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AECI - Group Audited Financial Results for the Year Ended 31 December 2005
AECI Limited
Incorporated in the Republic of South Africa
(Registration No. 1924/002590/06)
Share code AFE
ISIN No. ZAE000000220
specialty product and service solutions
GROUP AUDITED FINANCIAL RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2005
*Headline earnings per share up 23%
*Dividend per share increased to 175 cents
*Revenue up 11%
*Return on invested capital (ROIC) higher at 18%
Commentary
Performance
Headline earnings of 482 cents per ordinary share were 23 per cent higher than
in 2004. Restructuring costs equivalent to 15 cents per share were incurred
compared to 27 cents per share in 2004. An increased final dividend of 121 cents
per ordinary share has been declared (94 cents in 2004) to bring the total
dividends for the year to 175 cents (138 cents in 2004) with a dividend cover of
2.7 (2.8 in 2004). The dividend declaration is published in full elsewhere.
Sales revenues of Group businesses increased by 11 per cent from 2004, bolstered
in part by additions to the Chemical Services (Chemserve) portfolio. Revenue-
weighted volume was some 2 per cent higher in aggregate. Demand from the local
mining and manufacturing sectors continued to improve from the second quarter in
response to strong export markets and a somewhat weaker rand exchange rate
against the US dollar. Gross margins were largely maintained despite the effect
of high oil prices on many raw material costs. The ongoing containment of
operating costs enabled a further increase in the overall trading margin to 10.1
per cent of sales from 9.4 per cent in 2004. The return on invested capital
(ROIC) for the Group, excluding revaluation of land, was higher at 18 per cent
(16 per cent in 2004).
In African Explosives (AEL), an outstanding performance by operations elsewhere
in Africa more than offset the effects of a continuing decline in gold mining
activity in South Africa. Local margins were pressured by the lagged recovery of
steep increases in ammonia costs. State-subsidised initiators from China
continued to have a limited volume impact on some sectors of the South African
initiating systems market during the year, but contributed to extreme resistance
to price adjustments by some gold mining customers. Commissioning of the first
phase of automated production of initiating systems at Modderfontein is expected
in the first half of 2006.
DetNet, the 50:50 joint venture with Dyno Nobel ASA, recorded an improved result
for the period with accelerating international sales of the new generation
electronic detonator in the second half of the year.
Chemserve again experienced varied trading conditions with buoyant growth in
demand from suppliers to local markets outpacing that from export-dependent
sectors. Highlights included a remarkable turnaround in automotive coatings
following restructuring and new alliances with strong technology partners, an
outstanding performance by the polyurethanes business, and a pleasing
contribution from Chemiphos, the food-grade phosphate business acquired in May
2005. Restructuring costs of R15 million were incurred in the period. The
benefits of these and other actions are expected to enhance further the
performance of the specialty chemicals portfolio in 2006.
SANS Fibres delivered a much improved result for the year with higher margins on
US dollar based sales to international markets supported by the disciplined
containment of local manufacturing costs. Customer accreditation of new products
such as airbag yarns has proved a longer process than envisaged, and significant
sales of such products are not expected before 2007. The outlook for sales
volumes and margins of existing products to international markets is positive.
However, SANS" performance will continue to be sensitive to this dollar based
business until the programme of initiatives to reduce this exposure is further
advanced.
Dulux again achieved excellent results in South Africa from significantly higher
sales volumes of its premium branded products, despite the impact of escalating
raw material costs on margins. Profits from its export and African operations
were lower due to currency effects and unfavourable market conditions.
The property activities of Heartland delivered impressive profits and cash flow
in supportive market conditions. Further substantial sales of land for
residential, commercial and light industrial use were recorded at Modderfontein,
Somerset West and Umbogintwini.
Financial
Profit from operations included restructuring costs of R23 million (R42 million
in 2004), a R40 million top-up of the post-employment medical aid provision and
an additional R28 million provision for environmental remediation. Mark-to-
market adjustments related to interest rate hedging instruments were not
material in the year. Taxation included a R11 million deferred tax charge
consequent upon the reduction in the rate of corporate tax to 29 per cent.
The increase in net profit attributable to outside shareholders reflected the
25.1 per cent interest of the empowerment consortium led by the Tiso Group in
the Group"s explosives business for a full year as opposed to six months in
2004.
