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Afe - Aeci Limited - Condensed Consolidated Unaudited Interim Financial Results

Release Date: 28/07/2010 07:05:11      Code(s): AFE
AFE - AECI LIMITED - Condensed consolidated unaudited interim financial results 
for the half-year ended 30 June 2010 and 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" or "the Group")                                        
CONDENSED CONSOLIDATED UNAUDITED INTERIM FINANCIAL RESULTS FOR THE HALF-YEAR    
ENDED 30 JUNE 2010 AND CASH DIVIDEND DECLARATION                                
Highlights                                                                      
- Revenue from continuing operations up 3% to R5 425 million                    
- Profit from continuing operations up 48% to R484 million                      
- HEPS up 127% to 238c                                                          
- Cash dividend of 70c declared                                                 
- All strategic growth projects in ramp-up phase                                
Income statement                                                                
                                 2010        2009        2009                   
                                 First half  First half  Year                   
                         %       Unaudited   Unaudited   Audited                
change  R millions  R millions  R millions             
                                                                                
Continuing operations                                                           
Revenue (2)               +3       5 425       5 263       10 709               
Net operating costs                (4 941)     (4 935)     (9 942)              
Profit from operations    +48      484         328         767                  
Net income from Pension                                                         
Fund employer surplus                                                           
accounts                           4           *           23                   
Net income/(loss) from                                                          
plan assets for post-                                                           
retirement medical aid                                                          
liabilities                        6           (20)        11                   
                                  494         308         801                   
Fair value adjustments -                                                        
interest                           (2)         *           4                    
Interest expense (3)               (97)        (155)       (243)                
Interest received                  14          17          21                   
Income from associates                                                          
and investments                    1           5           7                    
410         175         590                   
Impairment of goodwill            -            -           (18)                 
Other impairments                  (4)         -           (16)                 
Reversal of impairments            -           -           7                    
Profit before tax                  406         175         563                  
Tax                                (117)       (64)        (176)                
Net profit from                                                                 
continuing operations              289         111         387                  
Net profit from                                                                 
discontinued operations            -           4          53                    
Profit before tax                  -           7           65                   
Tax                               -            (3)         (12)                 
Profit for the period              289        115         440                   
Profit for the period                                                           
attributable to:                                                                
- ordinary shareholders            269        118         421                   
- preference shareholders          1          1           2                     
- non-controlling                                                               
interest                           19         (4)          17                   
                                  289        115         440                    
Headline earnings are                                                           
derived from:                                                                   
Profit attributable to                                                          
ordinary shareholders              269         118         421                  
Impairment of goodwill            -            -           18                   
Other impairments and                                                           
disposals before tax               4           -           9                    
Surplus on disposal of                                                          
investments                        (18)        -          -                     
Surplus on disposal of                                                          
property, plant and                                                             
equipment                          (1)         (9)         (88)                 
Tax effects of the above                                                        
items                              1           3           10                   
Headline earnings                  255         112         370                  
Per ordinary share                                                              
(cents):                                                                        
Headline earnings         +127     238         105         346                  
Diluted headline earnings                                                       
(4)                                237         104         344                  
Attributable earnings              251         110         393                  
Diluted attributable                                                            
earnings (4)                       250         110         392                  
Continuing earnings                251         107         344                  
Diluted continuing                                                              
earnings (4)                       250         106         343                  
Discontinued earnings             -            4          50                    
Dividends declared        +150     70          28          90                   
Dividends paid                     62          141         169                  
Ordinary shares                                                                 
(millions) (5)                                                                  
- in issue                         107         107         107                  
- weighted average number                                                       
of shares                          107         107         107                  
- diluted weighted average                                                      
number of shares (4)               108         107         107                  
*nominal amount                                                                 
Statement of comprehensive income                                               
                                 2010        2009        2009                   
                                 First half  First half  Year                   
Unaudited  Unaudited   Audited                
                                 R millions  R millions  R millions             
                                                                                
                                                                                
Profit for the period              289        115         440                   
Other comprehensive income net of                                               
tax:                                                                            
