Last checked at 28 Jul 2009 10:34
AECI LIMITED
(Incorporated in the Republic of South Africa)
(Registration No. 1924/002590/06)
Share code: AFE ISIN No.: ZAE000000220
("AECI" or "the Company" or "the Group")
www.aeci.co.za
Condensed consolidated unaudited interim financial results for the half-year ended 30 June 2009
- Revenue from continuing operations at R5 263 million
- Cash of R396 million available from operating activities
- Gross margins and market share maintained in a difficult trading environment
- HEPS down to 105c
- Dividend of 28c declared
- Good progress made in strategic growth projects
Income statement 2009 2008 2008 First half First half Year % Unaudited Unaudited Audited change R millions R millions R millions Continuing operations Revenue(2) -9 5 263 5 793 12 876 Net operating costs (4 935) (5 241) (11 841) Profit from operations -41 328 552 1 035 Net (loss)/income from * 6 (13)Pension Fund employer surplus account Net loss from plan assets (20) (3) (57)for post-retirement medical aid liabilities 308 555 965 Fair value adjustments - * 3 (16)interest Interest expense(3) (168) (104) (233) Interest received 30 19 28 Income from associates 5 8 13and investments 175 481 757 Impairment of goodwill - (1) (42) Other impairments and - (6) (4)disposals Profit before tax 175 474 711 Income tax expense (64) (146) (238) Net profit from 111 328 473continuing operations Net profit/(loss) from 4 10 (94)discontinued operations Profit before tax 7 15 154 Closure costs - - (204) Impairments and disposals - 5 (56) Tax (3) (10) 12 Profit for the period 115 338 379 Profit for the period attributable to: - ordinary shareholders 118 350 385 - preference shareholders 1 1 2 - minority interest (4) (13) (8) 115 338 379 Headline earnings are derived from: Net profit attributable 118 350 385to ordinary shareholders Impairment of goodwill - 1 42 Other impairments and - 1 60disposals before tax Surplus on disposal of (9) * (38)property, plant and equipment Tax effects of the above 3 - (6)items Headline earnings 112 352 443 Per ordinary share (cents): Headline earnings -68 105 325 412 Diluted headline earnings 104 323 410(4) Attributable earnings 110 324 358 Diluted attributable 110 321 356earnings(4) Continuing earnings 107 314 445 Diluted continuing 106 312 443earnings(4) Discontinued earnings 4 9 (87) Dividends declared -69 28 90 231 Dividends paid 141 141 231 Ordinary shares (millions)(5) - in issue 107 107 107 - weighted average number 107 108 108of shares - diluted weighted 107 109 108average number of shares (4) * nominal amount
Statement of comprehensive income
2009 2008 2008 First half First half Year Unaudited Unaudited Audited R millions R millions R millions Profit for the period 115 338 379 Other comprehensive income net of tax: Revaluation of derivative (12) 19 6instruments Foreign currency translation (145) 96 146differences Changes in the Group - - (3) Other * 1 * Total comprehensive income for the (42) 454 528period Total comprehensive income attributable to: - ordinary shareholders (38) 459 550 - preference shareholders 1 1 2 - minority interest (5) (6) (24) (42) 454 528* nominal amount
Statement of changes in equity
2009 2008 2008 First half First half Year Unaudited Unaudited Audited R millions R millions R millions Total comprehensive income for the (42) 454 528period Dividends paid (152) (152) (250) Share repurchase - (237) (238) Equity at the beginning of the 3 969 3 929 3 929period Equity at the end of the period 3 775 3 994 3 969 Made up as follows: Issued ordinary capital 215 216 215 Non-distributable reserves 271 374 427 Surplus arising on revaluation of 240 236 240property, plant and equipment Foreign currency translation 23 111 168reserve net of deferred tax Other 8 27 19 Retained income 3 177 3 269 3 210 Preference capital 6 6 6 Minority interest 106 129 111 3 775 3 994 3 969Balance sheet 2009 2008 2008 30 June 30 June 31 Dec Unaudited Unaudited Audited R millions R millions R millions Assets Non-current assets 5 022 3 847 4 510 Property, plant and equipment 2 912 1 871 2 431 Investment property 429 410 422 Goodwill 1 062 978 1 013 Pension Fund employer surplus 213 232 213account Investments 98 134 98 Deferred tax 308 222 333 Current