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A E C I Limited - Condensed Consolidated Unaudited Interim Financial Results And Cash Dividend Declaration For The Half-year Ended 30

Release Date: 25/07/2012 07:05:00      Code(s): AFE
AECI LIMITED
(Incorporated in the Republic of South Africa)
(Registration No. 1924/002590/06)
Share Code: AFE
ISIN No.: ZAE000000220
Tax Reference No. 9000008608
(?AECI? or ?the Company?)

CONDENSED CONSOLIDATED UNAUDITED INTERIM FINANCIAL RESULTS AND
CASH DIVIDEND DECLARATION FOR THE HALF-YEAR ENDED 30 JUNE 2012

Revenue up 17% to R6 954m
Improvement in safety performance
HEPS of 108c impacted by B-BBEE transaction charge
Cash dividend of 78cps declared

COMMENTARY
Performance
Trading conditions were volatile in the first six months of 2012
owing to the prevailing macroeconomic environment. In addition,
the Group?s performance was adversely affected by operational
issues in some of its key businesses.
Notwithstanding these challenges, revenue increased by 17% to
R6 954 million (2011: R5 969 million) owing to an increase in
ammonia and chemical commodity prices in the first quarter, a
weaker ZAR/US$ exchange rate and volume growth of 8,2%. Volume
growth was aided by the 2011 acquisitions where high volumes were
traded at lower operating margins.
Headline earnings declined by 58% toR120 million (2011: R284
million), mainly due to IFRS charges of R148 million pursuant to
the B-BBEE transaction concluded earlier in the year. This also
affected headline earnings per share (HEPS), which declined by 59%
to 108 cents per share 2011: 265 cents per share).
The Board has declared an interim cash dividend of 78 cents per
ordinary share (2011: 78 cents).
Safety
It is pleasing to report that AECI?s 12 month moving average Total
Recordable Injury Rate (TRIR) improved to 0,58. This is below the
rate of 0,60 achieved in 2010 ? the lowest year-end figure ever
for the Group. The TRIR measures the number of incidents per200
000 hours worked.
Explosives
Revenue from AEL Mining Services (?AEL?) was 14% higher at R2 907
million (2011: R2 542 million) as ammonia prices increased by an
average of 14% and AEL?s overall volumes improved by 4,2%.
However, profit from operations declined by 8,5% toR183 million
(2011: R200 million) while the operating margin deteriorated to
6,3%(2011: 7,9%). AEL had to respond to ammonia supply constraints
from its key supplier and, to ensure that customers? requirements
would be met, imported ammonia and ammonium nitrate at an
additional cost of R35 million. A planned shutdown of No.11 Nitric
Acid plant, at Modderfontein, caused further buy-ins at an
additional cost of R15 million. Due to these supply chain events,
working capital increased. The focus for the rest of 2012 will be
on returning working capital to normal levels.
ISAP
The Initiating Systems Automated Plant (ISAP) is technically
complete and the technology has been proved. Owing to production
and quality underperformance issues, however, ramp-up targets were
not met. To address this, a focused intervention has commenced to
enhance efficiencies. While cost savings ofR32 million were
achieved, the full rate of savings associated with ISAP and ramp-
down of the traditional plants is expected to be achieved by the
end of the first half of 2013.
Regional performance
AEL gained market share in South Africa and this, combined with
growth in the Surface and Massive mining sector, resulted in a 2%
volume increase. In Narrow Reef mining, volumes continued to
decline and customers were again affected by safety-related
stoppages and industrial action.
Good volume growth of 11% was achieved in the rest of Africa. The
International business maintained its growth trend and gained
another three contracts in Indonesia. Indonesian volumes grew by
13%, notwithstanding poor weather conditions and industrial action
at a key mining contractor?s pit.
Capital expenditure of R189 million was incurred, with R91 million
of this invested in growth projects mainly at customer sites.
Specialty chemicals
Revenue increased by 20% to R3 949 million (2011: R3 280 million).
This significant improvement was due to volume growth, the
weakening of the rand and higher chemical commodity prices. The
volume growth of 12,1% was boosted by the performance of
acquisitions concluded in 2011. Profit from operations was 6%
higher at R411 million (2011: R386 million) and the operating
margin was 10,4% (2011: 11,8%). The decline in the operating
margin was due to changes in the product mix, with higher volumes
at lower margins being sold.
Akulu Marchon, Chemical Initiatives, Crest Chemicals, Lake
