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Condensed consolidated unaudited interim financial results ended 30 June 2014 and cash dividend declaration
AECI LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1924/002590/06
Tax reference number 9000008608
(“AECI” or “the Group” or “the Company”)
Share code: AFE
ISIN Number: ZAE000000220
Condensed consolidated unaudited interim financial results and cash
dividend declaration for the half-year ended 30 June 2014
Safety performance improvement trend maintained TRIR 0,48
161c HEPS impact of platinum mining sector strikes
Bulk property transaction contributed 192c to HEPS
Revenue +11% to R8bn
Profit from operations +33% to R814m
Headline earnings +9% to R436m
EPS +51% to 537c
HEPS +10% to 390c
Income statement
2014 2013 2013
% First-half First-half Year
R millions change Unaudited Unaudited Audited
Revenue(2)(3) +11 7 987 7 223 15 942
Net operating costs (7 173) (6 611) (14 544)
Profit from operations(3) +33 814 612 1 398
Interest expense (99) (97) (211)
Interest received 25 16 37
Share of profit of equity-
accounted investees, net of tax 14 20 43
Profit before tax 754 551 1 267
Tax expense (146) (150) (313)
Profit for the period 608 401 954
Profit for the period attributable to:
— Ordinary shareholders 601 398 946
— Preference shareholders 1 1 3
— Non-controlling interest 6 2 5
608 401 954
Headline earnings are derived from:
Profit attributable to ordinary
shareholders 601 398 946
Impairment of goodwill — — 5
Impairment of property, plant
and equipment — — 9
Impairment of assets held for
sale(3) 21 — —
Profit on partial disposal of
net investment in foreign
operation — — (38)
Surplus on derecognition of
businesses, joint ventures and
subsidiaries disposed of — — (3)
(Surplus)/loss on disposal of
property, plant and equipment (3) 1 (49)
Surplus on disposal of assets
held for sale(3) (202) — —
Tax effects of the above items 19 * 15
Headline earnings 436 399 885
Per ordinary share (cents):
Headline earnings +10 390 356 791
Diluted headline earnings 368 333 740
Basic earnings +51 537 356 845
Diluted basic earnings 508 332 791
Ordinary dividends declared +10 115 105 210
Ordinary dividends paid 210 185 290
* Nominal amount.
Statement of comprehensive income
2014 2013 2013
First-half First-half Year
R millions Unaudited Unaudited Audited
Profit for the period 608 401 954
Other comprehensive income net of tax:
Items that may be reclassified
subsequently to profit or loss:
Foreign currency translation
differences 21 303 362
Items that may not be reclassified
subsequently to profit or loss:
Remeasurement of defined-benefit
obligations 3 (4) 86
Total comprehensive income for the
period 632 700 1 402
Total comprehensive income attributable to:
— Ordinary shareholders 629 697 1 389
— Preference shareholders 1 1 3
— Non-controlling interest 2 2 10
632 700 1 402
Statement of changes in equity
2014 2013 2013
First-half First-half Year
R millions Unaudited Unaudited Audited
Total comprehensive income for the
period 632 700 1 402
Dividends paid (242) (213) (336)
Business combinations and change in
ownership percentage (6) (2) 7
Share-based payment reserve 43 17 47
Equity at the beginning of the period 6 877 5 757 5 757
Equity at the end of the period 7 304 6 259 6 877
Made up as follows:
Ordinary share capital 116 116 116
Share premium 496 496 496
Reserves 644 726 813
Property revaluation surplus — 237 237
Foreign currency translation reserve 525 442 500
Share-based payment reserve 119 46 76
Other — 1 —
Retained earnings 5 994 4 880 5 394
Non-controlling interest 48 35 52
Preference share capital 6 6 6
7 304 6 259 6 877
Statement of cash flows
2014 2013 2013
