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AFE - AECI Limited - Unaudited group interim financial results for the half-year
Ended 30 June 2008
AECI LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1924/002590/06)
Share code: AFE ISIN No: ZAE000000220
("AECI" or "the Company")
UNAUDITED GROUP INTERIM FINANCIAL RESULTS FOR THE HALF-YEAR
ENDED 30 JUNE 2008
- Headline earnings per share up 35% to 325 cents
- Group revenue +43%
- Interim dividend per ordinary share increased to 90 cents
- Capital projects on track
INCOME STATEMENT
2008 2007 2007
First half First half Year
% Unaudited Unaudited Audited
change R millions R millions R millions
Continuing operations
Revenue(2) +43 5 659 3 964 8 521
Net operating costs 5 132 3 595 7 764
Profit from operations +43 527 369 757
Net income from
pension fund employer
surplus account 6 24 30
Net income from plan (3) 36 36
assets for post-
employment medical aid
liabilities
530 429 823
Fair value adjustments 3 4 5
on derivative
instruments
Interest paid (net of (104) (88) (159)
interest
capitalised)(3)
Interest received 19 21 28
Income from associates 8 5 12
and investments
456 371 709
Impairment of goodwill (1) (2) (20)
Restucturing costs, (6) 3 2
disposals and other
impairments
Profit before tax 449 372 691
Tax (146) (119) (218)
Net profit from 303 253 473
continuing operations
Net profit from 35 11 (6)
discontinued
operations
Profit before tax 40 27 46
Closure costs - - (117)
Impairments and 5 (9) 64
disposals
Tax (10) (7) 1
Net profit 338 264 467
Attributable to 12 (3) (12)
preference and
minority shareholders
Profit attributable to 350 261 455
ordinary shareholders
Headline earnings are
derived from:
Net profit 350 261 455
attributable to
ordinary shareholders
Impairment of goodwill 1 2 20
Other impairments and 1 6 (66)
disposals before tax
Tax effects of the - (2) (17)
above items
Headline earnings 352 267 392
Per ordinary share
(cents):
Headline earnings +35 325 242 355
Diluted headline 323 239 352
earnings(4)
Attributable earnings 324 236 412
Diluted attributable 321 234 408
earnings(4)
Continuing earnings 291 226 417
Diluted continuing 289 224 414
earnings(4)
Dividends declared +25 90 72 213
Dividends paid 141 141 213
Ordinary shares
(millions)(5)
- in issue 107 110 110
- weighted average 108 110 110
number of shares
- diluted weighted 109 112 111
average number of
shares
BALANCE SHEET
at 30 June
2008 2007 2007
30 June 30 June 31 December
Unaudited Unaudited Audited
R millions R millions R millions
Assets
Non-current assets 3 847 3 619 3 557
Property, plant and equipment 1 871 1 721 1 567
Investment property 410 412 411
Goodwill 978 1 015 986
Pension fund surplus 232 220 226
Investments 134 132 124
Deferred tax 222 119 243
Current assets 6 237 4 471 4 699
Inventory 2 276 1 938 1 580
Accounts receivable 2 668 2 139 2 024
Assets classified as held for 772 - 667
sale
Cash and cash equivalents 521 394 428
Total assets 10 084 8 090 8 256
Equity and liabilities
Ordinary capital and reserves 3 859 3 698 3 788
Preference capital and minority
interest
in subsidiaries 135 134 141
Total shareholders` interest 3 994 3 832 3 929
Non-current liabilities 1 037 905 954
Deferred tax 73 32 78
Non-current borrowings 557 526 502
Non-current provisions 407 347 374
Current liabilities 5 053 3 353 3 373
Accounts payable 2 924 2 196 2 021
Current borrowings 1 639 1 060 927
Liabilities classified as held 325 - 250
for sale
Tax payable 165 97 175
Total equity and liabilities 10 084 8 090 8 256
INDUSTRY SEGMENT ANALYSIS
for the half-year ended 30 June
Revenue Profit from Net assets
operations
2008 2007 2008 2007 2008 2007
Unaudited Unaudited Unaudited
R millions R millions R millions
Continuing
operations
Mining 1 655 1 294 92 86 1 1 223
solutions 693
Specialty 3 863 2 581 386 256 3 2 567
chemicals 141
Property 292 212 88 41 525 409
Group
services,
intergroup
and other (151) (123) (39) (14) (75) (116)
5 659 3 964 527 369 5 4 083
284
Discontinued 858 1 446 41 29 413 946
operations
Decorative - 369 - 17 - 219
coatings
Specialty - 15 - (3) - -
chemicals
Specialty 858 1 062 41 15 413 727
fibres
6 517 5 410 568 398 5 5 029
697
Net assets consist of property, plant, equipment, investment property and
goodwill, inventory, accounts receivable less accounts payable.
