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Afe - Aeci Limited - Reviewed Condensed Consolidated Financial Results And

Release Date: 21/02/2012 07:07:45      Code(s): AFE
AFE - AECI Limited - Reviewed condensed consolidated financial results and      
declaration of final cash dividend for the year ended 31 December 2011          
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 AND DECLARATION OF FINAL CASH 
DIVIDEND FOR THE YEAR ENDED 31 DECEMBER 2011                                    
- HEPS up 25% to 720c                                                           
- Profit from operations up 24% to R1 315m                                      
- Final cash dividend up 33% to 179cps                                          
- R2bn capital phase of strategic investment programme complete                 
- B-BBEE transactions concluded                                                 
Commentary                                                                      
Performance                                                                     
The Group delivered excellent results in a challenging trading environment      
characterised by currency and commodity volatility, labour strikes and heavy    
rainfall which impacted open cast mining operations in some geographies.        
Revenue grew by 16% to R13 397 million (2010: R11 569 million). Volumes showed  
good growth of 7% while the weaker rand against the US dollar and rising        
chemical prices in the fourth quarter assisted in this revenue growth. Headline 
earnings of R772 million were 25% higher (2010: R619 million) and profit from   
operations recorded a 24% increase to R1 315 million (2010: R1 062 million). The
trading margin improved to 9,8% (2010: 9,2%).                                   
The Board has declared a final cash dividend of 179 cents per ordinary share    
(2010: 135 cents).                                                              
Safety                                                                          
Tragically, an accident in August at the Group`s joint venture business,        
Resitec, in Brazil, resulted in a fatality. It is disappointing that the Total  
Recordable Incident Rate (TRIR) weakened to 0,70 (2010: 0,60). The TRIR measures
the number of incidents per 200 000 hours worked. Our target remains no injury  
to anyone, ever, and safety continues to be a key performance indicator for     
management.                                                                     
Explosives                                                                      
AEL Mining Services ("AEL") increased its revenue by 14% to R5 494 million      
(2010: R4 832 million) on the back of higher ammonia prices, volume growth of   
1,2% and the weaker ZAR/US$ exchange rate in the last three months of 2011.     
Profit from operations was 35% higher at R510 million (2010: R378 million), with
a trading profit to revenue ratio of 9,3% (2010: 7,8%).                         
In the Southern African business, narrow reef markets for gold and platinum     
declined but growth was recorded in the coal and open pit mining sectors.  In   
the declining narrow reef sector, market share changes due to ammonia shortages 
subsequent to a supplier force majeure and nitrate plant interruptions resulted 
in a 3% reduction in South African volumes.                                     
Pleasing growth was achieved in Africa, primarily in West Africa`s gold mining  
sector. The business in Central Africa grew steadily as a result of good demand 
for copper. The performance in East Africa, where some market share was lost,   
was less buoyant.                                                               
AEL`s international business maintained its growth trend as new contracts were  
secured in Indonesia. Notwithstanding the disruption to coal mining in the      
region by heavy rainfall in the first and fourth quarters, solid volume growth  
continued. There was also a further increase in sales to Europe and South       
America, through AEL`s channel partners.                                        
Output of shock tube from the Initiating Systems Automation Plant (ISAP) ramped 
up from 60 million detonators in 2010 to 90 million in 2011. The capital        
expenditure component of the ISAP project was concluded. Ramp-up to ISAP`s full 
capacity and closure of conventional plants will be completed in 2012. This is  
expected to deliver future annualised costs savings in excess of R100 million.  
Of the R277 million capital expenditure for the year (2010: R344 million), R51  
million was spent on ISAP. The balance was invested in further expansion in     
Indonesia and for smaller capital replacement projects in Africa and South      
Africa.                                                                         
Specialty chemicals                                                             
The specialty chemicals cluster`s revenue increased by 17% to                   
R7 558 million (2010: R6 453 million), due to volume growth of 10,9% and        
increases in commodity prices as the ZAR/US$ exchange rate weakened in the last 
quarter of 2011. Volume growth came mainly from high demand for sulphur from the
copper mining sector in Africa. Profit from operations improved by 8,6% to R881 
million (2010: R811 million). As a result of the higher revenue value of sulphur
at lower margins, the overall trading margin declined to 11,7% (2010: 12,6%).   
