Last checked at 21 Feb 2012 07:00
AECI LIMITED
(Incorporated in the Republic of South Africa)
Registration No. 1924/002590/06)
Share code: AFEISIN No.: ZAE000000220("AECI" or "the Company")
REVIEWED CONDENSED CONSOLIDATED FINANCIAL RESULTS AND DECLARATION OF FINAL CASH DIVIDEND FOR THE YEAR ENDED 31 DECEMBER 2011
- HEPS up 25% to 720c
- Profit from operations up 24% to R1 315m
- Final cash dividend up 33% to 179cps
- R2bn capital phase of strategic investment programme complete
- B-BBEE transactions concluded
Commentary
Performance
The Group delivered excellent results in a challenging trading environment characterised by currency and commodity volatility, labour strikes and heavy rainfall which impacted open cast mining operations in some geographies.
Revenue grew by 16% to R13 397 million (2010: R11 569 million). Volumes showed good growth of 7% while the weaker rand against the US dollar and rising chemical prices in the fourth quarter assisted in this revenue growth. Headline earnings of R772 million were 25% higher (2010: R619 million) and profit from operations recorded a 24% increase to R1 315 million (2010: R1 062 million). The trading margin improved to 9,8% (2010: 9,2%).
The Board has declared a final cash dividend of 179 cents per ordinary share (2010: 135 cents).
Safety
Tragically, an accident in August at the Group's joint venture business, Resitec, in Brazil, resulted in a fatality. It is disappointing that the Total Recordable Incident Rate (TRIR) weakened to 0,70 (2010: 0,60). The TRIR measures the number of incidents per 200 000 hours worked. Our target remains no injury to anyone, ever, and safety continues to be a key performance indicator for management.
Explosives
AEL Mining Services ("AEL") increased its revenue by 14% to R5 494 million (2010: R4 832 million) on the back of higher ammonia prices, volume growth of 1,2% and the weaker ZAR/US$ exchange rate in the last three months of 2011. Profit from operations was 35% higher at R510 million (2010: R378 million), with a trading profit to revenue ratio of 9,3% (2010: 7,8%).
In the Southern African business, narrow reef markets for gold and platinum declined but growth was recorded in the coal and open pit mining sectors. In the declining narrow reef sector, market share changes due to ammonia shortages subsequent to a supplier force majeure and nitrate plant interruptions resulted in a 3% reduction in South African volumes.
Pleasing growth was achieved in Africa, primarily in West Africa's gold mining sector. The business in Central Africa grew steadily as a result of good demand for copper. The performance in East Africa, where some market share was lost, was less buoyant.
AEL's international business maintained its growth trend as new contracts were secured in Indonesia. Notwithstanding the disruption to coal mining in the region by heavy rainfall in the first and fourth quarters, solid volume growth continued. There was also a further increase in sales to Europe and South America, through AEL's channel partners.
Output of shock tube from the Initiating Systems Automation Plant (ISAP) ramped up from 60 million detonators in 2010 to 90 million in 2011. The capital expenditure component of the ISAP project was concluded. Ramp-up to ISAP's full capacity and closure of conventional plants will be completed in 2012. This is expected to deliver future annualised costs savings in excess of R100 million.
Of the R277 million capital expenditure for the year (2010: R344 million), R51 million was spent on ISAP. The balance was invested in further expansion in Indonesia and for smaller capital replacement projects in Africa and South Africa.
Specialty chemicals
The specialty chemicals cluster's revenue increased by 17% to R7 558 million (2010: R6 453 million), due to volume growth of 10,9% and increases in commodity prices as the ZAR/US$ exchange rate weakened in the last quarter of 2011. Volume growth came mainly from high demand for sulphur from the copper mining sector in Africa. Profit from operations improved by 8,6% to R881 million (2010: R811 million). As a result of the higher revenue value of sulphur at lower margins, the overall trading margin declined to 11,7% (2010: 12,6%).