The net assets of the specialty fibres segment in 2008 are assets, and directly
related liabilities, classified as held for sale.
CASH FLOW STATEMENT
2008 2007 2007
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Cash generated by operations 715 536 1 122
Dividends received 7 4 12
Financing costs (117) (91) (173)
Interest received 20 22 30
Taxes paid (151) (107) (196)
Changes in working capital (282) (166) (601)
Expenditure relating to non- (26) (31) (67)
current provisions
Expenditure relating to (102) (12) (1)
restructuring
Cash available from operating 64 155 126
activities
Dividends paid (152) (156) (237)
Cash flows from operating (88) (1) (111)
activities
Cash flows from investing (372) (255) 74
activities
Proceeds from disposal of - 5 17
investments and businesses
Proceeds from disposal of - 22 761
discontinued operations
Investments (1) (7) (59)
Net capital expenditure (371) (275) (645)
Expenditure on repurchasing own (237) - -
shares
Net cash utilised (697) (256) (37)
Cash flows from financing 767 271 108
activities
Increase/(decrease) in cash and 70 15 71
cash equivalents
Cash and cash equivalents at the 428 375 375
beginning of the period
Translation gain/(loss) on cash 39 4 (5)
and cash equivalents
Classified as held for sale (16) - (13)
Cash and cash equivalents at the 521 394 428
end of the period
STATEMENT OF CHANGES IN EQUITY
2008 2007 2007
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Profit for the period 338 264 467
Dividends paid (152) (156) (237)
Revaluation of derivative 19 (3) (1)
instruments
Foreign currency translation 96 4 (8)
differences net of deferred tax
Changes in the Group - - (17)
Other 1 (4) (2)
Net increase in equity for the 302 105 202
period before share repurchase
Repurchase of own shares (237) - -
Equity at the beginning of the 3 929 3 727 3 727
period
Equity at the end of the period 3 994 3 832 3 929
Made up as follows:
Issued ordinary capital 216 453 453
Non-distributable reserves 374 289 271
Surplus arising on revaluation
of property, plant
and equipment 236 257 243
Foreign currency translation 89 24 17
reserve net of deferred tax
Retained earnings of associates 1 1 1
Derivative revaluation reserve 19 - -
Other 29 7 10
Retained income 3 269 2 956 3 064
Preference capital 6 6 6
Minority interest 129 128 135
3 994 3 832 3 929
OTHER SALIENT FEATURES
2008 2007 2007
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Capital expenditure - property, 395 282 688
plant and equipment
- expansion 260 170 381
- replacement 135 112 307
Capital commitments 1 379 1 264 1 251
- contracted for 887 17 340
- not contracted for 492 1 247 911
Future rentals on property, 211 298 253
plant and equipment leased
- payable within one year 36 64 77
- payable thereafter 175 234 176
Net contingent liabilities and 141 117 140
guarantees
Net borrowings 1 675 1 192 1 001
Gearing (%) 42 31 25
Current assets to current 1,2 1,3 1,4
liabilities
Net asset value per ordinary 3 608 3 349 3 430
share (cents)
Depreciation - continuing 100 79 164
operations
- discontinued operations - 35 69
NOTES
(1) Basis of preparation
The Group interim financial results have been prepared in accordance with the
historic cost convention except for certain financial instruments, which have
been stated at fair value.
Accounting policies have been applied consistently by all entities in the Group
and are consistent with those applied in the previous financial year.
