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AECI LTD - Final Results for year ended 31 Dec 2012AECI LTD - Final Results for year ended 31 Dec 2012
PR Newswire
London, February 26
AECI Limited
("AECI" or "the Company" or "the Group")
(Incorporated in the Republic of South Africa)
Registration number 1924/002590/06
Tax reference number 9000008608
SHARE CODE: AFE
ISIN NO: ZAE000000220
REVIEWED CONDENSED CONSOLIDATED
FINANCIAL RESULTS AND FINAL CASH DIVIDEND DECLARATION
for the year ended 31 December 2012
COMMENTARY
Performance
The Group's underlying businesses delivered a creditable performance in anextremely challenging trading environment characterised by depressed globaleconomic conditions, particularly in Europe, and protracted strike action inSouth Africa's mining, transport and agricultural sectors. The strikes had anadverse impact in excess of R100 million on the Group's profit from operations.
Revenue increased by 11% to R14 916 million (2011: R13 397 million), largely asa result of the weaker exchange rate and increased selling prices to recoverhigher ammonia and chemical commodity prices. Overall volumes were flat.
Headline earnings declined by 21% to R611 million (2011: R772 million), duemainly to non-cash IFRS charges of R168 million relating to the B-BBEEtransactions concluded early in the year. Profit from operations of R1 341million was up 2% on the R1 316 million achieved in the prior year, the tradingmargin declined to 9,0% (2011: 9,8%), earnings per share were 564 cents (2011:724 cents) and headline earnings per share were 547 cents (2011: 720 cents).
The Board has declared a final cash dividend of 185 cents per ordinary share(2011: 179 cents).
Safety
The Group achieved its best ever safety performance in 2012, with the TotalRecordable Incident Rate ("TRIR") improving to 0,53 (2011: 0,67). The TRIRmeasures the number of incidents per 200 000 hours worked. Safety is a keyperformance indicator for management and it is pleasing that the sustainedefforts in this regard have had such a positive result.
Explosives
AEL Mining Services ("AEL") increased its revenue by 15% to R6 327 million(2011: R5 494 million). Volumes improved by 5%, mainly in markets outside SouthAfrica. Profit from operations declined to R431 million (2011: R510 million).In the first half-year, supply chain constraints in respect of ammonia andplant shutdowns adversely impacted results by R50 million. In the second sixmonths, AEL's results were marred by strikes at customers' sites in the localcoal, gold and platinum sectors. The loss of profits due to these disruptionswas estimated at R62 million. Higher priced ammonium nitrate in Indonesia alsoaffected performance in the second half.
The trading margin declined to 6,8% (2011: 9,3%).
Significant growth was recorded in the coal and open pit mining sectors inSouthern Africa. Strikes in South Africa's underground narrow reef gold andplatinum mines as well as safety-related closures compounded the loss ofrevenue and profit for AEL's regional business.
Good volume and revenue growth were recorded by the African business,especially in West Africa. AEL invested in three additional bulk emulsionexplosives manufacturing plants to improve its supply capacity. The plants arein Burkina Faso, the Democratic Republic of Congo and Egypt and these will becommissioned in 2013.
The international business also grew, with four new contracts secured inIndonesia - three in the coal sector and one in underground gold mining. Supplyto these will commence in 2013.
During September 2012, AECI negotiated the acquisition of a 42% shareholding inan equity partnership with PT Black Bear Resources Indonesia ("BBRI") for US$23million. This three-phased investment, which is subject to certain conditions,will give AEL in-country access to a secure source of ammonium nitrate thatwill assist in sustaining the business' growth in the region. BBRI is currentlyerecting a 60 000 tonne per annum ammonium nitrate facility which is due to becommissioned by mid-2013. It is anticipated that the final phase of theacquisition will be completed by the first quarter of 2014, once the ammoniumnitrate plant achieves name plate capacity.
