Aeci 5 1/2% Prf Regulatory News (87FZ)

21 Feb 2006 10:01

AECI LimitedIncorporated in the Republic of South Africa(Registration No. 1924/002590/06)Share code AFEISIN No. ZAE000000220specialty product and service solutionsgroup audited financial results for the year ended 31 December 2005¢â‚¬¢ Headline earnings per share up 23%¢â‚¬¢ Dividend per share increased to 175 cents¢â‚¬¢ Revenue up 11%¢â‚¬¢ Return on invested capital (ROIC) higher at 18%CommentaryPerformanceHeadline earnings of 482 cents per ordinary share were 23 per cent higher thanin 2004. Restructuring costs equivalent to 15 cents per share were incurredcompared to 27 cents per share in 2004. An increased final dividend of 121cents per ordinary share has been declared (94 cents in 2004) to bring thetotal dividends for the year to 175 cents (138 cents in 2004) with a dividendcover of 2.7 (2.8 in 2004). The dividend declaration is published in fullelsewhere.Sales revenues of Group businesses increased by 11 per cent from 2004,bolstered in part by additions to the Chemical Services (Chemserve) portfolio.Revenue-weighted volume was some 2 per cent higher in aggregate. Demand fromthe local mining and manufacturing sectors continued to improve from the secondquarter in response to strong export markets and a somewhat weaker randexchange rate against the US dollar. Gross margins were largely maintaineddespite the effect of high oil prices on many raw material costs. The ongoingcontainment of operating costs enabled a further increase in the overalltrading margin to 10.1 per cent of sales from 9.4 per cent in 2004. The returnon invested capital (ROIC) for the Group, excluding revaluation of land, washigher at 18 per cent (16 per cent in 2004).In African Explosives (AEL), an outstanding performance by operations elsewherein Africa more than offset the effects of a continuing decline in gold miningactivity in South Africa. Local margins were pressured by the lagged recoveryof steep increases in ammonia costs. State-subsidised initiators from Chinacontinued to have a limited volume impact on some sectors of the South Africaninitiating systems market during the year, but contributed to extremeresistance to price adjustments by some gold mining customers. Commissioning ofthe first phase of automated production of initiating systems at Modderfonteinis expected in the first half of 2006.DetNet, the 50:50 joint venture with Dyno Nobel ASA, recorded an improvedresult for the period with accelerating international sales of the newgeneration electronic detonator in the second half of the year.Chemserve again experienced varied trading conditions with buoyant growth indemand from suppliers to local markets outpacing that from export-dependentsectors. Highlights included a remarkable turnaround in automotive coatingsfollowing restructuring and new alliances with strong technology partners, anoutstanding performance by the polyurethanes business, and a pleasingcontribution from Chemiphos, the food-grade phosphate business acquired in May2005. Restructuring costs of R15 million were incurred in the period. Thebenefits of these and other actions are expected to enhance further theperformance of the specialty chemicals portfolio in 2006.SANS Fibres delivered a much improved result for the year with higher marginson US dollar based sales to international markets supported by the disciplinedcontainment of local manufacturing costs. Customer accreditation of newproducts such as airbag yarns has proved a longer process than envisaged, andsignificant sales of such products are not expected before 2007. The outlookfor sales volumes and margins of existing products to international markets ispositive. However, SANS' performance will continue to be sensitive to thisdollar based business until the programme of initiatives to reduce thisexposure is further advanced.Dulux again achieved excellent results in South Africa from significantlyhigher sales volumes of its premium branded products, despite the impact ofescalating raw material costs on margins. Profits from its export and Africanoperations were lower due to currency effects and unfavourable marketconditions.The property activities of Heartland delivered impressive profits and cash flowin supportive market conditions. Further substantial sales of land forresidential, commercial and light industrial use were recorded atModderfontein, Somerset West and Umbogintwini.FinancialProfit from operations included restructuring costs of R23 million (R42 millionin 2004), a R40 million top-up of the post-employment medical aid provision andan additional R28 million provision for environmental remediation.Mark-to-market adjustments related to interest rate hedging instruments werenot material in the year. Taxation included a R11 million deferred tax chargeconsequent upon the reduction in the rate of corporate tax to 29 per cent.The increase in net profit attributable to outside shareholders reflected the25.1 per cent interest of the empowerment consortium led by the Tiso Group inthe Group's explosives business for a full year as opposed to six months in2004.Net capital expenditure of R339 million during the year was R127 million higherthan the depreciation charge. The investments comprised mainly expansionprojects in AEL and Chemserve, which company in addition acquired fivebusinesses to the value of R207 million. Group working capital increased to R1373 million and 15.6 per cent of sales from 