Excellent performances were delivered by Chemical Initiatives, Industrial       
Oleochemical Products, ImproChem, Lake International Technologies ("Lake") and  
Resitec. Senmin delivered a solid result notwithstanding the effects of the     
strong rand for most of the year, margin pressures and some raw material supply 
chain issues.                                                                   
The cluster`s capital expenditure totalled R150 million (2010: R241 million),   
most of which was invested in Senmin`s operations. The new xanthates dryer was  
installed and is being ramped up. The strategic capital programme is complete.  
Local acquisitions for a total consideration of R174 million were concluded. The
business of T&C Chemicals was integrated into ImproChem and Chemisphere; Qwemico
Distributors was consolidated with Nulandis (formerly Plaaskem); and Croxton    
Chemicals was merged into Crest Chemicals. Lake now owns 100% of Cobito, its    
subsidiary which operates in the food and beverage sector. Chemfit acquired     
Instavet Import and Export.                                                     
ImproChem concluded a strategically advantageous distribution agreement with GE 
Betz, a global leader in its field, to supply water treatment products and      
process technologies in African markets.                                        
Property                                                                        
Heartland`s operating profit increased by 50% to R99 million (2010: R66         
million), with the leasing business continuing to be the primary contributor.   
Six property sales were achieved. These included Longlake Extension 1 as an     
undivided share transaction where costs, risks and rewards will be shared with a
partner. Cash development expenditure of R25 million was incurred in the year.  
The South African property market continued to lag the recovery of the overall  
economy. This environment is not expected to improve in the medium term and     
makes it challenging for AECI to realise appropriate value from its property    
holdings. Alternative models to facilitate the release of value from land       
surplus to operational requirements continue to be sought and assessed.         
Specialty fibres                                                                
SANS Technical Fibers (STF), in the USA, increased its revenue by 13% to R333   
million (2010: R294 million) owing to higher demand from the global automotive  
sector and higher raw material prices. Overall sales volumes grew by 1%, with   
the North American market softening in the second six months.                   
Profit from operations increased by 61% to R53m (2010:                          
R33 million) and the trading margin improved to 15,9% (2010: 11,2%) as a result 
of good cost control, changes in the sales mix and higher demand.               
AECI continues to evaluate STF`s strategic fit in the Group.                    
Finance                                                                         
Gearing reduced to 36% of shareholders` interest (2010: 40%) as the investment  
phase of the Group`s strategic capital expenditure programme was concluded.     
Capital of R475 million (2010: R633 million) was spent predominantly on the     
completion of Senmin`s polyacrylamide plant and the xanthates dryer, ISAP and   
the deployment of plant and equipment at customer sites in South Africa and the 
rest of Africa.                                                                 
Net working capital was at 17,7% of revenue (2010: 15%) and was impacted by     
longer working capital trade cycles in operations outside South Africa,         
increased commodity prices exacerbated by the weaker rand, acquisitions, and    
Group businesses taking control of certain raw material supply chains to secure 
continuous supply.                                                              
Cash interest cover improved to 7,7 times (2010: 5,6 times). Net interest paid, 
before capitalising borrowing costs of R17 million (2010: R93 million),         
decreased to R226 million (2010: R247 million) as a result of sustained lower   
interest rates which offset the longer working capital trade cycle.             
B-BBEE transactions                                                             
In December 2011 and January 2012, AECI shareholders approved both the B-BBEE   
transactions proposed by the Company:                                           
- the acquisition of the KTH consortium`s shareholding in AEL in exchange for   
new ordinary shares in the Company; and                                         
- the issue of new shares to facilitate the establishment of the AECI Employees 
Share Trust and the AECI Community Education and Development Trust.             
