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AECI - GROUP AUDITED RESULTS & DIVIDEND ANNOUNCEMENT
AECI
Group audited results
for the year ended 31 December 2003
Specialty product and service solutions
Highlights
* Headline earnings per share up 5%
* Dividends for the year up 7% to 120 cents per share
* Robust performance by resilient portfolio
* Increase in earnings per share targeted for 2004
Commentary
Performance
Headline earnings of 356 cents per ordinary share were 5 per cent higher than in
2002. This result was achieved after recognising a provision for restructuring
in SANS Fibres equivalent to 11 cents per share. An increased final dividend of
78 cents per ordinary share has been declared (72 cents in 2002) to bring the
total dividends for the year to 120 cents (112 cents in 2002) with a dividend
cover of 3.0 (3.0 in 2002). The dividend declaration is published in full
elsewhere.
Sales volumes of Group businesses, excluding those sold in 2002, increased by 3
per cent while revenues were lower by 0.4 per cent. Demand improved in most
local markets towards the year-end but the strong appreciation of the rand
against the US dollar substantially eroded the rand value of dollar-based
revenues with a particularly severe impact on trading margins at SANS Fibres.
Nonetheless, enhanced efficiencies and a focus on higher value added business
throughout the Group"s portfolio enabled a small improvement in trading margin
to 9.0 per cent of sales from 8.9 per cent in 2002. The return on invested
capital (ROIC) for the Group, excluding revaluation of land, was lower at 15 per
cent (16 per cent in 2002).
African Explosives posted an impressive 37 per cent gain in net trading profit
as growth in the platinum sector, a favourable business mix and well contained
costs more than offset lower rand returns from African operations. Chemical
Services sustained its distinguished growth record with some increase in volumes
and the successful integration of the Senmin and Ondeo-Nalco acquisitions, which
contributed to a further increase in trading margin. Dulux achieved a most
pleasing result for the year as demand for its branded products recovered
strongly in the final quarter. The property activities of Heartland benefited
from declining interest rates in the second half, which resulted in a much
improved performance for the year.
As forewarned in previous announcements, trading profit at SANS Fibres was
progressively eroded by the strength of the rand throughout 2003. In dollar
terms yarn revenue and gross margin increased from 2002 by 6 and 12 per cent
respectively but declined by 24 and 20 per cent in rand. Such sharp margin
reduction could not be offset by containing expenses and in October SANS
announced the closure of the nylon apparel yarn business and a major
restructuring of the other Bellville operations. The full cost of closure,
estimated at R22 million before tax, has been recognised as an exceptional
charge in 2003 while the estimated cost of restructuring of R15 million before
tax has been charged against net trading income for the year.
The SANS" US joint venture operations in Stoneville, North Carolina approached
break-even in the final quarter of 2003.
Subject to the average exchange rate not appreciating significantly from 2003,
the restructuring programme with its intense focus on product mix, margins,
conversion efficiencies and cost reduction should enable SANS to deliver a
meaningful improvement in performance in the full 2004 year.
Financial
Capital expenditure of R241 million was controlled to a level slightly higher
than the depreciation charge for the period. Investment expenditure was R883
million. This included the acquisitions by Chemical Services of the mining and
alkylate chemicals businesses of Sentrachem (R160 million) and the 50 per cent
interest in Ondeo-Nalco SA which it did not already own (R120 million). It also
included the cost of acquiring all the ordinary shares in Chemical Services not
held by AECI Limited at the previous year-end (R602 million). Of this last
amount, R335 million was settled by the issue of 13.3 million new AECI shares to
shareholders in Chemical Services.
Notwithstanding the cash outlay of R548 million on investments, net borrowings
at year-end were contained to R1 019 million. Group working capital was well
managed at an impressive 14 per cent of sales. Cash interest cover improved
further to 6.1 times while gearing increased from 35 to 40 per cent of
shareholder funds.
