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Summarised audited consolidated financial results and cash dividend declaration for the year ended 31 December 2017
AECI LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1924/002590/06
Tax reference number 9000008608
Share code: AFE
ISIN: ZAE000000220
JSE Bond company code: AECI (“AECI” or “the Company”)
Summarised audited consolidated financial results and final cash dividend
declaration for the year ended 31 December 2017
Highlights
Profit from operations +18% to R1 579m
Highest-ever recorded HEPS +17,2% to 959c
Trading margin +8,5%
Strategic progress
Acquisitions announced
* Geographic and earnings diversification
Reporting aligned with pillar strategy
Final ordinary cash dividend +13% to 340cps
Income statement
2017 2016
R millions Note % change Audited Audited
Revenue 2 (1) 18 482 18 596
Net operating costs (16 903) (17 261)
Profit from operations 18 1 579 1 335
Share of profit of equity-accounted
investees, net of tax — 28
Profit from operations and equity-
accounted investees 1 579 1 363
Net finance costs (167) (215)
Interest expense (202) (270)
Interest received 35 55
Profit before tax 1 412 1 148
Tax expense (429) (336)
Profit for the year 983 812
Profit for the year attributable to:
— Ordinary shareholders 950 777
— Preference shareholders 3 3
— Non-controlling interest 30 32
983 812
Headline earnings are derived from:
Profit attributable to ordinary shareholders 950 777
Impairment of goodwill 3 28
Impairment of property, plant and equipment 10 54
Loss on disposal of equity-accounted
investee 2 —
Impairments recognised by equity-
accounted investee 54 —
(Surplus)/loss on disposal of property, (8) 9
plant and equipment
Foreign currency translation differences
reclassified on net investments in
foreign operations 18 17
Tax effects of the above items (17) (21)
Headline earnings 1 012 864
Per ordinary share (cents):
Headline earnings 17 959 818
Diluted headline earnings 915 800
Basic earnings 22 900 735
Diluted basic earnings 859 720
Ordinary dividends declared after the
reporting date 13 340 300
Ordinary dividends paid 438 395
Statement of comprehensive income
2017 2016
R millions Audited Audited
Profit for the year 983 812
Other comprehensive income net of tax
Items that may be reclassified subsequently to
profit or loss:
— Foreign currency translation differences (212) (376)
— Effective portion of cash flow hedges (4) (3)
Items that may not be reclassified subsequently to
profit or loss:
— Remeasurement of defined-benefit and post-retirement
medical aid obligations 11 —
Total comprehensive income for the year 778 433
Total comprehensive income attributable to:
Ordinary shareholders 752 405
Preference shareholders 3 3
Non-controlling interest 23 25
778 433
Statement of changes in equity
2017 2016
R millions Audited Audited
Total comprehensive income for the year 778 433
Dividends paid (497) (435)
Share-based payment reserve 29 45
Shares repurchased — (39)
Equity at the beginning of the year 9 046 9 042
Equity at the end of the year 9 356 9 046
Made up as follows:
Ordinary share capital 110 110
Reserves 1 102 1 280
— Foreign currency translation reserve 883 1 086
— Other reserves (5) (1)
— Share-based payment reserve 224 195
Retained earnings 8 022 7 523
Non-controlling interest 116 127
Preference share capital 6 6
9 356 9 046
Reconciliation of weighted average number of shares
2017 2016
Millions Audited Audited
Weighted average number of ordinary shares at the
beginning of the year 131,9 132,4
Weighted average number of unlisted ordinary shares
held by consolidated EST (10,1) (10,1)
Weighted average number of contingently returnable
ordinary shares held by CEDT (4,4) (4,4)
Weighted average number of shares held by consolidated
subsidiary (11,9) (11,9)
Weighted average number of shares repurchased during
the year — (0,3)
Weighted average number of ordinary shares for basic
earnings per share 105,5 105,7
Dilutive adjustment for potential ordinary shares 5,0 2,3
Weighted average number of ordinary shares for diluted
earnings per share 110,5 108,0
Statement of financial position as at 31 December
2017 2016
R millions Note Audited Audited
Assets
Non-current assets 7 365 7 538
Property, plant and equipment 3 3 965 3 990
Investment property 216 140
Intangible assets 188 211
Goodwill 1 524 1 541
Pension fund employer surplus accounts 487 583
Investments in joint ventures 274 327
Investments in associates 4 199 194
Other investments 5 117 25
Deferred tax 395 527
