Last checked at 22 Feb 2011 07:00
AECI LIMITED
(Incorporated in the Republic of South Africa)
(Registration No. 1924/002590/06)
Share code: AFE ISIN No.: ZAE000000220
("AECI" or "the Company")
Reviewed condensed consolidated financial results for the year ended 31 December 2010
Best ever safety performance, Total Recordable Incident Rate of 0,58
HEPS up 67%
Profit from continuing operations up 38%
Gearing improved to 40%
Final cash dividend of 135 cents declared
All strategic growth projects substantially complete and in ramp-up phase
Income statement % 2010 2009 change R millions R millions Continuing operations Revenue(2) +8 11 569 10 709 Net operating costs +6 10 507 9 942 Profit from operations +38 1 062 767
Net (loss)/income from Pension Fund (6) 23employer surplus accounts Net (loss)/income from plan assets for (5) 11post-retirement medical aid liabilities 1 051 801 Fair value adjustments - interest 2 4 Interest expense (net of costs (175) (243)capitalised) Interest received 21 21 Income from associates and investments 2 7
901 590 Impairment of goodwill (28) (18)
Impairments of plant and equipment (4) (16) Reversal of impairment of plant and - 7equipment Gain on acquisition of subsidiary 4 -
Profit before tax 873 563 Tax (233) (176)
Net profit from continuing operations 640 387 Net profit from discontinued operations - 53
Profit before tax - 65 Tax - (12) Profit for the year 640 440
Profit for the year attributable to:
- ordinary shareholders 600 421 - preference shareholders 2 2 - non-controlling interest 38 17 640 440
Headline earnings are derived from: Profit attributable to ordinary 600 421shareholders Impairment of goodwill 28 18 Impairments of plant and equipment 4 16 Reversal of impairment of plant and - (7)equipment Gain on acquisition of subsidiary (4) - Profit on disposal of property, plant (5) (88)and equipment Loss on disposal of subsidiaires 20 - Profit on disposal of associates and (22) -investments Tax effects of the above items 2 10 Non-controlling interest effect of the (4) -
above items Headline earnings 619 370 Per ordinary share (cents): Headline earnings +67 577 346 Diluted headline earnings(3) 575 344 Basic earnings +42 559 393 Diluted basic earnings(3) 558 392 Continuing basic earnings 559 344
Diluted continuing basic earnings(3) 558 343 Discontinued basic earnings(3) - 49
Dividends declared +128 205 90 Dividends paid 132 169
Ordinary shares (millions)(4) - in issue 107 107 - weighted average number of shares 107 107 - diluted weighted average number of 108 107shares(3)
Statement of comprehensive income
2010 2009 R millions R millions Profit for the year 640 440
Other comprehensive income net of tax: Revaluation of derivative instruments * (6) Foreign currency translation differences net of (84) (169)deferred tax Total comprehensive income for the year 556 265 Total comprehensive income attributable to:
- ordinary shareholders 519 250 - preference shareholders 2 2 - non-controlling interest 35 13 556 265*Nominal amount
Statement of financial position
2010 2009 R millions R millions Assets Non-current assets 5 634 5 360
Property, plant and equipment 3 564 3 260
Investment property 440 430 Goodwill 1 035 1 063
Pension Fund employer surplus accounts 230 236 Investments 20 13 Non-current loans receivable 22 14
Deferred tax 323 344 Current assets 4 647 4 668 Inventories 1 892 1 827 Accounts receivable 2 023 2 159
Assets classified as held for sale - 14
Cash and cash equivalents 732 668 Total assets 10 281 10 028 Equity and liabilities
Ordinary capital and reserves 4 314 3 937 Preference capital and non-controlling interest 154 121
Total shareholders' interest 4 468 4 058 Non-current liabilities 2 175 2 564 Deferred tax 88 85 Non-current borrowings 1 133 1 731 Non-current provisions 954 748 Current liabilities 3 638 3 406 Accounts payable 2 168 2 208 Current borrowings 1 368 1 080 Tax payable 102 118 Total equity and liabilities 10 281 10 028Statement of cash flows 2010 2009 R millions R millions Cash generated by operations 1 619 1 137 Dividends received 2 12 Interest paid (268) (349) Interest received 21 22 Income tax paid (209) (333) Changes in working capital 26 1 161
