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Aeci Limited - Group interim financial results for the half-year ended 30 June

Release Date: 26/07/2005 07:29
Code(s): AFE
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Aeci Limited - Group interim financial results for the half-year ended 30 June 2005 AECI LIMITED ("AECI" or "the Company") (Incorporated in the Republic of South Africa) Registration no. 1924/002590/06 Share code: AFE ISIN code: ZAE000000220 Group interim financial results for the half-year ended 30 June 2005 Specialty product and service solutions Headline earnings per share up 23% Dividend increased to 54 cents per ordinary share Operating margin up from 7.8% to 9.3% Return on average invested capital (ROIC) increased to 16% Commentary Performance Headline earnings for the first half-year were 194 cents per ordinary share, 23 per cent higher than in the first half of 2004. An increased dividend of 54 cents per ordinary share has been declared, giving a dividend cover of 3.6 times compared with 44 cents per share and 3.6 times cover in 2004. The dividend declaration is published in full elsewhere. Sales revenues of Group businesses increased by 3 per cent over the same period last year though revenue-weighted volume was marginally lower in aggregate. Demand from the local mining and manufacturing sectors improved in the second quarter in response to a somewhat weaker rand exchange rate against the US dollar. Gross margins were maintained despite the effect of high oil prices on certain raw material costs whilst the operating margin increased to 9.3 per cent from 7.8 per cent in the same period last year. The 12 month return on average invested capital (ROIC) for the Group, excluding revaluation of land, increased to 16 per cent from 14 per cent in June 2004. African Explosives achieved a pleasing result as an excellent performance by operations elsewhere in Africa together with the benefits of last year"s restructuring more than offset some decline in sales to the local gold mining sector. The competitive challenge posed by imports of state-subsidised initiators from China continued but was reasonably contained in the period. DetNet, the 50:50 joint venture with Dyno Nobel ASA, accelerated international trials of the new generation electronic detonator technology and sales are expected to gather pace in the second half of the year. Chemical Services posted a solid result despite adverse trading conditions as customers in the mining and manufacturing sectors continued to wrestle with the effects of the strong exchange rate in the first quarter. Initiatives taken last year to raise the performance of certain businesses in the portfolio, particularly automotive coatings, have been productive and further positive results are expected to accrue in the second half. At SANS Fibres, the recovery programme of new product development, conversion efficiency and cost reduction delivered a much improved performance. The joint venture operations in Stoneville, North Carolina, USA, traded profitably in the period. In the short term, SANS" performance will continue to be sensitive to exchange rate movements. A good performance by Dulux in South Africa more than compensated for lower profits from its other African operations. The property activities of Heartland delivered better than expected results as favourable market conditions persisted with significant sales at both Modderfontein and Umbogintwini. Financial Capital expenditure of R152 million, incurred mainly on expansion projects in African Explosives and Chemical Services, was R39 million higher than the depreciation charge for the period. In addition, Chemical Services invested approximately R140 million in two acquisitions during the half-year. Group working capital was influenced in part by the weaker exchange rate at 30 June relative to December 2004 and increased to R1 349 million and 17 per cent of sales compared with 15 per cent in June 2004. The Group"s net borrowings of R941 million were R93 million lower than at June 2004. Cash interest cover at 10.3 times was substantially higher than the 6.7 times achieved in the first half of 2004 whilst gearing reduced to 34 per cent of shareholders" funds from 41 per cent at June 2004 (24 per cent at December 2004). At the Annual General Meeting of the Company held on 23 May, shareholders authorised a general repurchase of up to 10 per cent of the ordinary shares in the Company. No