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AECI LIMITED - GROUP INTERIM RESULTS FOR THE HALF-YEAR ENDED 30 JUNE 2004
AECI LIMITED
Share code AFE
ISIN No. ZAE000000220
Group interim results
for the half-year ended 30 June 2004
Specialty product and service solutions
* Headline earnings per share up 5%
* Dividend per ordinary share increased to 44c
* Sales volumes and revenues up 6 and 3 per cent respectively
Commentary
Performance
Headline earnings for the first half year were 158 cents per ordinary share and
7 cents or 5 per cent higher than in the first half of 2003. An increased
dividend of 44 cents per ordinary share has been declared (42 cents in 2003)
with a dividend cover of 3.6 (3.6 in 2003). The dividend declaration is
published in full elsewhere.
Sales volumes and revenues of Group businesses were increased by 6 and 3 per
cent respectively. While demand was better in most local markets, the 20 per
cent appreciation of the average exchange rate of the rand against the US dollar
compared to the first half of 2003 led to reduced activity in some customer
sectors and eroded both rand selling prices and the rand value of dollar-based
revenues. The operating margin declined to 7.8 per cent from 8.2 per cent in the
same period last year. The 12 month return on average invested capital (ROIC)
for the Group, excluding revaluation of land, was lower at 14 per cent from 15
per cent in June 2003.
African Explosives achieved a pleasing gain in underlying trading profit as
further growth in platinum and mining activity elsewhere in Africa more than
offset some decline in sales to the local gold mining sector and negative
exchange rate effects. Ongoing cost reduction remained a key focus and an R11
million restructuring charge was recognised as an expense in the period. Imports
of state-subsidised initiators from China present an increasing competitive
challenge and a number of actions are in hand to counter this potential threat
to parts of the initiating systems market.
Intensified product development of the new generation electronic detonator
technology in advance of the global launch planned for the last quarter of 2004
led to a small loss at DetNet. Implementation of the 50:50 joint venture with
Dyno Nobel ASA is expected to be delayed to September 2004 pending regulatory
clearance.
Chemical Services experienced difficult trading conditions as the benefit of
higher volumes, partly the result of acquisitions, was offset by significant
pressure on rand prices in some markets. Rationalisation of costs to support
margins in these business areas could include restructuring, plant relocations
or selective closure in the second half.
While the restructuring programme at SANS Fibres was progressed in line with
plan, the further appreciation of the rand negated much of the benefit at
trading profit level. The joint venture operations in Stoneville, North
Carolina, achieved break-even in the period. SANS" performance will continue to
be particularly sensitive to exchange rate movements in the short term.
A strong performance by Dulux in South Africa more than compensated for lower
profits from its African operations due to currency effects.
The property activities of Heartland delivered much improved results in
favourable market conditions, with significant sales at both Modderfontein and
Somerset West.
Financial
Capital expenditure of R116 million remained under tight control and was in line
with the depreciation charge for the period. Group working capital of R1 153
million was well contained to 15 per cent of sales despite the inclusion of R130
million of property sales concluded but not yet transferred to purchasers.
The Group"s net borrowings of R1 034 million were R23 million lower than at June
2003. Cash interest cover at 6.7 times was substantially higher than the 5.3
times achieved in the first half of 2003 while gearing reduced to 41 per cent of
shareholders" funds from 46 per cent at June 2003 (40 per cent at December
2003).
Portfolio
As announced in April, the acquisition of a 25.1 per cent interest in the
Group"s explosives business by an empowerment consortium led by the Tiso Group
Limited took effect on 1 July 2004. This post balance sheet event had no impact
on the Group"s first-half results. While the transaction is not expected to have
a material effect on the Group consolidated balance sheet at year-end, modest
earnings dilution is projected in the second half of the year.
