Wrap Text
AFE - AECI Limited - Condensed consolidated unaudited interim financial
results for the half-year ended 30 June 2011
AECI LIMITED
(Incorporated in the Republic of South Africa)
(Registration No. 1924/002590/06)
Share code: AFE ISIN No.: ZAE000000220
("AECI" or "the Company")
CONDENSED CONSOLIDATED UNAUDITED INTERIM FINANCIAL RESULTS FOR THE HALF-YEAR
ENDED 30 JUNE 2011
* Good safety performance maintained
* Revenue from continuing operations up 10% to R5 969 million
* HEPS up 11% to 265c
* Dividend of 78c declared
* All strategic growth projects in ramp-up phase
COMMENTARY
Performance
The Group delivered an improvement in performance for the first six months of
2011 compared to that for the corresponding period last year, despite
volatile trading conditions in both the mining and manufacturing sectors.
Revenue from continuing operations increased by 10% to R5 969 million (2010:
R5 425 million), assisted by global increases in commodity prices but
tempered by the continued strength of the rand, which averaged R6,88/1US$ in
the half-year (2010: R7,50/1US$). Volumes were 2,3% higher. Headline
earnings of R284 million improved by 11% (2010: R255 million) and profit from
operations was 13% higher at R546 million (2010: R484 million).
Headline earnings were negatively impacted by a higher tax charge due to the
higher dividend paid in May as well as additional tax provisioning resulting
from the Founders Hill judgement.
The Board has declared an interim cash dividend of 78 cents per ordinary
share (2010: 70 cents cash dividend). The dividend declaration is published
in full elsewhere.
In 2010, the Group achieved its best ever safety performance. A high degree
of focus in this area was maintained and additional initiatives are being
implemented to achieve further improvements.
Mining services
Revenue from AEL Mining Services ("AEL") was 11% higher at R2 542 million
(2010: R2 286 million), driven by a 16% escalation in ammonia prices. This
also resulted in higher working capital levels. Overall volumes grew by
2,5%. Profit from operations improved by 8% to R200 million (2010: R185
million) and the operating margin was 7,9% (2010: 8,1%). The mining services
environment has become more competitive and a substantial portion of AEL`s
business was subjected to tender processes in the half-year. Following these
processes, AEL was able to retain more than 90% of its business and the
market share changes did not impact performance for the period. A mechanical
failure on one of AEL`s nitric acid plants, at Modderfontein, negatively
impacted results for the period.
In South Africa, strong growth was recorded in AEL`s Surface and Massive
businesses servicing the platinum, diamonds and chrome mining sectors.
Volumes in deep level mining continued to decline. Coal mining was adversely
affected by exceptionally high rainfall in the early part of the year.
Good growth was delivered by the copper mining sector in Central Africa and
diamond mining in Botswana continued to perform creditably. The contribution
from gold mining in West and East Africa remained flat.
The International business maintained its steady growth trend in South East
Asia, notwithstanding the effects of very high rainfall in the period.
Pleasing ramp-up of the Initiating Systems Automation Programme (ISAP)
project at Modderfontein continued, with about 40 million detonators
manufactured by end-June. The target date for full ramp-up of ISAP remains
the first half of 2012. The retrenchment of employees from conventional shock
tube manufacturing facilities has commenced although the process has been
somewhat delayed to an extent owing to high shocktube demand, the building of
inventories and a fire on a conventional plant. As a result, full ISAP-
related cost savings are only expected in the second half of the year.
Specialty chemicals
Revenue improved by 8% to R3 280 million (2010: R3 039 million). Volume
growth for the period reflected a moderate improvement of 2%, owing to the
recovery in mining and in certain manufacturing sectors. The rally in
commodity chemical prices drove prices higher although this was offset to
some extent by the effects of the strong local currency. Profit from
operations improved by 11% to R386 million (2010: R349 million) and the
operating margin was 11,8% (2010: 11,5%).
Excellent performances were delivered by ImproChem, Industrial Oleochemical
Products, Lake International and Resitec and the results of Crest Chemicals
were also pleasing. Senmin had a slow start to the year due to delays in the
final certification of its polyacrylamide facility. For the six months
overall, however, the business delivered another solid performance. The new
xanthates dryer is currently being installed and commissioned and will remove
the bottleneck that previously constrained plant output.
As of 1 July 2011, Infigro and SA Paper Chemicals (SAPC) were merged. This
new structure provides the business with critical mass to operate in the
focused areas of paper chemicals, perlite and leather chemicals.
