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
(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
% 2009 2008
change R millions R millions
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)
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
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)
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
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)
Statement of financial position
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
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
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
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
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
Fibers - (USA) 222 282 15 49 116 184
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
- 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:
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.
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
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.
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.
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
22 February 2010
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
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.
Acting Company secretary: EA Rea
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,
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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