assets 5 002 6 237 6 441 Inventories 2 033 2 276 2 795 Accounts receivable 2 514 2 668 3 188 Assets classified as held for sale 14 772 14 Cash and cash equivalents 441 521 444 Total assets 10 024 10 084 10 951 Equity and liabilities Ordinary capital and reserves 3 663 3 859 3 852 Preference capital and minority 112 135 117interest Total shareholders' interest 3 775 3 994 3 969 Non-current liabilities 2 406 1 037 2 385 Deferred tax 57 73 61 Non-current borrowings 1 731 557 1 745 Non-current provisions 618 407 579 Current liabilities 3 843 5 053 4 597 Accounts payable 2 221 2 924 3 225 Current borrowings 1 558 1 639 1 058 Liabilities classified as held for - 325 -sale Tax payable 64 165 314 Total equity and liabilities 10 024 10 084 10 951Industry segment analysis Revenue Profit from Net assets operations 2009 2008 2009 2008 2009 2008 Unaudited Unaudited Unaudited R millions R millions R millions Continuing operations 5 263 5 793 328 552 6 750 5 459 Mining solutions 1 945 1 655 92 92 2 138 1 693 Specialty chemicals 3 233 3 863 241 386 4 008 3 141 Property 152 292 45 88 588 525 Specialty fibres (USA) 100 134 (7) 25 126 175 Group services, (167) (151) (43) (39) (110) (75)intergroup and other Discontinued 458 724 7 16 (21) 238operations Specialty fibres 458 724 7 16 (21) 238 5 721 6 517 335 568 6 729 5 697
Net assets consist of property, plant, equipment, investment property, goodwill, inventory and accounts receivable less accounts payable.
Cash flow statement 2009 2008 2008 First half First half Year Unaudited Unaudited Audited R millions R millions R millions Cash generated by operations 474 715 1 590 Dividends received 6 7 12 Interest paid (209) (117) (276) Interest received 30 20 30 Income tax paid (294) (151) (232) Changes in working capital 481 (282) (921) Expenditure relating to (8) (26) (71)non-current provisions Expenditure relating to (84) (102) (103)retrenchments and restructuring Cash available from operating 396 64 29activities Dividends paid (152) (152) (250) Cash flows from operating 244 (88) (221)activities Cash flows from investing (676) (372) (1 002)activities Proceeds from disposal of - - 24investments and businesses Investments (61) (1) (103) Net capital expenditure (615) (371) (923) Net cash utilised (432) (460) (1 223) Cash flows from financing 486 530 1 136activities Share repurchase - (237) (238) Borrowings 486 767 1 374 Increase/(decrease) in cash and 54 70 (87)cash equivalents Cash and cash equivalents at the 444 428 428beginning of the period Translation (loss)/gain on cash (57) 39 90and cash equivalents Classified as held for sale - (16) 13 Cash and cash equivalents at the 441 521 444end of the period Other salient features 2009 2008 2008 First half First half Year Unaudited Unaudited Audited R millions R millions R millions Capital expenditure - property, 675 395 1 044plant and equipment(3) - expansion 544 260 683 - replacement 131 135 361 Capital commitments 589 1 379 978 - contracted for 451 887 550 - not contracted for 138 492 428 Future rentals on property, plant 211 211 317and equipment leased - payable within one year 90 36 144 - payable thereafter 121 175 173 Contingent liabilities 105 94 82 Performance guarantees 69 47 34 Net borrowings 2 848 1 675 2 359 Gearing (%) 75 42 59 Current assets to current 1,3 1,2 1,4liabilities Net book value per ordinary share 3 425 3 608 3 601(cents) Depreciation 122 100 211- continuing operations - discontinued operations - - 5Notes(1) Basis of preparation
The condensed consolidated interim financial results have been prepared in accordance with the historic cost convention except for certain financial instruments, which have been stated at fair value.
Accounting policies have been applied consistently by all entities in the Group and are consistent with those applied in the previous reporting period.
The condensed consolidated interim financial results and accounting policies comply with the Listings Requirements of the JSE Limited, International Financial Reporting Standards, the disclosure requirements of IAS 34 - Interim Financial Reporting and the South African Companies Act (Act 61 of 1973) as amended.
(2) Includes foreign sales of R1 240 million (2008 first half - R1 223 million).