repurchases were undertaken in the period. Portfolio As previously announced, Chemical Services acquired UAP, a distributor of agro- chemicals, with effect from January 2005 and Chemiphos, a producer of food-grade phosphates, with effect from May 2005. Both companies have performed in line with expectation since acquisition. Subject to regulatory approvals, Chemical Services will also acquire J E Orlick and Associates with effect from September 2005. In a further empowerment transaction, negotiations are well-advanced regarding the sale by Chemical Services of a 25.1 per cent equity interest in ImproChem (Pty) Limited, a wholly-owned subsidiary engaged in the business of water treatment, to the Tiso Group. Tiso is the Group"s empowerment partner in African Explosives. The transaction is expected to take effect in September 2005. Outlook The progressive benefit of actions taken in prior years in response to a relatively strong exchange rate and low inflation will continue to emerge in the second half-year. If the current and somewhat more competitive level of the exchange rate were to be sustained it would be helpful to the Group"s export businesses and also to most of the local customer base. Volatility in oil intermediates and hence raw material prices seems likely to continue for some time. Nonetheless, with a similar contribution in prospect from property activities in the second half, management is targeting a significant increase in headline earnings per share for the full 2005 financial year. Alan Pedder CBE Schalk Engelbrecht Chairman Chief executive Sandton 25 July 2005 Income statement 2005 2004 2004 First First Year
half half % Unaudited Unaudited Audited change R R R millions millions millions
Revenue (1) +3 3 998 3 867 7 911 Profit from +24 371 300 743 operations Net financing costs (47) (61) (139) Income from 2 1 3 associates and investments 326 240 607
Transitional (10) (10) (20) provision for post- employment medical aid benefits (2) Amortisation of - (52) (104) goodwill (3) Exceptional items 3 (3) (23) Profit before 319 175 460 taxation Taxation (94) (63) (173) Normal activities (94) (64) (167) Exceptional items - 1 (6) Net profit 225 112 287 Attributable to (16) (1) (4) preference and outside shareholders Normal activities (16) (1) (7) Amortisation of - - 2 goodwill Exceptional items - - 1 Net profit 209 111 283 attributable to ordinary shareholders Headline earnings are derived from: Net profit 209 111 283 attributable to ordinary shareholders Transitional 10 10 20 provision for post- employment medical aid benefits (2) Amortisation of - 52 104 goodwill (3) Exceptional items (3) 3 23 Outside shareholders" - - (3) share of the above items Tax effects of the (3) (4) - above items 213 172 427 Per ordinary share (cents): Headline earnings +23 194 158 392 Diluted headline 190 154 383 earnings Attributable earnings 190 102 260 Diluted attributable 186 99 254 earnings Dividends declared +23 54 44 138 Dividends paid 94 78 122 Ordinary shares (millions) - in issue 110 109 109 - weighted average 110 109 109 number of shares - diluted weighted 112 112 111 average number of shares Notes (1) Includes foreign sales of R887 million (2004 - R743 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) The interim financial results have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice and conform to International Financial Reporting Standards. Accounting policies are consistent with those applied in the previous financial year except for the adoption of IFRS 2 (Share-based payments) and IFRS 3 (Business combinations), IAS 16 (Property, plant and equipment), IAS 36 (Impairment of assets) and IAS 38 (Intangible assets). With the adoption of IFRS 3, the amortisation of goodwill has ceased with effect from the current financial year. The adoption of the other standards has not had a material impact on the Group"s financial results. Industry segment analysis for the half-year ended 30 June Revenue Profit from Assets operations
2005 2004 2005 2004 2005 2004 Unaudited Unaudited Unaudited R millions R millions R millions Mining solutions 1 089 1 045 116 101 923 892 Specialty 1 670 1 615 174 169 1 803 1 388 chemicals Specialty fibres 828 810 19 1 700 746 Decorative and 293 301 15 12 139 115 packaging coatings Property 174 168 68 37 531 657 Group services, (56) (72) (21) (20) (167) (108) intergroup and other 3 998 3 867 371 300 3 929 3 690 Assets consist of property, plant, equipment and goodwill, inventory, accounts receivable less accounts payable. Assets in the property segment include land revaluation of R423 million (2004 - R460 million). Balance sheet at 30 June 2005 2004 2004 30 June 30 June 31 Dec
