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AECI - Group interim financial results for the half-year ended 30 June 2006

Release Date: 25/07/2006 07:00
Code(s): AFE
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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

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