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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