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AECI - Interim Results

Release Date: 29/07/2003 07:23
Code(s): AFE
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AECI - Interim Results AECI LIMITED Incorporated in the Republic of South Africa (Registration No 1924/002590/06) Share code: AFE ISIN No: ZAE000000220 Group interim results for the six months ended 30 June 2003 Specialty product and service solutions Highlights * Headline earnings per share match 2002 levels * Interim ordinary dividend increased to 42c * Return on invested capital (ROIC) steady at 15% * Increase in full year headline earnings per share still targeted Commentary Performance Headline earnings of 151 cents per ordinary share were unchanged from the high level established in the first half of 2002 but 59 per cent higher than in the first half of 2001. An increased dividend of 42 cents per ordinary share has been declared (2002 - 40 cents) with a dividend cover of 3.6 (2002 - 3.8). The dividend declaration is published in full elsewhere. Sales volumes and revenues of Group businesses, excluding those sold in 2002, increased by 3 and 1 per cent respectively as demand slowed in local markets and the continued appreciation of the rand against the US dollar eroded the rand value of dollar-based revenues. The ongoing focus on enhanced efficiencies and lower operating costs enabled the operating margin to be largely maintained at 8.2 per cent from 8.5 per cent in the same period last year. The annualised return on invested capital (ROIC) for the Group, excluding revaluation of land, was steady at 15 per cent. African Explosives benefited from growth in the platinum sector and a favourable product mix, which contributed to a pleasing improvement in trading profit. Chemical Services continued its impressive growth record as tight cost control and a small increase in volumes enabled an increase in trading margin. The property activities of Heartland delivered improved results in challenging market conditions while Dulux was affected by lower demand for decorative coatings. As forewarned earlier this year in the commentary on 2002, margins at SANS Fibres were eroded by the strength of the rand throughout the first half of the year. However, following the spike in polyester raw material prices during the first quarter of the year, SANS achieved much improved results in the second quarter. Additional business at good dollar margins was procured in Asia and the joint venture operations in Stoneville, North Carolina, approached break-even before depreciation by mid-year. These gains notwithstanding, it is now evident that SANS" full year trading profit will fall short of that recorded in 2002. Financial Capital expenditure of R109 million was controlled to a level in line with the depreciation charge for the period. Investment expenditure included the acquisition by Chemical Services of the mining and alkylate chemicals businesses of Sentrachem for a cash consideration of approximately R160 million. Group working capital was well managed at 17 per cent of sales. The Group"s net borrowings were contained to R1 057 million at mid-year. Cash interest cover at 5.3 times was in line with that achieved in the first half of 2002 while gearing increased from year-end to 46 per cent of shareholder funds, the same level as June 2002. Portfolio Chemical Services has concluded an agreement to acquire from Ondeo Nalco Company of the USA the 50 per cent interest in Ondeo Nalco SA, which it does not already own for a cash consideration of approximately R120 million. The purchase is subject to regulatory approvals. The Group"s segmental reporting has been amended to include "Decorative and packaging coatings" as a distinct and ongoing component of the business portfolio. Revenue and trading profit from non-core businesses sold during 2002 have been included in the segment "Group services, intergroup and other" for that year. Outlook While international interest rates are at historic lows and there has been some easing of security fears, tangible signs of sustainable recovery in the world"s major economies remain elusive. Sluggish global markets, together with the further significant strengthening of the rand against the US dollar since year- end, have undermined the steady performance