12 per cent of sales in 2004, adeterioration which will be the focus of management attention in 2006.The Group's net borrowings of R798 million were R183 million higher than atDecember 2004 with property activities contributing net cash flow of R270million in the year. Cash interest cover improved further to 12 times whilegearing increased to 27 per cent of shareholder funds from 23 per cent atDecember 2004.In late 2005 the Company purchased call options over 2.95 million AECI ordinaryshares from a local bank for a total cash premium of R120 million. This willobviate the need for the Company to issue new shares when participants in theAECI share option scheme exercise their rights in terms of the scheme, andhence will eliminate any future dilution of earnings per share from thissource. No repurchases of shares were undertaken in the year.PortfolioThe empowerment transaction involving the sale of a 25.1 per cent equityinterest in ImproChem, a Chemserve business, to the Tiso Group became effectivein September 2005. Chemserve also completed the acquisition of J E Orlick andAssociates in October 2005 and announced the acquisition of Leochem, a producerof personal care intermediates, for a consideration of R100 million. Thistransaction will take effect in March 2006.The packaging coatings business has been included in the specialty chemicalssegment of the portfolio, and the site services business at Umbogintwini isreported under property instead of Group services. Comparative figures for 2004have been restated.OutlookThe prevailing environment of GDP growth, firm commodity prices and randexchange rate accompanied by low inflation and interest rates is not expectedto change materially in the year ahead, and the Group's portfolio of businessesis well positioned to benefit in these conditions. The extent of land availablefor sale during 2006 will be lower than in 2005.Nonetheless, provided the rand exchange rate does not strengthen substantiallyfrom the 2005 average, management is again targeting an increase in headlineearnings for the full financial year.Alan Pedder CBE Schalk Engelbrecht Chairman Chief executive Sandton20 February 2006Income statement % 2005 2004 change R millions R millions Revenue (2) +11 8 768 7 911 Profit from operations +19 887 743 Net financing costs (90) (139) Income from associates and 5 3investments 802 607 Transitional provision for (20) (20)post-employment medical aid benefits (3) Impairment/amortisation of goodwill (10) (104) Exceptional items (27) (23) Net profit before taxation 745 460 Taxation (225) (173) Normal activities (232) (167) Exceptional items 7 (6) Net profit 520 287 Attributable to preference and (34) (4)outside shareholders Net profit attributable to ordinary 486 283shareholders Headline earnings are derived from: Net profit attributable to ordinary 486 283shareholders Transitional provision for 20 20post-employment medical aid benefits (3) Impairment/amortisation of goodwill 10 104 Exceptional items 27 23 Outside shareholders' share of the - (3)above items Tax effects of the above items (13) - Headline earnings 530 427 Per ordinary share (cents): Headline earnings +23 482 392 Diluted headline earnings (4) 473 383 Attributable earnings 442 260 Diluted attributable earnings (4) 434 254 Dividends declared +27 175 138 Dividends paid 148 122 Ordinary shares (millions) - in issue 110 109 - weighted average number of shares 110 109 - diluted weighted average number of 112 111shares (4) Notes 1. Accounting policies are in accordance with International Financial Reporting Standards and are consistent with those applied in the previous financial year except for the adoption of IFRS 2 (Share-based payments) and IFRS 3 (Business combinations), IAS 16 (Property, plant and equipment), IAS 36 (Impairment of assets) and IAS 38 (Intangible assets). With the adoption of IFRS 3, the amortisation of goodwill has ceased with effect from the current financial year. The adoption of the other standards has not had a material impact on the Group's financial results. 2. Includes foreign sales of R1 817 million (2004 - R1 506 million). 3. The transitional provision for post-employment medical aid benefits has been excluded from the calculation of headline earnings in terms of circular 7/2002 issued by the South African Institute of Chartered Accountants. (4) 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 of earnings from this source. 5. The auditors, KPMG Inc, have issued their opinion on the Group financial statements for the year ended 31 December 2005. A copy of the auditors' unqualified report is available for inspection at the Company's registered office. Balance sheetat 31 December 2005 2004 R millions R millions Assets Non-current assets 3 056 2 917 Property, plant and equipment 1 723 1 659 Goodwill 920 822 Investments 91 76 Deferred tax assets 322 360 Current assets 3 559 2 960 Inventory 1 372 1 160 Accounts receivable 1 778 1 420 Cash and cash equivalents 409 380 Total assets 6 615 5 877 Equity and liabilities Ordinary capital and reserves 2 857 2 605 Preference capital and outside shareholders' interest in subsidiaries 83 41 Total shareholders' interest 2 940 2 646 Non-current liabilities 1 132 1 422 Deferred tax liabilities 31 33 Long-term borrowings 559 899 Long-term provisions 542 490 Current liabilities 2 543 1 809 Accounts payable 1 777 1 632 Short-term borrowings 648 96 Taxation 118 81 Total equity and liabilities 6 615 5 