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AECI - Group interim financial results for the half-year ended 30 June 2006
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 2006
* Headline earnings per share up 95%
* Dividend per ordinary share increased to 64 cents
* Revenue up 17%
* Return on invested capital (ROIC) higher at 19%
Income statement
2006 2005 2005
First half First half Year
% Unaudited Unaudited Audited
change R millions R millions R millions
Revenue (2) +17 4 666 3 998 8 768
Profit from operations +56 580 371 887
Net financing costs (43) (47) (90)
Income from associates and
investments 4 2 5
541 326 802
Transitional provision for
post-employment medical
aid benefits (3) - (10) (20)
Impairment of goodwill - - (10)
Exceptional items (2) 3 (27)
Profit before tax 539 319 745
Tax (111) (94) (225)
Net profit 428 225 520
Attributable to preference and
outside shareholders (13) (16) (34)
Net profit attributable to
ordinary shareholders 415 209 486
Headline earnings are derived
from:
Net profit attributable to
ordinary shareholders 415 209 486
Transitional provision for
post-employment medical
aid benefits (3) - 10 20
Impairment of goodwill - - 10
Exceptional items before tax
2 (3) 27
Tax effects of the above items - (3) (13)
Headline earnings 417 213 530
Per ordinary share (cents):
Headline earnings +95 378 194 482
Diluted headline earnings (4) 372 190 473
Attributable earnings 376 190 442
Diluted attributable earnings
(4) 370 186 434
Dividends declared +19 64 54 175
Dividends paid 121 94 148
Ordinary shares (millions) (5)
- in issue 110 110 110
- weighted average number of
shares 110 110 110
- diluted weighted average
number of shares (4) 112 112 112
Notes
(1) The interim financial results have been prepared in compliance
with International Financial Reporting Standards. Accounting
policies are consistent with those applied in the previous
financial year.
(2) Includes foreign sales of R990 million (2005 - R887 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) Calculated in accordance with IAS33. In 2005, the Company
purchased call options over AECI ordinary shares which will
obviate the need for the Company to issue new shares in terms of
the AECI share option scheme. Therefore, there will be no future
dilution of earnings from this source.
(5) Net of 10 311 120 (2005 - 10 311 120) treasury shares held by a
subsidiary company.
Balance sheet
at 30 June
2006 2005 2005
30 June 30 June 31 Dec
Unaudited Unaudited Audited
R millions R millions R millions
Assets
Non-current assets 3 210 2 941 3 056
Property, plant and equipment 1 849 1 693 1 723
Goodwill 1 001 887 920
Investments 101 69 91
Deferred tax assets 259 292 322
Current assets 4 024 3 327 3 559
Inventory 1 497 1 352 1 372
Accounts receivable 2 182 1 622 1 778
Cash and cash equivalents 345 353 409
Total assets 7 234 6 268 6 615
Equity and liabilities
Ordinary capital and reserves 3 186 2 744 2 857
Preference capital and outside
shareholders" interest
in subsidiaries 109 58 83
Total shareholders" interest 3 295 2 802 2 940
Non-current liabilities 1 064 1 222 1 132
Deferred tax liabilities 26 22 31
Long-term borrowings 549 689 559
Long-term provisions 489 511 542
Current liabilities 2 875 2 244 2 543
Accounts payable 1 795 1 628 1 777
Short-term borrowings 1 046 587 648
Tax 34 29 118
Total equity and liabilities 7 234 6 268 6 615
Industry segment analysis for the half-year ended 30 June
Profit
Revenue from operations Assets
2006 2005 2006 2005 2006 2005
Unaudited Unaudited Unaudited
R millions R millions R millions
Mining solutions 1 152 1 089 105 116 1 037 923
Specialty chemicals 2 082 1 696 210 176 2 219 1 807
Specialty fibres 786 828 (28) 19 691 700
Decorative coatings 297 267 13 13 168 135
Property 458 226 292 68 786 545
Group services,
intergroup and (109) (108) (12) (21) (167) (184)
other
4 666 3 998 580 371 4 734 3 926
Assets consist of property, plant, equipment and goodwill, inventory,
accounts receivable less accounts payable. Assets in the property segment
include land revaluation of R404 million (2005 - R423 million).