First-half First-half Year
R millions Unaudited Unaudited Audited
Cash generated by operations(3) 1 050 1 044 2 261
Dividends received — 7 62
Interest paid (99) (103) (212)
Interest received 25 16 37
Tax paid (279) (202) (464)
Changes in working capital 72 (573) (426)
Expenditure relating to defined-benefit
costs (51) (52) (104)
Expenditure relating to non-current
provisions and employee benefits (36) (17) (32)
Cash available from operating
activities 682 120 1 122
Dividends paid (242) (213) (336)
Cash flows from operating activities 440 (93) 786
Cash flows from investing activities (309) (261) (772)
Net investment expenditure (79) (52) (239)
Pre-payment for business combination(4) (400) — —
Proceeds on disposal of capital
property assets(3) 507 — —
Net capital expenditure (337) (209) (533)
Net cash generated/(utilised) before
financing activities 131 (354) 14
Cash flows from financing activities (509) 318 (28)
Non-current loans receivable 6 3 1
Borrowings (515) 315 (29)
Decrease in cash (378) (36) (14)
Cash at the beginning of the period 1 219 1 069 1 069
Translation gain on cash 13 102 164
Cash at the end of the period 854 1 135 1 219
Statement of financial position
2014 2013 2013
30 Jun 30 Jun 31 Dec
R millions Unaudited Unaudited Audited
Assets
Non-current assets 6 662 6 553 6 472
Property, plant and equipment 3 845 3 677 3 756
Investment property 184 480 173
Intangible assets 136 148 143
Goodwill 1 123 1 089 1 123
Pension fund employer surplus accounts 214 247 231
Investments in associates 251 53 217
Investments in joint arrangements 321 278 301
Other investments 56 136 50
Deferred tax 529 437 468
Loans receivable 3 8 10
Current assets 7 180 6 760 7 921
Inventories(3) 2 976 2 979 3 090
Accounts receivable 2 722 2 635 3 326
Pre-payment for business combination(4) 400 — —
Loans to joint arrangements 21 11 —
Assets classified as held for sale(3) 207 — 286
Cash 854 1 135 1 219
Total assets 13 842 13 313 14 393
Equity and liabilities
Ordinary capital and reserves 7 250 6 218 6 819
Non-controlling interest 48 35 52
Preference share capital 6 6 6
Total equity 7 304 6 259 6 877
Non-current liabilities 2 142 2 844 2 214
Deferred tax 190 210 168
Non-current borrowings 1 002 1 626 1 099
Non-current provisions and employee
benefits 950 1 008 947
Current liabilities 4 396 4 210 5 302
Accounts payable(3) 2 927 2 418 3 284
Current borrowings 1 443 1 678 1 861
Loans from joint arrangements 17 7 21
Tax payable 9 107 136
Total equity and liabilities 13 842 13 313 14 393
Reconciliation of weighted average number of shares
2014 2013 2013
First-half First-half Year
Millions Unaudited Unaudited Audited
Weighted average number of ordinary
shares for basic earnings per share 111,9 111,9 111,9
Dilutive adjustment for potential
ordinary shares 6,5 7,9 7,7
Weighted average number of ordinary
shares for diluted earnings per share 118,4 119,8 119,6
Other salient features
2014 2013 2013
First-half First-half Year
R millions Unaudited Unaudited Audited
Capital expenditure 343 216 633
— expansion 142 104 293
— replacement 201 112 340
Capital commitments(4) 434 476 746
— contracted for 131 161 87
— not contracted for 303 315 659
Future rentals on property, plant and
equipment leased 244 258 199
— payable within one year 75 64 71
— payable thereafter 169 194 128
Net borrowings 1 591 2 169 1 741
Gearing (%)* 22 35 25
Current assets to current liabilities 1,6 1,6 1,5
Net asset value per ordinary share
(cents) 6 234 5 347 5 864
Depreciation and amortisation 258 258 537
ZAR/US$ closing exchange rate (rand) 10,63 9,94 10,50
ZAR/US$ average exchange rate (rand) 10,70 9,20 9,63
* Borrowings less cash as a percentage of
total equity.
