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AFE - AECI - Group Interim Financial Results For The Half-Year Ended 30
June 2007
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 interim financial results for the half-year ended 30 June 2007
- Revenue up 23% excluding property activities
- Dividend per ordinary share increased to 72 cents
- Major expansion projects for a total of R1.1 billion on track
Commentary
Performance
Headline earnings for the first half-year were 247 cents per ordinary
share, 131 cents lower than in the first half of 2006. Earnings in that
period were boosted by the gain on disposal of the Company`s Milnerton site
which contributed some 200 cents to earnings per share. No comparable
transaction took place in the current period. An increased dividend of 72
cents per ordinary share has been declared, compared with 64 cents per
share in 2006. The dividend declaration is published in full elsewhere.
Group revenue increased by 16 per cent over the same period last year.
Excluding property activities, the increase was 23 per cent. Moderately
higher demand from the local mining, manufacturing and consumer sectors was
augmented by strong growth in international sales. The operating margin
excluding property improved to 7.1 per cent of sales from 6.8 per cent last
year, notwithstanding market resistance to the full recovery of increased
raw material costs, which kept gross margins under pressure. The 12 month
return on average invested capital (ROIC) for the Group, excluding
revaluation of land, reduced to 15 per cent compared to 19 per cent at June
2006.
African Explosives (AEL) achieved a reasonable result despite intense
competition in the narrow reef business in South Africa which affected
detonator margins and volumes. Operations elsewhere in Africa again
delivered pleasing growth. The first phase of automated production of
initiating systems at Modderfontein is operating at increasing rates and
the second phase is on track for completion in the last quarter of 2007. A
third and final phase, at an estimated cost of R300 million, has been
approved by the Board with completion expected by the end of 2009. This
will position AEL as a leading global supplier of initiating systems.
DetNet, the electronic detonator joint venture with Dyno Nobel Limited,
incurred a small loss in the period.
Chemical Services (Chemserve) sustained its impressive growth trend with
profit from operations 20 per cent higher than in 2006, supported by an
excellent performance from the mining chemicals business. Operating margins
were largely maintained despite high and volatile prices of oil-based raw
materials. The two major projects in the mining chemicals segment of
Chemserve`s portfolio, approved by the Board at an aggregate cost of R610
million, have progressed as planned with commissioning scheduled in early
2009. Further potential acquisitions to complement the investment in
Resitec in Brazil are being evaluated.
SANS Fibres (SANS) achieved a major improvement in performance relative to
the first half of 2006 as the power outages and other disruptions of that
period did not recur. The quality and productivity improvement programmes
established last year delivered significant benefits but these were not
sufficient to offset fully the escalation in rand-based costs which
resulted in an unsatisfactory operating margin. Progress has been made in
identifying potential strategic partners or owners that could add value to
all or part of SANS`s business, and discussions are underway with a number
of interested parties.
Dulux recorded a 30 per cent increase in operating profit with higher sales
volumes of its premium branded products in South Africa, a favourable
product mix and stable margins. Profits from its other African operations
were higher than in 2006.
The property activities, managed by Heartland, recorded profit from
operations of R41 million net of R23 million of remediation costs.
Excluding the gain on disposal of the Milnerton site, profit from
operations was R38 million in the first half of 2006. The availability of
land ready for release and sale is likely to remain limited in the second
half-year.
Financial
Good investment returns on the employer accounts established last year in
the AECI Pension Fund boosted profit before tax by R60 million and headline
earnings by 39 cents per share. Higher interest rates, together with an
increased level of average borrowings, led to a significant increase in net
financing costs. The absence in the current period of a transaction
comparable to the Milnerton property sale raised the effective tax rate
from 21 per cent in the first half of 2006 to 32 per cent.
Expansion projects in AEL and Chemserve continued to be the main components
of net capital expenditure which, at R275 million, was more than double the
depreciation charge for the period. Group working capital at R1 881 million
represented 17 per cent of revenue over the previous 12 months. At June
2006, excluding the receivable in respect of the Milnerton sale, working
capital was R1 624 million, equivalent to 18 per cent of revenue.