Outlook
The rand exchange rate, with its linkage to inflation and interest rates, has
become the predominant factor influencing the fortunes of most Group customers
in South Africa and hence AECI as a whole. While exchange rates may remain
unpredictable, a competitive and more stable rate is a must for most South
African businesses. Whatever the value of the rand, however, the Group will
continue to focus on delivering real growth with superior returns on assets
managed by improving customer service, enhancing competitiveness and margins
through efficiency gains, and investing selectively in value-adding specialty
businesses related to the current portfolio.
At prevailing exchange rates, and with a further contribution in prospect from
property activities, management is targeting at least to maintain headline
earnings for the full 2004 financial year.
Alan Pedder Schalk Engelbrecht
Chairman Chief executive
Sandton, 26 July 2004
Income statement
2004 2003 2003
First half First half Year
% Unaudited Unaudited Audited
change R millions R millions R
millions
Revenue (1) +3 3 867 3 753 7 659
Net trading profit -3 300 309 691
Net financing costs (61) (79) (150)
Income from associates 1 3 4
and investments
240 233 545
Transitional provision (10) (10) (20)
for post-employment
medical aid benefits
(2)
Amortisation of (52) (34) (75)
goodwill
Exceptional items (3) - (31)
Net profit before 175 189 419
taxation
Taxation (63) (61) (135)
Normal activities (64) (61) (143)
Exceptional items 1 - 8
Net profit 112 128 284
Attributable to (1) (20) (45)
preference and outside
shareholders
Normal activities (1) (27) (59)
Amortisation of - 7 14
goodwill
Net profit +3 111 108 239
attributable to
ordinary shareholders
Headline earnings are
derived from:
Net profit 111 108 239
attributable to
ordinary shareholders
Transitional provision 10 10 20
for post-employment
medical aid benefits
(2)
Amortisation of 52 34 75
goodwill
Exceptional items 3 - 31
Outside shareholders" - (7) (14)
share of the above
items
Tax effects of the (4) (3) (14)
above items
172 142 337
Per ordinary share
(cents):
Headline earnings +5 158 151 356
Diluted headline 154 146 345
earnings
Attributable earnings 102 115 252
Diluted attributable 99 111 244
earnings
Dividends declared +5 44 42 112
Dividends paid 78 72 95
Ordinary shares
(millions)
- in issue 109 94 108
- weighted average 109 94 95
number of shares
- diluted weighted 112 98 98
average number of
shares
Notes
(1) Includes foreign sales of R743 million (2003 - R772 million).
(2) 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.
(3) Accounting policies are in accordance with South African Statements of
Generally Accepted Accounting Practice, conform to International Financial
Reporting Standards and are consistent with those applied in the previous
financial year.
Industry segment analysis for the half-year ended 30 June
Revenue Net trading Assets
profit
2004 2003 2004 2003 2004 2003
Unaudited Unaudited Unaudited
R millions R millions R millions
Mining solutions 1 045 987 101 94 892 881
Specialty 1 615 1 537 169 164 1 388 1 163
chemicals
Specialty fibres 810 935 1 45 746 849
Decorative and 301 291 12 11 115 91
packaging
coatings
Property 168 84 37 14 657 620
Group services,
intergroup and (72) (81) (20) (19) (108) (80)
other
3 867 3 753 300 309 3 690 3 524
Assets consist of property, plant, equipment and goodwill, inventory, accounts
receivable less accounts payable. Assets in the property segment include land
revaluation of R460 million (2003 - R493 million).