International Technologies and Nuland is performed extremely well
in difficult market conditions.
Senmin delivered another solid result, notwithstanding labour
strikes at key customers for mining chemicals. This company?s
results were also affected by product substitution, due to higher
prices of guar from Asia. The cumulative impact of these factors
wasR25 million. The downturn in platinum mining will continue to
affect Senmin for the remainder of the year.
All Senmin?s capital projects are complete and fully operational.
Weak market conditions had an adverse effect on Chemisphere (paper
industry), Industrial Urethanes (white goods) and Resitec
(Brazilian automotive). The acquisition of General Electric?s
Chemical and Monitoring Solutions business in Africa was completed
at the end of June, for a consideration of R168 million. Like
ImproChem, this business has an established African footprint and
will enhance ImproChem?s technology and service offering to the
market.
The specialty chemicals cluster invested R78 million in capital
projects, with R48 million of this related to expansion
expenditure.
Property
Operating profit decreased by 42% toR21 million (2011: R36
million). There were no property sales finalised in the period and
thus income from the leasing and services businesses sustained
Heartland?s results. The property development market remained
muted except for specific, well located areas. Improvement in the
overall market is expected to be slow. Once Longlake Extension 1
and Westlake at Modderfontein are proclaimed, some land sales for
industrial use could be forthcoming.
Property development expenditure of R43 million was incurred,
primarily for the M60/Marlboro Road extension and infrastructure
for Longlake and Westlake.
Specialty fibres
In rand terms, revenue increased by 6% to R175 million (2011: R165
million) but in US$ terms it declined by 9% to US$21 million
(2011: US$23 million) owing to softer market conditions for
exports to Europe, Asia and South America. As a result, volumes
declined by 12%. Profit from operations decreased by 11% to R24
million (2011: R27 million).
It was pleasing that the US automotive market, where the business
has a strong position, remained stable throughout the period.
Financial
The Group invested R280 million (2011: R229 million) in capital
expenditure, with R145 million of this related to expansion
projects at customer sites for explosives and mining chemicals.
Gearing was at 50% from 49% in June 2011 (December 2011: 36%) due
to an increase in working capital, mainly at AEL. In the specialty
chemicals cluster, working capital was well managed. Net working
capital as a percentage of revenue was 22,4%(2011: 20,2%) and net
interest cover was at 7,1 times (2011: 7,3 times).
Income tax expense related to taxable income before the B-BBEE
transaction IFRS 2 charge.
The net loss of R14 million (2011: profit of R1 million) incurred
from the Pension Fund employer surplus accounts relates to a
provision for a higher contribution rate required by the Pension
Fund for active members.
Directorate
Fani Titi retired as Non-executive Director and Chairman at the
Annual General Meeting in May and he was succeeded as Chairman by
Schalk Engelbrecht. The Board thanks Fani for his service and
leadership and welcomes Schalk in his new role.
Graham Edwards, Chief Executive, has advised the Board that he
intends retiring during the first quarter of 2013. The process of
appointing a suitable successor is underway and further
announcements in this regard will be made in due course.
Outlook and strategic focus
Volumes in mining are expected to be stable, supported by AECI?s
extensive geographic footprint. AECI?s mining revenue is affected
by volumes mined, not directly by mineral prices. Accordingly, the
outlook for explosives and mining chemicals remains promising.
In manufacturing, indications are that growth will continue to be
pedestrian owing to the prevailing economic environment.
Management?s focus for the rest of the year will be on improving
internal efficiencies, including working capital, and on
optimising operating platforms. Some further ISAP-related savings
will be realised in 2012 but AEL?s intervention initiative is only
expected to yield results during 2013.
AECI will continue to pursue its growth strategy in the rest of
Africa and further afield.
Schalk Engelbrecht Chairman   Graham Edwards Chief Executive
Woodmead, Sandton24 July 2012
Directors: S Engelbrecht (Chairman), GN Edwards (Chief Executive)
?, RMW Dunne*,Z Fuphe, KM Kathan (Financial Director)?, MJ
Leeming, LL Mda, AJ Morgan, LM Nyhonyha, R Ramashia.
?Executive *British
Company Secretary: EN Rapoo

