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Afe - Aeci - Condensed Consolidated Unaudited Interim Financial Results For The

Release Date: 28/07/2009 07:05:03      Code(s): AFE
AFE - AECI - Condensed consolidated unaudited interim financial results for the 
half-year ended 30 June 2009                                                    
AECI LIMITED                                                                    
(Incorporated in the Republic of South Africa)                                  
(Registration No. 1924/002590/06)                                               
Share code: AFE     ISIN No.: ZAE000000220                                      
("AECI" or "the Company" or "the Group")                                        
www.aeci.co.za                                                                  
Condensed consolidated unaudited interim financial results for the half-year    
ended 30 June 2009                                                              
Revenue from continuing operations at R5 263 million                            
Cash of R396 million available from operating activities                        
Gross margins and market share maintained in a difficult trading environment    
HEPS down to 105c                                                               
Dividend of 28c declared                                                        
Good progress made in strategic growth projects                                 
Income statement                                                                
                              2009        2008       2008                       
                              First half  First half Year                       
%        Unaudited   Unaudited  Audited                    
                     change   R millions  R millions R millions                 
Continuing                                                                      
operations                                                                      
Revenue(2)            -9        5 263       5 793      12 876                   
Net operating costs             (4 935)     (5 241)    (11 841)                 
Profit from                                                                     
operations            -41       328          552      1 035                     
Net (loss)/income                                                               
from Pension Fund                                                               
employer surplus                                                                
account                          *          6         (13)                      
Net loss from plan                                                              
assets for post-                                                                
retirement medical                                                              
aid liabilities                 (20)        (3)       (57)                      
308        555       965                        
Fair value                                                                      
adjustments -                                                                   
interest                       *            3         (16)                      
Interest expense(3)             (168)       (104)     (233)                     
Interest received               30          19        28                        
Income from                                                                     
associates and                                                                  
investments                     5           8         13                        
                               175         481       757                        
Impairment of                                                                   
goodwill                        -           (1)       (42)                      
Other impairments                                                               
and disposals                  -            (6)       (4)                       
Profit before tax               175         474       711                       
Income tax expense             (64)         (146)     (238)                     
Net profit from                                                                 
continuing                                                                      
operations                      111         328       473                       
Net profit/(loss)                                                               
from discontinued                                                               
operations                      4           10        (94)                      
Profit before tax               7           15        154                       
Closure costs                    -          -         (204)                     
Impairments and                                                                 
disposals                       -           5         (56)                      
Tax                             (3)         (10)      12                        
Profit for the                                                                  
period                          115         338       379                       
Profit for the                                                                  
period attributable                                                             
to:                                                                             
- ordinary                                                                      
shareholders                   118         350        385                       
- preference                                                                    
shareholders                   1           1          2                         
- minority interest            (4)         (13)       (8)                       
                              115         338        379                        
Headline earnings                                                               
are derived from:                                                               
Net profit                                                                      
attributable to                                                                 
ordinary                                                                        
shareholders                    118         350       385                       
Impairment of                                                                   
goodwill                        -           1         42                        
Other impairments                                                               
and disposals before                                                            
tax                             -           1         60                        
Surplus on disposal                                                             
of property, plant                                                              
and equipment                   (9)         *         (38)                      
Tax effects of the                                                              
above items                    3            -         (6)                       
Headline earnings               112         352       443                       
Per ordinary share                                                              
(cents):                                                                        
Headline earnings     -68       105         325       412                       
Diluted headline                                                                
earnings(4)                     104         323       410                       
Attributable                                                                    
earnings                        110         324       358                       
Diluted attributable                                                            
earnings(4)                     110         321       356                       
Continuing earnings             107         314       445                       
Diluted continuing              106         312       443                       
earnings(4)                                                                     
Discontinued                                                                    
earnings                       4           9          (87)                      
Dividends declared    -69      28            90       231                       
Dividends paid                  141         141       231                       
Ordinary shares                                                                 
(millions)(5)                                                                   
- in issue                      107         107       107                       
- weighted average                                                              
number of shares                107         108       108                       
- diluted weighted                                                              