The Initiating Systems Automated Plant ("ISAP") produced 90 million detonatorsand 24 million automated shock tube assemblies. Production ramp-up in the firstsix months was disappointing and a focused intervention commenced in July torectify problems and enhance efficiencies. The plant is now technicallycomplete and the technology has been proved. Production volumes in the secondhalf were adversely affected by market constraints owing to the mining strikes.Cost savings of R57 million were achieved during the year. The reduction inpersonnel at the conventional plants is underway, having been delayed by theindustrial relations climate prevailing in South Africa. Section 189 noticeswere issued after year-end in terms of the Labour Relations Act, No. 66 of1995.
Capital investment, including BBRI, totalled R409 million (2011: R276 million).R205 million of this was for expansion projects.
Specialty chemicals
The specialty chemicals cluster's revenue increased by 11% to R8 397 million(2011: R7 558 million) due to sustained high chemical commodity prices as theZAR/US$ exchange rate remained weaker in the year. Volumes were marginallynegative largely due to the strike action at customers. Profit from operationswas 7% higher at R944 million (2011: R881 million). As a result of the higherrevenue value of traded commodity products at lower margins, the overalltrading margin declined to 11,2% from 11,7% in 2011.
This was a highly commendable performance in a depressed environment for themining and manufacturing sectors. Particularly good results were achieved byAkulu Marchon, Chemical Initiatives, Industrial Oleochemical Products, LakeInternational Technologies and Nulandis. Senmin again delivered a solid result,notwithstanding the platinum mining industry's difficulties in respect ofstrike action and some product substitution due to high guar prices.
The negative effect of the strikes on the cluster's overall profit from miningchemicals was estimated at R45 million.
The weaker exchange rate had little effect on customers' output as exportopportunities were curtailed by an adverse global economic climate,particularly in the Eurozone.
The acquisition of General Electric's Chemical and Monitoring Solutionsbusiness in Africa and the Indian Ocean Islands was completed at the end ofJune, for a consideration of R167 million. The acquisition has been fullyintegrated into ImproChem and will enhance ImproChem's technology and serviceoffering for water treatment and process chemicals markets. The realisation ofthe benefits are expected from 2013.
AECI also acquired 80% of Afoodable which has been merged into Lake Foods,expanding the company's product and service offering to include liquidmarinades and sauces.
The acquisition of Cellulose Derivatives was approved by the CompetitionTribunal, with conditions, late in the year. This business is a strategicaddition to the mining chemicals portfolio.
After a detailed strategic review AECI sold its 50% interest in Resitec inBrazil to its joint venture partner, the MeadWestvaco Corporation. Althoughinvestment in Brazil remains part of AECI's strategy, the review concluded thatResitec's business model and positioning was unlikely to contributemeaningfully to AECI's strategic objectives in the region. Net proceeds of R108million were received on the disposal and a profit on the sale of theinvestment of R10 million was realised.
Capital expenditure for the cluster totalled R161 million (2011: R150 million),most of which was invested in expansion projects.
Property
Revenue of R400 million (2011: R476 million) from Heartland was comprisedlargely of income from rentals and operation services. Land sales totalled R47million. Operating profit decreased to R34 million (2011: R99 million) anddevelopment expenditure of R66 million (2011: R25 million) was incurred.
Although the South African property development market remains weak overall,demand for land for industrial end uses is improving and sales are expected atModderfontein in 2013.
AECI continues to assess alternative models to accelerate value realisationfrom land surplus to its operational requirements.
Specialty fibres
SANS Technical Fibers ("STF") delivered revenue of R339 million (2011: R333million) and profit from operations declined to R40 million (2011: R53million).
Although performance was tempered by depressed global economic conditions formost of the year, good results were delivered by STF's industrial business andsales to the automotive sector exceeded expectations as the US economy showed alevel of recovery.