Industry segment analysis
2014 2013 2014 2013 2014 2013
First-half First-half First-half
Unaudited Unaudited Unaudited
Revenue Profit from Net assets
operations
R millions
Explosives 3 553 3 551 120 312 3 299 3 181
Specialty chemicals 4 062 3 667 397 389 5 153 4 597
Property(3) 652 278 447 50 322 811
Group services and inter-
segment (280) (273) (150) (139) (108) 1
7 987 7 223 814 612 8 666 8 590
Net assets consist of property, plant, equipment, investment property,
intangible assets, goodwill, inventories, accounts receivable, pre-payment
for business combination, assets classified as held for sale less accounts
payable.
Notes
(1) Basis of preparation and accounting policies
The condensed consolidated financial results are prepared in accordance
with IAS 34 Interim Financial Reporting and South African Institute of
Chartered Accountants Financial Reporting Guidelines as issued by the
Accounting Practices Committee and Financial Reporting Pronouncements as
issued by the Financial Reporting Standards Council. The accounting
policies applied in the preparation of the condensed consolidated
financial results are in terms of IFRS and are consistent with those
applied in the previous consolidated financial statements. The preparation
of these condensed consolidated financial results for the half-year ended
30 June 2014 was supervised by the Financial Director, Mr KM Kathan CA(SA)
AMP (Harvard). The condensed consolidated financial results have not been
audited or reviewed by the Company’s auditor, KPMG Inc.
(2) Includes foreign and export revenue of R2 502 million (2013: R2 348
million).
(3) The AECI Group agreed to dispose of the bulk of its surplus property
assets, at Modderfontein, to Shanghai Zendai Property Limited in November
2013. In March 2014, all conditions precedent to the transaction were met.
Accordingly, the transaction became effective on 20 March 2014 and AECI
received cash in the amount of R1 117 million (including VAT) in full
settlement of the transaction. The amount comprised R54 million (including
VAT) in reimbursement for development costs incurred after the purchase
price was set; R1,5 million in interest on the reimbursement amount, and
the purchase price of R1 061 million (including VAT). The VAT amounts paid
were R7 million and R131 million, respectively. R1,5 million was
recognised as interest received with the balance of the amount (R978
million) recognised in accordance with the Group’s accounting policies.
At 30 June 2014, R462 million was recognised in revenue in the property
segment. R248 million of the full purchase price was recognised as a
profit on disposal, together with the related costs for capital land
assets transferred. R13 million of the R54 million reimbursement was also
recognised together with actual expenditure in the same amount. A further
R221 million of the purchase price and R34 million of the reimbursement
amount were recognised in the statement of financial position as cash
received in advance, as the criteria for recognition of the disposal
of these assets have not been met.
In the statement of cash flows revenue of R462 million, R9 million of the
reimbursement amount and related costs were included in cash generated by
operations. However, the capital profit was excluded and the proceeds of
R507 million (including R38 million for development expenditure) were
included as a cash inflow under investing activities.
A net profit of R421 million was included in profit from operations of the
property segment. A further profit of R47 million will be recognised when
the remaining property assets are transferred. A portion of the R421
million profit was capital and R202 million was deducted from headline
earnings. The property segment’s profit from operations also included an
impairment of R21 million recognised in respect of a portion of land that
has not yet been transferred and is still classified as held for sale. In
accordance with IFRS 5, this impairment was recognised because its
carrying amount exceeds its selling price.
Property assets included in assets classified as held for sale at 30 June
2014 amounted to R207 million. Cash of R255 million received for this
property was included in accounts payable as income received in advance.
Both these amounts will be recognised as a net profit on disposal when
they are transferred to Shanghai Zendai Property Limited.