average number of                                                               
shares(4)                       107         109       108                       
*  nominal amount                                                               
Statement of comprehensive income                                               
                            2009         2008        2008                       
                            First half   First half  Year                       
                            Unaudited    Unaudited   Audited                    
R millions   R millions  R millions                 
Profit for the period         115          338        379                       
Other comprehensive income                                                      
net of tax:                                                                     
Revaluation of derivative                                                       
instruments                  (12)          19         6                         
Foreign currency                                                                
translation differences       (145)        96         146                       
Changes in the Group          -            -          (3)                       
Other                         *           1           *                         
Total comprehensive income                                                      
for the period               (42)         454         528                       
Total comprehensive income                                                      
attributable to:                                                                
- ordinary shareholders       (38)         459        550                       
- preference shareholders     1            1          2                         
- minority interest           (5)          (6)        (24)                      
                             (42)         454        528                        
*  nominal amount                                                               
Statement of changes in equity                                                  
2009         2008        2008                       
                            First half   First half  Year                       
                            Unaudited    Unaudited   Audited                    
                            R millions   R millions  R millions                 
Total comprehensive income                                                      
for the period               (42)          454        528                       
Dividends paid                (152)        (152)      (250)                     
Share repurchase              -            (237)      (238)                     
Equity at the beginning of                                                      
the period                    3 969        3 929      3 929                     
Equity at the end of the                                                        
period                        3 775        3 994      3 969                     
Made up as follows:                                                             
Issued ordinary capital       215          216        215                       
Non-distributable reserves    271          374        427                       
Surplus arising on                                                              
revaluation of property,                                                        
plant and equipment           240          236        240                       
Foreign currency                                                                
translation reserve net of                                                      
deferred tax                 23            111        168                       
Other                         8            27         19                        
Retained income               3 177        3 269      3 210                     
Preference capital            6            6          6                         
Minority interest             106          129        111                       
                             3 775        3 994      3 969                      
Balance sheet                                                                   
                             2009        2008        2008                       
30 June     30 June     31 Dec                     
                             Unaudited   Unaudited   Audited                    
                             R millions  R millions  R millions                 
Assets                                                                          
Non-current assets             5 022       3 847      4 510                     
Property, plant and                                                             
equipment                     2 912        1 871      2 431                     
Investment property            429         410        422                       
Goodwill                       1 062       978        1 013                     
Pension Fund employer                                                           
surplus account                213         232        213                       
Investments                    98          134        98                        
Deferred tax                   308         222        333                       
Current assets                 5 002       6 237      6 441                     
Inventories                    2 033       2 276      2 795                     
Accounts receivable           2 514        2 668      3 188                     
Assets classified as held                                                       
for sale                       14          772        14                        
Cash and cash equivalents      441         521        444                       
Total assets                   10 024      10 084     10 951                    
Equity and liabilities                                                          
Ordinary capital and                                                            
reserves                       3 663       3 859      3 852                     
Preference capital and                                                          
minority interest              112         135        117                       
Total shareholders` interest   3 775       3 994      3 969                     
Non-current liabilities        2 406       1 037      2 385                     
Deferred tax                   57          73         61                        
Non-current borrowings         1 731       557        1 745                     
Non-current provisions         618         407        579                       
Current liabilities            3 843       5 053      4 597                     
Accounts payable               2 221       2 924      3 225                     
Current borrowings             1 558       1 639      1 058                     
Liabilities classified as                                                       
held for sale                  -           325        -                         
Tax payable                    64          165        314                       
Total equity and liabilities   10 024      10 084     10 951                    
Industry segment analysis                                                       
                   Revenue         Profit from    Net assets                    
                                   operations                                   
2009    2008    2009    2008   2009    2008                  
                   Unaudited       Unaudited      Unaudited                     
                   R millions      R millions     R millions                    
Continuing                                                                      
operations          5 263   5 793   328     552    6 750   5 459                
Mining solutions     1 945   1 655   92      92     2 138   1 693               
Specialty                                                                       
chemicals           3 233    3 863   241     386    4 008   3 141               
Property            152      292     45      88     588     525                 
Specialty fibres                                                                
(USA)               100      134     (7)     25     126     175                 
Group services,                                                                 
intergroup and                                                                  
other                (167)   (151)   (43)    (39)   (110)   (75)                
Discontinued                                                                    
operations           458    724      7       16     (21)   238                  
Specialty fibres     458     724     7       16      (21)   238                 
                    5 721   6 517  335      568    6 729   5 697                
Net assets consist of property, plant, equipment, investment property, goodwill,
inventory and accounts receivable less accounts payable.                        