Revaluation of derivative                                                       
instruments                        *           (12)        (6)                  
Foreign currency translation                                                    
differences net of deferred tax    17          (145)       (169)                
Acquisition of subsidiaries        -           -          (9)                   
Other                              *          *           *                     
Total comprehensive income for                                                  
the period                         306         (42)       256                   
Total comprehensive income                                                      
attributable to:                                                                
- ordinary shareholders           288          (38)       250                   
- preference shareholders          1           1          2                     
- non-controlling interest         17          (5)        4                     
306         (42)       256                    
*nominal amount                                                                 
Statement of financial position                                                 
                                 2010        2009        2009                   
30 June     30 June     31 Dec                 
                                  Unaudited  Unaudited   Audited                
                                 R millions  R millions  R millions             
                                                                                

Assets                                                                          
Non-current assets                 5 581      5 022        5 360                
Property, plant and equipment      3 451      2 912        3 260                
Investment property                446        429          430                  
Goodwill                           1 063      1 062        1 063                
Pension Fund employer surplus                                                   
accounts                           240        213          236                  
Investments                        22         98           13                   
Non-current loan receivables       12         -            14                   
Deferred tax                       347        308          344                  
Current assets                     4 603      5 002        4 668                
Inventories                        1 828      2 033        1 827                
Accounts receivable                2 080      2 514        2 159                
Assets classified as held for                                                   
sale                              -           14           14                   
Cash and cash equivalents          695        441          668                  
Total assets                        10 184    10 024       10 028               
Equity and liabilities                                                          
Ordinary capital and reserves      4 159      3 663       3 937                 
Preference capital and non-                                                     
controlling interest               138        112          121                  
Total shareholders` interest        4 297     3 775        4 058                
Non-current liabilities             2 570     2 406       2 564                 
Deferred tax                       86         57           85                   
Non-current borrowings             1 697       1 731       1 731                
Non-current provisions             787         618         748                  
Current liabilities                3 317       3 843      3 406                 
Accounts payable                   1 873       2 221       2 208                
Current borrowings                 1 319       1 558       1 080                
Tax payable                        125         64          118                  
Total equity and liabilities        10 184     10 024      10 028               
Statement of cash flows                                                         
                                 2010        2009        2009                   
                                 First half  First half  Year                   
                                  Unaudited  Unaudited   Audited                
R millions  R millions  R millions             
                                                                                
                                                                                
Cash generated by operations       664         474         1 137                
Dividends received                 -           6           12                   
Interest paid                      (143)       (196)       (349)                
Interest received                  14          17          22                   
Income tax paid                    (112)       (294)       (333)                
Changes in working capital         (265)       481         1 161                
Expenditure relating to non-                                                    
current provisions                 (1)         (8)         (93)                 
Expenditure relating to                                                         
retrenchments and restructuring   (4)          (84)        (105)                
Cash available from operating                                                   
activities                         153         396         1 452                
Dividends paid                     (67)        (152)       (167)                
Cash retained from operating                                                    
activities                        86          244          1 285                
Cash flows from investing                                                       
activities                         (280)       (676)       (981)                
Proceeds from disposal of                                                       
investments and businesses         32         -            94                   
Investments                        (7)         (61)        (92)                 
Net capital expenditure            (305)       (615)       (983)                
Net cash (utilised)/generated      (194)       (432)       304                  
Cash flows from financing                                                       
activities                          206        486         (6)                  
Non-current loan receivables       1          -            (14)                 
Borrowings                         205         486         8                    
Increase in cash and cash                                                       
equivalents                        12          54          298                  
Cash and cash equivalents at the                                                
beginning of the period            668         444         444                  
Translation gain/(loss) on cash                                                 
and cash equivalents               15          (57)        (74)                 
Cash and cash equivalents at the                                                
end of the period                  695         441         668                  
Statement of changes in equity                                                  
                                 2010        2009        2009                   
                                 First half  First half  Year                   
Unaudited  Unaudited   Audited                
                                 R millions  R millions  R millions             
                                                                                
                                                                                
Total comprehensive income for                                                  
the period                         306         (42)       256                   
Dividends paid                     (67)        (152)      (167)                 
Equity at the beginning of the                                                  
period                             4 058       3 969      3 969                 