Expenditure relating to non-current provisions (37) (93) Expenditure relating to retrenchments and (33) (105)restructuring Cash available from operating activities 1 121 1 452 Dividends paid (144) (167) Dividends paid to non-controlling interest (2) - Cash retained from operating activities 975 1 285 Cash utilised in investment activities (577) (981) Proceeds from disposal of investments and 39 94
businesses Investments (7) (92) Net capital expenditure (609) (983) Net cash generated 398 304
Cash effects of financing activities (294) (6)
Non-current loans receivable 14 (14) Borrowings (308) 8
Increase in cash and cash equivalents 104 298 Cash and cash equivalents at the beginning of the 668 444year Translation loss on cash and cash equivalents (40) (74) Cash and cash equivalents at the end of the year 732 668
Statement of changes in equity
2010 2009 R millions R millions Total comprehensive income for the year 556 265 Dividends paid (144) (167) Dividends paid to non-controlling interest (2) - Acquisition of subsidiary - (9) Equity at the beginning of the year 4 058 3 969 Equity at the end of the year 4 468 4 058
Made up as follows: Issued ordinary capital 215 215 Non-distributable reserves 164 251
Property revaluation reserve 237 237 Foreign currency translation reserve net of (81) 3
deferred tax Other 8 11 Retained income 3 935 3 471 Ordinary capital and reserves 4 314 3 937
Preference capital and non-controlling interest 154 121
Preference capital 6 6 Non-controlling interest 148 115 4 468 4 058Other salient features 2010 2009 R millions R millions
Capital expenditure - property, plant and 634 1 150
equipment - expansion 385 963 - replacement 249 187 Capital commitments 88 737 - contracted for 49 71 - not contracted for 39 666
Future rentals on property, plant and equipment 196 185
leased - payable within one year 96 84 - payable thereafter 100 101 Contingent liabilities 97 83 Net borrowings 1 769 2 143 Gearing (%) 40 53
Current assets to current liabilities 1,3 1,4 Net asset value per ordinary share (cents) 4 022 3 681 Depreciation - continuing operations 332 267 Rand/US$ closing exchange rate (rand) 6,65 7,38 Rand/US$ average exchange rate (rand) 7,32 8,27
Industry segment analysis Revenue Profit from operations 2010 2009 2010 2009 R millions R millions Continuing operations Mining services 4 832 4 070 378 298 Specialty chemicals 6 453 6 524 811 483 Property 370 211 66 33 Specialty fibres 294 222 33 9
Group services and intersegment (380) (318) (226) (56)
11 569 10 709 1 062 767 Discontinued operations SANS Fibres - Bellville - 469 - 66 11 569 11 178 1 062 833 Net assets 2010 2009 R millions Continuing operations Mining services 2 294 2 187 Specialty chemicals 3 716 3 643 Property 726 669 Specialty fibres 143 116
Group services and intersegment (93) (51)
6 786 6 564 Discontinued operations SANS Fibres - Bellville - (33) 6 786 6 531
Net assets consist of property, plant, equipment, investment property, goodwill, inventory and accounts receivable less accounts payable.
Notes
(1) Basis of preparation and accounting policies
The condensed consolidated 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. 61 of1973, as amended.
Accounting policies have been applied consistently by all entities in the Group and are consistent with those applied in the previous financial year.
(2) Includes foreign and export revenue of R3 111 million (2009: R2 520 million).
(3) 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.
(4) Net of 11 884 669 (2009: 11 884 669) treasury shares held by a subsidiary company.
(5) The discontinued operations refer to the businesses of SANS Fibres where manufacturing activities ceased at the end of March 2009.
(6) The auditors, KPMG Inc., have reviewed these condensed consolidated financial results. The auditors' unqualified review report is available for inspection at the Company's registered office.
(7) The condensed consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated annual financial statements for the year ended 31 December 2009.