Current assets 8 606 8 282
Inventories 3 355 3 174
Accounts receivable 3 793 3 342
Other investments 155 190
Assets classified as held for sale 7 — 60
Tax receivable 97 51
Cash 1 206 1 465
Total assets 15 971 15 820
Equity and liabilities
Equity 9 356 9 046
Ordinary share capital and reserves 9 234 8 913
Non-controlling interest 116 127
Preference share capital 6 6
Non-current liabilities 1 614 2 324
Deferred tax 93 254
Non-current borrowings 1 100 1 600
Contingent consideration 29 58
Non-current provisions and employee benefits 392 412
Current liabilities 5 001 4 450
Accounts payable 4 272 4 148
Current borrowings 530 162
Loans from joint ventures 130 75
Tax payable 69 65
Total equity and liabilities 15 971 15 820
Statement of cash flows
2017 2016
R millions Audited Audited
Cash generated by operations 2 350 2 328
Dividends received 55 46
Interest paid (202) (238)
Interest received 35 55
Tax paid (481) (636)
Changes in working capital (358) 488
Cash outflows relating to defined-benefit and post-
retirement medical aid obligations (101) (27)
Cash outflows relating to non-current provisions and
employee benefits (77) (76)
Cash available from operating activities 1 221 1 940
Dividends paid (497) (435)
Cash flows from operating activities 724 1 505
Cash flows from investing activities (753) (491)
Net investment activities (97) (3)
Net capital expenditure (656) (488)
Net cash (utilised)/generated before financing
activities (29) 1 014
Cash flows from financing activities (121) (1 523)
Loans with joint ventures 55 39
Shares repurchased — (39)
Settlement of performance shares (44) (22)
Borrowings raised 250 1 110
Borrowings repaid (382) (2 620)
Net decrease in cash (150) (518)
Cash at the beginning of the year 1 465 2 114
Translation loss on cash (109) (131)
Cash at the end of the year 1 206 1 465
Industry segment analysis
Basis of segmentation
In 2014, AECI revised its strategy and developed key growth pillars. The Group’s
businesses have been aligned in terms of these pillars and internal reporting was
altered to reflect this realignment. The Group’s key growth pillars, which are its
reportable segments, are described below. Businesses in the pillars offer differing
products and services, and are managed separately because they require different
technology and marketing strategies.
The following summary describes the operations of each reportable segment.
Reportable segment Operations
Mining Solutions The businesses in this pillar provide a mine-to- metal
solution for the mining sector internationally. The
offering includes commercial explosives, initiating
systems and blasting services right through the value
chain to chemicals for ore beneficiation and tailings treatment.
Water & Process Provides integrated water treatment and process chemicals,
and equipment solutions, for a diverse range of applications
in Africa. These include, inter alia, public and industrial
water, desalination and utilities.
Plant & Animal Health Manufacturer and supplier of an extensive range of crop protection
products, plant nutrients and services for the agricultural sector
in Africa.
Food & Beverage The businesses in this pillar supply ingredients and commodities
to the dairy, beverage, wine, meat, bakery, health and nutrition
industries. The other main activity is the manufacture and
distribution of a broad range of juice-based products and drinks,
including formulated compounds, fruit concentrate blends and
emulsions.
Chemicals Supply of chemical raw materials and related services for use
across a broad spectrum of customers in the manufacturing
and general industrial sectors.
Property & Corporate Mainly property leasing and management in the office, industrial and
retail sectors, and corporate centre functions including the treasury.
There are varying levels of integration between the segments. This includes transfers of raw
materials and finished goods, and property management services. Inter-segment pricing is
determined on terms that are no more and no less favourable than transactions with unrelated
external parties.
Information relating to reportable segments
Information relating to each reportable segment is set out below. Segmental profit from operations
is used to measure performance because management believes that this information is the most
relevant in evaluating the results of the respective segments relative to other entities that
operate in the same industries. The comparative figures have been restated to reflect the
revised operating segments.
