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AFE - AECI Limited - Reviewed condensed consolidated financial results for the

Release Date: 23/02/2010 07:05:31      Code(s): AFE
AFE - AECI Limited - Reviewed condensed consolidated financial results for the  
year ended 31 December 2009, and a cash dividend declaration                    
AECI LIMITED                                                                    
(Incorporated in the Republic of South Africa)                                  
(Registration No. 1924/002590/06)Share code: AFE                                
ISIN No.: ZAE000000220                                                          
("AECI" or "the Company")                                                       
Reviewed condensed consolidated financial results for the year ended 31 December
2009, and a cash dividend declaration                                           
All strategic capital projects mechanically complete                            
Strong cash generation from operations                                          
Gearing down to 53%                                                             
Final cash dividend of 62c declared                                             
Income statement                                                                

                                   %       2009        2008                     
change  R millions  R millions               
Continuing operations                                                           
Revenue(2)                           -17     10 730      12 876                 
Net operating costs                          9 963       11 841                 
Profit from operations               -26      767        1 035                  
Net income/(loss) from Pension Fund                                             
employer surplus account                     22          (13)                   
Net income/(loss) from plan assets                                              
for post-retirement medical aid                                                 
liabilities                                  12          (57)                   
                                            801         965                     
Fair value adjustments - interest            4          (16)                    
Interest expense (net of costs                                                  
capitalised)                                 (243)       (233)                  
Interest received                            21          28                     
Income from associates and                                                      
investments                                 7            13                     
                                            590         757                     
Impairment of goodwill                       (18)        (42)                   
Other impairments                            (9)         (4)                    
Profit before tax                            563         711                    
Tax                                          (176)       (238)                  
Net profit from continuing                                                      
operations                                   387         473                    
Net profit/(loss) from discontinued                                             
operations                                  53           (94)                   
Profit/(loss) before tax                     65          (50)                   
Impairments and disposals                    -           (56)                   
Tax                                          (12)        12                     
Profit for the period                       440         379                     
Profit for the year attributable                                                
- ordinary shareholders                     421         385                     
- preference shareholders                   2           2                       
- non-controlling interest                  17          (8)                     
440          379                     
Headline earnings are derived from:                                             
Profit attributable to ordinary                                                 
shareholders                                 421         385                    
Impairment of goodwill                       18          42                     
Other impairments and disposals                                                 
before tax                                   9           60                     
Surplus on disposal of property,                                                
plant and equipment                         (88)         (38)                   
Tax effects of the above items              10           (6)                    
Headline earnings                            370         443                    
Per ordinary share (cents):                                                     
Headline earnings                   -16      346         412                    
Diluted headline earnings(3)                 344         410                    
Attributable earnings                        393         358                    
Diluted attributable earnings(3)             392         356                    
Continuing earnings                         344          445                    
Diluted continuing earnings(3)               343         443                    
Discontinued earnings(3)                    50          (87)                    
Dividends declared                  -61     90          231                     
Dividends paid                              169          231                    
Ordinary shares (millions)(4)                                                   
- in issue                                   107         107                    
- weighted average number of shares          107         108                    
- diluted weighted average number                                               
of shares(3)                                 107         108                    
STATEMENT OF COMPREHENSIVE INCOME                                               
2009        2008                     
                                           R millions  R millions               
Profit for the year                          440         379                    
Other comprehensive income net of tax:                                          
Revaluation of derivative instruments        (2)        6                       
Foreign currency translation differences                                        
net of deferred tax                          (170)       146                    
Acquisition of businesses                    (9)        -                       
Subsidiaries disposed                       -            (9)                    
Other                                        (2)         6                      
Total comprehensive income for the year      257        528                     
Total comprehensive income attributable to:                                     
- ordinary shareholders                      251        550                     
- preference shareholders                    2          2                       
- non-controlling interest                   4           (24)                   
                                            257        528                      
Statement of financial position                                                 
                                           2009        2008                     
                                           R millions  R millions               
Non-current assets                           5 358       4 510                  
Property, plant and equipment                3 260       2 431                  
Investment property                          430         422                    
Goodwill                                     1 063       1 013                  
Pension Fund employer surplus account        236         213                    
Investments                                 13           98                     
Non-current loans receivable                12          -                       
Deferred tax                                 344         333                    
Current assets                               4 670       6 441                  
Inventories                                  1 827       2 795                  
Accounts receivable                          2 161       3 188                  
Assets classified as held for sale           14          14                     
Cash and cash equivalents                    668         444                    
Total assets                                 10 028      10 951                 