Outlook and strategic focus                                                     
The restructuring of the Group over the past two years has repositioned its cost
base. While manufacturing and mining production appear to be recovering, recent 
volatility suggests that the recovery remains fragile. However, AECI is         
confident in its ability to respond appropriately.                              
Management`s focus for 2012 will be on:                                         
- completing the ISAP ramp-up and continuing AEL`s expansion in markets beyond  
South Africa, particularly the rest of Africa, Asia Pacific and South America;  
- actively pursuing opportunities for the expansion of the specialty chemicals  
cluster into other geographies; and                                             
- continuing to pursue the realisation of value from the property portfolio,    
with current or new business models.                                            
Fani Titi Graham Edwards                                                        
Chairman  Chief Executive                                                       
Woodmead, Sandton                                                               
20 February 2012                                                                
Directors: F Titi (Chairman), GN Edwards                                        
(Chief Executive)**, RMW Dunne*, S Engelbrecht,                                 
Z Fuphe, KM Kathan (Financial Director)**, MJ Leeming, LL Mda,                  
AJ Morgan, LM Nyhonyha, R Ramashia.                                             
**Executive?*British                                                            
Company Secretary: EN Rapoo                                                     
Income statement                                                                
%        2011        2010                   
                                    change   R millions  R millions             
Revenue(2)                           +16      13 397      11 569                
Net operating costs                           (12 082)    (10 507)              
Profit from operations               +24      1 315       1 062                 
Net income/(loss) from Pension Fund           29          (6)                   
employer surplus accounts                                                       
Net income/(loss) from plan assets            5           (5)                   
for post-retirement medical aid                                                 
liabilities                                                                     
                                             1 349       1 051                  
Interest expense(3)                           (234)       (173)                 
Interest received                             27          21                    
Share of profit of associate                  1           2                     
companies                                                                       
                                             1 143       901                    
Impairment of goodwill                        -           (28)                  
Impairments of property, plant and            -           (4)                   
equipment                                                                       
Profit on disposal of subsidiary              1           -                     
Profit on acquisition of subsidiary           -           4                     
Profit before tax                             1 144       873                   
Income tax expense                            (306)       (233)                 
Profit for the year                           838         640                   
Profit for the year attributable to:                                            
-?ordinary shareholders                       777         600                   
-?preference shareholders                     2           2                     
-?non-controlling interest                    59          38                    
838         640                    
Headline earnings are derived from:                                             
Profit attributable to ordinary               777         600                   
shareholders                                                                    
Impairment of goodwill                        -           28                    
Impairments of property, plant and            -           4                     
equipment                                                                       
(Profit)/loss on disposal of                  (1)         20                    
subsdiaries                                                                     
Profit on acquisition of subsidiary           -           (4)                   
Profit on disposal of property,               (7)         (5)                   
plant and equipment                                                             
Profit on disposal of associates and          -           (22)                  
investments                                                                     
Tax effects of the above items                3           2                     
Non-controlling interest effect of            -           (4)                   
the above items                                                                 
Headline earnings                             772         619                   
Per ordinary share (cents):                                                     
Headline earnings                    +25      720         577                   
Diluted headline earnings(4)                  719         575                   
Basic earnings                       +30      724         559                   
Diluted basic earnings(4)                     723         558                   
Dividends declared                   +25      257         205                   
Dividends paid                                213         132                   
Ordinary shares (millions)(5)                                                   
-?in issue                                    107,3       107,3                 
-?weighted average number of shares           107,3       107,3                 
-?diluted weighted average number of          107,4       107,6                 
shares(4)                                                                       
Statement of comprehensive income                                               
                                           2011        2010                     
R millions  R millions               
Profit for the year                         838         640                     
Other comprehensive income net of tax:                                          
Foreign currency translation differences    182         (84)                    
net of deferred tax                                                             
Total comprehensive income for the year     1 020       556                     
Total comprehensive income attributable                                         
to:                                                                             