(4) AECI and Clariant Southern Africa Proprietary Limited reached
agreement for AECI’s wholly-owned subsidiary ImproChem Proprietary Limited
to acquire Clariant’s water treatment business in Africa and its South
African assets. This was included in capital commitments at 31 December
2013. R400 million was paid to Clariant as at 30 June 2014 and recognised
as a pre-payment for the business combination which became effective on
1 July 2014.
(5) The condensed consolidated financial results do not include all of the
disclosures required for full annual financial statements and should be
read in conjunction with the consolidated annual financial statements for
the year ended 31 December 2013.
Commentary
Performance
The first six months of 2014 were challenging for South Africa’s economy
as a whole and for the platinum mining sector in particular. This had a
negative effect on AECI’s results since revenue from customers in this
sector is significant as the Group pursues its mining solutions growth
strategy.
AECI nevertheless improved its year-on-year performance. Key in this
regard was the completion of the bulk surplus property sale at
Modderfontein. A robust result from the specialty chemicals cluster also
assisted.
Revenue increased by 11% to R7 987 million (2013: R7 223 million). Revenue
generated outside South Africa was R2 502 million, 31% of total revenue.
Profit from operations increased by 33% to R814 million compared to R612
million in the prior corresponding period. Headline earnings improved by
9% to R436 million (2013: R399 million).
On 20 March 2014, the bulk property sale transaction at Modderfontein
became effective and thus cash of R1 061 million (including VAT) was
received. Profit from operations relating to the transaction was R421
million before tax. This was included in earnings per share (“EPS”). Owing
to the nature of the property sold, R240 million of the R421 million was
recognised in headline earnings per share (“HEPS”).
EPS was 537 cents (2013: 356 cents), 51% higher than in 2013, and HEPS
improved by 10% to 390 cents (2013: 356 cents).
The Board has declared an interim cash dividend of 115 cents per ordinary
share (2013: 105 cents), a 10% year-on-year increase.
Safety
AECI’s 12-month rolling average Total Recordable Injury Rate (“TRIR”) was
0,48 (2013: 0,60). An exceptional performance from AEL Mining Services
(“AEL”) underpinned the improvement. The TRIR measures the number of
incidents per 200 000 hours worked.
Explosives
Revenue from AEL was flat at R3 553 million (2013: R3 551 million). The
negative effects of the five-month platinum mining sector strike on
volumes and profit from operations were partly offset by a weaker ZAR/US$
exchange rate. The operating margin declined to 3,4% (2013: 8,8%).
Explosives volumes to mining customers increased by 1% while those for
initiating systems decreased by 39%. Profit from operations declined by
62% to R120 million (2013: R312 million). It is estimated that R150
million of the decline was due to the direct impact of the strikes. In
addition, a further R62 million provision was made for the planned
restructuring of AEL’s head office at Modderfontein.
The initiating systems optimisation project is nearing completion and the
targeted savings of R20 million and R60 million in 2014 and 2015,
respectively, are on track.
In spite of the strikes, the Southern African business performed solidly
and explosives volumes improved by 1,2%. This was largely attributable to
growth in the iron ore mining sector.
High rainfall in the first quarter of the year curtailed the performance
of the surface coal mining sector.
Explosives volumes in the rest of Africa grew by 5,1%. There was a strong
performance in Central Africa’s copper belt. However, volumes were lower
in West Africa where customers mined higher-grade ores, at a lower cost,
owing to the gold price decline.
Volumes in AEL’s Indonesian international business were restricted by poor
thermal coal prices which led to the closure of some smaller thermal coal
mines in the region. The performance of Kaltim Prima Coal (“KPC”), the
largest customer in Indonesia, remained solid. Overall volumes declined by
7,4%.
AEL has been invited by some of its customers to partner with them in the
Australian market. An AECI office has been established in Brisbane and a
bulk emulsion plant is being shipped to a site in Bajool, Queensland. It
is anticipated that trial blasts will be conducted before year-end.