Cash flow statement
2006 2005 2005
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Cash generated by operations 689 487 1 165
Dividends received 3 1 4
Net financing costs paid (51) (47) (90)
Taxes paid (142) (89) (129)
Changes in working capital (422) (299) (295)
Expenditure relating to long-term
provisions (59) (3) (33)
Expenditure relating to restructuring
- (6) (9)
Cash available from operating
activities 18 44 613
Dividends paid (135) (104) (167)
Cash (applied to)/retained from
operating activities (117) (60) 446
Cash utilised in investment activities (354) (276) (530)
Proceeds from disposal of investments
and businesses 2 17 27
Investments (154) (143) (218)
Net capital expenditure (202) (150) (339)
Net cash utilised (471) (336) (84)
Cash effects of financing activities 388 281 212
Share options hedge premium paid - - (120)
Proceeds from issue of new shares - 6 8
(Decrease)/increase in cash and cash
equivalents (83) (49) 16
Cash and cash equivalents at the
beginning of the period 409 380 380
Translation gain on cash and cash
equivalents 19 22 13
Cash and cash equivalents at the end of
the period 345 353 409
Statement of changes in equity
2006 2005 2005
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Net profit 428 225 520
Dividends paid (135) (104) (167)
Revaluation of derivative instruments - 1 -
Foreign currency translation
differences net of
deferred tax 46 26 6
Ordinary shares issued - 6 8
Changes in the Group 13 - 12
Other 3 2 -
Share options hedge premium net of
deferred tax - - (85)
Net increase in equity for the period 355 156 294
Equity at the beginning of the period 2 940 2 646 2 646
Equity at the end of the period 3 295 2 802 2 940
Made up as follows:
Share capital and share premium 453 451 453
Non-distributable reserves 319 307 276
Surplus arising on revaluation of
property,
plant and equipment 263 279 268
Foreign currency translation reserve
net of deferred tax 49 22 3
Retained earnings of associates 1 1 1
Other 6 5 4
Retained income 2 414 1 986 2 128
Preference capital 6 6 6
Outside shareholders" interest in
subsidiaries 103 52 77
3 295 2 802 2 940
Other salient features
2006 2005 2005
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Capital expenditure 210 152 351
- expansion 142 108 235
- replacement 68 44 116
Capital commitments 226 171 97
- contracted for 50 6 23
- not contracted for 176 165 74
Future rentals on property, plant
and equipment leased 236 183 235
- payable within one year 46 43 47
- payable thereafter 190 140 188
Contingent liabilities and guarantees 238 283 292
Net borrowings 1 250 923 798
Gearing (%) 38 33 27
Current assets to current liabilities 1.4 1.5 1.4
Net asset value per ordinary share
(cents) 2 885 2 491 2 587
Depreciation 106 113 212
Commentary
Performance
Headline earnings for the first half-year were 378 cents per ordinary
share, 95 per cent higher than in the first half of 2005. An unusually
large disposal lifted profit from operations in the property segment to
R292 million from R68 million in the comparable period last year,
equivalent to an increase in earnings of approximately 180 cents per share.
An increased dividend of 64 cents per ordinary share has been declared,
giving a dividend cover of 5.9 times compared with 54 cents per share and
3.6 times cover in 2005. The dividend declaration is published in full
elsewhere.
Revenues of Group businesses increased by 17 per cent over the same period
last year. Excluding the effect of acquisitions, revenue increased by 12
per cent. Demand from the local manufacturing sector improved in the second
quarter largely due to the weaker rand exchange rate. Gross margins were
under pressure from increases in oil-based and certain other raw material
costs which could not be fully recovered in the market. The operating
margin improved to 12.4 per cent of sales from 9.3 per cent in the same
period last year and the 12 month return on average invested capital (ROIC)
for the Group, excluding revaluation of land, was 19 per cent compared to
16 per cent at June 2005.
African Explosives" detonator margins continued to be under pressure from
imports of state-subsidised products from China which precluded any price
adjustments in the South African market. However, operations elsewhere in
Africa again delivered pleasing results, whilst the profitable exports of
ammonium nitrate achieved in 2005 could not be sustained. Commissioning of
the first phase of automated production of initiating systems at
Modderfontein is well advanced with production expected in October. The
second phase, estimated to cost R100 million, is underway with completion
scheduled for the third quarter of 2007.
DetNet, the 50:50 joint venture with Dyno Nobel, increased international
sales and broadened international validation of the new generation
electronic detonator.
Chemical Services posted an excellent result with profit from operations 19
per cent higher than in 2005, supported by pleasing performances from the
seven businesses acquired over the past 18 months. Demand from the local
manufacturing sector was resilient and is expected to strengthen if the
recent weaker tendency in the exchange rate is sustained. The acquisition
of a 60 per cent interest in Resitec in Brazil, at a cost of R43 million,
was completed with effect from 1 April. Further potential acquisitions in
that country are being evaluated.
The recovery programme at SANS Fibres was set back severely in the first
quarter by two unexpected and extended power outages which impacted
operations for weeks thereafter. An insurance claim covered only part of
the overall cost. In addition, output of polyester polymer and PET was
restricted for a period following a scheduled maintenance shutdown of the
plants in March. Trading performance improved in the latter part of the
period, assisted by the weaker exchange rate, and international demand for
the company"s specialty fibres remains strong. Plant operating performance
remains the key focus of the recovery programme. The joint venture
operations in Stoneville, North Carolina further improved profitability in
the period.