(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
The Group delivered pleasing results for 2010, underpinned by a strong recovery in mining and manufacturing production volumes in the year. Consumer spending improved as interest rates declined and this also assisted the Group's businesses that service related sectors. Revenue from continuing operations increased by 8% to R11 569 million (2009: R10 709 million), driven by commodity price increases but tempered by the 11% strengthening of the rand against the US dollar year-on-year. Overall volumes grew by 11% and profit from continuing operations increased by 38% to R1 062 million (2009: R767 million).
Lower interest rates and improved cash generation impacted positively on headline earnings as net finance costs, after capitalising borrowing costs, decreased to R154 million (2009: R222 million).
Headline earnings were 67% higher at R619 million (2009: R370 million).
The Board has declared a final cash dividend of 135 cents per ordinary share (2009: 62 cents).
Safety and health performance is expressed as the Total Recordable Incident Rate. It is gratifying to report that in 2010 the Group achieved its lowest ever level of employee injuries and illnesses. The rate of 0,58 represents a 23% reduction from the level recorded in the prior reporting period.
Mining services
AEL Mining Services ("AEL") delivered a commendable performance, particularly noteworthy if viewed in the context of the slow start to the year when surface mining operations in southern Africa were negatively affected by heavy rainfall and those in the narrow reef sector experienced shaft closures. Revenue increased by 19% to R4 832 million (2009: R4 070 million). This is attributable to ammonia price increases and volume growth of 13%. Profit from operations rose by 27% to R378 million (2009: R298 million) and the operating profit margin was at 7,8% (2009: 7,3%). This improvement was facilitated by higher efficiencies on the Initiating Systems Automation Project (ISAP) in its ramp-up phase, as well as being indicative of the benefits of enhanced service package offerings to customers. Retrenchment costs of R49 million affected AEL's operating profit. R39 million of this amount is a provision for restructuring of the old manual shocktube plants, to be completed during 2011.
In AEL's southern African business, sales into the surface and massive sectors recorded good growth, particularly in platinum mining. Volumes for the narrow reef market declined by 3,5%.
The African business grew in line with a strong recovery in Botswana's diamond mining as well as improvements in the copper industry in central Africa. This growth was achieved notwithstanding delays in customers' projects. Gold mining activity in west and east Africa was depressed by production cutbacks and the suspension of operations.
The International business recorded pleasing progress as AEL gained new business in Indonesia as well as additional sales channel volumes in Europe and South America.
Of the R344 million invested in capital expenditure, R102 million was spent on ISAP. Ramp-up of ISAP progressed well, with the production run-rate more than doubling in the second half of the year. The ISAP project will be fully complete in the first quarter of 2012. The balance of the capital expenditure was utilised for expansion in Indonesia and for smaller capital replacement projects in Africa and South Africa.
Specialty chemicals
Profit from continuing operations improved sharply by 68% to R811 million (2009: R483 million) although revenue declined marginally to R6 453 million (2009: R6 524 million) owing to the effects of the strong rand as well as changes in product mix. The operating profit margin improved to 12,6% (2009: 7,4%) as a result of excellent cost control in the period as well as the non-recurrence of the effects of the bad debt write-off of 2009. Volumes increased by 10% year-on-year.
There were improved performances from most of the businesses in the portfolio, with those from Akulu Marchon, Industrial Oleochemical Products, ImproChem and Lake International Technologies being particularly noteworthy. Senmin's results were adversely impacted by the rand exchange rate and by start-up costs as the Polyacrylamide (PAM) facility was being ramped up.
The restructuring of Plastamid was completed in the second half-year and this business was divisionalised into Industrial Urethanes, at a total net cost of R10 million.
Strong cash generation owing to improved profitability, lower capital expenditure and working capital containment were features of 2010.
Of the R241 million capital expenditure in the year, R92 million was for Senmin's strategic projects. At Senmin, the Carbon Disulphide project is complete and the Acrylamide and PAM facilities have been commissioned, with the qualification process due for completion in the first quarter of 2011.
The specialty chemicals portfolio will be enhanced in the coming year, with three acquisitions finalised or close to finalisation for a total consideration of about R180 million. An agricultural chemicals distribution business will be integrated into Plaaskem, a toll manufacturing business will enhance SA Paper Chemicals' customer offering and a bulk caustic soda distribution business will be integrated into Crest Chemicals.