(3) Interest capitalised in the period amounting to R41 million (2008 first half - R11 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 11 884 699 (2008 - 11 884 699) treasury shares held by a subsidiary company.
(6) Discontinued operations
During 2008 a decision was taken that SANS Technical Fibers, USA, will not be disposed of and will run as a stand-alone and self-sustaining entity for the foreseeable future. It has, therefore, been reclassified in the comparative figures for June 2008 as a continuing operation. The remaining South African businesses of SANS Fibres discontinued manufacturing activities at the end of March 2009 and will be closed.
(7) 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
AECI stated in February 2009 that trading conditions in respect of the current financial year would be challenging for the Group's businesses as a consequence of the global recession.
The challenges have been more severe than expected and the magnitude of the recession's impact is reflected in the Company's results for the half-year ended 30 June 2009. Furthermore, R141 million in respect of fair value, net realisable value adjustments and restructuring costs impacted on earnings. Consequently, headline earnings at R112 million were 68% lower than the R352 million achieved in the corresponding period in 2008. Headline earnings per share totalled 105 cents (2008: 325 cents) and profit from continuing operations of R328 million (2008: R552 million) declined by 41%. Net financing costs of R138 million (2008: R83 million) increased by 66% as additional borrowings of R486 million were drawn, primarily to fund the strategic capital expenditure programme.
Revenue from continuing operations decreased by 9% to R5 263 million. The decrease is largely attributable to significant volume declines experienced by the Group's customers in the mining and manufacturing sectors.
The strengthening of the rand in the period required fair value adjustments and recognition of exchange differences of R46 million and lower commodity prices resulted in net realisable value adjustments to inventory of R65 million. The Group has begun restructuring programmes in areas where it believes that markets will remain under pressure in the medium- to long-term. To date, R30 million has been incurred in restructuring costs.
An interim dividend of 28 cents per ordinary share has been declared, compared to 90 cents in 2008. It is proposed that the dividend be declared as scrip with a cash alternative ("the capitalisation award"). The capitalisation award declaration is published separately on SENS and contains the salient dates.
Mining solutions
Revenue from the mining solutions business increased by 18% on 2008's performance, despite difficult market conditions. This was largely due to AEL's increased footprint in Central Africa, product mix changes in initiating systems as shocktube units replaced capped fuse, and price differentials over the first half of last year.
The South African narrow reef market continued its slow contraction while the Southern African region experienced significant volume declines in platinum, copper and diamonds. Sales to the coal sector in Asia Pacific grew significantly.
AEL's trading margin remained under pressure at 4,7% (2008: 5,6%), due mainly to additional depreciation charges and increased resourcing costs to cover market demand and increased shocktube conversion activities in the South African narrow reef market. The capped fuse plant and the traditional shocktube plants are still being run and will come off line as the Initiating Systems Automation Programme (ISAP) plants ramp-up.
ISAP's detonator and extruded shocktube plants will both be fully installed and commissioned by end-2009. To date, over 40 million ISAP detonators have been produced and sold, the extrusion lines are running at 95% efficiencies and have produced over 180 000km of tubing. Still to be completed is the shocktube auto-assembly plant where the first set of lines has been installed and has successfully started producing for the narrow reef market. The launched Reefmaster product has been well received and market and plant ramp-ups are underway.
In the six months under review AEL spent R245 million on capital investment projects, R125 million of this on ISAP.
Specialty chemicals
Chemical Services Limited (Chemserve) recorded a 16% decrease in revenue to R3 233 million and a 38% decrease in trading profit to R241 million (2008: R386 million), with severe declines in demand from the mining, agricultural, manufacturing and automotive sectors. Volumes were 36% lower in the period, particularly in the first quarter, with traded sulphur sales being the worst affected. In response to the changed external environment, Chemserve is restructuring some of its businesses, such as those serving the automotive sector, where adverse trading conditions are expected to persist. Costs associated with restructuring totalled R25 million at end-June.
The strengthening rand and lower commodity prices exacerbated Chemserve's challenges. Fair value, translation and inventory net realisable value adjustments accounted for R78 million of the decline in trading profit.