Excellent performances were delivered by Chemical Initiatives, Industrial Oleochemical Products, ImproChem, Lake International Technologies ("Lake") and Resitec. Senmin delivered a solid result notwithstanding the effects of the strong rand for most of the year, margin pressures and some raw material supply chain issues.
The cluster's capital expenditure totalled R150 million (2010: R241 million), most of which was invested in Senmin's operations. The new xanthates dryer was installed and is being ramped up. The strategic capital programme is complete.
Local acquisitions for a total consideration of R174 million were concluded. The business of T&C Chemicals was integrated into ImproChem and Chemisphere; Qwemico Distributors was consolidated with Nulandis (formerly Plaaskem); and Croxton Chemicals was merged into Crest Chemicals. Lake now owns 100% of Cobito, its subsidiary which operates in the food and beverage sector. Chemfit acquired Instavet Import and Export.
ImproChem concluded a strategically advantageous distribution agreement with GE Betz, a global leader in its field, to supply water treatment products and process technologies in African markets.
Property
Heartland's operating profit increased by 50% to R99 million (2010: R66 million), with the leasing business continuing to be the primary contributor. Six property sales were achieved. These included Longlake Extension 1 as an undivided share transaction where costs, risks and rewards will be shared with a partner. Cash development expenditure of R25 million was incurred in the year.
The South African property market continued to lag the recovery of the overall economy. This environment is not expected to improve in the medium term and makes it challenging for AECI to realise appropriate value from its property holdings. Alternative models to facilitate the release of value from land surplus to operational requirements continue to be sought and assessed.
Specialty fibres
SANS Technical Fibers (STF), in the USA, increased its revenue by 13% to R333 million (2010: R294 million) owing to higher demand from the global automotive sector and higher raw material prices. Overall sales volumes grew by 1%, with the North American market softening in the second six months.
Profit from operations increased by 61% to R53m (2010: R33 million) and the trading margin improved to 15,9% (2010: 11,2%) as a result of good cost control, changes in the sales mix and higher demand.
AECI continues to evaluate STF's strategic fit in the Group.
Finance
Gearing reduced to 36% of shareholders' interest (2010: 40%) as the investment phase of the Group's strategic capital expenditure programme was concluded. Capital of R475 million (2010: R633 million) was spent predominantly on the completion of Senmin's polyacrylamide plant and the xanthates dryer, ISAP and the deployment of plant and equipment at customer sites in South Africa and the rest of Africa.
Net working capital was at 17,7% of revenue (2010: 15%) and was impacted by longer working capital trade cycles in operations outside South Africa, increased commodity prices exacerbated by the weaker rand, acquisitions, and Group businesses taking control of certain raw material supply chains to secure continuous supply.
Cash interest cover improved to 7,7 times (2010: 5,6 times). Net interest paid, before capitalising borrowing costs of R17 million (2010: R93 million), decreased to R226 million (2010: R247 million) as a result of sustained lower interest rates which offset the longer working capital trade cycle.
B-BBEE transactions
In December 2011 and January 2012, AECI shareholders approved both the B-BBEE transactions proposed by the Company:
- the acquisition of the KTH consortium's shareholding in AEL in exchange for new ordinary shares in the Company; and
- the issue of new shares to facilitate the establishment of the AECI Employees Share Trust and the AECI Community Education and Development Trust.
Outlook and strategic focus
The restructuring of the Group over the past two years has repositioned its cost base. While manufacturing and mining production appear to be recovering, recent volatility suggests that the recovery remains fragile. However, AECI is confident in its ability to respond appropriately.
Management's focus for 2012 will be on:
- completing the ISAP ramp-up and continuing AEL's expansion in markets beyond South Africa, particularly the rest of Africa, Asia Pacific and South America;
- actively pursuing opportunities for the expansion of the specialty chemicals cluster into other geographies; and
- continuing to pursue the realisation of value from the property portfolio, with current or new business models.