STF's results were impacted by high raw material prices and uncompetitivetwo-stage technology. During 2013 new single-stage technology will be installedand this R80 million investment will improve global competitiveness and productdiversity.
STF's results will be reported as part of the specialty chemicals cluster infuture. AECI continues to evaluate this business' long-term strategic fit inthe Group.
Financial
Capital expenditure totalled R557 million for the year (2011: R475 million),with R265 million of this committed to expansion projects at customer sites forexplosives and mining chemicals. Cash was well maintained and gearing decreasedto 32% of shareholders' interest (2011: 36%) despite an increase in workingcapital. Net working capital was 18,0% of revenue (2011: 17,7%) which reflectsthe longer working capital trade cycles in operations outside South Africa.
The higher effective income tax rate of 35% related primarily to thenon-deductibility of the B-BBEE transaction IFRS 2 charges of R168 million andthe effects of tax on higher profits in geographies outside South Africa.
Cash interest cover improved to 8,2 times (2011: 7,7 times). Net interest paiddecreased to R205 million (2011: R226 million) as lower interest rates offsetthe longer working capital trade cycle. No interest was capitalised in the year(2011: R17 million).
Directorate
Fani Titi retired as a Non-executive Director and Chairman of the Board at theAnnual General Meeting in May. He was succeeded as Chairman by SchalkEngelbrecht.
Graham Edwards, Chief Executive, will retire from the Board on 28 February2013. Mark Dytor, who was appointed to the Board in an Executive capacity on 2January 2013, will assume the role of Chief Executive on 1 March 2013.
The Board thanks both Fani and Graham for their dedicated service to theCompany.
Strategic focus and outlook
Management's focus in 2013 will be on improving internal efficiencies,including working capital, and on optimising its operating platforms. At thesame time, AECI will continue to pursue its growth strategy in the rest ofAfrica and further afield.
A number of factors external to the Company could affect its performance in thecoming year. The platinum sector is likely to undergo restructuring. This couldresult in a contraction in South Africa's platinum mining industry which wouldimpact AEL and Senmin. The industrial relations climate in South Africa couldalso be a determinant for AECI's local customers and operations.
Mining volumes in other countries, where Group businesses have an establishedpresence, are expected to increase in line with growth in emerging markets.
Manufacturing growth in South Africa is expected to continue, albeit at a slowpace, owing to the prevailing global and local economic environments.
Schalk Engelbrecht Graham EdwardsChairman Chief ExecutiveWoodmead, Sandton26 February 2013NOTICE TO SHAREHOLDERSFinal ordinary cash dividend No. 158
Notice is hereby given that on Monday, 25 February 2013 the Directors of AECIdeclared a gross final cash dividend of 185 cents per share, in respect of thefinancial year ended 31 December 2012, payable on Monday, 15 April 2013 toordinary shareholders recorded in the books of the Company at the close ofbusiness on Friday, 12 April 2013.
The last day to trade cum dividend will be Friday, 5 April 2013 and shares willcommence trading ex dividend as from Monday, 8 April 2013.
A South African dividend withholding tax of 15% will be applicable to allshareholders who are not either exempt or entitled to a reduction of thewithholding tax rate in terms of a relevant Double Taxation Agreement resultingin a net dividend of 157,25 cents per share to those shareholders who are notexempt. Application forms for exemption or reduction may be obtained from theTransfer Secretaries and must be returned to them on or before Friday, 5 April2013.
The issued share capital at the declaration date is 128 241 140 listed ordinaryshares and 10 117 951 unlisted redeemable convertible B ordinary shares. Thedividend has been declared from the income reserves of the Company. NoSecondary Tax on Companies' credits are available to be used.
Any change of address or dividend instruction must be received on or beforeFriday, 5 April 2013.
Share certificates may not be dematerialised or rematerialised from Monday, 8April 2013 to Friday, 12 April 2013, both days inclusive.