The equity investment in PT Black Bear Resources Indonesia (“BBRI”), for
US$23 million, was completed. BBRI’s plant was successfully commissioned
in February 2014 and qualified ammonium nitrate solution is being produced
and supplied to KPC.
Capital investment in the half-year was R225 million, of which R168
million was replacement capital. Major projects included a statutory
shutdown of the No. 11 Nitric Acid Plant, a boiler replacement, expansion
of the ammonia offloading facility and expenditure related to the new
detonator campus. These investments at Modderfontein will enhance AEL’s
operations going forward.
Specialty chemicals
The specialty chemicals cluster delivered a pleasing result. Revenue
increased by 11% to R4 062 million (2013: R3 667 million) thanks to 5%
volume growth and the effects of the ZAR/US$ exchange rate. The volume
decline in Senmin, due to the strikes, was offset by an increase in traded
volumes in Chemical Initiatives and Nulandis. The strikes also had an
effect on the profit from operations and the trading margin of the cluster
as a whole. It is estimated that R100 million in profit from operations
was lost. Nonetheless, the cluster achieved a 2% improvement, with profit
from operations of R397 million (2013: R389 million). The operating margin
was 9,8% compared to 10,6% last year.
There were excellent performances from Chemical Initiatives, ImproChem,
Lake Specialties and Nulandis. The portfolio restructuring initiatives
implemented in 2013 and the successful integration of acquisitions
delivered the expected savings and business enhancements.
The acquisition of Clariant’s African water treatment business
(“Clariant”), announced in February 2014, was finalised in June for a cash
consideration of R400 million. The business has been integrated into
ImproChem and its financial results will be consolidated from July 2014.
The acquisition is in line with the Group’s strategy to grow its African
footprint in the water solutions sector.
Capital expenditure for the cluster totalled R115 million (2013: R93
million) of which R84 million was for expansion. Key projects included a
new blending plant at SA Premix, in Burgersdorp, installation of a new
reactor at ImproChem, Umbogintwini and completion of SANS Technical
Fibers’ (“STF”) technology conversion project in the USA. STF’s single
stage equipment was commissioned in March 2014 and is ramping up.
Property
Following the Shanghai Zendai transaction, the property business was
rebranded as Acacia Real Estate (“Acacia”). The segment’s results were
driven by the bulk property sale at Modderfontein. This transaction
contributed R421 million of the R447 million (2013: R50 million) in profit
from operations.
The transaction became effective on 20 March 2014, when the requisite
properties were transferred to the purchaser and R1 061 million (inclusive
of VAT) was received by the Group. In total, R468 million in profit from
operations will be recognised from the transaction, primarily when
property transfers to the purchaser have been concluded. For the six
months ended 30 June 2014, profits were recognised as already detailed. It
is likely that the balance of the profits will be recognised in 2015.
The rest of Acacia’s revenue and profit from operations were generated by
the leasing and services businesses that are still owned by the Group in
Modderfontein and Umbogintwini.
The Group continues to evaluate alternatives for the disposal of its
surplus land and assets at Somerset West. A bulk disposal remains the
preferred solution and increased interest from potential purchasers has
been noted.
Cash utilisation
Capital expenditure totalled R343 million for the period (2013: R216
million) with R201 million of this invested in replacement projects. Most
of the expenditure was at AEL, as already outlined. Gearing was at 22%
from 25% in December 2013. Gearing was impacted by capital spend, the
acquisition of Clariant, the Modderfontein transaction and the platinum
mining sector strikes. Net working capital improved to 19,0% of revenue
(2013: 21,8%) although inventory levels increased due to diminished
offtake during the strikes.
Cash interest cover improved to 13,4 times (2013: 9,3 times). Net interest
paid decreased to R74 million (2013: R87 million) as the proceeds from the
property sale improved the debt position.