Cash flow statement                                                             
                            2009         2008        2008                       
                            First half   First half  Year                       
                            Unaudited    Unaudited   Audited                    
R millions   R millions  R millions                 
Cash generated by                                                               
operations                    474          715        1 590                     
Dividends received            6            7          12                        
Interest paid                (209)        (117)       (276)                     
Interest received             30           20         30                        
Income tax paid              (294)         (151)      (232)                     
Changes in working capital   481           (282)      (921)                     
Expenditure relating to non-                                                    
current provisions            (8)          (26)       (71)                      
Expenditure relating to                                                         
retrenchments and                                                               
restructuring                (84)          (102)      (103)                     
Cash available from                                                             
operating activities          396          64         29                        
Dividends paid                (152)        (152)      (250)                     
Cash flows from operating                                                       
activities                    244          (88)       (221)                     
Cash flows from investing                                                       
activities                   (676)        (372)       (1 002)                   
Proceeds from disposal of                                                       
investments and businesses    -            -          24                        
Investments                   (61)         (1)        (103)                     
Net capital expenditure       (615)        (371)      (923)                     
Net cash utilised             (432)        (460)      (1 223)                   
Cash flows from financing                                                       
activities                   486           530        1 136                     
Share repurchase             -            (237)       (238)                     
Borrowings                   486          767         1 374                     
Increase/(decrease) in cash                                                     
and cash equivalents         54           70          (87)                      
Cash and cash equivalents                                                       
at the beginning of the                                                         
period                        444          428        428                       
Translation (loss)/gain on                                                      
cash and cash equivalents    (57)         39          90                        
Classified as held for sale   -            (16)       13                        
Cash and cash equivalents                                                       
at the end of the period     441          521         444                       
Other salient features                                                          
2009         2008        2008                       
                            First half   First half  Year                       
                            Unaudited    Unaudited   Audited                    
                            R millions   R millions  R millions                 
Capital expenditure -                                                           
property, plant and                                                             
equipment(3)                 675           395        1 044                     
- expansion                   544          260        683                       
- replacement                 131          135        361                       
Capital commitments           589          1 379      978                       
- contracted for              451          887        550                       
- not contracted for          138          492        428                       
Future rentals on property,                                                     
plant and equipment leased    211          211        317                       
- payable within one year     90           36         144                       
- payable thereafter          121          175        173                       
Contingent liabilities        105          94         82                        
Performance guarantees       69           47          34                        
Net borrowings               2 848         1 675      2 359                     
Gearing (%)                  75            42         59                        
Current assets to current                                                       
liabilities                   1,3         1,2         1,4                       
Net book value per ordinary                                                     
share (cents)                3 425         3 608      3 601                     
Depreciation - continuing                                                       
operations                    122          100        211                       
-discontinued operations      -            -          5                         
Notes                                                                           
(1) Basis of preparation                                                        
The condensed consolidated 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 reporting period.         
The condensed consolidated 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 (Act 61 of 1973) as     
amended.                                                                        
(2) Includes foreign sales of R1 240 million (2008 first half - R1 223 million).
(3) Interest capitalised in the period amounting to R41 million (2008 first half
- R11 million).                                                                 
(4) 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.                                                             
(5) Net of 11 884 699 (2008 - 11 884 699) treasury shares held by a subsidiary  
company.                                                                        
(6) Discontinued operations                                                     
During 2008 a decision was taken that SANS Technical Fibers, USA, will not be   
disposed of and will run as a stand-alone and self-sustaining entity for the    
foreseeable future. It has, therefore, been reclassified in the comparative     
figures for June 2008 as a continuing operation. The remaining South African    
businesses of SANS Fibres discontinued manufacturing activities at the end of   
March 2009 and will be closed.                                                  
(7) 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                                                                     
AECI stated in February 2009 that trading conditions in respect of the current  
financial year would be challenging for the Group`s businesses as a consequence 
of the global recession.                                                        
The challenges have been more severe than expected and the magnitude of the     
recession`s impact is reflected in the Company`s results for the half-year ended
30 June 2009. Furthermore, R141 million in respect of fair value, net realisable
value adjustments and restructuring costs impacted on earnings. Consequently,   
headline earnings at R112 million were 68% lower than the R352 million achieved 
in the corresponding period in 2008. Headline earnings per share totalled 105   
cents (2008: 325 cents) and profit from continuing operations of R328 million   
(2008: R552 million) declined by 41%. Net financing costs of R138 million (2008:
R83 million) increased by 66% as additional borrowings of R486 million were     
drawn, primarily to fund the strategic capital expenditure programme.           