Net capital expenditure of R339 million during the year was R127 million higher
than the depreciation charge. The investments comprised mainly expansion
projects in AEL and Chemserve, which company in addition acquired five
businesses to the value of R207 million. Group working capital increased to R1
373 million and 15.6 per cent of sales from 12 per cent of sales in 2004, a
deterioration which will be the focus of management attention in 2006.
The Group"s net borrowings of R798 million were R183 million higher than at
December 2004 with property activities contributing net cash flow of R270
million in the year. Cash interest cover improved further to 12 times while
gearing increased to 27 per cent of shareholder funds from 23 per cent at
December 2004.
In late 2005 the Company purchased call options over 2.95 million AECI ordinary
shares from a local bank for a total cash premium of R120 million. This will
obviate the need for the Company to issue new shares when participants in the
AECI share option scheme exercise their rights in terms of the scheme, and hence
will eliminate any future dilution of earnings per share from this source. No
repurchases of shares were undertaken in the year.
Portfolio
The empowerment transaction involving the sale of a 25.1 per cent equity
interest in ImproChem, a Chemserve business, to the Tiso Group became effective
in September 2005. Chemserve also completed the acquisition of J E Orlick and
Associates in October 2005 and announced the acquisition of Leochem, a producer
of personal care intermediates, for a consideration of R100 million. This
transaction will take effect in March 2006.
The packaging coatings business has been included in the specialty chemicals
segment of the portfolio, and the site services business at Umbogintwini is
reported under property instead of Group services. Comparative figures for 2004
have been restated.
Outlook
The prevailing environment of GDP growth, firm commodity prices and rand
exchange rate accompanied by low inflation and interest rates is not expected to
change materially in the year ahead, and the Group"s portfolio of businesses is
well positioned to benefit in these conditions. The extent of land available for
sale during 2006 will be lower than in 2005.
Nonetheless, provided the rand exchange rate does not strengthen substantially
from the 2005 average, management is again targeting an increase in headline
earnings for the full financial year.
Alan Pedder CBE Schalk Engelbrecht
Chairman Chief executive
Sandton
20 February 2006
Income statement
% 2005 2004
change R millions R millions
Revenue (2) +11 8 768 7 911
Profit from operations +19 887 743
Net financing costs (90) (139)
Income from associates and 5 3
investments
802 607
Transitional provision for (20) (20)
post-employment medical aid
benefits (3)
Impairment/amortisation of (10) (104)
goodwill
Exceptional items (27) (23)
Net profit before taxation 745 460
Taxation (225) (173)
Normal activities (232) (167)
Exceptional items 7 (6)
Net profit 520 287
Attributable to preference (34) (4)
and outside shareholders
Net profit attributable to 486 283
ordinary shareholders
Headline earnings are
derived from:
Net profit attributable to 486 283
ordinary shareholders
Transitional provision for 20 20
post-employment medical aid
benefits (3)
Impairment/amortisation of 10 104
goodwill
Exceptional items 27 23
Outside shareholders" share - (3)
of the above items
Tax effects of the above (13) -
items
Headline earnings 530 427
Per ordinary share (cents):
Headline earnings +23 482 392
Diluted headline earnings 473 383
(4)
Attributable earnings 442 260
Diluted attributable 434 254
earnings (4)
Dividends declared +27 175 138
Dividends paid 148 122
Ordinary shares (millions)
- in issue 110 109
- weighted average number of 110 109
shares
- diluted weighted average 112 111
number of shares (4)
Notes
Accounting policies are in accordance with International Financial Reporting
Standards and 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.
Includes foreign sales of R1 817 million (2004 - R1 506 million).
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) Calculated in accordance with IAS 33. The Company has purchased call options
over AECI shares which will obviate the need for the Company to issue new shares
in terms of the AECI share option scheme. In practice, therefore, there will be
no future dilution of earnings from this source.
The auditors, KPMG Inc, have issued their opinion on the Group financial
statements for the year ended 31 December 2005. A copy of the auditors"
unqualified report is available for inspection at the Company"s registered
office.