Equity at the end of the period   4 297        3 775      4 058                 
Made up as follows:                                                             
Issued ordinary capital            215         215        215                   
Reserves                           270         271        251                   
Surplus arising on revaluation of                                               
property                           237         240        237                   
Foreign currency translation                                                    
reserve net of deferred tax        22         23          3                     
Other                             11          8           11                    
Retained income                    3 674       3 177      3 471                 
Preference capital                 6           6          6                     
Non-controlling interest           132         106        115                   
                                  4 297       3 775      4 058                  
Other salient features                                                          
                                 2010        2009        2009                   
First half  First half  Year                   
                                  Unaudited  Unaudited   Audited                
                                 R millions  R millions  R millions             
Capital expenditure - property,                                                 
plant and equipment (3)            305         675          1 150               
- expansion                         213         544        963                  
- replacement                      92           131         187                 
Capital commitments                 156        589         737                  
- contracted for                    97          451        71                   
- not contracted for               59           138        666                  
Future rentals on property, plant                                               
and equipment leased                124        211         185                  
- payable within one year           28        90           84                   
- payable thereafter                96          121        101                  
Contingent liabilities              87         105         83                   
Net borrowings                     2 321        2 848      2 143                
Gearing (%)                        54          75          53                   
Current assets to current                                                       
liabilities                         1,4        1,3        1,4                   
Net book value per ordinary share                                               
(cents)                            3 878       3 425       3 671                
Depreciation - continuing                                                       
operations                          154         122        267                  
Rand/US$ closing exchange rate                                                  
(rand)                              7,66        7,72      7,38                  
Rand/US$ average exchange rate                                                  
(rand)                              7,50        9,00      8,27                  
Industry segment analysis                                                       
Profit from                            
                           Revenue       operations   Net assets                
                           2010   2009   2010  2009   2010   2009               
                           First half    First half   30 June                   
Unaudited     Unaudited    Unaudited                 
                           R millions    R millions   R millions                
                                                                                
                                                                                
Continuing operations       5 425  5 263   484   328   6 940  6 750             
Mining services             2 286  1 945   185   92    2 434  2 138             
Specialty chemicals         3 039  3 233   349   241   3 828  4 008             
Property                     168    152    29    45     691    588              
Specialty fibres (USA)       129    100    10    (7)    153    126              
Group services,                                                                 
intersegment and other      (197)  (167)  (89)  (43)   (166)  (110)             
Discontinued operations      -     458     -     7     55      (21)             
Specialty fibres                                                                
(Bellville)                  -      458    -     7      55     (21)             
                           5 425  5 721  484    335   6 995  6 729              
Net assets consist of property, plant, equipment, investment property, goodwill,
inventory and accounts receivable less accounts payable.                        
Notes                                                                           
(1)  Basis of preparation                                                       
    The condensed consolidated unaudited 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.                
    The same accounting policies and methods of computation are followed in the 
    interim financial statements as compared with the most recent annual        
financial statements and have been applied by all entities in the Group.    
    The condensed consolidated unaudited interim financial results and          
    accounting policies comply with the Listings Requirements of the JSE        
    Limited, the recognition and measurement requirements of International      
Financial Reporting Standards, the disclosure requirements of IAS 34 -      
    Interim Financial Reporting and the South African Companies Act, No. 61 of  
    1973, as amended.                                                           
(2)  Includes foreign sales of R1 460 million (2009 first half - R1 240         
million).                                                                   
(3)  Interest capitalised in the period amounting to R46 million (2009 first    
    half - R41 million).                                                        
(4)  Calculated in accordance with IAS 33. The Company has purchased call       
options over AECI shares which will obviate the need for the Company to     
    issue new shares in terms of the AECI share option scheme. In practice,     
    therefore, there will be no future dilution.                                
(5)  Net of 11 884 699 (2009 - 11 884 699) treasury shares held by a subsidiary 
company.                                                                    
(6)  Discontinued operations                                                    
    The remaining South African businesses of SANS Fibres discontinued          
    manufacturing activities at the end of March 2009.                          
(7)  The preparation of the interim 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 accounting policies involving particularly complex or        
    subjective judgements or assessments are deferred tax assets, environmental 
    remediation, asset lives and residual values, and post-retirement benefit   
    obligations.                                                                
Commentary                                                                      
Performance                                                                     
The Group`s performance strengthened further in the first six months of 2010    
with recovery in the mining and manufacturing sectors from the 2009 economic    
crisis contributing significantly to the Group`s improved results. Revenue from 
continuing operations increased by 3% to R5 425 million (2009: R5 263 million), 
with further growth being curtailed by the strong rand. Overall volumes grew by 
about 15% for continuing operations compared to the first half of 2009. Headline
earnings of R255 million (2009: R112 million) increased by 128% and profit from 
continuing operations improved by 48% to R484 million (2009: R328 million).     