Fani Titi Graham EdwardsChairman Chief ExecutiveWoodmead, Sandton20 February 2012Directors: F Titi (Chairman), GN Edwards(Chief Executive)**, RMW Dunne*, S Engelbrecht,Z Fuphe, KM Kathan (Financial Director)**, MJ Leeming, LL Mda,AJ Morgan, LM Nyhonyha, R Ramashia.**Executive*BritishCompany Secretary: EN RapooIncome statement % 2011 2010 change R millions R millions Revenue(2) +16 13 397 11 569 Net operating costs (12 082) (10 507) Profit from operations +24 1 315 1 062
Net income/(loss) from Pension Fund 29 (6)employer surplus accounts Net income/(loss) from plan assets for 5 (5)post-retirement medical aid liabilities
1 349 1 051 Interest expense(3) (234) (173) Interest received 27 21
Share of profit of associate companies 1 2
1 143 901 Impairment of goodwill - (28)
Impairments of property, plant and - (4)equipment Profit on disposal of subsidiary 1 - Profit on acquisition of subsidiary - 4
Profit before tax 1 144 873 Income tax expense (306) (233) Profit for the year 838 640
Profit for the year attributable to:
-ordinary shareholders 777 600 -preference shareholders 2 2 -non-controlling interest 59 38 838 640
Headline earnings are derived from: Profit attributable to ordinary 777 600shareholders Impairment of goodwill - 28 Impairments of property, plant and - 4equipment (Profit)/loss on disposal of subsdiaries (1) 20 Profit on acquisition of subsidiary - (4) Profit on disposal of property, plant and (7) (5)equipment Profit on disposal of associates and - (22)investments Tax effects of the above items 3 2 Non-controlling interest effect of the - (4)
above items Headline earnings 772 619 Per ordinary share (cents): Headline earnings +25 720 577 Diluted headline earnings(4) 719 575 Basic earnings +30 724 559 Diluted basic earnings(4) 723 558 Dividends declared +25 257 205 Dividends paid 213 132 Ordinary shares (millions)(5) -in issue 107,3 107,3
-weighted average number of shares 107,3 107,3 -diluted weighted average number of shares 107,4 107,6(4) Statement of comprehensive income
2011 2010 R millions R millions Profit for the year 838 640
Other comprehensive income net of tax: Foreign currency translation differences net of 182 (84)deferred tax Total comprehensive income for the year 1 020 556 Total comprehensive income attributable to:
-ordinary shareholders 955 516 -preference shareholders 2 2 -non-controlling interest 63 38 1 020 556
Statement of financial position
2011 2010 R millions R millions Assets Non-current assets 5 992 5 667
Property, plant and equipment 3 721 3 564
Investment property 436 440 Goodwill and intangibles 1 155 1 035
Pension Fund employer surplus accounts 258 230
Investments 22 20 Loan receivables 24 22 Deferred tax 376 356 Current assets 6 433 4 647 Inventories 2 584 1 892 Accounts receivable 2 772 2 023
Assets classified as held for sale 16 -
Cash and cash equivalents 1 061 732 Total assets 12 425 10 314 Equity and liabilities
Ordinary capital and reserves 4 998 4 314
Non-controlling interest 210 148 Preference share capital 6 6
Total shareholders' interest 5 214 4 468
Non-current liabilities 2 671 2 200 Deferred tax 148 121 Non-current borrowings 1 507 1 133 Non-current provisions 1 016 946 Current liabilities 4 540 3 646 Accounts payable 2 986 2 176 Current borrowings 1 421 1 368 Tax payable 133 102
Total equity and liabilities 12 425 10 314
Statement of cash flows 2011 2010 R millions R millions
Cash generated by operations 1 883 1 654
Dividends received - 2 Interest paid (253) (268) Interest received 27 21 Income tax paid (319) (209) Changes in working capital (597) *
Expenditure relating to non-current provisions (78) (37) Expenditure relating to retrenchments and - (33)restructuring Cash available from operating activities 663 1 130 Dividends paid (237) (146) Cash retained from operating activities 426 984 Cash utilised in investment activities (615) (581) Proceeds from disposal of investments and - 35
businesses Investments (173) (7) Net capital expenditure (442) (609) Net cash (utilised)/generated (189) 403
Cash effects of financing activities 423 (299)