Two acquisitions were completed in the second quarter. Qwemico has been
integrated into Plaaskem and T&C Chemicals into ImproChem and SAPC. The
acquisition of the remaining 20% of Cobito was finalised in July 2011 and the
acquisition of Croxton Chemicals, to be integrated into Crest Chemicals, will
be finalised in the second half-year. The total investment for these
transactions is R161 million.
Property
Heartland`s operating profit improved by 24% to R36 million (2010: R29
million), primarily based on income from the leasing and services businesses.
The property development market remained subdued and no marked changes to
this environment are expected in the immediate future.
Two property sales were finalised during the period. This is somewhat
encouraging as is the increased rate at which enquiries are being received
for industrial, warehousing and office space. Bulk infrastructure
development, in line with market demand, is commencing at Longlake in
Modderfontein.
In the current rental portfolio, which has performed extremely well in the
past, the trend is towards increased vacancy rates and a reduction in tenant
retentions. This is attributable predominantly to the weakening of South
Africa`s manufacturing sector.
Specialty fibres
SANS Technical Fibers, in the USA, achieved a 28% improvement in revenue to
R165 million (2010: R129 million), with volume growth of 14% in a global
growth environment for the automotive and footwear sectors. Profit from
operations more than doubled to R27 million (2010: R10 million). The higher
operating margin of 16,4% is largely due to enhanced efficiencies resulting
from additional capacity installed in 2010.
Finance and taxation
The Group`s strategic capital investment programme is nearing completion. In
the first half, R229 million (2010: R305 million) was invested with R109
million of this for expansion projects.
Gearing increased to 49% from 40% in December 2010, mainly owing to an
increase in working capital. Higher commodity prices and the building of
inventories, to minimise the disruption of products and services to customers
during the period of anticipated industrial action, were key in this regard.
Net working capital as a percentage of sales was 20,2% (2010: 18,7%) and net
interest cover was at 7,3 times (2010: 4,8 times).
Taxation judgement - Founders Hill (Pty) Limited
The Supreme Court of Appeal (SCA) handed down its decision in the Founders
Hill (Pty) Limited case in May. The SCA found in favour of the South African
Revenue Service (SARS) with regard to the capital versus revenue nature of
proceeds of land sales at Founders Hill. The SCA held that that the land was
trading stock when Founders Hill (Pty) Limited acquired it from AECI Limited.
However, SARS was directed to reverse the interest charged in the assessments
owing to the fact that AECI Limited had taken tax advice and that proper
disclosure of the transactions had been made in the relevant tax returns.
Founders Hill (Pty) Limited has requested leave to appeal the decision of the
SCA from the Constitutional Court. SARS and the Minister of Finance have
lodged an opposing affidavit.
AECI has provided R40 million for all taxes assessed in respect of three
other subsidiaries that have tax issues similar to those of Founders Hill
(Pty) Limited.
B-BBEE transactions
As indicated in February 2011, the AECI Board has pursued the B-BBEE
transaction that was initially contemplated in 2009. Two B-BBEE transactions
are currently being proposed to shareholders:
* the acquisition of the Kagiso Tiso Holdings consortium`s shareholding in
AEL Mining Services in exchange for ordinary shares in AECI;
* the issue of new shares to facilitate the establishment of an Employee
Share Trust and a Community Share Trust.
Changes to the Board
At the Annual General Meeting (AGM) of shareholders in May, Fani Titi
indicated that he will step down as Chairman of the Company at the next AGM,
scheduled for May 2012. The Board is pleased to announce that Schalk
Engelbrecht will assume the role of Chairman at that time. In the period
under review, the Board welcomed Liziwe Mda as a Non-Executive Director and
Nomini Rapoo as Company Secretary.
Outlook and strategic focus
Historically, the AECI Group trades better in the second half-year owing to
seasonal effects in agricultural and the consumer sectors. However, the
potential impact on Group companies and their customers resulting from the
current industrial action is of concern.
AECI management`s focus for the rest of 2011 will remain on:
* the successful incorporation of acquisitions into existing businesses in
the specialty chemicals cluster;
* the continued ramp-up of ISAP and of Senmin`s new plants;
* the careful management and reduction of working capital levels; and
* cost-focused leadership.