INCOME STATEMENT

                                             2012       2011       2011
                                       First half First half       Year
                                   %    Unaudited Unaudited     Audited
                              change   R millions R millions R millions
Revenue(2)                       +17        6 954      5 969     13 397
Net operating costs                       (6 423)    (5 423)   (12 081)
Profit from operations           -3           531        546      1 316
CST share-based payment(3)                  (138)          ?          ?
Net (loss)/income from
Pension Fund employer
surplus accounts                            (14)           1         29
Net (loss)/income from plan
assets for post-retirement
medical aid liabilities                      (2)          14          5
                                             377         561      1 350
Interest expense(4)                        (121)       (106)      (234)
Interest received                             21          16         27
Share of profit of
associate companies                            ?           *          1
Profit before tax                            277         471      1 144
Income tax expense                         (139)       (152)      (306)
Profit for the period                        138         319        838
Profit for the period
attributable to:
? ordinary shareholders                      136         295        777
? preference shareholders                      1           1          2
? non-controlling interest                     1          23         59
                                             138         319        838
Headline earnings are
derived from:
Profit attributable to
ordinary shareholders                        136         295        777
Impairment of goodwill                         4           ?          ?
Profit on disposal of                          ?           ?        (1)
subsidiary
Profit on disposal of
property, plant and
equipment                                 (23)       (13)         (7)
Tax effects of the above
items                                        3          2           3
Headline earnings                          120        284         772
Per ordinary share (cents):                136        295         777
Headline earnings              -59         108        265         720
Diluted headline earnings                  103        264         719
Basic earnings                             122        275         724
Diluted basic earnings                     117        274         723
Dividends declared                          78         78         179
Dividends paid                             179        135         213
* Nominal amount

ORDINARY SHARES IN ISSUE
                                           2012       2011       2011
                                     First half First half       Year
                                      Unaudited Unaudited     Audited
                                       Millions   Millions   Millions
Listed ordinary shares
At the beginning of the period            119,1     119,1      119,1
Issued during the period for CST
and KTH transactions (3) (6)                9,1         ?          ?
At the end of the period                  128,2     119,1      119,1
Treasury shares held by subsidiary
company                                  (11,8)    (11,8)     (11,8)
                                          116,4     107,3      107,3
Unlisted redeemable convertible
ordinary shares
At the beginning of the period                ?         ?           ?
Issued during the period for EST
transaction (3)                            10,1         ?           ?
At the end of the period                   10,1         ?           ?
Treasury shares held by
consolidated EST (3)                     (10,1)         ?          ?
                                              ?         ?          ?
Ordinary shares in issue                  116,4     107,3      107,3

RECONCILIATION OF WEIGHTED AVERAGE NUMBER OF SHARES
                                          2012       2011        2011
                                    First half First half        Year
                                     Unaudited Unaudited      Audited
                                      Millions   Millions    Millions
Weighted average number of
ordinary shares at the beginning
of the period                            119,1      119,1       119,1
Weighted average number of
ordinary shares issued during the
period                                    15,5          ?           ?
Weighted average number of
ordinary shares held by                  (7,9)          ?           ?
consolidated EST
Weighted average number of
contingent returnable ordinary
shares held by the CST                    (3,4)          ?          ?
Weighted average number of shares
held by consolidated subsidiary          (11,8)    (11,8)      (11,8)
Weighted average number of
ordinary shares for basic earnings
per share                                 111,5      107,3      107,3
Dilutive adjustment for potential
ordinary shares                             4,5          ?          ?
Dilutive adjustment for share
options under the AECI share
option scheme(5)                            0,1        0,2        0,1
Weighted average number of
ordinary shares for diluted
earnings per share                        116,1      107,5      107,4