The Group`s net borrowings of R1 192 million were R58 million lower than at
June 2006. Cash interest cover was robust at 8 times. Gearing reduced to 31
per cent of shareholders` funds from 38 per cent at June 2006.
At the Annual General Meeting of the Company held on 21 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.
Portfolio
As announced on 17 July, AECI has agreed to sell Dulux, the decorative
coatings business, to ICI plc for a cash consideration of R745 million.
Subject to regulatory approvals, the transaction is expected to become
effective from 1 October 2007 when a gain on disposal of some R500 million
will be recognised in the Group accounts. At that time, and depending on
progress with potential acquisitions, the Board will consider returning all
or part of the sale proceeds to shareholders.
Outlook
Favourable international conditions with firm commodity prices should
continue to support the mining and manufacturing sectors in the second half
with concomitant benefit to the Group`s major operating businesses. As
stated previously, however, profit after tax from property activities is
likely to be substantially below the record level of 2006.
Hence management expects that headline earnings per share in 2007 are
likely to be lower than those achieved last year excluding the non-
recurring effect of the agreement entered into with the Pension Fund in
that period.
Fani Titi Schalk Engelbrecht
Chairman Chief executive
Sandton
23 July 2007
Income statement
2007 2006 2006
First half First half Year
Unaudited Unaudited Audited
% change R millions R millions R millions
Revenue (2) +16 5 410 4 666 10 212
Profit from
operations -29 409 580 1 102
Pension fund
employer surplus
account 24 - 196
Release of
provision for
post-employment
medical aid
benefits 36 - 131
469 580 1 429
Net financing
costs (65) (43) (103)
Income from
associates and
investments 5 4 7
409 541 1 333
Impairment of
goodwill (2) - (6)
Exceptional items (17) (2) (21)
Profit before tax 390 539 1 306
Tax (126) (111) (353)
Profit for the
period 264 428 953
Attributable to
preference
shareholders and
minority interest (3) (13) (37)
Net profit
attributable to
ordinary
shareholders 261 415 916
Headline earnings
are derived from:
Net profit
attributable to
ordinary
shareholders 261 415 916
Impairment of
goodwill 2 - 6
Exceptional items
before tax 17 2 21
Minority
shareholders`
share of the
above items (2) - -
Tax effects of
the above items (5) - (1)
Headline earnings 273 417 942
Per ordinary
share (cents):
Headline earnings -35 247 378 853
Diluted headline
earnings (3) 245 372 842
Attributable
earnings 236 376 829
Diluted
attributable
earnings (3) 234 370 819
Dividends +13 72 64 205
declared
Dividends paid 141 121 185
Ordinary shares
(millions) (4)
- in issue 110 110 110
- weighted
average number of 110 110 110
shares
- diluted
weighted average
number of shares 112 112 112
(3)
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 R1 282 million (2006 - R990 million).
(3) 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.
(4) Net of 10 311 120 (2006 - 10 311 120) treasury shares held by a
subsidiary company.
Balance sheet
at 30 June
2007 2006 2006
30 June 30 June 31 Dec
Unaudited Unaudited Audited
R millions R millions R millions
Assets
Non-current assets 3 619 3 210 3 445
Property, plant and equipment 2 133 1 849 1 965
Goodwill 1 015 1 001 1 019
Pension fund surplus 220 - 196
Investments 132 101 119
Deferred tax 119 259 146
Current assets 4 471 4 024 4 350
Inventory 1 938 1 497 1 733
Accounts receivable 2 139 2 182 2 242
Cash and cash equivalents 394 345 375
Total assets 8 090 7 234 7 795
Equity and liabilities
Ordinary capital and reserves 3 698 3 186 3 595
Preference capital and
minority interest in
subsidiaries 134 109 132
Total shareholders` interest 3 832 3 295 3 727
Non-current liabilities 905 1 064 942
Deferred tax 32 26 35
Borrowings 526 549 518
Provisions 347 489 389
Current liabilities 3 353 2 875 3 126
Accounts payable 2 196 1 795 2 230
Borrowings 1 060 1 046 797
Tax payable 97 34 99
Total equity and liabilities 8 090 7 234 7 795
Industry segment analysis
for the half-year ended 30 June
Profit
from
Revenue operations Net assets
2007 2006 2007 2006 2007 2006
Unaudited Unaudited Unaudited
R millions R millions R millions
Mining solutions 1 294 1 152 97 105 1 223 1 037
Specialty
chemicals 2 596 2 082 253 210 2 567 2 219
Specialty fibres 1 062 786 15 (28) 727 691
Decorative
coatings 369 297 17 13 219 168
Property 212 458 41 292 409 786
Group services,
intergroup and
other (123) (109) (14) (12) (116) (167)
5 410 4 666 409 580 5 029 4 734
Net assets consist of property, plant, equipment and goodwill, inventory,
accounts receivable less accounts payable.
