comply with the     
listings requirements of the JSE Limited, International Financial Reporting     
Standards, the disclosure requirements of IAS 34 - Interim Financial Reporting  
and the South African Companies Act, 1973, as amended.                          
(2) Includes foreign sales of R1 223 million (2007: R725 million).              
(3) Interest capitalised in the period amounted to R11 million                  
(2007: nil).                                                                    
(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.                                                             
(5) Net of treasury shares held by a subsidiary company.                        
(6) 2007 half-year headline earnings included retrenchment costs paid. In       
September 2007 SAICA issued Circular 9/2008 which outlined remeasurements to be 
excluded from headline earnings. As a result, headline earnings for the year    
ended 31 December 2007 were not adjusted for the retrenchment costs. Therefore, 
the half-year 2007 mining solutions trading profit and Group headline earnings  
decreased by R11 million before tax while attributable earnings are unchanged.  
(7) Disposal groups and discontinued operations                                 
Dulux and SANS Fibres have been classified as discontinued operations and the   
comparative figures adjusted accordingly. Dulux was disposed of in 2007. SANS   
Fibres` assets and liabilities were classified as held for sale in December 2007
and property, plant and equipment has not been depreciated in 2008.             
(8) The preparation of the financial statements requires management to make     
judgements, estimates and assumptions that affect the application of policies   
and reported amounts of assets and liabilities, income and expenses. The        
estimates and associated assumptions are based on historical experience and     
various other factors that are believed to be reasonable under the              
circumstances, the results of which form the basis of making the judgements     
about carrying values of assets and liabilities that are not readily apparent   
from other sources. Actual results may differ from these estimates.             
COMMENTARY                                                                      
PERFORMANCE                                                                     
Headline earnings per ordinary share were 325 cents, 35% higher than in the     
first six months of 2007. All of the Group`s businesses delivered improved      
results, with Chemical Services Limited (Chemserve) being the largest           
contributor and recording an outstanding 53% increase in trading profit.        
An interim dividend of 90 cents per ordinary share has been declared, compared  
with 72 cents per share in 2007.                                                
Group revenue increased by 43%, reflecting pleasing growth in the specialty     
chemicals and mining solutions sectors. The Group`s margins have been under     
pressure over the last two years and high oil prices again impacted on oil-based
raw material costs in the period. However, major efforts were made to avoid     
margins decreasing further. As a result of these efforts and tight cost control,
Group operating margin remained at 9,3%, the same level as the first half of    
2007.                                                                           
AEL                                                                             
African Explosives Limited (AEL) performed to expectations in the first six     
months of 2008. Sales increased by more than 25%, buoyed by growth in the South 
African Surface and Massive division as well as in AEL`s African businesses.    
Operating margins remained under pressure at 5,5%.                              
The performance of the South African Narrow Reef business mirrored the          
difficulties, in volume terms, experienced by the gold and platinum sectors. The
international business made satisfactory progress at the new assembly plant in  
South East Asia and, in addition, in setting up distribution partnerships in    
other regions.                                                                  
Capital projects supporting growth and cost reduction initiatives progressed as 
expected, despite material cost escalation pressures. The initiating systems    
automation project made steady progress on delay powder capacity, shocktubing   
lines, delay detonators and the first two automated assembly machines. A routine
project assessment was done and the strategic and financial case remains sound. 
CHEMSERVE                                                                       
Chemserve`s performance exceeded expectations. Profit from operations was 53%   
higher than in the first half of 2007 with increased contributions from most    
businesses, but especially from those supplying the mining and agricultural     
sectors. Operating margins increased slightly to 10% (2007: 9,7%) due to fixed  
cost control and diligent attention to pricing in an environment of substantial 
and frequent price increases, not only in oil-derived products, transport and   
energy, but also in many commodity products. Supply shortages occurred during   
the half-year but these were managed. Electricity outages in the first quarter  
negatively impacted profits, as customers` and Chemserve`s volumes and          
operational efficiencies were affected.                                         
Overall, the capital expenditure programme approved in 2007 is progressing well,
although some timing delays have been experienced. These are attributable to    
design completion, and construction and fabrication resource shortages in South 
Africa. A further R325 million of capital expenditure has been approved in 2008,
R200 million of which relates to scope changes and increased costs in current   
projects. A review of Chemserve`s major investments in mining, sulphonation and 
oleo-chemicals (Brazil) has shown returns to be maintained under current        
conditions. The acquisition of Chemfit, a small diverse chemical company, was   
approved by the competition authorities and took effect from 1 July 2008.       