The Group interim financial results and accounting policies comply with the
listings requirements of the JSE Limited, International Financial Reporting
Standards, the disclosure requirements of IAS 34 - Interim Financial Reporting
and the South African Companies Act, 1973, as amended.
(2) Includes foreign sales of R1 223 million (2007: R725 million).
(3) Interest capitalised in the period amounted to R11 million
(2007: nil).
(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.
(5) Net of treasury shares held by a subsidiary company.
(6) 2007 half-year headline earnings included retrenchment costs paid. In
September 2007 SAICA issued Circular 9/2008 which outlined remeasurements to be
excluded from headline earnings. As a result, headline earnings for the year
ended 31 December 2007 were not adjusted for the retrenchment costs. Therefore,
the half-year 2007 mining solutions trading profit and Group headline earnings
decreased by R11 million before tax while attributable earnings are unchanged.
(7) Disposal groups and discontinued operations
Dulux and SANS Fibres have been classified as discontinued operations and the
comparative figures adjusted accordingly. Dulux was disposed of in 2007. SANS
Fibres` assets and liabilities were classified as held for sale in December 2007
and property, plant and equipment has not been depreciated in 2008.
(8) The preparation of the financial statements requires management to make
judgements, estimates and assumptions that affect the application of policies
and reported amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
COMMENTARY
PERFORMANCE
Headline earnings per ordinary share were 325 cents, 35% higher than in the
first six months of 2007. All of the Group`s businesses delivered improved
results, with Chemical Services Limited (Chemserve) being the largest
contributor and recording an outstanding 53% increase in trading profit.
An interim dividend of 90 cents per ordinary share has been declared, compared
with 72 cents per share in 2007.
Group revenue increased by 43%, reflecting pleasing growth in the specialty
chemicals and mining solutions sectors. The Group`s margins have been under
pressure over the last two years and high oil prices again impacted on oil-based
raw material costs in the period. However, major efforts were made to avoid
margins decreasing further. As a result of these efforts and tight cost control,
Group operating margin remained at 9,3%, the same level as the first half of
2007.
AEL
African Explosives Limited (AEL) performed to expectations in the first six
months of 2008. Sales increased by more than 25%, buoyed by growth in the South
African Surface and Massive division as well as in AEL`s African businesses.
Operating margins remained under pressure at 5,5%.
The performance of the South African Narrow Reef business mirrored the
difficulties, in volume terms, experienced by the gold and platinum sectors. The
international business made satisfactory progress at the new assembly plant in
South East Asia and, in addition, in setting up distribution partnerships in
other regions.
Capital projects supporting growth and cost reduction initiatives progressed as
expected, despite material cost escalation pressures. The initiating systems
automation project made steady progress on delay powder capacity, shocktubing
lines, delay detonators and the first two automated assembly machines. A routine
project assessment was done and the strategic and financial case remains sound.
CHEMSERVE
Chemserve`s performance exceeded expectations. Profit from operations was 53%
higher than in the first half of 2007 with increased contributions from most
businesses, but especially from those supplying the mining and agricultural
sectors. Operating margins increased slightly to 10% (2007: 9,7%) due to fixed
cost control and diligent attention to pricing in an environment of substantial
and frequent price increases, not only in oil-derived products, transport and
energy, but also in many commodity products. Supply shortages occurred during
the half-year but these were managed. Electricity outages in the first quarter
negatively impacted profits, as customers` and Chemserve`s volumes and
operational efficiencies were affected.
Overall, the capital expenditure programme approved in 2007 is progressing well,
although some timing delays have been experienced. These are attributable to
design completion, and construction and fabrication resource shortages in South
Africa. A further R325 million of capital expenditure has been approved in 2008,
R200 million of which relates to scope changes and increased costs in current
projects. A review of Chemserve`s major investments in mining, sulphonation and
oleo-chemicals (Brazil) has shown returns to be maintained under current
conditions. The acquisition of Chemfit, a small diverse chemical company, was
approved by the competition authorities and took effect from 1 July 2008.