Cash flow statement
2007 2006 2006
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Cash generated by operations 536 689 1 385
Dividends received 4 3 7
Net financing costs paid (69) (51) (114)
Taxes paid (107) (142) (202)
Changes in working capital (147) (422) (265)
Expenditure relating to non-
current provisions (31) (59) (130)
Expenditure relating to
restructuring (12) - (13)
Cash available from operating
activities 174 18 668
Dividends paid (156) (135) (206)
Cash flows from operating
activities 18 (117) 462
Cash flows from investment
activities (274) (354) (612)
Proceeds from disposal of
investments and businesses 8 2 3
Investments (7) (154) (199)
Net capital expenditure (275) (202) (416)
Net cash utilised (256) (471) (150)
Cash flows from financing
activities 271 388 99
Increase/(decrease) in cash
and cash equivalents 15 (83) (51)
Cash and cash equivalents at
the beginning of the period 375 409 409
Translation gain on cash and
cash equivalents 4 19 17
Cash and cash equivalents at
the end of the period 394 345 375
Statement of changes in equity
2007 2006 2006
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Profit for the period 264 428 953
Dividends paid (156) (135) (206)
Revaluation of derivative
instruments (3) - 6
Foreign currency translation
differences
net of deferred tax 4 46 17
Changes in the Group - 13 14
Other (4) 3 3
Net increase in equity for the
period 105 355 787
Equity at the beginning of the
period 3 727 2 940 2 940
Equity at the end of the period 3 832 3 295 3 727
Made up as follows:
Issued ordinary capital 453 453 453
Non-distributable reserves 289 319 294
Surplus arising on revaluation
of property,
plant and equipment 257 263 261
Foreign currency translation
reserve net of deferred tax 24 49 20
Other 8 7 13
Retained income 2 956 2 414 2 848
Preference capital 6 6 6
Minority interest 128 103 126
3 832 3 295 3 727
Other salient features
2007 2006
First First 2006
half half Year
Unaudited Unaudited Audited
R millions R millions R millions
Capital expenditure - property,
plant and equipment 282 210 433
- expansion 170 142 239
- replacement 112 68 194
Capital commitments 1 264 226 650
- contracted for 17 50 91
- not contracted for 1 247 176 559
Future rentals on property,
plant and
equipment leased 298 236 290
- payable within one year 64 46 65
- payable thereafter 234 190 225
Net contingent liabilities and
guarantees 117 238 121
Net borrowings 1 192 1 250 940
Gearing (%) 31 38 25
Current assets to current
liabilities 1.3 1.4 1.4
Net asset value per ordinary
share (cents) 3 349 2 885 3 255
Depreciation 114 106 223
Directorate
F Titi (Chairman), S Engelbrecht (Chief executive), NC Axelson #,
FPP Baker#, RMW Dunne*, GN Edwards#, MJ Leeming, LM Nyhonyha,
AC Parker, LC van Vught.
Company secretary: A Kennedy
#Executive *British
www.aeci.co.za
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.
23 July 2007
Sponsor: J.P.Morgan Equities Limited
Date: 24/07/2007 07:00:02 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.