Balance sheet
at 31 December
2005 2004
R millions R millions
Assets
Non-current assets 3 056 2 917
Property, plant and equipment 1 723 1 659
Goodwill 920 822
Investments 91 76
Deferred tax assets 322 360
Current assets 3 559 2 960
Inventory 1 372 1 160
Accounts receivable 1 778 1 420
Cash and cash equivalents 409 380
Total assets 6 615 5 877
Equity and liabilities
Ordinary capital and reserves 2 857 2 605
Preference capital and outside
shareholders"
interest in subsidiaries 83 41
Total shareholders" interest 2 940 2 646
Non-current liabilities 1 132 1 422
Deferred tax liabilities 31 33
Long-term borrowings 559 899
Long-term provisions 542 490
Current liabilities 2 543 1 809
Accounts payable 1 777 1 632
Short-term borrowings 648 96
Taxation 118 81
Total equity and liabilities 6 615 5 877
Industry segment analysis
Revenue Profit
from operations
2005 2004 2005 2004
R millions R millions
Mining solutions 2 314 2 140 257 212
Specialty chemicals 3 826 3 363 412 388
Specialty fibres 1 619 1 595 32 3
Decorative coatings 607 610 59 51
Property 648 467 185 137
Group services,
intergroup and other (246) (264) (58) (48)
8 768 7 911 887 743
Assets
2005 2004
R millions
Mining solutions 963 842
Specialty chemicals 1 931 1 463
Specialty fibres 713 661
Decorative coatings 126 118
Property 500 531
Group services,
intergroup and other (217) (186)
4 016 3 429
Assets consist of property, plant, equipment and goodwill, inventory, accounts
receivable less accounts payable. Assets in the property segment include land
revaluation of R412 million (2004 - R432 million).
Cash flow statement
2005 2004
R millions R millions
Cash generated by operations 1 165 964
Dividends received 4 2
Net financing costs (90) (126)
Taxes paid (129) (128)
Changes in working capital (295) 113
Expenditure relating to long-term (42) (57)
provisions and restructuring
Cash available from operating 613 768
activities
Dividends paid (167) (135)
Cash retained from operating 446 633
activities
Cash utilised in investment (530) (233)
activities
Proceeds from disposal of 27 58
investments and businesses
Investments (218) (22)
Net capital expenditure (339) (269)
Net cash (utilised)/generated (84) 400
Cash effects of financing activities 212 (485)
Share options hedge (4) (120) -
Proceeds from issue of new ordinary 8 8
shares
Increase/(decrease) in cash and cash 16 (77)
equivalents
Cash and cash equivalents at the 380 474
beginning of the year
Translation gain/(loss) on cash and 13 (17)
cash equivalents
Cash and cash equivalents at the end 409 380
of the year
Statement of changes in equity
2005 2004
R millions R millions
Net profit 520 287
Dividends paid (167) (135)
Revaluation of derivative - 5
instruments
Foreign currency translation 6 (53)
differences net of deferred tax
Ordinary shares issued 8 8
Changes in the Group 12 13
Share options hedge net of deferred (85) -
tax (4)
Net increase in equity for the year 294 125
Equity at the beginning of the year 2 646 2 521
Equity at the end of the year 2 940 2 646
Made up as follows:
Share capital and share premium 453 445
Non-distributable reserves 276 289
Surplus arising on revaluation of 268 288
property, plant and equipment
Foreign currency translation reserve 3 (3)
net of deferred tax
Retained earnings of associates 1 1
Other 4 3
Retained earnings 2 128 1 871
Preference capital 6 6
Outside shareholders" interest in 77 35
subsidiaries
2 940 2 646
Other salient features
2005 2004
R millions R millions
Capital expenditure 351 277
- expansion 235 157
- replacement 116 120
Capital commitments 97 188
- contracted for 23 25
- not contracted for 74 163
Future rentals on property, plant
and
equipment leased 235 196
- payable within one year 47 43
- payable thereafter 188 153
Net contingent liabilities and 292 278
guarantees
Net borrowings 798 615
Gearing (%) 27 23
Current assets to current 1.4 1.6
liabilities
Net asset value per ordinary share 2 587 2 381
(cents)
Depreciation 212 224
Directorate
AE Pedder CBE* (Chairman), S Engelbrecht (Chief executive), NC Axelson +, CB
Brayshaw,
MJ Leeming, F Titi, LC van Vught
*British +Executive
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.
Heartlands
Property
Heartland manages the realisation of land and related assets that have become
surplus to the Group"s requirements.
Sponsor:
J.P.Morgan Equities Limited
Date: 21/02/2006 07:49:53 AM Supplied by www.sharenet.co.za
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