Revenue from continuing operations decreased by 9% to R5 263 million. The       
decrease is largely attributable to significant volume declines experienced by  
the Group`s customers in the mining and manufacturing sectors.                  
The strengthening of the rand in the period required fair value adjustments and 
recognition of exchange differences of R46 million and lower commodity prices   
resulted in net realisable value adjustments to inventory of R65 million. The   
Group has begun restructuring programmes in areas where it believes that markets
will remain under pressure in the medium- to long-term. To date, R30 million has
been incurred in restructuring costs.                                           
An interim dividend of 28 cents per ordinary share has been declared, compared  
to 90 cents in 2008. It is proposed that the dividend be declared as scrip with 
a cash alternative ("the capitalisation award"). The capitalisation award       
declaration is published separately on SENS and contains the salient dates.     
Mining solutions                                                                
Revenue from the mining solutions business increased by 18% on 2008`s           
performance, despite difficult market conditions.  This was largely due to AEL`s
increased footprint in Central Africa, product mix changes in initiating systems
as shocktube units replaced capped fuse, and price differentials over the first 
half of last year.                                                              
The South African narrow reef market continued its slow contraction while the   
Southern African region experienced significant volume declines in platinum,    
copper and diamonds.  Sales to the coal sector in Asia Pacific grew             
significantly.                                                                  
AEL`s trading margin remained under pressure at 4,7% (2008: 5,6%), due mainly to
additional depreciation charges and increased resourcing costs to cover market  
demand and increased shocktube conversion activities in the South African narrow
reef market. The capped fuse plant and the traditional shocktube plants are     
still being run and will come off line as the Initiating Systems Automation     
Programme (ISAP) plants ramp-up.                                                
ISAP`s detonator and extruded shocktube plants will both be fully installed and 
commissioned by end-2009. To date, over 40 million ISAP detonators have been    
produced and sold, the extrusion lines are running at 95% efficiencies and have 
produced over 180 000km of tubing. Still to be completed is the shocktube auto- 
assembly plant where the first set of lines has been installed and has          
successfully started producing for the narrow reef market. The launched         
Reefmaster product has been well received and market and plant ramp-ups are     
underway.                                                                       
In the six months under review AEL spent R245 million on capital investment     
projects, R125 million of this on ISAP.                                         
Specialty chemicals                                                             
Chemical Services Limited (Chemserve) recorded a 16% decrease in revenue to R3  
233 million and a 38% decrease in trading profit to R241 million (2008: R386    
million), with severe declines in demand from the mining, agricultural,         
manufacturing and automotive sectors. Volumes were 36% lower in the period,     
particularly in the first quarter, with traded sulphur sales being the worst    
affected. In response to the changed external environment, Chemserve is         
restructuring some of its businesses, such as those serving the automotive      
sector, where adverse trading conditions are expected to persist. Costs         
associated with restructuring totalled R25 million at end-June.                 
The strengthening rand and lower commodity prices exacerbated Chemserve`s       
challenges. Fair value, translation and inventory net realisable value          
adjustments accounted for R78 million of the decline in trading profit.         
Chemserve`s capital expansion programme made pleasing progress. R416 million was
invested in capital projects, R338 million of this in the strategic projects.   
The oleochemical plant at Resitec, in Brazil, the second xanthate reactor at    
Senmin, in Sasolburg, and Akulu Marchon`s sulphonation plant in Chloorkop have  
all been commissioned successfully. These plants are being ramped up to         
optimised production levels. The carbon disulphide plant at Senmin will be      
commissioned in the third quarter and the acrylamide and polyacrylamide plants, 
also at Senmin, will be commissioned in the last quarter of 2009. The business  
case for all these projects remains favourable and, once fully on line, the     
investments will be earnings-enhancing.                                         
The acquisitions of CH Chemicals and Cobito, at a cost of R70 million, were     
finalised and successfully integrated into the Chemserve group.                 