-?ordinary shareholders                     955         516                     
-?preference shareholders                   2           2                       
-?non-controlling interest                  63          38                      
                                           1 020       556                      
Statement of financial position                                                 
                                           2011       2010                      
                                           R millions R millions                
Assets                                                                          
Non-current assets                          5 992      5 667                    
Property, plant and equipment               3 721      3 564                    
Investment property                         436        440                      
Goodwill and intangibles                    1 155      1 035                    
Pension Fund employer surplus accounts      258        230                      
Investments                                 22         20                       
Loan receivables                            24         22                       
Deferred tax                                376        356                      
Current assets                              6 433      4 647                    
Inventories                                 2 584      1 892                    
Accounts receivable                         2 772      2 023                    
Assets classified as held for sale          16         -                        
Cash and cash equivalents                   1 061      732                      
Total assets                                12 425     10 314                   
Equity and liabilities                                                          
Ordinary capital and reserves               4 998      4 314                    
Non-controlling interest                    210        148                      
Preference share capital                    6          6                        
Total shareholders` interest                5 214      4 468                    
Non-current liabilities                     2 671      2 200                    
Deferred tax                                148        121                      
Non-current borrowings                      1 507      1 133                    
Non-current provisions                      1 016      946                      
Current liabilities                         4 540      3 646                    
Accounts payable                            2 986      2 176                    
Current borrowings                          1 421      1 368                    
Tax payable                                 133        102                      
Total equity and liabilities                12 425     10 314                   
Statement of cash flows                                                         
                                           2011       2010                      
                                           R millions R millions                
Cash generated by operations                1 883      1 654                    
Dividends received                          -          2                        
Interest paid                               (253)      (268)                    
Interest received                           27         21                       
Income tax paid                             (319)      (209)                    
Changes in working capital                  (597)      *                        
Expenditure relating to non-current         (78)       (37)                     
provisions                                                                      
Expenditure relating to retrenchments and   -          (33)                     
restructuring                                                                   
Cash available from operating activities    663        1 130                    
Dividends paid                              (237)      (146)                    
Cash retained from operating activities     426        984                      
Cash utilised in investment activities      (615)      (581)                    
Proceeds from disposal of investments and   -          35                       
businesses                                                                      
Investments                                 (173)      (7)                      
Net capital expenditure                     (442)      (609)                    
Net cash (utilised)/generated               (189)      403                      
Cash effects of financing activities        423        (299)                    
Non-current loans receivable                (3)        11                       
Borrowings                                  426        (310)                    
Increase in cash and cash equivalents       234        104                      
Cash and cash equivalents at the            732        668                      
beginning of the year                                                           
Translation gain/(loss) on cash and cash    95         (40)                     
equivalents                                                                     
Cash and cash equivalents at the end of     1 061      732                      
the year                                                                        
*?nominal amount                                                                
Statement of changes in equity                                                  
                                           2011       2010                      
                                           R millions R millions                
Total comprehensive income for the year     1 020      556                      
Dividends paid                              (237)      (146)                    
Acquisition of subsidiary                   (37)       -                        
Equity at the beginning of the year         4 468      4 058                    
Equity at the end of the year               5 214      4 468                    
Made up as follows:                                                             
Ordinary share capital                      107        107                      
Share premium                               108        108                      
Reserves                                    344        164                      
Property revaluation surplus                237        237                      
Foreign currency translation reserve net    99         (81)                     
of deferred tax                                                                 
Other                                       8          8                        
Retained earnings                           4 439      3 935                    
Preference share capital                    6          6                        
Non-controlling interest                    210        148                      
5 214      4 468                     
Other salient features                                                          
                                           2011       2010                      