HEARTLAND
The property activities, managed by Heartland, recorded a trading profit of R88
million net of R37 million of remediation costs. The latter include an
additional provision of R30 million in respect of further clean-up at Somerset
West. The availability of land ready for release and sale, as well as the
unfavourable conditions now prevailing in the market, are likely to result in
modest activity in the second half-year. Heartland is continuing to invest in
infrastructure that will enhance the value of its assets in the years ahead. A
total of R350 million has been earmarked for this over the next 24 months.
The investment property is carried at R410 million in the balance sheet. The
Valuation Division of Old Mutual Investment Group Property Investments has
completed a full review of Heartland`s development plans and has compiled an
independent valuation of R2,5 billion as at 1 July 2008 for the AECI-owned
property portfolio located in Modderfontein and Somerset West. The value
reported was completed on a market valuation basis, which assumes the premise of
willing buyer willing seller. The value is an independent professional estimate
of what a buyer might be prepared to pay for the land in its current form,
discounted at an average, real rate of 25%, being the developer`s assumed
required rate of return.
Strategic alternatives for the property portfolio have been reviewed. The Board
has decided that better value for shareholders will be provided by retaining the
property portfolio in the Group in the medium term.
DISCONTINUED OPERATIONS
SANS Fibres (SANS) exited the non-performing nylon and polyester heavy decitex
industrial (HDI), as well as the polyester light decitex industrial (LDI) yarn
businesses, at the end of 2007. The remaining nylon LDI and the polyethylene
terephthalate (PET) businesses at Bellville were adversely affected by power
outages in the first quarter of the year, and both had to contend with sharp
increases in raw material prices. These challenges notwithstanding, SANS posted
a significant increase in trading profit compared with the first half of 2007,
as the positive effects of major restructuring in the yarn business begin to be
realised.
FINANCIAL
Net capital expenditure of R395 million included R260 million for expansion
projects, mainly in respect of the major investments in progress at AEL and
Chemserve. Group working capital increased in line with the 43% increase in
sales to R2 020 million, representing 19,8% (2007: 17%) of annual sales
(excluding businesses sold).
Net income from the pension fund employer surplus account and the plan assets
for post-employment medical aid liabilities reduced from R60 million in the
first half of 2007 to R3 million in 2008. The reduction is due to poor equity
markets performance, particularly in the month of June.
In line with the working capital investment of R282 million in the half-year and
the capital spending of R395 million, Group borrowings increased to R1 675
million from R1 001 million at the end of 2007. Cash interest cover remained
robust at 7 times. Gearing increased to 42% of shareholder funds (25% at
December 2007).
The assets and liabilities classified as held for sale are the carrying value of
SANS.
In line with the general authority given by shareholders at the annual general
meeting, the Company has repurchased 3,5 million ordinary shares, representing
just under 3% of the share capital at a cost of R237 million.
PORTFOLIO
The Group remains focused on the growth of its core businesses, providing mining
solutions and specialty chemicals to the mining and industrial sectors.
Significant capital expenditure programmes are underway to support this growth.
Whilst SANS performed well in the half-year, the business does not fit with
AECI`s strategic focus. The sale process for SANS` nylon LDI business should be
completed by the end of the third quarter. A tender process for the PET business
is underway with indicative offers due in July, whereafter a due diligence
process will precede final offers. There is a good level of interest in the PET
business and it is expected to be sold before the end of 2008.
OUTLOOK
Oil prices, inflation and interest rates are expected to remain high for the
remainder of the year. However, the trading outlook appears supportive for the
Group`s businesses. It is anticipated that property sales will be slow in the
second half.
Assuming trading conditions remain buoyant, the 2008 year will see much improved
results compared to 2007, particularly from Chemserve. Beyond 2008, the capital
investments are expected to start delivering substantial benefits in 2010.
Fani Titi Graham Edwards
Chairman Chief executive
Woodmead, Sandton
28 July 2008
Directorate: F Titi (Chairman)+, G N Edwards (Chief executive),
F P P Baker, R M W Dunne+*, S Engelbrecht+, Z Fuphe+, M J Leeming+,
L M Nyhonyha+, A C Parker+, L C van Vught+, R A Williams*
+Non-executive *British
Company secretary: A Kennedy
Date: 29/07/2008 07:05:02 Supplied by www.sharenet.co.za
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