Audited Audited
Restated
R millions 2017 2016
External revenue
Mining Solutions 9 643 9 856
Water & Process 1 409 1 368
Plant & Animal Health 2 479 2 496
Food & Beverage 1 190 1 121
Chemicals 3 445 3 427
Property & Corporate 316 328
Inter-segment — —
18 482 18 596
Profit/(loss)
from operations
Mining Solutions 1 097 911
Water & Process 182 159
Plant & Animal Health 133 172
Food & Beverage 64 13
Chemicals 365 394
Property & Corporate (262) (314)
1 579 1 335
Operating assets
Mining Solutions 6 308 6 216
Water & Process 1 228 1 150
Plant & Animal Health 1 664 1 558
Food & Beverage 819 862
Chemicals 2 244 2 117
Property & Corporate 778 555
13 041 12 458
Audited Audited
Restated
R millions 2017 2016
Inter-segment
revenue
Mining Solutions 75 82
Water & Process 45 40
Plant & Animal Health 64 44
Food & Beverage 5 1
Chemicals 119 121
Property & Corporate 90 82
Inter-segment (398) (370)
— —
Depreciation and
amortisation
Mining Solutions 424 437
Water & Process 50 53
Plant & Animal Health 12 10
Food & Beverage 15 17
Chemicals 71 82
Property & Corporate 25 27
597 626
Operating liabilities
Mining Solutions 1 730 1 557
Water & Process 277 218
Plant & Animal Health 1 089 1 087
Food & Beverage 259 252
Chemicals 798 693
Property & Corporate 150 341
4 303 4 148
Audited Audited
Restated
R millions 2017 2016
Total segment
revenue
Mining Solutions 9 718 9 938
Water & Process 1 454 1 408
Plant & Animal Health 2 543 2 540
Food & Beverage 1 195 1 122
Chemicals 3 564 3 548
Property & Corporate 406 410
Inter-segment (398) (370)
18 482 18 596
Impairments
Mining Solutions 10 54
Water & Process — —
Plant & Animal Health — —
Food & Beverage — 28
Chemicals 3 —
Property & Corporate — —
13 82
Capital expenditure
Mining Solutions 435 298
Water & Process 21 8
Plant & Animal Health 64 29
Food & Beverage 11 14
Chemicals 42 78
Property & Corporate 131 75
704 502
Operating assets comprise property, plant and equipment, investment property,
intangible assets, goodwill, inventories, accounts receivable and assets
classified as held for sale. Operating liabilities comprise accounts payable.
Other salient features
Note 2017 2016
R millions Audited Audited
Capital expenditure 704 502
— expansion 288 183
— replacement 416 319
Capital commitments 405 233
— contracted for 119 62
— not contracted for 286 171
Acquisitions authorised and contracted for 6 4 173 —
Future rentals on leased property, plant and
equipment 367 443
— payable within one year 116 123
— payable thereafter 251 320
Net borrowings 424 297
Depreciation and amortisation 597 626
Gearing (%)??* 5 3
Current assets to current liabilities 1,7 1,9
Net asset value per ordinary share (cents) 8 399 8 107
ZAR/US$ closing exchange rate (rand) 12,31 13,73
ZAR/US$ average exchange rate (rand) 13,31 14,72
* Borrowings less cash, as a percentage of equity.
Notes
(1) (a)Basis of preparation and accounting policies
The summarised consolidated financial results are prepared in accordance with the
requirements of the JSE Limited’s Listings Requirements (“Listings Requirements”)
for provisional reports and the requirements of the Companies Act of South Africa
applicable to summarised financial statements. The Listings Requirements require
provisional reports to be prepared in accordance with the framework concepts and
the measurement and recognition requirements of International Financial Reporting
Standards (“IFRS”); the South African Institute of Chartered Accountants Financial
Reporting Guides as issued by the Accounting Practices Committee; Financial
Pronouncements as issued by the Financial Reporting Standards Council; and to also,
as a minimum, contain the information required by IAS 34 Interim Financial Reporting.
The accounting policies applied in the preparation of the audited consolidated
financial statements, from which the summarised consolidated financial results
were derived, are in terms of IFRS and are consistent with those applied in the
previous consolidated financial statements. New standards adopted did not have a
material effect on the financial results.