Directorate
As announced in February, Mike Leeming retired from the Board on 2 June
2014 after 12 years’ service. The Board thanks him for his input and
guidance. Richard Dunne succeeded Mike as Chairman of the Audit Committee.
Tak Hiemstra was appointed as a Non-executive Director on the Company’s
Board with effect from 1 May 2014. AECI welcomes him and looks forward to
his contribution in years to come.
Outlook
The outlook for the global economy and commodity prices is still
uncertain, and growth in the South African economy is expected to remain
weak for the rest of 2014.
Nonetheless, AECI’s growth potential in South Africa’s iron ore and coal
mining sectors is positive. In platinum mining, uncertainty remains
regarding the timing and extent of the industry’s recovery from the
strikes. The negative effects of these have continued into the second
half-year and it is unlikely that AECI’s businesses serving these
customers will recover lost profits.
The outlook for the Group’s strategic growth areas of agriculture and
water solutions in Africa is also positive, as are prospects for
acquisitions on the continent. Businesses acquired in the last two years
are delivering the benefits anticipated and the same is expected of the
recently acquired Clariant water treatment business.
Although labour relations remain of concern in South Africa it is most
pleasing that settlement of wage increases was reached in July 2014, under
the auspices of the National Bargaining Council for the Chemical Industry,
without any industrial action.
AECI will continue to pursue its strategy of expanding into new markets in
Africa and other countries of interest. It will build on the progress made
to date in Africa, Australasia and Latin America.
Schalk Engelbrecht Mark Dytor
Chairman Chief Executive
Woodmead, Sandton
29 July 2014
Directors: S Engelbrecht (Chairman), MA Dytor (Chief Executive)†,
RMW Dunne*, Z Fuphe, RL Hiemstra, KM Kathan (Financial Director)†, LL Mda,
AJ Morgan, LM Nyhonyha, R Ramashia.
† Executive * British
Group Company Secretary: EN Rapoo
Notice to shareholders
Interim Ordinary Cash Dividend No. 161
Notice is hereby given that on Monday, 28 July 2014 the Directors of AECI
declared a gross interim cash dividend of 115 cents per share, in respect
of the six month period ended 30 June 2014, payable on Monday, 8 September
2014 to ordinary shareholders recorded in the books of the Company at the
close of business on Friday, 5 September 2014.
The last day to trade cum dividend will be Friday, 29 August 2014 and
shares will commence trading ex dividend as from Monday, 1 September 2014.
A South African dividend withholding tax of 15% will be applicable to all
shareholders who are not either exempt or entitled to a reduction of the
withholding tax rate in terms of a relevant Double Taxation Agreement
resulting in a net dividend of 97,75000 cents per share to those
shareholders who are not exempt. Application forms for exemption or
reduction may be obtained from the Transfer Secretaries and must be
returned to them on or before Friday, 29 August 2014.
The issued share capital at the declaration date is 128 241 140 listed
ordinary shares and 10 117 951 unlisted redeemable convertible B ordinary
shares. The dividend has been declared from the income reserves of the
Company. No Secondary Tax on Companies’ credits are available to be used.
Any change of address or dividend instruction must be received on or
before Friday, 29 August 2014.
Share certificates may not be dematerialised or rematerialised from
Monday, 1 September 2014 to Friday, 5 September 2014, both days inclusive.
By order of the Board
EN Rapoo
Group Company Secretary
Woodmead, Sandton
29 July 2014
Transfer Secretaries
Computershare Investor Services Proprietary Limited
70 Marshall Street
Johannesburg
2001
and
Computershare Investor Services PLC
PO Box 82
The Pavilions
Bridgwater Road
Bristol BS 99 7NH
England
Registered Office
1st floor, AECI Place
24 The Woodlands
Woodlands Drive
Woodmead
Sandton
Sponsor
Rand Merchant Bank (a division of FirstRand Bank Limited), 1 Merchant
Place, cnr Fredman Drive and Rivonia Road, Sandton, 2196
Date: 29/07/2014 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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