Equity and liabilities                                                          
Ordinary capital and reserves                3 938       3 852                  
Preference capital and non-controlling                                          
interest                                     121         117                    
Total shareholders` interest                 4 059       3 969                  
Non-current liabilities                      2 564       2 385                  
Deferred tax                                85           61                     
Non-current borrowings                       1 731       1 745                  
Non-current provisions                       748         579                    
Current liabilities                          3 405       4 597                  
Accounts payable                             2 208       3 225                  
Current borrowings                           1 080       1 058                  
Tax payable                                  117         314                    
Total equity and liabilities                 10 028      10 951                 
Statement of Cash flows                                                         
                                           2009        2008                     
                                           R millions  R millions               
Cash generated by operations                 1 109       1 656                  
Dividends received                           12          12                     
Interest paid                                (349)       (276)                  
Interest received                            22          30                     
Income tax paid                               (333)      (232)                  
Changes in working capital                    1 158      (978)                  
Expenditure relating to non-current                                             
provisions                                   (64)        (80)                   
Expenditure relating to retrenchments and                                       
restructuring                                (105)       (103)                  
Cash available from operating activities     1 450       29                     
Dividends paid                               (167)       (250)                  
Cash retained from/(applied to) operating                                       
activities                                  1 283       (221)                   
Cash utilised in investment activities        (981)      (1 002)                
Proceeds from disposal of investments and                                       
businesses                                   95          24                     
Investments                                  (92)        (103)                  
Net capital expenditure                      (984)       (923)                  
Net cash generated/(utilised)               302          (1 223)                
Cash effects of financing activities          (4)        1 136                  
Share repurchase                             -          (238)                   
Non-current loans receivable                 (12)       -                       
Borrowings                                   8          1 374                   
Increase/(decrease) in cash and cash                                            
equivalents                                  298         (87)                   
Cash and cash equivalents at the beginning                                      
of the year                                  444         428                    
Translation (loss)/gain on cash and cash                                        
equivalents                                  (74)        90                     
Classified as held for sale                  -           13                     
Cash and cash equivalents at the end of the                                     
year                                        668         444                     
Statement of changes in equity                                                  
                                           2009        2008                     
                                           R millions  R millions               
Total comprehensive income for the year      257         528                    
Dividends paid                               (167)       (250)                  
Share repurchase                             -           (238)                  
Equity at the beginning of the year          3 969       3 929                  
Equity at the end of the year                4 059       3 969                  
Made up as follows:                                                             
Issued ordinary capital                      215         215                    
Reserves                                     252         427                    
Surplus arising on revaluation of property   235         240                    
Foreign currency translation reserve net of                                     
deferred tax                                 2           168                    
Other                                        15          19                     
Retained income                              3 471       3 210                  
Preference capital                           6           6                      
Non-controlling interest                     115         111                    
                                           4 059        3 969                   
Other salient features                                                          
                                           2009        2008                     
                                           R millions  R millions               
Capital expenditure - property, plant and                                       
equipment                                    1 151       1 005                  
- expansion                                   963        644                    
- replacement                                 188        361                    
Capital commitments                           737        978                    
- contracted for                             71          550                    
- not contracted for                          666        428                    
Future rentals on property, plant and                                           
equipment leased                              185        317                    
- payable within one year                     84         144                    
- payable thereafter                          101        173                    
Contingent liabilities                        83         82                     
Net borrowings                               2 143       2 359                  
Gearing (%)                                   53         59                     
Current assets to current liabilities        1,4         1,4                    
Net asset value per ordinary share (cents)    3 672      3 601                  
Depreciation - continuing operations          267        211                    
- discontinued operations       -           5                       
Industry segment analysis                                                       
                                          Profit from                           
                    Revenue               operations      Net assets            
2009        2008      2009     2008   2009    2008          
                    R millions            R millions      R millions            
AEL Mining Services   4 091      4 079       298      248   2 187   1 963       
Chemical Services     6 524      8 434       483     851    3 645   3 992       
Heartland             211        432         33      45     669     524         
SANS Technical                                                                  
Fibers - (USA)        222        282        15       49     116     184         
Group services,                                                                 
intergroup and                                                                  
other                 (318)      (351)      (62)    (158)   (51)    (155)       
10 730      12 876     767     1 035  6 566   6 508         
SANS Fibres -                                                                   
Bellville             469        1 464     83       155    48      286          
Closure costs         -           -         (16)    (204)    (81)   (170)       
                     469         1 464     67       (49)   (33)    116          
                     11 199     14 340     834     986    6 533    6 624        
Net assets consist of property, plant, equipment, investment property, goodwill,
inventory and accounts receivable less accounts payable.                        