The preparation of these summarised consolidated financial results for the year
ended 31 December 2017 was supervised by the Financial Director, Mr KM Kathan
CA(SA) AMP (Harvard).
(b) Financial statements preparation and independent audit
The summary report is extracted from audited information but is itself not audited.
The financial statements were audited by KPMG Inc. which expressed an unmodified
opinion thereon.
The audited financial statements and the auditor’s report thereon are available for
inspection at the Company’s registered office. The Company’s Directors take full
responsibility for the preparation of the provisional report and for the financial
information having been extracted correctly from the underlying financial statements.
The summarised consolidated financial results do not include all of the disclosures
required for full financial statements and should be read in conjunction with the
consolidated annual financial statements for the year ended 31 December 2017.
(2) Revenue includes foreign and export revenue of R6 236 million (2016: R6 479 million).
(3) Impairment of plant and equipment
During the year the Directors performed a detailed impairment assessment in respect
of the property, plant and equipment of operations in Mozambique included in the Mining
Solutions operating segment. The recoverable amounts in respect of the cash generating
unit was estimated based on the greater of its value in use and fair value less costs
of disposal.
As a result, a decision was taken to impair the assets in Mozambique following unsuccessful
attempts to secure the necessary explosives licences.
An impairment loss of R10 million was recognised on the assets, which represented the
net book value of these assets.
(4) Impairments recognised by equity-accounted investee
During the year Crest Chemicals (“Crest”), which is 50% owned by the Group and treated
as an equity-accounted investee, lost a key customer and this compromised the future of
Crest’s caustic soda business. The Directors performed a detailed impairment assessment
in respect of the cash generating unit to which the lost business related, resulting in
an impairment loss being recognised by Crest.
The impact of this on the Group is a reduction of the share of profits received from
the equity-accounted investee to the value of R54 million.
(5) Investment in unlisted shares
In July 2017 AECI invested US$5 million (R65 million) in Origin Materials (“Origin”),
a start-up company based in California, USA, that has pioneered the development of
bio-based chemicals which can be processed into a large number of products for application
in global markets. Origin is considered to be a level 3 available-for-sale financial asset.
The Group has applied the IAS 39 exemption (paragraph 46c) and carries the investment at
cost. Included in the unlisted shares is a R22 million investment in the Good Chemistry
Fund, which is also considered to be a level 3 available-for-sale financial asset.
(6) Events after the reporting date
AECI Mauritius Limited, a wholly-owned subsidiary of AECI, acquired 100% of the share
capital in Schirm GmbH and shareholder loan claims from Imperial Chemical Logistics GmbH
(“ICL”), a wholly-owned subsidiary of Imperial Holdings Limited. The effective date of
this transaction was 30 January 2018. As part of the acquisition, Schirm GmbH acquired
the contract manufacturing service business of ICL, and a property in Wolfenbüttel, Germany (collectively, “Schirm”). On 17 January 2018, all conditions precedent to the transaction
had been fulfilled and the transaction became unconditional. The financial results of
Schirm will be consolidated from the effective date as part of the Group’s Plant & Animal
Health segment. However, Schirm will operate as a stand-alone entity.
The purchase consideration of the transaction was €128,4 million (R1,901 billion),
subject to certain adjustments based on the closing accounts, and was settled in cash on
the effective date.
AECI already has well-established businesses in Africa, South East Asia, the USA and
Australia. Domestic and international growth in the areas of Mining Solutions,
Water & Process, Plant & Animal Health, Food & Beverage, and Chemicals is a strategic
focus. The acquisition of Schirm is in line with the Company’s international expansion
strategy as Schirm is a market leader in the provision of formulation services for
agrochemicals in Europe; it has long-standing customer relationships with its blue-chip
customer base; it has invested substantially in capital expenditure over the past two
years and it is expected that this investment will enable significant revenue growth
as well as cost efficiencies. Furthermore, there are potential synergies associated
with the extension of Schirm’s manufacturing expertise to AECI as well as expansion
and supply chain opportunities for the Group’s existing Plant & Animal Health pillar.