of the domestic economy, particularly in the mining and export-oriented manufacturing sectors. However, further reductions in local interest rates as inflation declines are expected to bolster domestic consumption in due course, and some improvement in trading conditions for the Group now seems in prospect over the next 18 months. With focused actions to enhance competitiveness underpinning performance in current market conditions, management continues to target an increase in headline earnings for the full 2003 financial year. Alan Pedder Schalk Engelbrecht Chairman Chief Executive Sandton, 28 July 2003 Income statement 2003 2002 2002 First half First half Year % Unaudited Unaudited Audited change R millions R millions R millions
Revenue (1) -2 3 753 3 849 7 818 Net trading profit -5 309 325 698 Net financing costs (79) (84) (164) Income from associates and 3 4 8 investments 233 245 542 Transitional provision for post- employment medical aid benefits (2) (10) (9) (20) Amortisation of goodwill (34) (29) (59) Exceptional items - - (19) Net profit before taxation 189 207 444 Taxation (61) (75) (155) Normal activities (61) (75) (156) Exceptional items - - 1 Net profit 128 132 289 Attributable to preference and (20) (20) (49) outside shareholders Normal activities (27) (26) (62) Amortisation of goodwill 7 6 13 Net profit attributable to 108 112 240 ordinary shareholders Headline earnings are derived from: Net profit attributable to 108 112 240 ordinary shareholders Transitional provision for post- employment medical aid benefits (2) 10 9 20 Amortisation of goodwill 34 29 59 Exceptional items - - 19 Outside shareholders" share of (7) (6) (13) the above items Tax effects of the above items (3) (3) (7) 142 141 318 Per ordinary share (cents): - Headline earnings - 151 151 340 - Diluted headline earnings 146 145 328 - Attributable earnings 115 120 257 - Diluted earnings 111 115 248 - Dividends declared +5 42 40 112 - Dividends paid 72 55 95 Ordinary shares (millions) - In issue 94 93 94 - Weighted average number of 94 93 93 shares - Diluted weighted average 98 97 97 number of shares Notes (1) Includes foreign sales of R772 million (2002 - R987 million). (2) The portion of the provision for post-employment medical aid benefits representing the transitional liability calculated in accordance with AC 116 has been excluded from the calculation of headline earnings in terms of circular 7/2002 issued by the South African Institute of Chartered Accountants. At 30 June 2002 it was included. Comparative figures have been restated. (3) Accounting policies are in accordance with South African Statements of Generally Accepted Accounting Practice, conform to International Accounting Standards and are consistent with those applied in the previous financial year. Industry segment analysis Revenue Net trading Assets
profit 2003 2002 2003 2002 2003 2002 For the six months ended Unaudited Unaudited Unaudited 30 June R millions R millions R millions Mining solutions 987 912 94 83 881 823 Specialty chemicals 1 537 1 470 164 146 1 163 962 Specialty fibres 935 1 038 45 91 849 944 Decorative and packaging 291 291 11 13 91 145 coatings Property 84 83 14 10 620 650 Group services, intergroup (81) 55 (19) (18) (80) 17 and other 3 753 3 849 309 325 3 524 3 541 Assets consist of property, plant, equipment and goodwill, inventory, accounts receivable and accounts payable. Assets in the property segment include land revaluation of R493 million (2002 - R509 million). Balance sheet 2003 2002 2002 30 Jun 30 Jun 31 Dec Unaudited Unaudited Audited
R millions R millions R millions Assets Non-current assets 2 316 2 410 2 283 Property, plant and equipment 1 696 1 829 1 734 Goodwill 537 496 467 Investments 83 85 82 Current assets 3 052 3 301 3 211 Inventory 1 232 1 252 1 248 Accounts receivable 1 381 1 523 1 321 Cash and cash equivalents 439 526 642 Total assets 5 368 5 711 5 494 Equity and liabilities Ordinary capital and reserves 2 093 2 050 2 086 Preference capital and outside shareholders" interest in subsidiaries 218 222 229 Total shareholders" interest 2 311 2 272 2 315 Non-current liabilities 1 362 1 415 1 352 Deferred taxation (200) (188) (195) Long-term borrowings 1 198 1 243 1 196 Long-term provisions 364 360 351 Current liabilities 1 695 2 024 1 827 Accounts payable 1 322 1 559 1 446 Provision for restructuring 26 86 56 Short-term borrowings 298 330 260 Taxation 49 49 65 Total equity and liabilities 5 368 5 711 5 494 Statement of changes in shareholders" equity 2003 2002 2002 First half First half Year Unaudited Unaudited Audited R millions R millions R millions
