AFE - AECI - Closure Of SANS Businesses Release Date: 04/11/2008 10:00:01 Code(s): AFE
AFE - AECI - Closure Of SANS Businesses
Incorporated in the Republic of South Africa
(Registration No. 1924/002590/06)
Share code: AFE ISIN No. ZAE000000220
("AECI" or "the Company")
CLOSURE OF SANS BUSINESSES
Shareholders are referred to the SENS announcement published on 29 September
2008 indicating that negotiations for the sale of the nylon light decitex (LDI)
business of SANS Fibres (Proprietary) Limited ("SANS") had been terminated. In
that same announcement, AECI stated that it would, by year-end, make a final
decision on exiting not only the nylon LDI business but also SANS`s polyethylene
terephthalate polymer (PET) business. Accordingly, AECI advises as follows.
The Company contemplates closing both the nylon LDI and the PET manufacturing
operations at the SANS Bellville site, Western Cape. It is envisaged that
subject to the consultation process, the businesses will cease manufacturing on
31 March 2009. Thereafter, the site will be cleared and realisation of the land
Regrettably, these contemplated closures are expected to result in 640 direct
job losses. The costs associated with this, as well as other closure costs,
will be finalised once consultations have been concluded with all stakeholders
including employees, the trade union, customers and suppliers.
NYLON LDI BUSINESS, BELLVILLE
In recent years, SANS`s fibres business has come under increasing pressure for
several reasons. These include technology improvements of new plants in the Far
East, which are closer to main markets; cost increases in raw materials and
utilities; and the lack of a reliable electricity supply.
SANS`s management and AECI attempted to address these challenges by
rationalising the business and seeking a trade purchaser who could add value by
addressing some of the strategic issues. The intended sale of the nylon
business was not concluded and the rationalisation programme has not placed the
company in a position to achieve adequate returns. Unfortunately, this
situation is expected to worsen in the coming years.
PET BUSINESS, BELLVILLE
The long-term sustainability of this business is questionable in terms of its
ability to reward the capital invested in its assets. Furthermore, it is
expected that the business will continue to be adversely affected by local and
international oversupply, particularly as a result of new South African
capacity, and the global economic crisis. The PET business, has in addition
been impacted by cost increases in raw materials and utilities and the lack of a
reliable electricity supply. After completing an extensive due diligence
process, a successful agreement for the sale of the business could not be
reached with prospective purchasers.
NYLON BUSINESS AT STONEVILLE, USA
The Stoneville operation, SANS Technical Fibers USA, is a stand-alone entity
which has a sustainable profit stream and is self-funding. It remains AECI`s
intention to exit this business. In the meantime, certain strategic plant and
equipment from Bellville will be transferred to Stoneville. This will not only
enhance the revenue of that business, but also improve its market offering
ESTIMATED FINANCIAL IMPACT
As a result of the contemplated closure and the subsequent disposal of SANS
Bellville`s assets, the cash from the disposal, after providing for closure
costs, will be approximately equal to the carrying value on the balance sheet.
This process is expected to be completed in the next 12 to 18 months and will
include the sale of the land. The immediate effect of the above is that a
provision for closure costs of approximately R150 million will have to be taken
against headline earnings in 2008, and this will cause a reduction in HEPS of
approximately 140 cents for the financial year ending 31 December 2008.
These figures have not been audited by the Company`s auditors.
4 November 2008
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 04/11/2008 10:00:01 Supplied by www.sharenet.co.za
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