Unaudited Unaudited Audited R millions R millions R millions Assets Non-current assets 2 959 3 018 2 935 Property, plant and 1 693 1 685 1 659 equipment Goodwill 887 852 822 Investments 87 89 94 Deferred taxation assets 292 392 360 Current assets 3 309 2 931 2 942 Inventory 1 352 1 081 1 160 Accounts receivable 1 622 1 442 1 420 Cash and cash 335 408 362 equivalents Total assets 6 268 5 949 5 877 Equity and liabilities Ordinary capital and 2 744 2 507 2 605 reserves Preference capital and 58 13 41 outside shareholders" interest in subsidiaries Total shareholders" 2 802 2 520 2 646 interest Non-current liabilities 1 222 771 1 426 Deferred taxation 22 45 33 liabilities Long-term borrowings 689 215 899 Long-term provisions 511 511 494 Current liabilities 2 244 2 658 1 805 Accounts payable 1 625 1 370 1 619 Provision for 3 21 9 restructuring Short-term borrowings 587 1 227 96 Taxation 29 40 81 Total equity and 6 268 5 949 5 877 liabilities Statement of changes in equity 2005 2004 2004 First half First half Year Unaudited Unaudited Audited
R millions R millions R millions Net profit 225 112 287 Dividends paid (104) (86) (135) Revaluation of 1 4 5 derivative instruments Foreign currency 26 (18) (53) translation differences net of deferred taxation Ordinary shares issued 6 6 8 Changes in the Group - (14) 13 Other 2 (5) - Net increase in equity 156 (1) 125 for the period Equity at the beginning 2 646 2 521 2 521 of the period Equity at the end of the 2 802 2 520 2 646 period Made up as follows: Share capital and share 451 443 445 premium Non-distributable 307 311 289 reserves Surplus arising on 279 307 288 revaluation of property, plant and equipment Foreign currency 22 - (3) translation reserve net of deferred taxation Retained earnings of 1 1 1 associates Other 5 3 3 Retained income 1 986 1 753 1 871 Preference capital 6 6 6 Outside shareholders" 52 7 35 interest in subsidiaries 2 802 2 520 2 646
Cash flow statement 2005 2004 2004 First half First half Year Unaudited Unaudited Audited
R millions R millions R millions Cash generated by 487 404 957 operations Dividends received 1 1 2 Net financing costs (47) (61) (126) Taxes paid (89) (81) (128) Changes in working (299) (62) 120 capital Expenditure relating to (3) (4) (21) long-term provisions Expenditure relating to (6) (30) (36) restructuring Cash available from 44 167 768 operating activities Dividends paid (104) (86) (135) Cash (applied (60) 81 633 to)/retained from operating activities Cash utilised in (276) (97) (238) investment activities Proceeds from disposal 17 - 58 of investments and businesses Investments (143) (2) (27) Net capital expenditure (150) (95) (269) Net cash (336) (16) 395 (utilised)/generated Cash effects of 281 (38) (485) financing activities Proceeds from issue of 6 6 8 new shares Decrease in cash and (49) (48) (82) cash equivalents Cash and cash 362 461 461 equivalents at the beginning of the period Translation gain/(loss) 22 (5) (17) on cash and cash equivalents Cash and cash 335 408 362 equivalents at the end of the period Other salient features 2005 2004 2004
First half First half Year Unaudited Unaudited Audited R millions R millions R millions Capital expenditure 152 116 277 - expansion 108 63 157 - replacement 44 53 120 Capital commitments 171 179 294 - contracted for 6 25 25 - not contracted for 165 154 269 Future rentals on 183 156 196 property, plant and equipment leased - payable within one 43 41 43 year - payable thereafter 140 115 153 Contingent liabilities 283 234 278 and guarantees Net borrowings 941 1 034 633 Gearing (%) 34 41 24 Current assets to 1.5 1.1 1.6 current liabilities Net asset value per 2 491 2 302 2 381 ordinary share (cents) Depreciation 113 111 224 Directorate AE Pedder CBE* (Chairman), S Engelbrecht (Chief executive)+, NC Axelson+, CB Brayshaw, MJ Leeming, TH Nyasulu, F Titi, 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 AEL Mining solutions Development, manufacture and supply of value-adding services, initiating systems and explosives to the mining, quarrying, and allied industries. Chemical Services 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: 26/07/2005 07:30:09 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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