At Dulux, higher sales volumes of its premium branded products in South
Africa offset the effect of higher raw material costs on margins. Profits
from its other African operations were higher than in 2005.
Realisation of property surplus to operating requirements substantially
exceeded expectation with the sale by AECI Limited of the 61 hectare
Milnerton site for R260 million. In addition, the property activities of
Heartland recorded profit from operations of R38 million after recognising
R37 million of remediation costs as an expense. The cash spend on
remediation activities amounted to R90 million in the period.
Financial
Capital expenditure of R210 million, incurred mainly on expansion projects
in African Explosives and Chemical Services, was almost double the
depreciation charge for the period. In addition, Chemical Services invested
R145 million in several acquisitions during the half-year. Group working
capital was inflated by the Milnerton property sale in June. Excluding this
receivable, working capital increased to R1 624 million and 18 per cent of
sales from 17 per cent of sales in June 2005.
The Group"s net borrowings of R1 250 million were R327 million higher than
at June 2005. Cash interest cover at 13 times was substantially higher than
the 10 times achieved in the first half of 2005. Gearing increased to 38
per cent of shareholders" funds from 33 per cent at June 2005 (27 per cent
at December 2005).
At the Annual General Meeting of the Company held on 23 May, shareholders
authorised a general repurchase of up to 5 per cent of the ordinary shares
in the Company. No repurchases were undertaken in the period.
Post balance sheet event
On 19 July the Trustees of the AECI Pension Fund resolved to establish a
general reserve account of R750 million within the Fund, and to effect
transfers on a regular basis from that reserve to an employer surplus
account, on condition that the Company undertakes at least to maintain for
10 years the present rate of contribution to the Fund in respect of
employee members. The employer surplus account would be utilised primarily
to fund an allowance to each pensioner older than 65 equivalent to the
portion of the medical aid contribution paid by the Company on behalf of
the pensioner. The Board resolved today to give this undertaking. The
effect of the arrangement will be to reduce in future years the amount of
medical aid contributions paid by the Company on behalf of retired
employees, and hence the value of the provision for post-employment medical
aid benefits in the balance sheet. The quantum of the reduction in the
provision has not been finalised by the independent actuary. No adjustment
to the provision was made at 30 June.
Portfolio
As previously announced, Chemical Services acquired Leochem, a producer of
personal care intermediates, with effect from March 2006 and Resitec, a
producer of oleo-chemicals in Brazil, with effect from April 2006. Both
companies have performed in line with expectation since acquisition.
Outlook
Global growth appears robust despite heightened geo-political uncertainty
in the Middle East and an upward tendency in interest rates. Maintaining
and improving margins through timeous response to volatile raw material
prices and exchange rates represents the major challenge for the Group in
the second half of the year.
The contribution from property activities is likely to be substantially
lower in the second half than in 2005 as the stock of land immediately
available for sale is currently limited. However, earnings may be boosted
by the release of part of the provision for post-employment medical aid
benefits following the agreement with the AECI Pension Fund. Excluding this
release, management is targeting a second half result similar to that of
2005.
Alan Pedder CBE Schalk Engelbrecht
Chairman Chief executive
Sandton
24 July 2006
Notice to shareholders
Interim ordinary dividend no. 145
NOTICE IS HEREBY GIVEN that on Monday, 24 July 2006 the directors of AECI
Limited declared an interim ordinary dividend of 64 cents per share, in
respect of the financial year ending 31 December 2006, payable on Monday,
18 September 2006 to ordinary shareholders recorded in the books of the
Company at the close of business on Friday, 15 September 2006.
The last day to trade cum dividend will be Friday, 8 September 2006 and
shares will commence trading ex dividend as from Monday, 11 September 2006.
Any change of address or dividend instruction must be received on or before
Friday, 8 September 2006.
Share certificates may not be dematerialised or rematerialised from Monday,
11 September 2006 to Friday, 15 September 2006, both days inclusive.
This announcement will be mailed to all recorded shareholders on or about
Tuesday, 25 July 2006.
By order of the Board
E A Rea
Acting secretary
Sandton
24 July 2006
Directorate
AE Pedder CBE* (Chairman), S Engelbrecht (Chief executive), NC Axelson+, CB
Brayshaw, MJ Leeming, LM Nyhonyha, F Titi, LC van Vught
*British +Executive
www.aeci.co.za
Specialty product and service solutions
Mining solutions
Development, manufacture and supply of value-adding services, initiating
systems and explosives to the mining, quarrying, and allied industries.
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.
Specialty fibres
Production, marketing and distribution of specialty nylon and polyester
yarn for local and export markets; production of PET bottle polymer.
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.
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: 25/07/2006 07:00:21 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department