(1) Basis of preparation and accounting policies                                
The reviewed condensed consolidated 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 reviewed condensed consolidated 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 (No. 61 of 1973), as    
(2) Includes foreign revenue of R2 541 million (2008: R3 406 million).          
(3) 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.                                                             
(4) Net of 11 884 669 (2008: 11 884 669) treasury shares held by a subsidiary   
(5) Discontinued operations                                                     
The remaining South African businesses of SANS Fibres discontinued manufacturing
activities at the end of March 2009.                                            
(6) The auditors, KPMG Inc., have reviewed these condensed consolidated         
financial results. The auditors` unqualified review report is available for     
inspection at the Company`s registered office.                                  
(7) The reviewed condensed consolidated financial statements do not include all 
of the information required for full annual financial statements and should be  
read in conjunction with the consolidated annual financial statements for the   
year ended 31 December 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.             
The AECI Group experienced a material year-on-year decline in sales volumes in  
2009 as the global economic crisis took its toll, particularly on companies     
serving primarily the mining and manufacturing sectors.                         
Revenue from continuing operations, at R10,7 billion, was 16,7% lower than the  
R12,9 billion achieved in the prior year owing to significant volume declines in
key markets. However, the mining sector recovered to an extent in the second    
half-year, while the manufacturing sector remained depressed. The property      
market, too, remained severely depressed and no significant sales were recorded 
in the year.                                                                    
Over and above the decline in volumes, the Group`s performance was adversely    
impacted by the following:                                                      
- inventory and foreign exchange revaluations of R125 million, primarily in the 
first half-year;                                                                
- restructuring costs of R51 million;                                           
- the effects of a major bad debt of R163 million in respect of sulphur sales to
the mining industry in the Zambian copper belt region. More detail is given     
- a depressed property development market as demand fell away due to the        
recession and credit approvals by banks became tighter. Furthermore, Heartland  
experienced some cancellations of and defaults on prior sales.                  
Headline earnings were R370 million, 16% lower than the previous year (2008:    
R443 million) and headline earnings per share of 346 cents were achieved (2008: 
412 cents).                                                                     
The Board has declared a final cash dividend of 62 cents per ordinary share     
(2008: 141 cents).                                                              
AEL Mining Services (AEL)                                                       
AEL delivered improved operating results, particularly noteworthy if viewed in  
the context of the poor start to the year by its mining customers. Revenue was  
unchanged at R4,1 billion because lower ammonia prices and a stronger rand/US   
dollar exchange rate offset other cost-driven price increases. Profit from      
operations increased by 20% to R298 million (2008: R248 million) and an improved
profit margin of 7,3% (2008: 6,1%) was achieved.                                
The margin improvement is attributable to restructuring of the business, volume 
growth of 2,7%, a change in product mix, and a shift in focus from merely       
supplying products to offering customers a performance-enhancing services       
package. The continued conversion in initiating systems from capped fuse to     
shocktube technology also contributed to the improvement. An additional 18      
million holes a year were switched to the safer shocktube system.               
In the South African business, the slow decline in Narrow Reef mining was offset
by growth achieved in the local coal sector. In addition, long-term contract    
renewals on industrial ammonium nitrate sales to non-mining and construction    
customers lifted prices off a very low base.                                    
The results of the African business were negatively affected by the stronger    
rand and by depressed diamond and copper markets in the first half of the year. 
Better than expected sales in surface gold and a recovery in the copper markets 
in Central Africa assisted in offsetting this.                                  