Headline earnings per share increased to 238 cents (2009: 105 cents).           
Headline earnings were also positively impacted by a lower interest charge. Net 
financing costs, after capitalising borrowing costs, were R85 million (2009:    
R138 million).                                                                  
The Board has declared an interim cash dividend of 70 cents per ordinary share  
(2009: 28 cents per ordinary share in scrip or cash alternative).               
Mining services                                                                 
Revenue for the period was R2 286 million, 18% up on 2009`s R1 945 million.     
Volumes grew by 11%, mostly due to strong growth in Botswana, Indonesia and     
Zambia. Profit from operations doubled to R185 million (2009: R92 million). The 
growth in volumes, along with product mix improvements, had a positive effect on
the operating margin, which is at 8,1% (2009: 4,7%).                            
The Narrow Reef gold business in South Africa was impacted by shaft closures at 
some of AEL Mining Services` "AEL" customers. This was offset by growth in the  
Platinum, Surface and Massive business sectors. The Coal business in South      
Africa was negatively affected by rains in the second quarter.                  
AEL`s businesses in the rest of Africa showed a strong recovery. This was       
particularly evident in diamond and copper mining in Botswana and Zambia,       
respectively, while the gold sector in East and West Africa remained strong.    
Central African projects in the DRC are in start-up phases and are gaining      
momentum as customers ramp up their operations.                                 
The International business benefited from the full six months` trading in       
respect of the business gained in Indonesia last year. AEL has now established  
itself as a viable alternative supplier to the Indonesian coal mining market,   
and is focusing on consolidating its position.                                  
In line with its international footprint expansion strategy, AEL continues to   
explore further opportunities in Africa, Asia Pacific and South America.        
R155 million (2009: R245 million) was invested in capital expenditure, with R43 
million of this spent on the Initiating Systems Automation Programme "ISAP" at  
Modderfontein. The balance of the investment was for scheduled maintenance,     
support for the Indonesian business and normal plant replacement activities.    
Ramp-up of ISAP is progressing well, with the auto and robotic assembly machines
both in commercial production and running on a three shift cycle.               
Specialty chemicals                                                             
Revenue declined by 6% to R3 039 million (2009: R3 233 million), with the strong
rand depressing prices. Volumes increased by 17%. Profit from operations showed 
a 45% improvement to R349 million (2009: R241 million), delivering an operating 
margin of 11,5% (2009: 7,5%).                                                   
The recovery in mining and in certain manufacturing sectors, off the low base   
established in the first half of 2009, facilitated the volume growth. Continued 
strong performances from Crest Chemicals, Industrial Oleochemical Products and  
Lake International, and a solid contribution from Senmin secured pleasing       
results for the period.                                                         
R25 million of the Zambian-based debt, previously reported and fully provided   
for, was recovered.                                                             
A provision of R17 million has been made and an impairment of R4 million        
recognised in the period for the restructuring of Plastamid. This company was   
reliant on raw material from SANS Fibres in Bellville, which ceased operations  
in March 2009. Plastamid will be consolidated into Industrial Urethanes.        
R133 million was invested in capital expenditure, with R82 million of this being
spent on strategic growth projects.                                             
No acquisitions were finalised during the period.                               
Property                                                                        
The environment for property development remained challenging.  Heartland`s     
performance for the half-year was underpinned by the leasing and services       
components of its portfolio. Consequently, operating profit declined by 36% to  
R29 million (2009: R45 million).                                                
The outlook for Heartland`s industrial property development is more promising   
for the second half of 2010, with some interest being noted in this sector. Both
the office and residential markets, however, continue to be curtailed by the    
lack of end-user finance.                                                       
Filling of the pipeline of land available for sale continues so as to ensure    
that Heartland is well placed when market conditions improve. This process is   
sufficiently flexible to accommodate all land uses.                             