Headline earnings 142 141 318 Amortisation of goodwill net of (27) (23) (46) outside shareholders" interest Transitional provision for post- employment medical aid benefits net of taxation (7) (6) (14) Exceptional items net of taxation - - (18) and outside shareholders" interest Net profit attributable to ordinary 108 112 240 shareholders Dividends paid (68) (51) (89) Foreign currency translation (30) (70) (127) differences net of deferred taxation Revaluation of derivative (5) - - instruments Ordinary shares issued 2 1 4 Net increase/(decrease) in equity 7 (8) 28 for the period before share buy-back Expenditure in respect of - (206) (206) repurchasing own shares Equity at the beginning of the 2 086 2 264 2 264 period Equity at the end of the period 2 093 2 050 2 086 Made up as follows: Share capital and share premium 98 94 97 Non-distributable reserves 355 465 390 Surplus arising on revaluation of 330 346 330 property, plant and equipment Foreign currency translation reserve 24 112 54 net of deferred taxation Revaluation of derivative (5) - - instruments Retained earnings of associates 1 2 1 Other 5 5 5 Retained income 1 640 1 491 1 599 2 093 2 050 2 086
Cash flow statement 2003 2002 2002 First half First half Year Unaudited Unaudited Audited
R millions R millions R millions Cash generated by operations 418 445 899 Dividends received 3 4 8 Net financing costs (79) (84) (164) Taxes paid (69) (51) (94) Changes in working capital (93) (53) (99) Expenditure relating to long-term (5) (2) (16) provisions Expenditure relating to (29) (23) (32) restructuring Cash available from operating 146 236 502 activities Dividends paid (77) (59) (103) Cash retained from operating 69 177 399 activities Cash utilised in investment (300) (93) (148) activities Proceeds from disinvestment and 1 79 167 restructuring Expenditure in respect of - (206) (206) repurchasing own shares Net cash (utilised)/generated (230) (43) 212 Cash effects of financing activities 40 9 (108) Proceeds from issue of new shares 2 1 4 (Decrease)/increase in cash and cash (188) (33) 108 equivalents Cash and cash equivalents at the 642 577 577 beginning of the period Translation loss on cash and cash (15) (18) (43) equivalents Cash and cash equivalents at the end 439 526 642 of the period Other salient features 2003 2002 2002 First half First half Year Unaudited Unaudited Audited
R millions R millions R millions Capital expenditure 109 99 202 - expansion 73 68 110 - replacement 36 31 92 Capital commitments 134 88 243 - contracted for 73 64 51 - not contracted for 61 24 192 Future rentals on property, plant 154 177 147 and equipment leased - payable within one year 40 41 35 - payable thereafter 114 136 112 Net contingent liabilities and 187 155 152 guarantees Net borrowings 1 057 1 047 814 Gearing (%) 46 46 35 Current assets to current 1.8 1.6 1.8 liabilities Net asset value per ordinary share 2 223 2 194 2 222 (cents) Depreciation 108 109 221 Directors: AE Pedder* (Chairman), S Engelbrecht (Chief Executive), NC Axelson, CB Brayshaw, MJ Leeming, TH Nyasulu, CML Savage, LC van Vught *British AECI and www.aeci.co.za AEL Mining solutions Development, manufacture and supply of value-adding services, initiating systems and explosives to the mining, quarrying, and allied industries. Chemical Services Limited Specialty chemicals Largest specialty chemical operation in southern Africa, supplying a diverse range of specialties, raw materials and related services to a broad spectrum of industries. SANS FIBRES Specialty fibres Production, marketing and distribution of specialty nylon and polyester yarn for local and export markets; production of PET bottle polymer. DULUX Decorative coatings A leading decorative coatings supplier in southern Africa. Dulux enjoys a strong market position as an innovator and supplier of high performance products to a wide variety of customers. Date: 29/07/2003 07:23:22 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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