The International business gained pleasing momentum with AEL being awarded four 
coal on-mine full service tenders in Indonesia. The necessary plant was deployed
quickly and efficiently and all start-up targets were met. Additional sales     
channel partners were developed in Europe and South America. AEL`s technology   
and know-how should impact positively on revenue going forward as the           
international strategy evolves.                                                 
The DetNet JV`s products have proved to be reliable, effective and highly       
competitive globally. However, the downturn in the US construction sector and in
the African diamond and platinum sectors had a serious negative impact on the   
operation`s performance for the year.                                           
With the Initiating Systems Automation Programme (ISAP) mechanically complete,  
the focus in 2010 will be on ramp-up and the completion of peripherals. By end- 
2009, the plant had already produced more than 65 million detonators and more   
than 280 million metres of tubing.                                              
AEL invested R439 million in capital projects in the year. R170 million was     
spent on ISAP, with the balance for the start-up of bulk sites in Indonesia,    
further support for African mining projects and various replacement-type        
Chemical Services (Chemserve)                                                   
The specialty chemical arm of AECI, Chemserve`s performance was severely        
affected by the global crisis that impacted many of the sectors in which the    
business operates. Revenue declined by 23% to R6,5 billion (2008: R8,4 billion) 
and profit from operations was 43% lower at R483 million (2008: R851 million).  
In addition to the negative global environment, a strengthening rand and lower  
commodity prices precluded a recurrence of Chemserve`s outstanding 2008         
performance. Volumes declined by 27%, due to depressed activity in the mining,  
manufacturing and automotive sectors. However, operating performances from Crest
Chemicals, Industrial Oleochemical Products, Lake International and Senmin      
demonstrated good resilience against the downturn.                              
Chemserve demonstrated strong cash management in a declining revenue environment
and generated over R1 billion in reductions in working capital, thereby         
improving its working capital ratio.                                            
Chemserve`s results were further impacted by impairment of a large US dollar-   
denominated, Zambian-based debt in Chemical Initiatives.                        
The capital expansion programme neared completion by year-end. Senmin`s         
acrylamide and polyacrylamide plant in Sasolburg was mechanically complete. It  
is being commissioned in the first quarter of 2010 and ramp-up will follow      
during the rest of the year. All of Chemserve`s other capital expansion projects
were commissioned in 2009.                                                      
R801 million was invested in capital expenditure, with R567 million of this     
being spent on the strategic growth projects in Senmin, Akulu Marchon and       
Resitec in Brazil.                                                              
Two acquisitions and the repurchase of the Tiso Group`s 25,1% shareholding in   
ImproChem were concluded during the year at a total cost of R95 million. Both   
acquisitions, Cobito and CH Chemicals, were integrated into existing Chemserve  
businesses and their performances exceeded expectations.                        
Debt write-off                                                                  
Chemical Initiatives, a division managed by Chemserve, exported large quantities
of raw sulphur to a distributor in Zambia in 2008, at the peak of the commodity 
boom. The sulphur sold to the distributor was procured by mines in the copper   
belt region.                                                                    
During the latter part of 2008 the price of sulphur declined rapidly and        
severely. Despite this, the customer continued to make regular payments during  
the first half of 2009. However, in the latter part of 2009 it became apparent  
to management that the balance of the receivable outstanding could not be       
recovered from the distributor. Accordingly, management has provided R125       
million in respect of the probable bad debt and has further processed           
adjustments in respect of pricing adjustments, foreign exchange revaluations and
net realisable inventory adjustments of R38 million.                            
The Board has viewed this loss in a very serious light and appointed a sub-     
committee comprised of non-executive directors to investigate the circumstances 
surrounding the events that led to this debt being fully impaired. After        
completion of the investigation, the Board has initiated a disciplinary enquiry.
As expected, the property market remained depressed. Heartland`s operating      
performance was sustained primarily by the leasing and services segments.       
Operating results, net of environmental management costs, dropped by 27% to R33 
million (2008: R45 million). Environmental management expenditure was R13       
million (2008: R91 million).                                                    
As a result of adverse trading conditions in the property development market    
sales of R104 million were cancelled or defaulted. R52 million of operating     
profit recognised in 2008 was reversed.                                         
The business continued preparing land for sale and investing in infrastructure  
so as to be optimally placed once the market recovers from its current depressed
position. R86 million was invested in bulk infrastructure in the year and 57    
hectares of land are ready for sale.                                            
SANS Technical Fibers (SANS) (USA)                                              
SANS experienced a challenging start to the year as the global automotive market
deteriorated sharply. However, the business re-positioned itself and developed  
an export market in Europe and Asia. Revenue declined by 25% to US$27 million   
(2008: US$36 million) and operating profit to US$1,1 million (2008: US$4,8      
The company spent US$1,4 million on capital projects while a further US$3       
million has been approved for the installation of plant transferred from the    
Bellville site, subsequent to the latter`s closure. The business remained cash  
positive and generated cash through the liquidation of working capital.         