877Industry segment analysis Revenue Profit from operations 2005 2004 2005 2004 R millions R millions Mining solutions 2 314 2 140 257 212 Specialty chemicals 3 826 3 363 412 388 Specialty fibres 1 619 1 595 32 3 Decorative coatings 648 610 59 51 Property 607 467 185 137 Group services, intergroup and other (246) (264) (58) (48) 8 768 7 911 887 743 Assets 2005 2004 R millions Mining solutions 963 842 Specialty chemicals 1 931 1 463 Specialty fibres 713 661 Decorative coatings 126 118 Property 500 531 Group services, intergroup and other (217) (186) 4 016 3 429Assets consist of property, plant, equipment and goodwill, inventory, accountsreceivable less accounts payable. Assets in the property segment include landrevaluation of R412 million (2004 - R432 million).Cash flow statement 2005 2004 R millions R millions Cash generated by operations 1 165 964 Dividends received 4 2 Net financing costs (90) (126) Taxes paid (129) (128) Changes in working capital (295) 113 Expenditure relating to long-term provisions (42) (57)and restructuring Cash available from operating activities 613 768 Dividends paid (167) (135) Cash retained from operating activities 446 633 Cash utilised in investment activities (530) (233) Proceeds from disposal of investments and 27 58businesses Investments (218) (22) Net capital expenditure (339) (269) Net cash (utilised)/generated (84) 400 Cash effects of financing activities 212 (485) Share options hedge (4) (120) - Proceeds from issue of new ordinary shares 8 8 Increase/(decrease) in cash and cash 16 (77)equivalents Cash and cash equivalents at the beginning of 380 474the year Translation gain/(loss) on cash and cash 13 (17)equivalents Cash and cash equivalents at the end of the 409 380year Statement of changes in equity 2005 2004 R millions R millions Net profit 520 287 Dividends paid (167) (135) Revaluation of derivative instruments - 5 Foreign currency translation differences net of 6 (53)deferred tax Ordinary shares issued 8 8 Changes in the Group 12 13 Share options hedge net of deferred tax (4) (85) - Net increase in equity for the year 294 125 Equity at the beginning of the year 2 646 2 521 Equity at the end of the year 2 940 2 646 Made up as follows: Share capital and share premium 453 445 Non-distributable reserves 276 289 Surplus arising on revaluation of property, 268 288plant and equipment Foreign currency translation reserve net of 3 (3)deferred tax Retained earnings of associates 1 1 Other 4 3 Retained earnings 2 128 1 871 Preference capital 6 6 Outside shareholders' interest in subsidiaries 77 35 2 940 2 646Other salient features 2005 2004 R millions R millions Capital expenditure 351 277 - expansion 235 157 - replacement 116 120 Capital commitments 97 188 - contracted for 23 25 - not contracted for 74 163 Future rentals on property, plant and equipment leased 235 196 - payable within one year 47 43 - payable thereafter 188 153 Net contingent liabilities and guarantees 292 278 Net borrowings 798 615 Gearing (%) 27 23 Current assets to current liabilities 1.4 1.6 Net asset value per ordinary share (cents) 2 587 2 381 Depreciation 212 224DirectorateAE Pedder CBE* (Chairman), S Engelbrecht (Chief executive), NC Axelson ¢â‚¬ , CBBrayshaw,MJ Leeming, F Titi, LC van Vught*British ¢â‚¬ Executivewww.aeci.co.zaAELMining solutionsDevelopment, manufacture and supply of value-adding services, initiatingsystems and explosives to the mining, quarrying, and allied industries.Chemical Services LimitedSpecialty chemicalsLargest specialty chemical operation in southern Africa, supplying a diverserange of specialties, raw materials and related services to a broad spectrum ofindustries.Sans FibresSpecialty fibresProduction, marketing and distribution of specialty nylon and polyester yarnfor local and export markets; production of PET bottle polymer.DuluxDecorative coatingsA leading decorative coatings supplier in southern Africa. Dulux enjoys astrong market position as an innovator and supplier of high performanceproducts to a wide variety of customers.HeartlandsPropertyHeartland manages the realisation of land and related assets that have becomesurplus to the Group's requirements.AECI LIMITEDIncorporated in the Republic of South Africa(Registration No. 1924/002590/06)Share code: AFEISIN No. ZAE000000220Notice to shareholdersFinal ordinary dividend No. 144NOTICE IS HEREBY GIVEN that on Monday, 20 February 2006 the directors of AECILimited declared a final dividend of 121 cents per share, in respect of thefinancial year ended 31 December 2005, payable on Monday, 24 April 2006 toordinary shareholders recorded in the books of the Company at the close ofbusiness on Friday, 21 April 2006.The last day to trade cum dividend will be Wednesday, 12 April 2006 and shareswill commence trading ex dividend from Thursday, 13 April 2006.Any change of address or dividend instruction must be received on or beforeWednesday, 12 April 2006.Share certificates may not be dematerialised or rematerialised from Thursday,13 April 2006 to Friday, 21 April 2006, both days inclusive.This announcement will be mailed to all recorded shareholders on or aboutTuesday, 21 February 2006.By order of the BoardMJF PotgieterSecretarySandton20 February 2006Transfer secretariesComputershare Investor Services 2004 (Pty) Limited70 Marshall Street, Johannesburg, 2001andComputershare Investor Services plcPO Box 82, The Pavilions, Bridgwater RoadBristol BS 99 7NH, EnglandSponsorJP MorganENDAECI LTD