Balance sheet at 30 June
2004 2003 2003
30 June 30 June 31 Dec
Unaudited Unaudited Audited
R millions R millions R millions
Assets
Non-current assets 3 018 2 685 3 110
Property, plant and 1 685 1 696 1 708
equipment
Goodwill 852 537 916
Investments 89 83 87
Deferred taxation 392 369 399
assets
Current assets 2 931 3 052 2 911
Inventory 1 081 1 232 1 170
Accounts receivable 1 442 1 381 1 280
Cash and cash 408 439 461
equivalents
Total assets 5 949 5 737 6 021
Equity and liabilities
Ordinary capital and 2 507 2 093 2 494
reserves
Preference capital and 13 218 27
outside shareholders"
interest in
subsidiaries
Total shareholders" 2 520 2 311 2 521
interest
Non-current liabilities 771 1 731 756
Deferred taxation 45 18 46
liabilities
Long-term borrowings 215 1 198 209
Long-term provisions 511 515 501
Current liabilities 2 658 1 695 2 744
Accounts payable 1 370 1 322 1 361
Provision for 21 26 48
restructuring
Short-term borrowings 1 227 298 1 271
Taxation 40 49 64
Total equity and 5 949 5 737 6 021
liabilities
Statement of changes in shareholders" equity
2004 2003 2003
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Net profit attributable 111 108 239
to ordinary shareholders
Dividends paid (85) (68) (107)
Revaluation of 4 (5) (7)
derivative instruments
Foreign currency
translation differences
net of deferred taxation (18) (30) (50)
Ordinary shares issued 6 2 340
Other (5) - (7)
Net increase in equity 13 7 408
for the period
Equity at the beginning 2 494 2 086 2 086
of the period
Equity at the end of the 2 507 2 093 2 494
period
Made up as follows:
Share capital and share 443 98 437
premium
Non-distributable 311 355 347
reserves
Surplus arising on 307 330 329
revaluation of property,
plant and equipment
Foreign currency - 24 18
translation reserve net
of deferred taxation
Retained earnings of 1 1 1
associates
Other 3 - (1)
Retained income 1 753 1 640 1 710
2 507 2 093 2 494
Cash flow statement
2004 2003 2003
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Cash generated by 404 418 898
operations
Dividends received 1 3 3
Net financing costs (61) (79) (150)
Taxes paid (81) (69) (119)
Changes in working (62) (93) 111
capital
Expenditure relating to (4) (5) (21)
long-term provisions
Expenditure relating to (30) (29) (43)
restructuring
Cash available from 167 146 679
operating activities
Dividends paid (86) (77) (123)
Cash retained from 81 69 556
operating activities
Cash utilised in (97) (300) (1 064)
investment activities
Acquisition of
remaining shares in
Chemical Services - (49) (602)
Limited
Investments (2) (160) (281)
Net capital expenditure (95) (91) (181)
Proceeds from - 1 1
disinvestment and
restructuring
Net cash utilised (16) (230) (507)
Cash effects of (38) 40 9
financing activities
Proceeds from issue of 6 2 340
new shares
Decrease in cash and (48) (188) (158)
cash equivalents
Cash and cash 461 642 642
equivalents at the
beginning of the period
Translation loss on (5) (15) (23)
cash and cash
equivalents
Cash and cash 408 439 461
equivalents at the end
of the period
Other salient features
2004 2003 2003
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Capital expenditure 116 109 241
- expansion 63 73 159
- replacement 53 36 82
Capital commitments 179 134 189
- contracted for 25 73 23
- not contracted for 154 61 166
Future rentals on 156 154 158
property, plant and
equipment leased
- payable within one 41 40 41
year
- payable thereafter 115 114 117
Net contingent 234 187 223
liabilities and
guarantees
Net borrowings 1 034 1 057 1 019
Gearing (%) 41 46 40
Current assets to 1.1 1.8 1.1
current liabilities
Net asset value per 2 302 2 223 2 305
ordinary share (cents)
Depreciation 111 108 223
Directorate
AE Pedder* (Chairman), S Engelbrecht (Chief executive), NC Axelson+, CB
Brayshaw,
MJ Leeming, TH Nyasulu, CML Savage, LC van Vught
*British +Executive
AECI Limited
Incorporated in the Republic of South Africa (Registration No. 1924/002590/06)
Share code AFE ISIN No. ZAE000000220
www.aeci.co.za
LOGOS
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.
Heartland
Property
Heartland Properties manages the realisation of land and related assets that
have become surplus to the Group"s requirements.
Date: 27/07/2004 07:00:46 AM Supplied by www.sharenet.co.za
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