HEARTLAND                                                                       
The property activities, managed by Heartland, recorded a trading profit of R88 
million net of R37 million of remediation costs. The latter include an          
additional provision of R30 million in respect of further clean-up at Somerset  
West. The availability of land ready for release and sale, as well as the       
unfavourable conditions now prevailing in the market, are likely to result in   
modest activity in the second half-year. Heartland is continuing to invest in   
infrastructure that will enhance the value of its assets in the years ahead. A  
total of R350 million has been earmarked for this over the next 24 months.      
The investment property is carried at R410 million in the balance sheet. The    
Valuation Division of Old Mutual Investment Group Property Investments has      
completed a full review of Heartland`s development plans and has compiled an    
independent valuation of R2,5 billion as at 1 July 2008 for the AECI-owned      
property portfolio located in Modderfontein and Somerset West. The value        
reported was completed on a market valuation basis, which assumes the premise of
willing buyer willing seller. The value is an independent professional estimate 
of what a buyer might be prepared to pay for the land in its current form,      
discounted at an average, real rate of 25%, being the developer`s assumed       
required rate of return.                                                        
Strategic alternatives for the property portfolio have been reviewed. The Board 
has decided that better value for shareholders will be provided by retaining the
property portfolio in the Group in the medium term.                             
DISCONTINUED OPERATIONS                                                         
SANS Fibres (SANS) exited the non-performing nylon and polyester heavy decitex  
industrial (HDI), as well as the polyester light decitex industrial (LDI) yarn  
businesses, at the end of 2007. The remaining nylon LDI and the polyethylene    
terephthalate (PET) businesses at Bellville were adversely affected by power    
outages in the first quarter of the year, and both had to contend with sharp    
increases in raw material prices. These challenges notwithstanding, SANS posted 
a significant increase in trading profit compared with the first half of 2007,  
as the positive effects of major restructuring in the yarn business begin to be 
realised.                                                                       
FINANCIAL                                                                       
Net capital expenditure of R395 million included R260 million for expansion     
projects, mainly in respect of the major investments in progress at AEL and     
Chemserve. Group working capital increased in line with the 43% increase in     
sales to R2 020 million, representing 19,8% (2007: 17%) of annual sales         
(excluding businesses sold).                                                    
Net income from the pension fund employer surplus account and the plan assets   
for post-employment medical aid liabilities reduced from R60 million in the     
first half of 2007 to R3 million in 2008. The reduction is due to poor equity   
markets performance, particularly in the month of June.                         
In line with the working capital investment of R282 million in the half-year and
the capital spending of R395 million, Group borrowings increased to R1 675      
million from R1 001 million at the end of 2007. Cash interest cover remained    
robust at 7 times. Gearing increased to 42% of shareholder funds (25% at        
December 2007).                                                                 
The assets and liabilities classified as held for sale are the carrying value of
SANS.                                                                           
In line with the general authority given by shareholders at the annual general  
meeting, the Company has repurchased 3,5 million ordinary shares, representing  
just under 3% of the share capital at a cost of R237 million.                   
PORTFOLIO                                                                       
The Group remains focused on the growth of its core businesses, providing mining
solutions and specialty chemicals to the mining and industrial sectors.         
Significant capital expenditure programmes are underway to support this growth. 
Whilst SANS performed well in the half-year, the business does not fit with     
AECI`s strategic focus. The sale process for SANS` nylon LDI business should be 
completed by the end of the third quarter. A tender process for the PET business
is underway with indicative offers due in July, whereafter a due diligence      
process will precede final offers. There is a good level of interest in the PET 
business and it is expected to be sold before the end of 2008.                  
OUTLOOK                                                                         
Oil prices, inflation and interest rates are expected to remain high for the    
remainder of the year. However, the trading outlook appears supportive for the  
Group`s businesses. It is anticipated that property sales will be slow in the   
second half.                                                                    
Assuming trading conditions remain buoyant, the 2008 year will see much improved
results compared to 2007, particularly from Chemserve.  Beyond 2008, the capital
investments are expected to start delivering substantial benefits in 2010.      
Fani Titi             Graham Edwards                                            
Chairman              Chief executive                                           
Woodmead, Sandton                                                               
28 July 2008                                                                    
Directorate: F Titi (Chairman)+, G N Edwards (Chief executive),                 
F P P Baker, R M W Dunne+*, S Engelbrecht+, Z Fuphe+, M J Leeming+,             
L M Nyhonyha+, A C Parker+, L C van Vught+, R A Williams*                       
+Non-executive    *British                                                      
Company secretary: A Kennedy                                                    
Date: 29/07/2008 07:05:02 Supplied by www.sharenet.co.za                     
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