Property
The property market continued to lag behind the South African economy's recovery in 2010 and no significant property sale transactions were recorded. Heartland's results were delivered primarily by the leasing and services portfolios. Operating profit improved to R66 million from R33 million in 2009. This improvement is largely due to the non-recurrence of the cancellation of property transactions accounted for in 2009.
In property development, Heartland maintained its focus on preparing land for release to the market once market conditions improve. The most significant achievement in this regard was progress on Longlake at Modderfontein, a 220 hectare parcel of saleable land suitable for all land uses. Township and environmental approvals were received, zoning rights were granted and infrastructural designs were approved.
The property market remained curtailed by the lack of end-user finance.
Specialty fibres
SANS Technical Fibers, based in the USA, benefitted from global recovery in theautomotive and consumer sectors. Revenue improved by 48% to US$40 million(2009:US$27 million), largely driven by volume growth of 48%. Operating profitquadrupled to US$4,5 million (2009:US$1,1 million).
Plant capacity was expanded by 33% with the installation of equipment transferred from the former SANS Fibres site in Bellville. The project, at a cost of US$3 million, was completed within budget and ahead of schedule. The new capacity was fully utilised from the start-up date and, given the global automotive sector's positive outlook, this uptake scenario is not expected to change.
Finance and corporate centre
Gearing continued to improve to 40% of shareholders' fund at year-end (2009: 53%) as capital expenditure declined to R634 million (2009: R1 150 million) and profitability improved in the period. Net working capital was well managed at 15,1% of gross revenue (2009: 15,9%).
Cash interest cover improved to 5,6 times (2009: 3,5 times). Net interest paid, before capitalising borrowing costs of R93 million (2009: R105 million), decreased to R247 million (2009: R327 million). The decrease is attributable to sustained working capital control, improved cash generation and the decline in interest rates.
The Group services cost was R226 million (2009: R56 million). This material movement is analysed as follows:
• an additional R80 million provision in respect of legacy costs. The largest portion of this was an adjustment in the Post-retirement Medical Aid Liability due to medical aid inflation, a 0,25% decrease in the net discount rate, and the inclusion of additional members;
• an increase of R51 million in long-term incentive provisions as the Group's earnings and the Company's share price improved in 2010;
• in 2009, R18 million was recognised as profit on the disposal of the listed share portfolio of the captive insurance entity.
Outlook
The recovery in the mining sector and steady increases in global chemical prices are good indicators of improving demand, albeit in a more competitive environment. This bodes well for the Group in terms of volumes.
The focus for 2011 will be to:
• complete ramp-up of the PAM and ISAP projects so as to optimise their beneficial use, thereby enhancing the Group's financial performance;
• maintain a sharp focus on costs and working capital management, and on enhanced product and service delivery to customers; and
• successfully integrate the acquisitions into the specialty chemicalsportfolio.Fani Titi Graham Edwards Chairman Chief Executive Woodmead, Sandton21 February 2011Notice to shareholders
Final ordinary cash dividend No. 154
Notice is hereby given that on Monday, 21 February 2011 the Directors of AECI declared a final cash dividend of 135 cents per share, in respect of the financial year ended 31 December 2010, payable on Monday, 18 April 2011 to ordinary shareholders recorded in the books of the Company at the close of business on Friday, 15 April 2011.
The last day to trade cum dividend will be Friday, 8 April 2011 and shares will commence trading ex dividend as from Monday, 11 April 2011.
Any change of address or dividend instruction must be received on or before Friday, 8 April 2011.
Share certificates may not be dematerialised or rematerialised from Monday, 11 April 2011 to Friday, 15 April 2011, both days inclusive.
This announcement will be mailed to all recorded shareholders on or about Tuesday, 22 February 2011.
By order of the BoardEA ReaActing Company Secretary
Directors: F Titi (Chairman), GN Edwards (Chief executive)†,RMW Dunne*, S Engelbrecht, Z Fuphe, KM Kathan†, MJ Leeming, AJ Morgan, LM Nyhonyha, Adv R Ramashia.
†Executive *British
Acting Company Secretary: EA Rea
Transfer secretaries
Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg 2001
and Computershare Investor Services PLC, PO Box 82, The Pavilions, Bridgwater Road, Bristol BS99 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)
www.aeci.co.za
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