By order of the BoardEN RapooCompany SecretaryWoodmead, Sandton26 February 2013Directors: S Engelbrecht (Chairman), GN Edwards (Chief Executive)+, RMW Dunne*,MA Dytor†, Z Fuphe,
KM Kathan (Financial Director)†, MJ Leeming, LL Mda, AJ Morgan, LM Nyhonyha, RRamashia.
+Executive *BritishCompany Secretary: EN RapooTransfer SecretariesComputershare Investor Services Computershare Investor Services plcProprietary Limited70 Marshall Street PO Box 82Johannesburg The Pavilions2001 Bridgwater Road Bristol BS 99 7NH EnglandRegistered Office:1st floor, AECI Place24 The WoodlandsWoodlands DriveWoodmeadSandtonSponsor:Rand Merchant Bank (A division of FirstRand Bank Limited)
Income statement %R millions change 2012 2011Revenue (2) +11 14 916 13 397Net operating costs (13 575) (12 081)Profit from operations +2 1 341 1 316 CST share-based payment (3) (138) -Net income from pension fund employersurplus accounts 8 29Net (loss)/income from plan assets forpost-retirement medical aid liabilities (6) 5 1 205 1 350Interest expense (4) (262) (234)Interest received 40 27 Share of profit of associate companies * 1 Profit before tax 983 1 144Income tax expense (5) (345) (306)Profit for the year 638 838 Profit for the year attributable to: - ordinary shareholders 630 777- preference shareholders 2 2- non-controlling interest 6 59 638 838 Headline earnings are derived from:Profit attributable to ordinary 630 777shareholdersImpairment of goodwill 9 -Impairment of property, plant and 3 -equipmentProfit on disposal of businesses, jointventures andsubsidiaries (15) (1)Profit on disposal of property, plantand equipment (18) (7)Tax effects of the above items 2 3 Headline earnings 611 772Per ordinary share (cents):Headline earnings -24 547 720Diluted headline earnings 521 719Basic earnings -22 564 724Diluted basic earnings 537 723Dividends declared +3 185 179Dividends paid 257 213*Nominal amountSTATEMENT OF COMPREHENSIVE INCOME
R millions 2012 2011Profit for the year 638 838Other comprehensive income net of tax:Foreign currency translation differences net of 41 182deferred taxTotal comprehensive income for the year 679 1 020Total comprehensive income attributable to: - ordinary shareholders 672 954- preference shareholders 2 2- non-controlling interest 5 64 679 1 020STATEMENT OF CHANGES IN EQUITY
R millions 2012 2011Total comprehensive income for the year 679 1 020Dividends paid (297) (237)Acquisition of subsidiary 1 (37)Issue of ordinary shares: - at par value (3) 4 -- at market value (6) 393 - Net effect of acquisition of non-controlling (393) -interest to equity (6)Share-based payment reserve 30 -Transfer to retained earnings for CST share-based 138 -paymentEquity at the beginning of the year 5 214 4 468Equity at the end of the year 5 769 5 214 Made up as follows:Ordinary share capital 116 107Share premium (6) 496 108Reserves 406 344 Property revaluation surplus 237 237Foreign currency translation reserve 143 101 Share-based payment reserve 30 -Other (4) 6Retained earnings (6) 4 697 4 439Preference share capital 6 6Non-controlling interest (6) 48 210 5 769 5 214ORDINARY SHARES IN ISSUEMillions 2012 2011Listed ordinary sharesAt the beginning of the year 119,1 119,1 Issued during the period for CST and KTH 9,1 -transactions (3) (6)At the end of the year 128,2 119,1Treasury shares held by subsidiary company (11,9) (11,9) 116,3 107,2Unlisted redeemable convertible ordinary sharesAt the beginning of the year - -Issued during the period for EST transaction (3) 10,1 -At the end of the year 10,1 -Treasury shares held by consolidated EST (3) (10,1) - - -Ordinary shares in issue 116,3 107,2RECONCILIATION OF WEIGHTED AVERAGE NUMBER OF SHARES
