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AFE - AECI Limited - Group audited financial results for the year ended
31 December 2006 and dividend declaration
AECI LIMITED
("AECI" or "the Company")
(Incorporated in the Republic of South Africa)
Registration No. 1924/002590/06
Share code: AFE
ISIN code: ZAE000000220
AECI
SPECIALTY PRODUCT AND SERVICE SOLUTIONS
Group audited financial results for the year ended 31 December 2006
- Revenue exceeds R10 billion
- Profit from operations over R1 billion
- Headline earnings per share up 77%
- Return on invested capital (ROIC) higher at 19%
Commentary
Performance
Headline earnings of 853 cents per ordinary share were 77 per cent higher
than in 2005. This included a non-recurring boost of 210 cents per share as
a consequence of the previously announced agreement with the AECI Pension
Fund which became effective in October. Without this once-off effect,
headline earnings were 643 cents per share, an increase of 33 per cent on
last year. An increased final dividend of 141 cents per ordinary share has
been declared compared to 121 cents in 2005 to bring the total dividends for
the year to 205 cents from 175 cents.
Group revenue increased by 16 per cent in 2006, of which some 5 per cent was
attributable to acquisitions by Chemical Services (Chemserve). Demand from
the local mining and manufacturing sectors continued to improve in the
second half in response to strong export markets and a somewhat weaker rand
exchange rate. Gross margins were under pressure for much of the year
because of increased oil-based and other raw material costs with some relief
evident only in the last quarter. The operating margin improved to 10.8 per
cent of sales from 10.1 per cent in 2005 and the return on invested capital
(ROIC) for the Group, excluding revaluation of land, was 19 per cent
compared to 18 per cent in 2005.
African Explosives (AEL) recorded a steady performance despite intense
competition from local and Chinese-sourced shocktube initiators in the South
African narrow reef market. All other sectors delivered improved results
with significant volume increases in open cast mines in South Africa and in
other African markets. The first phase of automated production of initiating
systems at Modderfontein was commissioned successfully in the last quarter
of 2006.
DetNet, the electronic initiating systems 50:50 joint venture with Dyno
Nobel Limited, made disappointing progress. Management and marketing
arrangements have been restructured to enhance the pace of customer
conversion to electronic detonation, and an improved performance is expected
in 2007.
Chemserve posted an excellent result with operating profit 22 per cent up on
2005, supported by a strong recovery in the local mining and manufacturing
industries and continued growth in consumer-driven sectors. Substantial
investments are being made to expand capacity in the high growth areas.
Operating margins were largely maintained despite high and volatile prices
of oil-based raw materials. Businesses acquired over the past two years have
been integrated successfully into the Chemserve service model and accounted
for around half of the growth in sales and profit for the year.
SANS Fibres (SANS) incurred a small loss in the year, a consequence of
several adverse factors in the first eight months. Production and quality
performance were severely disrupted by the impact of power outages in the
Western Cape, two incidents of force majeure by the major supplier of nylon
polymer and a carbon dioxide shortage which reduced local peak season PET
demand. A substantial improvement in operations was sustained from August
and the quality and productivity improvement programmes appear to be back on
track. International demand for SANS`s key light industrial yarns remained
strong. Early in 2007, Unifi Inc, the partner in the US-based joint venture
gave notice of its intention to exercise its put option against SANS as
provided for in the initial shareholders` agreement, and to exit the
business in the first quarter of 2008. The opportunity will be taken to seek
a strategic alliance with a partner which could add value to SANS`s business
as a whole.
Dulux extended its impressive performance trend with volume growth of 10 per
cent and a 19 per cent increase in operating profit. Demand from the DIY
market and the professional painting sector was particularly strong in the
last quarter. The operating margin was maintained despite a marked
escalation in raw material costs. Profits from African operations were lower
due to currency effects and unfavourable market conditions.
The property activities managed by Heartland delivered outstanding results
with operating profit at a record R314 million net of R66 million of
remediation costs. Net cash flow totalled R296 million after expenditure of
R134 million on remediation. Sales of 160 hectares of land for residential,
commercial and light industrial use were recorded at Modderfontein,
Milnerton and Somerset West. In December an agreement regarding Gautrain was
concluded with the Province of Gauteng. This provides for appropriate
connectivity between the various parts of Modderfontein and recognises the
desirability of a station on the property at some future date.
Financial
The agreement with the AECI Pension Fund released R131 million from the
existing post-employment medical aid provision and required the R196 million
balance in the Employer Surplus Account in the Pension Fund at year-end to
be recognised as an asset by AECI. Collectively this boosted operating
profit by R327 million. Restructuring costs charged against profits totalled
R5 million in 2006 compared to R23 million in 2005.
Expansion projects in AEL and Chemserve were the main components of net
capital expenditure of R416 million which was R193 million higher than the
Group depreciation charge. In addition, Chemserve invested R155 million and
Dulux R20 million in the acquisition of new businesses. Group working
capital increased to R1 745 million at year-end, which represents 17.1 per
cent of annual sales from 15.7 per cent last year, and is a target for
improvement in 2007.
The Group`s net borrowings of R940 million were R142 million higher than at
December 2005. Cash interest cover improved to 13 times and gearing reduced
to 25 per cent of shareholder funds from 27 per cent at December 2005. No
repurchases of ordinary shares were undertaken during the year.
Portfolio
In addition to the previously announced acquisitions of Leochem, a producer
of personal care intermediates, and Resitec, a producer of oleo-chemicals in
Brazil, Chemserve also acquired four small local businesses during the year.
Dulux acquired Sent Packing, a supplier of specialist exterior coatings,
with effect from July 2006. All these businesses have met or exceeded
expectation since acquisition.
In line with the Group`s strategy of growing its presence in the provision
of specialist services to the global mining industry, the Board in November
approved a R230 million project with potentially attractive returns in the
mining chemicals segment of the Chemserve portfolio, and has this month
approved in principle a second such project at a cost of R380 million.
Already approved expenditure of R180 million on AEL`s detonator automation
programme is likely to be followed soon by a third and concluding phase at a
cost of some R250 million. This R1 billion investment programme would
clearly increase the prominence of specialist mining-related services as a
major core business of the Group over the next few years.
Outlook
The favourable international environment of increasing industrial production
and firm commodity prices should support the local mining and manufacturing
sectors and underpin steady and more balanced growth in South African GDP.
Provided the rand exchange rate does not strengthen materially from recent
levels, the Group`s operating businesses are well positioned to post further
aggregate gains under these conditions.
In the property segment, however, limited availability of land ready for
release and sale during 2007 is likely to result in profit after tax from
property activities being substantially below the record level of 2006.
Hence management does not expect headline earnings per share in 2007 to
exceed the 643 cents per ordinary share which were achieved in 2006
excluding the non-recurring effect of the agreement entered into with the
Pension Fund.
Alan Pedder CBE Schalk Engelbrecht
Chairman Chief executive
Sandton
19 February 2007
Income statement
% 2006 2005
change R millions R millions
Revenue(2) +16 10 212 8 768
Profit from operations +24 1 102 887
Creation of pension fund employer
surplus account 196 -
Release of provision for post-
employment medical aid benefits 131 -
1 429 887
Net financing costs (103) (90)
Income from associates and
investments 7 5
1 333 802
Transitional provision for post-
employment medical aid benefits - (20)
Impairment of goodwill (6) (10)
Exceptional items (21) (27)
Profit before tax 1 306 745
Tax (353) (225)
Net profit 953 520
Attributable to preference and
minority shareholders (37) (34)
Profit attributable to ordinary
shareholders 916 486
Headline earnings are derived
from:
Profit attributable to ordinary
shareholders 916 486
Transitional provision for post-
employment medical aid benefits - 20
Impairment of goodwill 6 10
Exceptional items before tax 21 27
Tax effects of the above items (1) (13)
Headline earnings 942 530
Per ordinary share (cents):
Headline earnings +77 853 482
Diluted headline earnings(3) 842 473
Attributable earnings 829 442
Diluted attributable earnings(3) 819 434
Dividends declared +17 205 175
Dividends paid 185 148
Ordinary shares (millions)(4)
- in issue 110 110
- weighted average number of 110 110
shares
- diluted weighted average number
of shares(3) 112 112
Notes
(1) Accounting policies are in accordance with International Financial
Reporting Standards and are consistent with those applied in the previous
financial year.
(2) Includes foreign sales of R2 302 million (2005 - R1 817 million).
(3) Calculated in accordance with IAS33. 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.
(4) Net of 10 311 120 (2005 - 10 311 120) treasury shares held by a
subsidiary company.
(5) The auditors KPMG Inc, have issued their opinion on the Group annual
financial statements for the year ended 31 December 2006. A copy of the
auditors` unqualified report is available for inspection at the Company`s
registered office.
Balance sheet
at 31 December
2006 2005
R millions R millions
Assets
Non-current assets 3 445 3 056
Property, plant and equipment 1 965 1 723
Goodwill 1 019 920
Pension fund surplus 196 -
Investments 119 91
Deferred tax assets 146 322
Current assets 4 350 3 559
Inventory 1 733 1 372
Accounts receivable 2 242 1 778
Cash and cash equivalents 375 409
Total assets 7 795 6 615
Equity and liabilities
Ordinary capital and reserves 3 595 2 857
Preference capital and minority
shareholders`
interest in subsidiaries 132 83
Total shareholders` interest 3 727 2 940
Non-current liabilities 942 1 132
Deferred tax liabilities 35 31
Non-current borrowings 518 559
Non-current provisions 389 542
Current liabilities 3 126 2 543
Accounts payable 2 230 1 777
Current borrowings 797 648
Tax payable 99 118
Total equity and liabilities 7 795 6 615
Industry segment analysis
Revenue Profit from Assets
operations
2006 2005 2006 2005 2006 2005
R millions R millions R millions
Mining
solutions 2 492 2 314 261 257 1 019 963
Specialty
chemicals 4 729 3 826 501 412 2 392 1 931
Specialty
fibres 1 780 1 619 (6) 32 835 713
Decorative
coatings 774 648 70 59 200 126
Property 644 607 314 185 449 500
Group services,
intergroup and
other (207) (246) (38) (58) (166) (217)
10 212 8 768 1 102 887 4 729 4 016
Net assets consist of property, plant, equipment and goodwill, inventory,
accounts receivable less accounts payable. Assets in the property segment
include land revaluation of R405 million (2005 - R412 million).
Cash flow statement
2006 2005
R millions R millions
Cash generated by operations 1 385 1 165
Dividends received 7 4
Net financing costs (114) (90)
Taxes paid (202) (129)
Changes in working capital (265) (295)
Expenditure relating to non-current
provisions (130) (33)
Expenditure relating to restructuring (13) (9)
Cash available from operating activities 668 613
Dividends paid (206) (167)
Cash retained from operating activities 462 446
Cash utilised in investment activities (612) (530)
Proceeds from disposal of investments and
businesses 3 27
Investments (199) (218)
Net capital expenditure (416) (339)
Net cash utilised (150) (84)
Cash effects of financing activities 99 212
Share options hedge premium paid - (120)
Proceeds from issue of new shares - 8
(Decrease)/increase in cash and cash
equivalents (51) 16
Cash and cash equivalents at the beginning of
the year 409 380
Translation gain on cash and cash equivalents 17 13
Cash and cash equivalents at the end of the
year 375 409
Statement of changes in equity
2006 2005
R millions R millions
Profit for the year 953 520
Dividends paid (206) (167)
Revaluation of derivative instruments 6 -
Foreign currency translation differences
net of deferred tax 17 6
Ordinary shares issued - 8
Changes in the Group 14 12
Share options hedge premium net of deferred
tax - (85)
Other 3 -
Net increase in equity for the year 787 294
Equity at the beginning of the year 2 940 2 646
Equity at the end of the year 3 727 2 940
Made up as follows:
Issued ordinary capital 453 453
Non-distributable reserves 295 276
Surplus arising on revaluation of property,
plant and equipment 261 268
Foreign currency translation reserve net of
deferred tax 20 3
Retained earnings of associates 1 1
Other 13 4
Retained income 2 847 2 128
Preference capital 6 6
Minority interest 126 77
3 727 2 940
Other salient features
2006 2005
R millions R millions
Capital expenditure - property, plant and
equipment 433 351
- expansion 239 235
- replacement 194 116
Capital commitments 650 97
- contracted for 91 23
- not contracted for 559 74
Future rentals on property, plant and
equipment leased 290 235
- payable within one year 65 47
- payable thereafter 225 188
Net contingent liabilities and guarantees 121 281
Net borrowings 940 798
Gearing (%) 25 27
Current assets to current liabilities 1.4 1.4
Net asset value per ordinary share (cents) 3 255 2 587
Depreciation 223 212
Notice to shareholders
Final ordinary dividend no. 146
Notice is hereby given that on Monday, 19 February 2007 the directors of
AECI Limited declared a final dividend of 141 cents per share, in respect of
the financial year ending 31 December 2006, payable on Monday, 23 April 2007
to ordinary shareholders recorded in the books of the Company at the close
of business on Friday, 20 April 2007.
The last day to trade cum dividend will be Friday, 13 April 2007 and shares
will commence trading ex dividend as from Monday, 16 April 2007.
Any change of address or dividend instruction must be received on or before
Friday, 13 April 2007.
Share certificates may not be dematerialised or rematerialised from Monday,
16 April 2007 to Friday, 20 April 2007, both days inclusive.
This announcement will be mailed to all recorded shareholders on or about
Tuesday, 20 February 2007.
By order of the Board
E A Rea
Acting secretary
Directorate
AE Pedder CBE* (Chairman), S Engelbrecht (Chief executive), NC Axelson#, FPP
Baker#, CB Brayshaw, RMW Dunne*, GN Edwards#, MJ Leeming, LM Nyhonyha, F
Titi, LC van Vught
*British #Executive
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.
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.
20 February 2007
Sponsor: J.P.Morgan Equities Limited
Date: 20/02/2007 07:30:09 Supplied by www.sharenet.co.za
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