Non-current loans receivable (3) 11 Borrowings 426 (310)
Increase in cash and cash equivalents 234 104 Cash and cash equivalents at the beginning of the 732 668year Translation gain/(loss) on cash and cash 95 (40)equivalents Cash and cash equivalents at the end of the year 1 061 732 *nominal amount Statement of changes in equity
2011 2010 R millions R millions
Total comprehensive income for the year 1 020 556
Dividends paid (237) (146) Acquisition of subsidiary (37) -
Equity at the beginning of the year 4 468 4 058 Equity at the end of the year 5 214 4 468
Made up as follows: Ordinary share capital 107 107 Share premium 108 108 Reserves 344 164
Property revaluation surplus 237 237 Foreign currency translation reserve net of 99 (81)
deferred tax Other 8 8 Retained earnings 4 439 3 935 Preference share capital 6 6 Non-controlling interest 210 148 5 214 4 468Other salient features 2011 2010 R millions R millions Capital expenditure 475 633 -expansion 182 397 -replacement 293 236 Capital commitments 360 88 -contracted for 116 49 -not contracted for 244 39
Future rentals on property, plant and equipment 173 196
leased -payable within one year 43 96 -payable thereafter 130 100 Contingent liabilities - 87 Net borrowings 1 867 1 769 Gearing (%) 36 40
Current assets to current liabilities 1,4 1,3 Net asset value per ordinary share (cents) 4 660 4 022 Depreciation - continuing operations 395 332 Rand/US$ closing exchange rate (rand) 8,15 6,65 Rand/US$ average exchange rate (rand) 7,25 7,32Industry segment analysis
Revenue Profit from Net assets operations 2011 2010 2011 2010 2011 2010 R millions R millions R millions Explosives 5 494 4 832 510 378 2 569 2 294 Specialty chemicals 7 558 6 453 881 811 4 049 3 717 Property 476 370 99 66 762 726 Specialty fibres 333 294 53 33 175 143 Group services and (464) (380) (228) (226) 143 (102)intersegment 13 397 11 569 1 315 1 062 7 698 6 778
Net assets consist of property, plant, equipment, investment property, goodwill and intangibles, inventory, accounts receivable, assets classified as held for sale less accounts payable.
Notes
(1)Basis of preparation and accounting policies
The reviewed 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. 71. of 2008. Accounting policies have been applied consistently by all entities in the Group and are consistent with those applied in the previous financial year. The preparation of these reviewed condensed consolidated financial results for the year ended 31 December 2011 was supervised by the Financial Director, Mr KM Kathan CA(SA).
(2)Includes foreign and export revenue of R 3 859 million (2010: R 3 111 million).
(3)Interest capitalised in the period amounting to R17 million (2010: R93 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 11 884 669 (2010: 11 884 669) treasury shares held by a subsidiary company.
(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 reviewed 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 2010.
(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.
DIVIDEND NOTICECash dividend declarationNotice to shareholders
Final ordinary cash dividend no.156
Notice is hereby given that on Monday, 20 February 2012 the Directors of AECI declared a final cash dividend of 179 cents per share, in respect of the financial year ended 31 December 2011, payable on Monday, 16 April 2012 to ordinary shareholders recorded in the books of the Company at the close of business on Friday, 13 April 2012.
The last day to trade cum dividend will be Wednesday, 4 April 2012 and shares will commence trading ex dividend as from Thursday, 5 April 2012.
Any change of address or dividend instruction must be received on or before Wednesday, 4 April 2012.
Share certificates may not be dematerialised or rematerialised from Thursday, 5 April 2012 to Friday, 13 April 2012, both days inclusive.
This announcement will be distributed to all recorded shareholders on or aboutTuesday, 21 February 2012.By order of the BoardEN RapooCompany SecretaryWoodmead, Sandton20 February 2012Transfer 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)
www.aeci.co.za