                                           R millions R millions                
Capital expenditure                         475        633                      
-?expansion                                 182        397                      
-?replacement                               293        236                      
Capital commitments                         360        88                       
-?contracted for                            116        49                       
-?not contracted for                        244        39                       
Future rentals on property, plant and       173        196                      
equipment leased                                                                
-?payable within one year                   43         96                       
-?payable thereafter                        130        100                      
Contingent liabilities                      -          87                       
Net borrowings                              1 867      1 769                    
Gearing (%)                                 36         40                       
Current assets to current liabilities       1,4        1,3                      
Net asset value per ordinary share          4 660      4 022                    
(cents)                                                                         
Depreciation - continuing operations        395        332                      
Rand/US$ closing exchange rate (rand)       8,15       6,65                     
Rand/US$ average exchange rate (rand)       7,25       7,32                     
Industry segment analysis                                                       
Revenue         Profit from     Net assets                  
                                    operations                                  
                    2011    2010    2011    2010    2011    2010                
                    R millions      R millions      R millions                  
Explosives           5 494   4 832   510     378     2 569   2 294              
Specialty chemicals  7 558   6 453   881     811     4 049   3 717              
Property             476     370     99      66      762     726                
Specialty fibres     333     294     53      33      175     143                
Group services and   (464)   (380)   (228)   (226)   143     (102)              
intersegment                                                                    
                    13 397  11 569  1 315   1 062   7 698   6 778               
Net assets consist of property, plant, equipment, investment                    
property, goodwill and intangibles, inventory, accounts                         
receivable, assets classified as held for sale less accounts                    
payable.                                                                        
Notes                                                                           
(1)Basis of preparation and accounting policies                                 
The reviewed condensed consolidated financial results are prepared in accordance
with the recognition and measurement requirements of International Financial    
Reporting Standards, the presentation and disclosure requirements of IAS 34 -   
Interim Financial Reporting, the AC500 series issued by the Accounting Practices
Board, the Listings Requirements of the JSE Limited, and in the manner required 
by the South African Companies Act, No. 71. of 2008. Accounting policies have   
been applied consistently by all entities in the Group and are consistent with  
those applied in the previous financial year. The preparation of these reviewed 
condensed consolidated financial results for the year ended 31 December 2011 was
supervised by the Financial Director, Mr KM Kathan CA(SA).                      
(2)Includes foreign and export revenue of R 3 859 million (2010: R 3 111        
million).                                                                       
(3)Interest capitalised in the period amounting to R17 million (2010: R93       
million).                                                                       
(4)Calculated in accordance with IAS33. The Company has purchased call options  
over AECI shares which will obviate the need for the Company to issue new shares
in terms of the AECI share option scheme. In practice, therefore, there will be 
no future dilution.                                                             
(5)Net of 11 884 669 (2010: 11 884 669) treasury shares held by a subsidiary    
company.                                                                        
(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 2010.                                                    
(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.             
DIVIDEND NOTICE                                                                 
Cash dividend declaration                                                       
Notice to shareholders                                                          
Final ordinary cash dividend no.156                                             
Notice is hereby given that on Monday, 20 February 2012 the Directors of AECI   
declared a final cash dividend of 179 cents per share, in respect of the        
financial year ended 31 December 2011, payable on Monday, 16 April 2012 to      
ordinary shareholders recorded in the books of the Company at the close of      
business on Friday,                                                             
13 April 2012.                                                                  
The last day to trade cum dividend will be Wednesday, 4 April 2012 and shares   
will commence trading ex dividend as from Thursday,                             
5 April 2012.                                                                   
Any change of address or dividend instruction must be received on or before     
Wednesday, 4 April 2012.                                                        
Share certificates may not be dematerialised or rematerialised from Thursday, 5 
April 2012 to Friday, 13 April 2012, both days inclusive.                       
This announcement will be distributed to all recorded shareholders on or about  
Tuesday, 21 February 2012.                                                      
By order of the Board                                                           
EN Rapoo                                                                        
Company Secretary                                                               
Woodmead, Sandton                                                               
20 February 2012                                                                
Transfer secretaries                                                            
Computershare Investor Services Proprietary Limited, 70 Marshall Street,        
Johannesburg, 2001; and Computershare Investor Services PLC, PO Box 82, The     
Pavilions, Bridgwater Road, Bristol BS 99 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: 21/02/2012 07:07:44 Supplied by www.sharenet.co.za                     
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