Portfolio
As announced in December, the Group has signed a heads of agreement with Dyno
Nobel ASA of Norway regarding the establishment of an international 50:50 joint
venture in electronic detonation systems. The joint venture represents a major
step for AECI in gaining access to world markets for its innovative and leading
electronic detonator technology with a partner who is the global leader in
explosives initiation systems. Subject to completion of final agreements and
regulatory approvals, it is expected that the joint venture will commence
operations in the second quarter of 2004.
Discussions are well advanced with selected parties regarding the participation
of an empowered partner in the business of African Explosives Limited.
Shareholders will be advised when the key features of such participation have
been finalised.
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
Rising global commodity prices are indicative of an incipient but still patchy
recovery in the world"s major economies which should underpin demand for South
Africa"s export-oriented mining and manufacturing sectors. With local interest
rates and inflation set to remain at levels supportive of domestic consumption,
demand conditions for the Group seem likely to be favourable in the year ahead.
Assuming no material strengthening of the rand exchange rate from the 2003
average which would further pressure margins at SANS, management is targeting an
increase in headline earnings for the full 2004 financial year.
Alan Pedder Schalk Engelbrecht
Chairman Chief Executive
Sandton, 23 February 2004
INCOME STATEMENT
% 2003 2002
change R millions R millions
Revenue (2) -2 7 659 7 818
Net trading profit -1 691 698
Net financing costs (150) (164)
Income from associates and investments 4 8
545 542
Transitional provision for post-employment
medical aid benefits (3) (20) (20)
Amortisation of goodwill (75) (59)
Exceptional items (31) (19)
Net profit before taxation 419 444
Taxation (135) (155)
Normal activities (143) (156)
Exceptional items 8 1
Net profit 284 289
Attributable to preference and outside (45) (49)
shareholders
Normal activities (59) (62)
Amortisation of goodwill 14 13
Net profit attributable to
ordinary shareholders 239 240
Headline earnings are derived from:
Net profit attributable to ordinary 239 240
shareholders
Transitional provision for post-employment
medical aid benefits (3) 20 20
Amortisation of goodwill 75 59
Exceptional items 31 19
Outside shareholders" share of the above (14) (13)
items
Tax effects of the above (14) (7)
337 318
Per ordinary share (cents):
Headline earnings +5 356 340
Diluted headline earnings 345 328
Attributable earnings 252 257
Diluted attributable earnings 244 248
Dividends declared +7 120 112
Dividends paid 114 95
Ordinary shares (millions)
- in issue 108 94
- weighted average number of shares 95 93
- diluted weighted average number of shares 98 97
Notes
1 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.
2 Includes foreign sales of R1 483 million (2002 - R1 875 million).
3 The transitional provision for post-employment medical aid benefits has been
excluded from the calculation of headline earnings in terms of circular 7/2002
issued by the South African Institute of Chartered Accountants.
4 The auditors, KPMG Inc, have issued their opinion on the Group financial
statements for the year ended 31 December 2003. A copy of the auditors"
unqualified report is available for inspection at the Company"s registered
office.
Industry segment analysis
Revenue Net trading profit Assets
2003 2002 2003 2002 2003 2002
R millions R millions R millions
Mining solutions 2 076 1 904 241 176 817 869
Specialty chemicals 3 197 3 037 372 318 1 490 923
Specialty fibres 1 714 2 082 22 173 761 905
Decorative and
packaging coatings 661 657 52 41 116 103
Property 207 180 39 26 671 612
Group services,
intergroup and other (196) (42) (35) (36) (142) (88)
7 659 7 818 691 698 3 713 3 324
Assets consist of property, plant, equipment and goodwill, inventory, accounts
receivable less accounts payable. Assets in the property segment include land
revaluation of R493 million (2002 - R493 million).