STATEMENT OF COMPREHENSIVE INCOME
                                           2012       2011       2011
                                     First half First half       Year
                                      Unaudited Unaudited     Audited
                                     R millions R millions R millions
Profit for the period                       138        319        838
Other comprehensive income net
of tax:
Revaluation of derivative
instruments                                   *         *           *
Foreign currency translation
differences net of deferred tax             (1)        23         182
Other                                         1         *           *
Total comprehensive income for
the period                                  138       342       1 020
Total comprehensive income
attributable to:
? ordinary shareholders                     136       320         954
? preference shareholders                     1         1           2
? non-controlling interest                    1        21          64
                                            138       342       1 020
* Nominal amount

STATEMENT OF FINANCIAL POSITION
                                           2012       2011       2011
                                        30 June    30 June     31 Dec
                                      Unaudited Unaudited     Audited
                                     R millions R millions R millions
Assets
Non-current assets                        6 030      5 756     6 024
Property, plant and equipment             3 754      3 615     3 721
Investment property                         437        446       436
Intangible assets                            78          7        77
Goodwill                                  1 075      1 074     1 078
Pension Fund employer surplus               245        231       259
accounts
Investments                                 26         26         22
Loans receivable                            25         20         24
Deferred tax                               390        337        407
Current assets                           6 295      5 461      6 433
Inventories                              2 613      2 180      2 584
Accounts receivable                      2 654      2 421      2 772
Pre-payment for business                   135          ?          ?
combination (7)
Assets classified as held for sale           ?          ?         16
Cash                                       893        860      1 061
Total assets                            12 325     11 217     12 457
Equity and liabilities
Ordinary capital and reserves            5 253      4 489      4 998
Non-controlling interest                    39        169        210
Preference share capital                     6          6          6
Total equity                             5 298      4 664      5 214
Non-current liabilities                  2 786      1 817      2 702
Deferred tax                               165        117        179
Non-current borrowings                   1 575        709      1 507
Non-current provisions                   1 046        991      1 016
Current liabilities                      4 241      4 736      4 541
Accounts payable                         2 183      2 158      2 987
Current borrowings                       1 947      2 452      1 421
Tax payable                                111        126        133
Total equity and liabilities            12 325     11 217     12 457

STATEMENT OF CASH FLOWS
                                           2012       2011       2011
                                     First half First half       Year
                                      Unaudited Unaudited     Audited
                                     R millions R millions R millions
Cash generated by operations                819        807      1 883
Interest paid                             (121)      (119)      (253)
Interest received                            21         16         27
Income tax paid                           (168)       (88)      (319)
Changes in working capital                (702)      (731)      (598)
Expenditure relating to non-               (47)       (25)       (78)
current provisions
Cash (utilised by)/available             (198)      (140)        662
from operating activities
Dividends paid                           (206)      (146)       (237)
Cash flows from operating                (404)      (286)         425
activities
Cash flows from investing                (360)      (256)       (615)
activities
Investments                                (1)       (57)        (88)
Pre-payment for business                 (135)          ?           ?
combination (7)
Net capital expenditure                  (224)      (199)       (527)
Net cash utilised                        (764)      (542)       (190)
Cash flows from financing                  593        662         424
activities
Non-current loans receivable                (1)          2        (3)
Borrowings                                  594        660        427
(Decrease)/increase in cash               (171)        120        234
Cash at the beginning of the              1 061        732        732
period
Translation gain on cash                      3          8         95
Cash at the end of the period               893        860      1 061