This includes opportunities for AECI to replace some of the raw materials it currently
imports from third parties; enhanced geographic and product diversity for AECI’s
wider Chemicals portfolio; synergistic benefits associated with differing seasonal demand
cycles in the northern and southern hemispheres; and currency diversification for AECI.
The initial accounting for the business combination has not been completed. As a result
it was impracticable for certain IFRS 3 Business Combinations disclosures to be made.
The Group has entered into an agreement with Capitalworks Private Equity, MIC Investment
Holdings Proprietary Limited and the Much Asphalt management team to acquire 100% of the
issued share capital in Much Asphalt, for a total consideration of R2,272 billion which is
payable in cash, subject to the conditions precedent being fulfilled.
Apart from the above, no other events after the reporting date occurred that may give rise
to further disclosures or reported figures.
(7) Assets classified as held for sale
The disposal of Olive Pride, a business that was part of the Food & Beverage operating
segment and which was classified as held for sale at 31 December 2016, was completed on
1 April 2017. The assets disposed of were transferred initially to a separate legal entity,
Clover Pride Proprietary Limited (“Clover Pride”), that was wholly-owned by the Group through
its subsidiary Southern Canned Products Proprietary Limited. Subsequent to the transfer of the
assets, the interest in Clover Pride was distributed to the Company as a dividend in specie.
The shareholding in Clover Pride was then reduced through the sale of a 51% stake to Clover S.A. Proprietary Limited for a total consideration of R30 million.
The Group’s remaining 49% stake in Clover Pride is treated as an equity- accounted investee
in terms of IAS 28 Investments in Associates and Joint Ventures, and it is part of the
Food & Beverage segment.
The carrying amount of total assets sold was:
2016 2017 2017
R millions At 31 Dec Movements At 1 April
Goodwill 27 1 28
Property, plant and equipment 1 1
Intangible assets 21 21
Inventory 11 (3) 8
Assets classified as held for sale 60 (2) 58
Exchanged for:
— trade loan with associate 4
— investment in associate 24
Proceeds on disposal 30
Surplus/(shortfall) on disposal —
(8) Contingent liabilities
The investigation process undertaken by the Competition Commission of South Africa
(“the Commission”) in 2014, into collusion by Akulu Marchon (“Akulu”) and a competitor,
was concluded. Both parties concluded separate settlement agreements with the Commission.
Akulu made a payment of the penalty of R13 905 600 on 30 October 2017. Akulu also agreed
to and implemented behavioural remedies which will be applied across the Group.
The Group is involved in various legal proceedings and is in consultation with its legal
counsel, assessing the outcome of these proceedings on an ongoing basis. As proceedings
progress, the Group’s management makes provision in respect of legal proceedings where
appropriate. Litigations, current or pending, are not likely to have a material adverse
effect on the Group.
(9) The Group entered into various sale and purchase transactions with related parties
in the Group in the ordinary course of business, the nature of which is consistent with
those previously reported. Those transactions were concluded on terms that are no more
and no less favourable than transactions with unrelated external parties. All transactions
and balances with these related parties have been eliminated appropriately in the
consolidated results.
(10) The Group measures forward exchange contracts at fair value (amounting to a net
liability of R66 million) using inputs as described in level 2 of the fair value hierarchy.
The fair values for forward exchange contracts are based on quotes from brokers. Similar
contracts are traded in an active market and the quotes reflect the actual transactions on
similar instruments. Forward exchange assets and liabilities amounted to R43 million and
R109 million, respectively. Other financial assets and financial liabilities, carried at
fair value through profit or loss, amounted to R155 million and R29 million respectively,
using inputs described in level 1 and level 3 respectively of the fair value hierarchy.
There were no transfers between levels 1, 2 or 3 of the fair value hierarchy during the
year ended 31 December 2017.
Commentary
Financial performance
AECI delivered a most pleasing result for 2017, due largely to a strong performance
in the last quarter of the year. Positive contributors were a recovery in the global
resources sector, the benefits of the Group’s diversification strategy and disciplined
cost control. Negative factors included the effects of severe drought conditions in the
Western Cape and other Southern Africa regions on agriculture and the water treatment
industry, the stronger ZAR/US dollar exchange rate (particularly around year-end) and
sluggish economic growth in South Africa which led to the local manufacturing sector
contracting further.