Fani Titi Graham Edwards
Chairman Chief Executive
Woodmead, Sandton 25 July 2011
Income statement
2011 2010 2010
First half First half Year
% Unaudited Unaudited Audited
chang R millions R millions R
e millions
Revenue'(2) +10 5 969 5 425 11 569
Net operating costs (5 423) (4 941) (10 507)
Profit from operations +13 546 484 1 062
Net income/(loss) from 1 4 (6)
Pension Fund employer
surplus accounts
Net income/(loss) from 14 6 (5)
plan assets for post-
retirement medical aid
liabilities
561 494 1 051
Interest expense'(3) (106) (99) (173)
Interest received 16 14 21
Share of profit of * 1 2
associate companies
471 410 901
Impairment of goodwill - - (28)
Impairment of property, - (4) (4)
plant and equipment
Gain on acquisition of - - 4
subsidiary
Profit before tax 471 406 873
Income tax expense (152) (117) (233)
Profit for the period 319 289 640
Profit for the period
attributable to:
- ordinary shareholders 295 269 600
- preference 1 1 2
shareholders
- non-controlling 23 19 38
interest
319 289 640
Headline earnings are
derived from:
Profit attributable to 295 269 600
ordinary shareholders
Impairment of goodwill - - 28
Impairment of property,
plant and equipment - 4 4
Loss on disposal of - - 16
subsidiary
Profit on disposal of
property,
plant and equipment (13) (1) (5)
Profit on disposal of
associates
and investments - (18) (22)
Tax effects of the above 2 1 2
items
Non-controlling interest - - (4)
effects of the above
items
Headline earnings 284 255 619
Per ordinary share
(cents):
Headline earnings +11 265 238 577
Diluted headline 264 237 575
earnings'(4)
Basic earnings 275 251 559
Diluted basic 274 250 558
earnings'(4)
Dividends declared +11 78 70 205
Dividends paid 135 62 132
Ordinary shares
(millions)'(5)
- in issue 107 107 107
- weighted average 107 107 107
number of shares
- diluted weighted
average number
of shares'(4) 108 108 108
*Nominal amount
Statement of comprehensive income
2011 2010 2010
First half First half Year
Unaudited Unaudited Audited
R millions R millions R
millions
Profit for the period 319 289 640
Other comprehensive income net
of tax:
Revaluation of derivative * * *
instruments
Foreign currency translation 23 17 (84)
differences net of deferred tax
Other * * *
Total comprehensive income for 342 306 556
the period
Total comprehensive income
attributable to:
- ordinary shareholders 320 288 516
- preference shareholders 1 1 2
- non-controlling interest 21 17 38
342 306 556
*Nominal amount
Statement of financial position
2011 2010 2010
30 June 30 June 31 Dec
Unaudited Unaudited Audited
R millions R millions R
millions
Assets
Non-current assets 5 756 5 581 5 667
Property, plant and equipment 3 622 3 451 3 564
Investment property 446 446 440
Goodwill 1 074 1 063 1 035
Pension Fund employer surplus 231 240 230
accounts
Investments 26 22 20
Loan receivables 20 12 22
Deferred tax 337 347 356
Current assets 5 461 4 603 4 647
Inventories 2 180 1 828 1 892
Accounts receivable 2 421 2 080 2 023
Cash and cash equivalents 860 695 732
Total assets 11 217 10 184 10 314
Equity and liabilities
Ordinary capital and reserves 4 489 4 159 4 314
Non-controlling interest 169 132 148
Preference share capital 6 6 6
Total shareholders` interest 4 664 4 297 4 468
Non-current liabilities 1 817 2 570 2 200
Deferred tax 117 86 121
Non-current borrowings 709 1 697 1 133
Non-current provisions 991 787 946
Current liabilities 4 736 3 317 3 646
Accounts payable 2 158 1 873 2 176
Current borrowings 2 452 1 319 1 368
Tax payable 126 125 102
Total equity and liabilities 11 217 10 184 10 314
Statement of cash flows
2011 2010 2010
First half First half Year
Unaudited Unaudited Audited
R millions R millions R
millions
Cash generated by operations 807 664 1 654
Dividends received - - 2
Interest paid (119) (143) (268)
Interest received 16 14 21
Income tax paid (88) (112) (209)
Changes in working capital (731) (265) *
Expenditure relating to non- (25) (1) (37)
current provisions
Expenditure relating to - (4) (33)
retrenchments and restructuring
Cash (utilised)/available from (140) 153 1 130
operating activities
Dividends paid (146) (67) (146)
Cash flows from operating (286) 86 984
activities
Cash flows from investing (256) (280) (581)
activities
Proceeds from disposal of - 32 35
investments and businesses
Investments (57) (7) (7)