It is AECI`s intention to optimise and grow the business going forward.         
Discontinued operation                                                          
SANS Fibres, Bellville                                                          
The operation at Bellville, Western Cape, ceased production in March 2009. All  
the working capital was liquidated during the year and the closure generated    
R220 million in cash net of closure costs. 60% of the site has been disposed of 
to a Cape Town-based developer. The sale of the remaining portion will be       
pursued in 2010.                                                                
The net working capital to sales ratio improved to 15,9% (2008: 19,2%), while   
generating R1,1 billion in cash. This improvement is largely attributable to a  
sharp reduction in working capital due to strong cash management in Chemserve   
and lower sales volumes.                                                        
Gearing improved to 53% at year-end (2008: 59%), down from 75% at June 2009. It 
can be expected that gearing will increase as sales volumes escalate to meet    
demand in recovering markets.                                                   
The decrease in cash interest cover to 3,5 times (2008: 4,6 times) is the result
of capital spend and higher levels of debt during the first half of the year.   
Net interest paid, before capitalisation of R105 million (2008: R40 million),   
increased to R327 million (2008: R246 million), also due to the capital         
programme embarked on by the Group since 2007.                                  
The Post-retirement Medical Aid liability was actuarially valued and an         
adjustment of R75 million (2008: R123 million) was required to increase the     
provision against the liability at year-end. The increase is mostly a           
consequence of high medical inflation of between 11% and 13% in South Africa.   
Board change                                                                    
Mr AC Parker resigned as an independent non-executive director of the Board with
effect from 31 December 2009. The Board thanks him for his services.            
Outlook and strategic focus                                                     
The slow turnaround in manufacturing and continued recovery in the mining sector
should assist in improving volumes in 2010. However, a strong local currency    
could pressurise margins and dampen the recovery in volumes.                    
Delivery and consolidation will be the focus in the next financial year.        
Specifically, the Group will aim to:                                            
- commission and ramp-up strategic capital projects;                            
- grow volumes to support the delivery of strategic capital projects;           
- maintain working capital ratios, thus preserving cash;                        
- enhance its sales focus on opportunities outside South Africa; and            
- curtail business risks in a volatile trading environment.                     
The successful execution of the above should facilitate the delivery of an      
improved financial performance in the next year.                                
Fani Titi                          Graham Edwards                               
Chairman                           Chief executive                              
Woodmead, Sandton                                                               
22 February 2010                                                                
Dividend notice                                                                 
Final ordinary cash dividend No. 152                                            
Notice is hereby given that on Monday, 22 February 2010 the directors of AECI   
declared a final cash dividend of 62 cents per share, in respect of the         
financial year ended 31 December 2009, payable on Monday, 19 April 2010 to      
ordinary shareholders recorded in the books of the Company at the close of      
business on Friday, 16 April 2010.                                              
The last day to trade cum dividend will be Friday, 9 April 2010 and shares will 
commence trading ex dividend as from Monday, 12 April 2010.                     
Any change of address or dividend instruction must be received on or before     
Friday, 9 April 2010.                                                           
Share certificates may not be dematerialised or rematerialised from Monday, 12  
April 2010 to Friday, 16 April 2010, both days inclusive.                       
This announcement will be mailed to all recorded shareholders on or about       
Tuesday, 23 February 2010.                                                      
By order of the Board                                                           
EA Rea                                                                          
Acting Company secretary                                                        
Directors: F Titi (Chairman), GN Edwards (Chief executive)+, FPP Baker+, RMW    
Dunne*, S Engelbrecht, Z Fuphe, KM Kathan+, MJ Leeming, LM Nyhonyha.            
+Executive  *British                                                            
Acting Company secretary: EA Rea                                                
Transfer secretaries                                                            
Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg 2001
and Computershare Investor Services PLC, PO Box 82, The Pavilions, Bridgwater   
Road, Bristol BS99 7NH, England                                                 
Registered office 1st Floor, AECI Place, 24 The Woodlands, Woodlands Drive,     
Woodmead, Sandton                                                               
Sponsor: Rand Merchant Bank (A division of FirstRand Bank Limited)              
Date: 23/02/2010 07:05:30 Supplied by www.sharenet.co.za                     
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