STATEMENT OF CHANGES IN EQUITY
                                           2012       2011       2011
                                     First half First half       Year
                                      Unaudited Unaudited     Audited
                                     R millions R millions R millions
Total comprehensive income for the
period                                      138        342     1 020
Dividends paid                            (206)      (146)     (274)
Issue of ordinary shares:
? at par value(3)                             4          ?         ?
? at market value(6)                        393          ?         ?
Net effect of acquisition of non-
controlling interest to equity (6)        (393)          ?         ?
Share-based payment reserve                 148          ?         ?
Equity at the beginning of the
period                                    5 214      4 468     4 468
Equity at the end of the period           5 298      4 664     5 214
Made up as follows:
Ordinary share capital                      116        107       107
Share premium (6)                           496        108       108
Reserves                                    492        189       344
Property revaluation surplus                237        237       237
Foreign currency translation
reserve                                     100       (56)       101
Share-based payment reserve                 148          ?         ?
Other                                         7          8         6
Retained earnings (6)                     4 149      4 085     4 439
Preference share capital                      6          6         6
Non-controlling interest (6)                 39        169       210
                                          5 298      4 664     5 214

OTHER SALIENT FEATURES
                                           2012       2011       2011
                                     First half First half       Year
                                      Unaudited Unaudited     Audited
                                     R millions R millions R millions
Capital expenditure (4)                     280        229        475
? expansion                                 145        109        182
? replacement                               135        120        293
Capital commitments (7)                     335        142        360
? contracted for                             95        117        116
? not contracted for                        240         25        244
Future rentals on property, plant
and equipment leased                        180        141       173
? payable within one year                    51         30        43
? payable thereafter                         129            111       130
Contingent liabilities                         ?             48         ?
Net borrowings                             2 629          2 301     1 867
Gearing (%)                                   50             49        36
Current assets to current
liabilities                                   1,5           1,2       1,4
Net asset value per ordinary share
(cents)                                    4 513          4 186     4 660
Depreciation and amortisation                223            191       395
ZAR/US$ closing exchange rate
(rand)                                      8,19           6,79      8,15
ZAR/US$ average exchange rate
(rand)                                      7,92           6,88      7,25
Per ordinary share
(cents)(excluding B-BBEE
transaction):
? headline earnings                           240           265       720
? diluted headline earnings                   240           264       719

INDUSTRY SEGMENT ANALYSIS
                                        Profit from
                         Revenue         operations        Net assets
                        2012     2011      2012   2011       2012    2011
                      First half         First half          30 June
                       Unaudited          Unaudited         Unaudited
                      R millions         R millions        R millions
Explosives            2 907    2 542        183     200    3 087   2 685
Specialty chemicals   3 949    3 280        411     386    4 508   4 055
Property                  176     194        21      36       781     751
Specialty fibres
(USA)                   175      165       24       27       192     160
Group services and
intersegment          (253)    (212)     (98)    (103)       (5)    (66)
EST share-based
payment (3)             (10)       ?
                       6 954   5 969    531     546   8 563   7 585
Net assets consist of property, plant, equipment, intangibles,
investment property, goodwill, inventory, accounts receivable and
pre-payment for business combination less accounts payable.

