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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