Balance sheet at 31 December
2003 2002
R millions R millions
Assets
Non-current assets 3 110 2 643
Property, plant and equipment 1 708 1 734
Goodwill 916 467
Investments 87 82
Deferred taxation assets 399 360
Current assets 2 911 3 211
Inventory 1 170 1 248
Accounts receivable 1 280 1 321
Cash and cash equivalents 461 642
Total assets 6 021 5 854
Equity and liabilities
Ordinary capital and reserves 2 494 2 086
Preference capital and outside shareholders"
interest in subsidiaries 27 229
Total shareholders" interest 2 521 2 315
Non-current liabilities 756 1 712
Deferred taxation liabilities 46 14
Long-term borrowings 209 1 196
Long-term provisions 501 502
Current liabilities 2 744 1 827
Accounts payable 1 361 1 446
Provision for restructuring 48 56
Short-term borrowings 1 271 260
Taxation 64 65
Total equity and liabilities 6 021 5 854
Statement of changes
in shareholders" equity
2003 2002
R millions R millions
Headline earnings 337 318
Amortisation of goodwill net of outside (61) (46)
shareholders" interest
Transitional provision for post-employment medical (14) (14)
aid benefits net of taxation
Exceptional items net of taxation and outside (23) (18)
shareholders" interest
Net profit attributable to ordinary shareholders 239 240
Dividends paid (107) (89)
Fair value adjustments (7) -
Foreign currency translation differences net of (50) (127)
deferred taxation
Ordinary shares issued 340 4
Other (7) -
Net increase in equity for the year before share 408 28
buy-back
Expenditure in respect of repurchasing own shares - (206)
Equity at the beginning of the year 2 086 2 264
Equity at the end of the year 2 494 2 086
Made up as follows:
Share capital and share premium 437 97
Non-distributable reserves 347 390
Surplus arising on revaluation of property, plant 329 330
and equipment
Foreign currency translation reserve net of 18 54
deferred taxation
Retained earnings of associates 1 1
Other (1) 5
Retained income 1 710 1 599
2 494 2 086
Cash flow statement
2003 2002
R millions R millions
Cash generated by operations 898 899
Dividends received 3 8
Net financing costs (150) (164)
Taxes paid (119) (94)
Changes in working capital 111 (99)
Expenditure relating to long-term provisions (21) (16)
Expenditure relating to restructuring (43) (32)
Cash available from operating activities 679 502
Dividends paid (123) (103)
Cash retained from operating activities 556 399
Cash utilised in investment activities (1 064) (148)
Acquisition of remaining shares in Chemical (602) -
Services Limited
Investments (281) (20)
Net capital expenditure (181) (128)
Proceeds from disinvestment and restructuring 1 167
Expenditure in respect of repurchasing own shares - (206)
Net cash (utilised)/generated (507) 212
Cash effects of financing activities 9 (108)
Proceeds from issue of new shares 340 4
Decrease/(increase) in cash and cash equivalents (158) 108
Cash and cash equivalents at the beginning of the 642 577
year
Translation loss on cash and cash equivalents (23) (43)
Cash and cash equivalents at the end of the year 461 642
Other salient features
2003 2002
R millions R millions
Capital expenditure 241 202
- expansion 159 110
- replacement 82 92
Capital commitments 189 243
- contracted for 23 51
- not contracted for 166 192
Future rentals on property, plant and equipment 158 147
leased
- payable within one year 41 35
- payable thereafter 117 112
Net contingent liabilities and guarantees 223 152
Net borrowings 1 019 814
Gearing (%) 40 35
Current assets to current liabilities 1.1 1.8
Net asset value per ordinary share (cents) 2 305 2 222
Depreciation 223 221
Directorate
AE Pedder* (Chairman), S Engelbrecht (Chief Executive), NC Axelson, CB Brayshaw,
MJ Leeming, TH Nyasulu, CML Savage, LC van Vught
*British
AECI Limited
Incorporated in the Republic of South Africa
(Registration No. 1924/002590/06)
Share code: AFE ISIN No: ZAE000000220
www.aeci.co.za
AEL
Chemical Services Limited
SANS Fibres
Dulux
Date: 24/02/2004 07:00:11 AM Supplied by www.sharenet.co.za
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