Specialty fibres                                                                
SANS Technical Fibers "STF" (USA) reported an operating profit of R10 million   
(2009: loss of R7 million).  Revenue increased by 29% to R129 million (2009:    
R100 million), whilst volumes grew by 59%. Operating margins were under pressure
on the back of increasing raw material prices and operating costs incurred in   
preparing to install equipment relocated from Bellville. This capital project is
progressing well and is expected to be completed ahead of schedule. The         
resulting additional capacity has already been sold for the remainder of 2010.  
STF remains cash positive and self-sustaining.                                  
Financial                                                                       
As the Group`s strategic growth capital programme nears completion, expenditure 
reduced to R305 million in the period (2009: R675 million). It is anticipated   
that total expenditure for the year will be approximately R650 million.         
Net working capital increased by R265 million to 18,7% of gross revenue (2009:  
17,2%). In 2009, working capital reduced following the closure of SANS Fibres.  
The increase in working capital is also attributable to a longer supply chain in
respect of sales to geographies outside of South Africa.                        
Borrowings increased by R178 million to R2 321 million, from R2 143 million at  
December 2009, and the increase is due largely to the movement in working       
capital. Cash interest cover improved to 4,8 times (2009: 2,8 times) as a result
of improved profitability. Gearing was 54% of shareholders` funds, in line with 
December 2009`s position of 53%.                                                
Corporate restructuring                                                         
In April, the Board announced a restructuring of the Group. This process        
included the integration of the AECI and Chemical Services executive teams into 
a single management structure, and the consolidation of the two head offices.   
The objective of the consolidation was to support delivery of AECI`s strategic  
growth strategy, and to enhance risk management, financial controls,            
transparency and decision-making timeframes throughout the Group.               
Board changes                                                                   
Mr FPP (Frank) Baker retired on 31 March 2010. The Board thanks Frank for his   
contribution to the Group over 34 years.                                        
Mr AJ (Allen) Morgan and Advocate R (Rams) Ramashia were appointed to the Board 
as non-executive directors with effect from 1 July 2010.                        
Outlook and strategic focus                                                     
The Group delivered pleasing results for the half-year, on the back of a solid  
recovery in global resources markets. This recovery had a positive impact on    
market volumes and on commodity prices and was of substantial benefit to the    
Group. However, the strong rand remains a challenge for AECI`s mining and       
manufacturing customers, and hence could impact profitability across all its    
businesses in the next six months.                                              
Recent global reports highlight the potential for a financial slow-down, and    
AECI does not expect to see the same level of volume improvement in the second  
half-year as it did in the first half. However, the Group expects to achieve    
continued benefit from the ramp-up of its capital projects in the second half of
the year, although it will be affected by deterioration in the macroeconomic    
environment should this materialise. The results for the six months to 30 June  
2010 are indicative of a new base level of performance for AECI and, provided   
economic conditions do not change significantly, AECI expects a gradual but     
sustained improvement in performance as its growth projects come fully on-line  
over the next six to 12 months.                                                 
Fani Titi                          Graham Edwards                               
Chairman                           Chief executive                              
Woodmead, Sandton                                                               
27 July 2010                                                                    
Notice to shareholders                                                          
Interim ordinary cash dividend No. 153                                          
Notice is hereby given that on Tuesday, 27 July 2010 the directors of AECI      
Limited declared an interim cash dividend of 70 cents per share, in respect of  
the financial year ending 31 December 2010, payable on Monday, 13 September 2010
to ordinary shareholders recorded in the books of the Company at the close of   
business on Friday, 10 September 2010.                                          
The last day to trade cum dividend will be Friday, 3 September 2010 and shares  
will commence trading ex dividend as from Monday, 6 September 2010.             
Any change of address or dividend instruction must be received on or before     
Friday, 3 September 2010.                                                       
Share certificates may not be dematerialised or rematerialised from Monday, 6   
September 2010 to Friday, 10 September 2010, both days inclusive.               
This announcement will be mailed to all recorded shareholders on or about       
Wednesday, 28 July 2010.                                                        
By order of the Board                                                           
EA Rea                                                                          
Acting Company secretary                                                        
Directors: F Titi (Chairman), GN Edwards (Chief executive)+,                    
RMW Dunne*, S Engelbrecht, Z Fuphe, KM Kathan+,MJ Leeming,                      
AJ Morgan, LM Nyhonyha, R Ramashia.                                             
+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)              
www.aeci.co.za                                                                  
Date: 28/07/2010 07:05:10 Supplied by www.sharenet.co.za                     
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