Chemserve's capital expansion programme made pleasing progress. R416 million was invested in capital projects, R338 million of this in the strategic projects. The oleochemical plant at Resitec, in Brazil, the second xanthate reactor at Senmin, in Sasolburg, and Akulu Marchon's sulphonation plant in Chloorkop have all been commissioned successfully. These plants are being ramped up to optimised production levels. The carbon disulphide plant at Senmin will be commissioned in the third quarter and the acrylamide and polyacrylamide plants, also at Senmin, will be commissioned in the last quarter of 2009. The business case for all these projects remains favourable and, once fully on line, the investments will be earnings-enhancing.
The acquisitions of CH Chemicals and Cobito, at a cost of R70 million, were finalised and successfully integrated into the Chemserve group.
Property
Heartland recorded a trading profit of R45 million (2008: R88 million) net of R1 million (2008: R37 million) of remediation costs. Remediation expenditure is being prioritised in line with land sales and legal requirements. The property development sector remains depressed, largely as a result of a shortage in cash liquidity in the market and market demand. Developers have had difficulty raising debt and financial institutions have imposed more stringent conditions in this regard. The profit achieved to June 2009 was driven largely by the leasing business in the segment.
As indicated in the previous reporting period, Heartland has continued the processes necessary to prepare land for release when the property market shows signs of recovery. Expenditure was limited to R30 million in respect of land development activities in the half-year.
SANS Fibres
Continuing operation
SANS Technical Fibers (USA) incurred a loss of R7 million (2008: R25 million operating profit) as a result of very poor market conditions in the automotive sector in the USA. Revenue declined by 25% to R100 million, compared to R134 million in 2008. The business has been restructured to cope with these depressed conditions and, in June, already returned a profit. It has remained cash positive and has increased its cash by liquidating working capital over the half-year.
Discontinued operation
SANS Fibres at Bellville, Western Cape, ceased manufacturing in March 2009. Working capital has largely been liquidated and had generated R280 million in cash by 30 June 2009. The site is currently being cleared and redundant plant and equipment is being sold. It is anticipated that this process will be completed by March 2010.
Financial
The Group invested R675 million in capital expenditure, of which R542 million related to growth projects in AEL and Chemserve. The Group is expecting capital expenditure of R1,2 billion for the full financial year.
Net working capital decreased as revenue declined and R481 million in cash was generated in the period. The working capital ratio to gross revenue improved to 17,2% (2008: 19,8%).
The Pension Fund employer surplus account and the plan assets for post-retirement medical aid liabilities incurred a further loss of R20 million (2008: R3 million profit), due to poor investment market performances and strengthening of the rand. Part of the Group's pension portfolio is invested offshore.
In line with capital expenditure of R675 million, Group borrowings increased to R2 848 million from R2 359 million at December 2008. Cash interest cover was 2,8 times (2008: 4,6 times) largely as a result of lower profits and continued investment in the strategic capital expenditure programme. As a consequence, gearing increased to 75% of shareholder funds (59% at December 2008).
Earlier in the year, the Board decided to postpone the anticipated BBBEE transaction, involving Group employees and a community trust, primarily as a result of market volatility.
Board changes
Ms A Kennedy resigned as Company secretary, with effect from 31 March 2009. Mr EA Rea was appointed to serve as Acting Company secretary from 1 April 2009.
Outlook and strategic focus
Depressed market conditions are expected to continue for the remainder of the year. In the first six months, as outlined above, the Group incurred fair value and exchange difference adjustments of R111 million. Based on current commodity prices and currency exchange rates, it is not expected that these charges will recur. In line with the trading statement published on SENS on 11 June 2009, management expects an improved performance in the second half-year and thus does not expect headline earnings per share for the full financial year, ending 31 December 2009, to be considerably lower than the 412 cents achieved in 2008.
The Group will continue to sustain its strategic focus, and will:
- optimise cash flow by controlling working capital aggressively;
- continue to progress strategic capital projects at AEL and Chemserve;
- reduce costs in line with reduced activity; and
- maintain market share and margins through continued excellent service.
Fani Titi Graham Edwards Chairman Chief executive Woodmead, Sandton27 July 2009
Directors: F Titi (Chairman), GN Edwards (Chief executive)**, FPP Baker**, RMW Dunne*, S Engelbrecht, Z Fuphe, KM Kathan**, MJ Leeming, LM Nyhonyha, AC Parker.
**Executive *British
Acting Company secretary: EA Rea
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