Net capital expenditure (199) (305) (609)
(542) (194) 403
Cash flows from financing 662 206 (299)
activities
Finance lease receivables 2 1 11
Borrowings 660 205 (310)
Increase in cash and cash 120 12 104
equivalents
Cash and cash equivalents at
the beginning
of the period 732 668 668
Translation gain/(loss) on cash 8 15 (40)
Cash and cash equivalents at 860 695 732
the end of the period
*Nominal amount
Statement of changes in equity
2011 2010 2010
First half First half Year
Unaudited Unaudited Audited
R millions R millions R
millions
Total comprehensive income for 342 306 556
the period
Dividends paid (146) (67) (146)
Equity at the beginning of the 4 468 4 058 4 058
period
Equity at the end of the period 4 664 4 297 4 468
Made up as follows:
Ordinary share capital 107 107 107
Share premium 108 108 108
Reserves 189 270 164
Property revaluation surplus 237 237 237
Foreign currency translation (56) 22 (81)
reserve net of deferred tax
Other 8 11 8
Retained earnings 4 085 3 674 3 935
Preference share capital 6 6 6
Non-controlling interest 169 132 148
4 664 4 297 4 468
Other salient features
2011 2010 2010
First half First half Year
Unaudited Unaudited Audited
R millions R millions R
millions
Capital expenditure - property, 229 305 634
plant and equipment'(3)
- expansion 109 213 385
- replacement 120 92 249
Capital commitments'(6) 142 156 88
- contracted for 117 97 49
- not contracted for 25 59 39
Future rentals on property,
plant
and equipment leased 141 124 196
- payable within one year 30 28 96
- payable thereafter 111 96 100
Contingent liabilities 48 87 97
Net borrowings 2 301 2 321 1 769
Gearing (%) 49 54 40
Current assets to current 1,2 1,4 1,3
liabilities
Net book value per ordinary 4 186 3 878 4 022
share (cents)
Depreciation 191 154 332
ZAR/US$ closing exchange rate 6,79 7,66 6,65
(rand)
ZAR/US$ average exchange rate 6,88 7,50 7,32
(rand)
Industry segment analysis
Revenue Profit from Net assets
operations
2011 2010 2011 2010 2011 2010
First First 30 June
half half
Unaudited Unaudited Unaudited
R R R
millions millions millions
Mining 2 542 2 286 200 185 2 685 2
services 434
Specialty 3 280 3 039 386 349 4 055 3
chemicals 828
Property 194 168 36 29 751 691
Specialty 165 129 27 10 160 153
fibres
(USA)
Group (212) (197) (103) (89) (66)
services (111)
and
intersegme
nt
5 969 5 425 546 484 7 585 6
995
Net assets consist of property, plant, equipment, investment
property, goodwill, inventory and accounts receivable, less
accounts payable.
Notes
(1) Basis of preparation
The condensed consolidated unaudited interim financial results are
prepared in accordance with the recognition and measurement requirements
of International Financial Reporting Standards, the presentation and
disclosure requirements of IAS 34 - Interim Financial Reporting, the
AC500 series issued by the Accounting Practices Board, the Listings
Requirements of the JSE Limited, and in the manner required by the South
African Companies Act No. 71 of 2008. Accounting policies have been
applied consistently by all entities in the Group and are consistent
with those applied in the previous reporting period. The preparation of
these condensed consolidated unaudited interims financial results for
the half-year ended 30 June 2011 was supervised by the Financial
Director, Mr KM Kathan CA(SA).
(2) Includes foreign and export revenue of R1 665 million (2010 first half:
R1 460 million).
(3) Interest capitalised in the period amounting to R14 million (2010 first
half: R46 million).
(4) 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.
(5) Net of 11 884 699 (2010: 11 884 699) treasury shares held by a
subsidiary company.
(6) Not included in capital commitments for the current year are
acquisitions already approved by the Board amounting to R114 million
(2010 first half: nil).
(7) The preparation of the interim 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. The accounting policies
involving particular complex or subjective judgements or assessments are
deferred tax assets, environmental remediation, asset lives and residual
values and post-retirement benefit obligations.
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 26/07/2011 07:08:01 Supplied by www.sharenet.co.za
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