NOTES
(1) Basis of preparation and accounting policies. The condensed
consolidated unaudited interim financial results are prepared in
accordance with the recognition and measurement requirements of
International Financial Reporting Standards, the requirements of
IAS 34 ? Interim Financial Reporting, the AC500 series issued by
the Accounting Practices Board and 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 reporting period. This interim
report has not been audited or reviewed by the Company?s auditor,
KPMG Inc. This interim report for the six months ended 30 June
2012 is being published on 25 July 2012. The preparation of these
condensed consolidated unaudited interim financial results for the
period ended 30 June 2012 was supervised by the Financial
Director, Mr KM Kathan CA(SA) AMP (Harvard).
(2) Includes foreign and export revenue of R2 073 million (2011
first half: R1 665 million).
(3) The 3,5% AECI Community Education and Development Trust
(`CST?) transaction became effective on13 February 2012. The CST
subscribed for 4 426 604 ordinary shares in the Company. The
shares vested immediately and the share-based payment of R138
million was recognised in full in the income statement and
allocated to a separate reserve. These shares are contingently
returnable and, as a result, are excluded from EPS and HEPS. The
8% AECI Employees Share Trust (`EST?) transaction took effect on 9
February 2012, with the EST subscribing for 10 117 951 unlisted B
ordinary shares in the Company. The dividend payable on these
shares may not exceed that for ordinary shares. Employees of the
Group were allocated 7 569 669 of these shares with a grant date
of 30 April 2012. The total cost is estimated at R126 million with
R10 million recognised in the income statement during the period
and the remainder to be recognised over the respective vesting
periods.
(4) There was no interest capitalised in the period (2011 first
half: R14 million).
(5) 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.
(6) The Kagiso Tiso Holdings Proprietary Limited (RF) (`KTH?)
transaction took effect on 18 January 2012 and involved the
purchase by AECI of KTH?s 25,1% interest in AEL Holdco Limited in
exchange for 4 678 667 ordinary shares in AECI. The transaction is
recognised as a change in ownership interest in terms of IAS 27,
and the carrying amounts of controlling and non-controlling
interests have been adjusted. The transaction has been measured at
the fair value of the consideration paid and is based on the
closing price of R83,98 of the Company?s shares on 17 January
2012. The shares issued have been recognised in equity, with R5
million in share capital and R388 million in share premium. The
non-controlling interest has been reduced by the carrying amount
of R172 million, with the balance of R221 million recognised
directly in retained earnings.
(7) The Board approved the acquisition of General Electric?s
Chemical and Monitoring Solutions business in Africa for a
consideration of R168 million. R135 million of this was recognised
as a pre-payment for the business combination which became
effective on 1 July 2012.
(8) The preparation of the condensed consolidated unaudited
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 particular complex or
subjective judgements or assessments are deferred tax assets,
environmental remediation, asset lives and residual values and
post-retirement benefit obligations.

DIVIDEND NOTICE
Notice to shareholders
Interim ordinary cash dividend no. 157

Notice is hereby given that on Tuesday, 24 July 2012 the Directors
of AECI declared a gross interim cash dividend of 78 cents per
share, in respect of the six month period ended 30 June 2012,
payable on Monday, 10 September 2012 to ordinary shareholders
recorded in the books of the Company at the close of business on
Friday, 7 September 2012.
The last day to trade cum dividend will be Friday, 31 August 2012
and shares will commence trading ex dividend as from Monday,
3 September 2012.
A South African dividend withholding tax of 15% will be applicable
to all shareholders who are not either exempt or entitled to a
reduction of the withholding tax rate in terms of a relevant
Double Taxation Agreement resulting in a net dividend of 66,3
cents per share to those shareholders who are not exempt or not
entitled to a reduction. No Secondary Tax on Companies? credits
are available to be used. Application forms for exemption or
reduction may be obtained from the Transfer Secretaries and must
be returned to them on or before Friday, 31 August 2012.
The issued share capital at the declaration date is
128 241 140 ordinary shares, 3 000 000 cumulative preference
shares and 10 117 951 redeemable convertible B ordinary shares.
The dividend has been declared from the income reserves of the
Company.
Any change of address or dividend instruction must be received on
or before Friday, 31 August 2012.
Share certificates may not be dematerialised or rematerialised
from Monday, 3 September 2012 to Friday, 7 September 2012, both
days inclusive.
By order of the Board
EN Rapoo
Company Secretary
Woodmead, Sandton
24 July 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)

Date: 25/07/2012 07:05:00 Supplied by www.sharenet.co.za                     
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