Earnings per share (“EPS”) increased by 22% from 735 cents to 900 cents. In the prior
year EPS was negatively affected by the R54 million (40 cents per share) impairment of
assets deployed in the local coal mining sector.
Headline earnings improved from R864 million last year to R1 012 million, in line with
the 17% growth in headline earnings per share (“HEPS”) to 959 cents (2016: 818 cents).
HEPS in 2016 was impacted by the settlement cost (non-cash) of AECI’s post-retirement
medical aid liability. In 2017, costs associated with the completion of two
acquisitions had an effect on HEPS.
The Board has declared a final gross cash dividend of 340 cents per ordinary share,
an increase of 13% from 2016’s 300 cents per share, bringing the total dividend for
the 2017 financial year to 478 cents, 10% higher than the prior year’s 435 cents.
A South African dividend withholding tax of 20% will be applicable to the final dividend,
resulting in a net dividend of 272 cents per share payable to those shareholders who are
not eligible for exemption or reduction.
Safety
Tragically, a fatality occurred on 26 July 2017. Mr Yandisa Nondlwana, a contractor tanker
driver who was delivering molten sulphur to the Chloorkop site on behalf of a supplier,
succumbed to injuries he sustained when he fell from the top of the tanker while in the
process transferring the product.
AECI’s aspiration remains zero harm to employees and contractors.
The Total Recordable Injury Rate (“TRIR”) was 0,39 (2016: 0,45), a good overall
improvement. The TRIR measures the number of incidents per 200 000 hours worked.
Segmental performance
Mining Solutions
This segment comprises explosives (AEL Mining Services) and mining chemicals
(Experse and Senmin).
Revenue declined by 2,2% to R9 718 million (2016: R9 938 million), due mainly to lower
ammonia prices for most of the year and a stronger rand against the US dollar. More than
50% of revenue in this segment is US dollar based. Profit from operations improved
significantly to R1 097 million – 20,4% ahead of last year’s R911 million as a result of
volume growth and a more favourable product mix in the segment as a whole. The operating
margin also improved from 9,2% to 11,3%.
Explosives
Overall bulk explosives volumes increased by 6,5% and by 1,7% for initiating systems.
In South Africa, explosives volumes were 4,8% higher with robust demand in the second
half-year from customers in the surface coal, iron ore and platinum mining sectors.
Underground gold and platinum mining customers remained under significant cost pressure
and there were several mine closures. The conclusion of a number of corporate actions
will see consolidation of mine ownership in the underground market in 2018. Volumes of
initiating systems grew by 1%.
In the rest of Africa, explosives volumes grew by 5,2%. Higher copper prices benefited
the business in Central Africa while the West African gold mining sector came under pressure
as customers mined their stock piles. Deployment to service new business gained in the first
half of the year commenced in the last quarter.
Volumes in the Asia Pacific region were 12,5% higher year-on-year on the back of higher
demand from coal mining customers and additional contracts secured. The businesses in
Indonesia and Australia were profitable and cash generative.
Mining chemicals
The mining chemicals businesses delivered a solid performance. There was good growth
in surfactants, with improved conditions in the mining sector. Senmin’s export sales
did not recover in full, primarily as a result of the key distributor losing market share in
its market. In South Africa, Senmin grew in line with the improvement in mining output.
Overall mining chemicals volumes declined by 1,3%. Senmin’s R90 million xanthates expansion
project is progressing well and commissioning is expected in the second half of 2018.
Water & Process (ImproChem)
Revenue of R1 454 million was 3,2% higher (2016: R1 408 million) and profit from operations
grew by 14,2% to R182 million (2016: R159 million). Growth in the South African core market
was curtailed by poor conditions in the manufacturing sector and drought effects in the
Western Cape.
In the rest of Africa, pleasing progress continued to be made in the public water and
industrial sectors. 30% of ImproChem’s total revenue is now generated in other African
countries.
Four contracts for the installation of desalination plants for industrial customers in the
Western Cape were secured for 2018. ImproChem also continued to supply containerised water
plants to communities living in areas where access to potable water is a challenge.
Plant & Animal Health (Nulandis)
Revenue was flat at R2 543 million (2016: R2 540 million). Profit from operations declined
by 22,9% to R133 million (2016: R172 million), primarily as a consequence of the drought in
the Western Cape and the stronger rand exchange rate. Drought effects also had an impact on
Farmers Organisation in Malawi.