Millions 2012 2011Weighted average number of ordinary shares at the 119,1 119,1beginning of the year
Weighted average number of ordinary shares issued 17,4 -during the yearWeighted average number of ordinary shares held by (9,0) -consolidated ESTWeighted average number of contingently returnableordinary sharesheld by CST (3,9) -Weighted average number of shares held by (11,9) (11,9)consolidated subsidiaryWeighted average number of ordinary shares for 111,7 107,2basic earnings per share
Dilutive adjustment for potential ordinary shares 5,6 -Dilutive adjustment for share options under theAECI share optionscheme(7) 0,1 0,2Weighted average number of ordinary shares fordiluted earningsper share 117,4 107,4STATEMENT OF FINANCIAL POSITION
R millions 2012 2011AssetsNon-current assets 6 314 6 024 Property, plant and equipment 3 733 3 721 Investment property 445 436Intangible assets 214 77Goodwill 1 124 1 078 Pension fund employer surplus accounts 267 259 Investments 86 22Loans receivable 11 24Deferred tax 434 407Current assets 6 752 6 433Inventories 2 867 2 584Accounts receivable 2 737 2 772 Assets classified as held for sale - 16 Cash 1 148 1 061Total assets 13 066 12 457Equity and liabilities Ordinary capital and reserves 5 715 4 998 Non-controlling interest 48 210Preference share capital 6 6Total equity 5 769 5 214Non-current liabilities 2 488 2 702Deferred tax 232 179Non-current borrowings 1 251 1 507Non-current provisions 1 005 1 016Current liabilities 4 809 4 541Accounts payable 2 912 2 987Current borrowings 1 738 1 421Tax payable 159 133Total equity and liabilities 13 066 12 457STATEMENT OF CASH FLOWS
R millions 2012 2011Cash generated by operations 1 867 1 883 Interest paid (245) (253)Interest received 40 27Income tax paid (308) (319)Changes in working capital (326) (598) Expenditure relating to non-current provisions (98) (78)Cash available from operating activities 930 662Dividends paid (297) (237)Cash flows from operating activities 633 425Cash flows from investing activities (645) (615) Net investment expenditure (144) (173)Net capital expenditure (501) (442)Net cash utilised (12) (190) Cash flows from financing activities 75 424 Non-current loans receivable 14 (3)Borrowings 61 427Increase in cash 63 234 Cash at the beginning of the year 1 061 732 Translation gain on cash 24 95Cash at the end of the year 1 148 1 061OTHER SALIENT FEATURESR millions 2012 2011Capital expenditure(4) 557 475- expansion 265 182- replacement 292 293Capital commitments 225 360- contracted for 73 116- not contracted for 152 244 Future rentals on property, plant and equipment 178 173 leased- payable within one year 58 43- payable thereafter 120 130Net borrowings 1 841 1 867Gearing (%)* 32 36 Current assets to current liabilities 1,4 1,4Net asset value per ordinary share (cents) 4 912 4 660Depreciation and amortisation 475 395ZAR/US$ closing exchange rate (rand) 8,49 8,15ZAR/US$ average exchange rate (rand) 8,20 7,25Per ordinary share (cents)(excluding B-BBEE transactions): - headline earnings 697 720- diluted headline earnings 664 719* Borrowings less cash as a percentage of total equity.
INDUSTRY SEGMENT ANALYSIS Revenue Profit from Net assets operationsR millions 2012 2011 2012 2011 2012 2011Explosives 6 327 5 494 431 510 2 837 2 569Specialty 8 397 7 558 944 881 4 470 4 048chemicalsProperty 400 476 34 99 808 762Specialty 339 333 40 53 187 175fibres (USA)Group services (547) (464) (78) (227) (94) 143andinter-segmentEST (30) -share-basedpayment (3) 14 916 13 397 1 341 1 316 8 208 7 697Net assets consist of property, plant, equipment, investment property,intangible assets, goodwill, inventory, accounts receivable and assetsclassified as held for sale less accounts payable.