Property                                                                        
Heartland recorded a trading profit of R45 million (2008: R88 million) net of R1
million (2008: R37 million) of remediation costs. Remediation expenditure is    
being prioritised in line with land sales and legal requirements. The property  
development sector remains depressed, largely as a result of a shortage in cash 
liquidity in the market and market demand. Developers have had difficulty       
raising debt and financial institutions have imposed more stringent conditions  
in this regard. The profit achieved to June 2009 was driven largely by the      
leasing business in the segment.                                                
As indicated in the previous reporting period, Heartland has continued the      
processes necessary to prepare land for release when the property market shows  
signs of recovery. Expenditure was limited to R30 million in respect of land    
development activities in the half-year.                                        
SANS Fibres                                                                     
Continuing operation                                                            
SANS Technical Fibers (USA) incurred a loss of R7 million (2008: R25 million    
operating profit) as a result of very poor market conditions in the automotive  
sector in the USA. Revenue declined by 25% to R100 million, compared to R134    
million in 2008.  The business has been restructured to cope with these         
depressed conditions and, in June, already returned a profit. It has remained   
cash positive and has increased its cash by liquidating working capital over the
half-year.                                                                      
Discontinued operation                                                          
SANS Fibres at Bellville, Western Cape, ceased manufacturing in March 2009.     
Working capital has largely been liquidated and had generated R280 million in   
cash by 30 June 2009. The site is currently being cleared and redundant plant   
and equipment is being sold. It is anticipated that this process will be        
completed by March 2010.                                                        
Financial                                                                       
The Group invested R675 million in capital expenditure, of which R542 million   
related to growth projects in AEL and Chemserve. The Group is expecting capital 
expenditure of R1,2 billion for the full financial year.                        
Net working capital decreased as revenue declined and R481 million in cash was  
generated in the period.  The working capital ratio to gross revenue improved to
17,2% (2008: 19,8%).                                                            
The Pension Fund employer surplus account and the plan assets for post-         
retirement medical aid liabilities incurred a further loss of R20 million (2008:
R3 million profit), due to poor investment market performances and strengthening
of the rand. Part of the Group`s pension portfolio is invested offshore.        
In line with capital expenditure of R675 million, Group borrowings increased to 
R2 848 million from R2 359 million at December 2008. Cash interest cover was 2,8
times (2008: 4,6 times) largely as a result of lower profits and continued      
investment in the strategic capital expenditure programme. As a consequence,    
gearing increased to 75% of shareholder funds (59% at December 2008).           
Earlier in the year, the Board decided to postpone the anticipated BBBEE        
transaction, involving Group employees and a community trust, primarily as a    
result of market volatility.                                                    
Board changes                                                                   
Ms A Kennedy resigned as Company secretary, with effect from 31 March 2009. Mr  
EA Rea was appointed to serve as Acting Company secretary from 1 April 2009.    
Outlook and strategic focus                                                     
Depressed market conditions are expected to continue for the remainder of the   
year. In the first six months, as outlined above, the Group incurred fair value 
and exchange difference adjustments of R111 million. Based on current commodity 
prices and currency exchange rates, it is not expected that these charges will  
recur. In line with the trading statement published on SENS on 11 June 2009,    
management expects an improved performance in the second half-year and thus does
not expect headline earnings per share for the full financial year, ending 31   
December 2009, to be considerably lower than the 412 cents achieved in 2008.    
The Group will continue to sustain its strategic focus, and will:               
optimise cash flow by controlling working capital aggressively;                 
continue to progress strategic capital projects at AEL and Chemserve;           
reduce costs in line with reduced activity; and                                 
maintain market share and margins through continued excellent service.          
Fani Titi                  Graham Edwards                                       
Chairman                   Chief executive                                      
Woodmead, Sandton                                                               
27 July 2009                                                                    
Directors: F Titi (Chairman), GN Edwards (Chief executive)+, FPP Baker+, RMW    
Dunne*, S Engelbrecht, Z Fuphe, KM Kathan+, MJ Leeming, LM Nyhonyha, AC Parker. 
+Executive    *British                                                          
Acting Company secretary: EA Rea                                                
Date: 28/07/2009 07:05:03 Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                             .                  
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JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or            
implicitly, represent, warrant or in any way guarantee the truth, accuracy or   
completeness of the information published on SENS. The JSE, their officers,     
employees and agents accept no liability for (or in respect of) any direct,     
indirect, incidental or consequential loss or damage of any kind or nature,     
howsoever arising, from the use of SENS or the use of, or reliance on,          
information disseminated through SENS.                                          



                                        
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