The investment in the calcium nitrates and ammonium nitrates plant at Modderfontein was
completed and Nulandis recorded robust growth in its bulk nutrition division.
Biocult’s trials in both the US and Canada were successful and the next phase of the expansion
programme will be pursued following regulatory approval.
Food & Beverage (Lake Foods and Southern Canned Products (“SCP”)) Revenue of R1 195 million
was 6,5% higher than 2016’s R1 122 million. Profit from operations was R64 million
(2016: R13 million). In the prior year, goodwill relating to the poultry business was
impaired at a cost of R28 million.
Lake Foods’ food additives and perlite filtration divisions performed well. Solid progress was
made in implementing the strategy to grow the formulated juice business and to focus less
on trading activities. A site adjacent to SCP’s current Cape Town operations was acquired
for the expansion of warehousing and distribution facilities. It is intended that all
Food & Beverage activities in the Western Cape will ultimately be consolidated on that site.
Chemicals (Chemfit, Chemical Initiatives, ChemSystems, Industrial Oleochemical Products,
SANS Technical Fibers)
Revenue was flat at R3 564 million (2016: R3 548 million) and profit from operations of
R365 million declined by 7,2% (2016: R394 million). The main contributors to this decline
were the closure of Huntsman Tioxide at the end of 2016, with a negative R25 million impact
on contribution, and the sharp strengthening of the local currency against the US dollar
at year-end.
In a poor trading environment, overall volumes in this diverse portfolio of businesses
increased by 1% while operating margins remained robust at 10,2% (2016: 11,1%). The segment
remained highly cash generative.
In 2016, the Group earned R28 million from its joint ventures and associates. No earnings
were received in 2017 as a result of a R54 million impairment of Crest Chemicals’ caustic
soda business. Crest Chemicals is a 50% joint venture with Brenntag AG.
Property & Corporate
The revenue base of Group’s remaining property activities comprises mainly the leasing
of buildings at Modderfontein (Gauteng) and Umbogintwini (KwaZulu-Natal), as well as the
provision of utilities and services at the multi-user Umbogintwini Industrial Complex.
Revenue from these activities was R406 million. The R410 million earned in the prior year
included the once-off sale of land that remained available for redevelopment at the Group’s
Somerset West site.
Net corporate costs declined to R262 million (2016: R314 million). In 2016, these corporate
costs included R149 million in part settlement of the Group’s post-retirement medical
aid liabilities. Included in the current year was R105 million for transaction costs
associated with the acquisition of Much Asphalt and Schirm.
Cash utilisation
R1 221 million was generated by the Group’s operating activities (2016: R1 940 million).
The year-on-year decline was attributable mainly to cash outflow in respect of working
capital. Higher levels of working capital resulted from the extension of credit terms
by certain global customers and higher than usual sales in the last quarter of the year.
Accounts receivable increased to R3 793 million (2016: R3 342 million) as a consequence.
Fixed capital expenditure was R704 million (2016: R502 million), of which R288 million
was for expansion. Key capital projects included the statutory shutdown of AEL Mining
Services’ No. 11 Nitric Acid plant at Modderfontein, investments in support of business
expansion in the rest of Africa, and the Nulandis and Food & Beverage investments.
Cash interest cover was robust at 13 times (2016: 10,9 times), while cash interest paid
declined to R167 million (2016: R183 million). The Group continued repatriating dividend
proceeds, net of withholding taxes, from its subsidiaries.
Acquisitions and investments
Two significant acquisitions were announced in the last quarter. Both are in pursuit
of the Group’s strategy to accelerate its growth by expanding into new markets and
diversifying its geographic footprint.
The acquisition of Schirm, for a consideration of €128,4 million from Imperial Holdings,
became effective on 30 January 2018. Schirm, based in Germany, is a contract manufacturer
of agrochemicals and fine chemicals with a European and US footprint. It is the largest
provider of external agrochemical formulation services in Europe. The business is being
integrated and the initial accounting for the business combination is in progress. It will
operate as a standalone entity in the Plant & Animal Health segment.
The acquisition of Much Asphalt from Capitalworks Private Equity and its partners is
awaiting approval from South Africa’s competition authorities. Much Asphalt is South
Africa’s leading manufacturer and supplier of hot and cold mix asphalt products, and a
manufacturer, supplier and applicator of bituminous road binders, emulsions, primes,
pre-coats and modified binders. This business will be integrated into the Chemicals segment.
Also in line with its pursuit of accelerated growth through diversification, the Group
made a strategic investment of US$5 million (R65 million) in Origin Materials (“Origin”).
Origin is a privately-owned company in the US with new technology in renewable chemicals.
R22 million has been invested in the newly established Good Chemistry Fund. The objective
of the Fund is to facilitate enterprise and supplier development for Black entrepreneurs
in South Africa generally and for the chemical industry supply chain in particular.
Changes to the Board
Moses Kgosana and Liziwe Mda resigned as Non-executive Directors of the Company on
29 September 2017 and 27 November 2017, respectively. The Board thanks them for their
contribution to the affairs of the Company and the Board during their tenure.
Outlook and strategic focus
The recent changes in South Africa’s political environment have created a more positive
sentiment in terms of the country’s political and economic outlook. Business and investor
confidence is improving in line with this, as is the prospect of higher GDP growth
going forward.
Global commodity prices have increased due to stronger demand and chemical prices have
increased on the back of higher oil prices.
This more favourable environment should present opportunities for AECI’s diverse portfolio
of businesses. At the same time the focus will be on the integration of the new businesses,
Schirm and Much Asphalt, into the Group and ensuring that they deliver to expectations.
Together, these acquisitions represent an investment of more than R4 billion. The management
of cash and the control of costs will continue to be managed very closely to ensure that the
Company’s balance sheet remains strong.
The rate of exchange of the rand against the US dollar and uncertain weather patterns are two key
factors that could have an important effect on the current year's performance.
Khotso Mokhele Mark Dytor
Chairman Chief Executive
Woodmead, Sandton
27 February 2018
Directors: KDK Mokhele (Chairman), GW Dempster, MA Dytor (Chief Executive), Z Fuphe,
G GomweD*, KM Kathan (Executive), AJ Morgan, R Ramashia.
* Zimbabwean
Group Company Secretary: EN Rapoo
Notice to shareholders
Declaration of final ordinary cash dividend No. 168
Notice is hereby given that on Monday, 26 February 2018, the Directors of AECI declared
a gross final cash dividend of 340 cents per share in respect of the financial year ended
31 December 2017. The dividend is payable on Monday, 9 April 2018 to holders of ordinary
shares recorded in the register of the Company at the close of business on the record
date, being Friday, 6 April 2018.
The last day to trade “cum” dividend will be Tuesday, 3 April 2018 and shares will
commence trading “ex” dividend as from the commencement of business on Wednesday,
4 April 2018.
A South African dividend withholding tax of 20% 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 272 cents per
share payable to those shareholders who are not eligible for exemption or reduction.
Application forms for exemption or reduction may be obtained from the Transfer Secretaries
and must be returned to them on or before Tuesday, 3 April 2018.
The issued share capital at the declaration date is 121 829 083 listed ordinary shares,
10 117 951 unlisted redeemable convertible B ordinary shares and 3 000 000 listed cumulative
preference shares. The dividend has been declared from the income reserves of the Company.
Any change of address or dividend instruction must be received on or before Tuesday,
3 April 2018.
Share certificates may not be dematerialised or rematerialised from Wednesday, 4 April 2018
to Friday, 6 April 2018, both days inclusive.
By order of the Board
E N Rapoo
Group Company secretary
Woodmead, Sandton
27 February 2018
Transfer secretaries
Computershare Investor Services Proprietary Limited Rosebank Towers, 15 Biermann Avenue,
Rosebank, 2196
and
Computershare Investor Services PLC
PO Box 82, The Pavilions, Bridgwater Road, Bristol BS 99 7NH, England
Registered Office
First floor, AECI Place, 24 The Woodlands, Woodlands Drive, Woodmead, Sandton, 2196
Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
1 Merchant Place, Cnr Fredman Drive and Rivonia Road, Sandton, 2196
Date: 27/02/2018 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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