Notes
(1) Basis of preparation and accounting policies: The reviewed condensedconsolidated financial results are prepared in accordance with the recognitionand measurement requirements of International Financial Reporting Standards("IFRS"), the presentation and disclosure requirements of IAS 34 - InterimFinancial Reporting, the AC500 series issued by the Accounting Practices Board,the Listings Requirements of the JSE Limited and the requirements of theCompanies Act of South Africa, No. 71 of 2008, as amended. Accounting policieshave been applied consistently by all entities in the Group and are consistentwith those applied in the previous financial year. The preparation of thesereviewed condensed consolidated financial results for the year ended 31December 2012 was supervised by the Financial Director, Mr KM Kathan CA(SA) AMP(Harvard). The condensed consolidated financial results have been reviewed bythe Company's auditors, KPMG, who have issued an unqualified review opinion. Acopy of the review opinion is obtainable from AECI's registered office.
(2) Includes foreign and export revenue of R4 527 million (2011: R3 859million).
(3) Share-based payments
CST share-based payment: The 3,5% AECI Community Education and DevelopmentTrust ("CST") transaction became effective on 13 February 2012. The CSTsubscribed for 4 426 604 ordinary shares at par value in the Company. Theshares vested immediately and a share-based payment expense of R138 million wasrecognised in full in the income statement.
These shares are contingently returnable and, as a result, are excluded fromEPS and HEPS.
EST share-based payment: The 8% AECI Employees Share Trust ("EST") transactiontook effect on 9 February 2012, with the EST subscribing for 10 117 951unlisted B ordinary shares of the Company. The dividend payable on these sharesmay not exceed that for ordinary shares. Employees of the Group were allocated7 569 669 of these shares with a grant date of 30 April 2012. The total cost isestimated at R143 million of which R30 million was recognised in the incomestatement in the year ended 31 December 2012. The remainder of the expense willbe recognised in future periods over the respective vesting periods.
(4) No interest was capitalised in the year (2011: R17 million).
(5) The higher effective income tax rate of 35% related primarily to thenon-deductibility of the B-BBEE transaction IFRS 2 charges of R168 million andthe effects of tax on higher profits in geographies outside South Africa.
(6) The Kagiso Tiso Holdings Proprietary Limited (RF) ("KTH") transaction tookeffect on 18 January 2012 and involved the purchase by AECI of the 25,1%interest held in AEL Holdco Limited by a KTH-led consortium in exchange for 4678 667 ordinary shares in AECI. The transaction is recognised as a change inownership interest in terms of IAS 27 and the carrying amounts of controllingand non-controlling interests have been adjusted. The transaction has beenmeasured at the fair value of the consideration paid and is based on theclosing price of R83,98 of the Company's shares on 17 January 2012. The sharesissued have been recognised in equity, with R5 million allocated to sharecapital and R388 million allocated to share premium. The non-controllinginterest has been reduced by the carrying amount of R172 million, with thebalance of R221 million recognised directly in retained earnings.
(7) Calculated in accordance with IAS 33. The Company has purchased calloptions over AECI shares which will obviate the need for the Company to issuenew shares in terms of the AECI share option scheme. In practice, therefore,there will be no future dilution.
(8) The reviewed condensed consolidated financial statements do not include allof the disclosures required for full annual financial statements and should beread in conjunction with the consolidated annual financial statements for theyear ended 31 December 2011.
(9) The preparation of the financial statements requires management to makejudgements, estimates and assumptions that affect the application of policiesand reported amounts of assets and liabilities, income and expenses. Theestimates and associated assumptions are based on historical experience andvarious other factors that are believed to be reasonable under thecircumstances, the results of which form the basis of making the judgementsabout carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates.