Last checked at 29 Jul 2008 07:05
AECI LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1924/002590/06)
Share code: AFE ISIN No: ZAE000000220
("AECI" or "the Company")
UNAUDITED GROUP INTERIM FINANCIAL RESULTS FOR THE HALF-YEAR
ENDED 30 JUNE 2008
- Headline earnings per share up 35% to 325 cents
- Group revenue +43%- Interim dividend per ordinary share increased to 90 cents- Capital projects on trackINCOME STATEMENT 2008 2007 2007 First half First half Year % Unaudited Unaudited Audited change R millions R millions R millions Continuing operations Revenue(2) +43 5 659 3 964 8 521 Net operating costs 5 132 3 595 7 764 Profit from operations +43 527 369 757 Net income from pension fund employer surplus account 6 24 30 Net income from plan (3) 36 36assets for post-employment medical aid liabilities 530 429 823 Fair value adjustments 3 4 5on derivative instruments Interest paid (net of (104) (88) (159)interest capitalised)(3) Interest received 19 21 28 Income from associates 8 5 12and investments 456 371 709 Impairment of goodwill (1) (2) (20) Restucturing costs, (6) 3 2disposals and other impairments Profit before tax 449 372 691 Tax (146) (119) (218) Net profit from 303 253 473continuing operations Net profit from 35 11 (6)discontinued operations Profit before tax 40 27 46 Closure costs - - (117) Impairments and 5 (9) 64disposals Tax (10) (7) 1 Net profit 338 264 467 Attributable to 12 (3) (12)preference and minority shareholders Profit attributable to 350 261 455ordinary shareholders Headline earnings are derived from: Net profit attributable 350 261 455to ordinary shareholders Impairment of goodwill 1 2 20 Other impairments and 1 6 (66)disposals before tax Tax effects of the above - (2) (17)items Headline earnings 352 267 392 Per ordinary share (cents): Headline earnings +35 325 242 355 Diluted headline 323 239 352earnings(4) Attributable earnings 324 236 412 Diluted attributable 321 234 408earnings(4) Continuing earnings 291 226 417 Diluted continuing 289 224 414earnings(4) Dividends declared +25 90 72 213 Dividends paid 141 141 213 Ordinary shares (millions)(5) - in issue 107 110 110 - weighted average 108 110 110number of shares - diluted weighted 109 112 111average number of shares BALANCE SHEETat 30 June 2008 2007 2007 30 June 30 June 31 December Unaudited Unaudited Audited R millions R millions R millions Assets Non-current assets 3 847 3 619 3 557 Property, plant and equipment 1 871 1 721 1 567 Investment property 410 412 411 Goodwill 978 1 015 986 Pension fund surplus 232 220 226 Investments 134 132 124 Deferred tax 222 119 243 Current assets 6 237 4 471 4 699 Inventory 2 276 1 938 1 580 Accounts receivable 2 668 2 139 2 024 Assets classified as held for 772 - 667sale Cash and cash equivalents 521 394 428 Total assets 10 084 8 090 8 256 Equity and liabilities Ordinary capital and reserves 3 859 3 698 3 788
Preference capital and minority
interest in subsidiaries 135 134 141 Total shareholders' interest 3 994 3 832 3 929 Non-current liabilities 1 037 905 954 Deferred tax 73 32 78 Non-current borrowings 557 526 502 Non-current provisions 407 347 374 Current liabilities 5 053 3 353 3 373 Accounts payable 2 924 2 196 2 021 Current borrowings 1 639 1 060 927
Liabilities classified as held 325 - 250
for sale Tax payable 165 97 175 Total equity and liabilities 10 084 8 090 8 256INDUSTRY SEGMENT ANALYSIS
for the half-year ended 30 June
Revenue Profit from Net assets operations 2008 2007 2008 2007 2008 2007 Unaudited Unaudited Unaudited R millions R millions R millions Continuing operations Mining 1 655 1 294 92 86 1 693 1 223solutions Specialty 3 863 2 581 386 256 3 141 2 567chemicals Property 292 212 88 41 525 409 Group services, intergroup and other (151) (123) (39) (14) (75) (116) 5 659 3 964 527 369 5 284 4 083 Discontinued 858 1 446 41 29 413 946operations Decorative - 369 - 17 - 219coatings Specialty - 15 - (3) - -chemicals Specialty 858 1 062 41 15 413 727fibres 6 517 5 410 568 398 5 697 5 029
Net assets consist of property, plant, equipment, investment property and goodwill, inventory, accounts receivable less accounts payable.
The net assets of the specialty fibres segment in 2008 are assets, and directly related liabilities, classified as held for sale.
CASH FLOW STATEMENT 2008 2007 2007 First half First half Year Unaudited Unaudited Audited R millions R millions R millions Cash generated by operations 715 536 1 122 Dividends received 7 4 12 Financing costs (117) (91) (173) Interest received 20 22 30 Taxes paid (151) (107) (196) Changes in working capital (282) (166) (601)
Expenditure relating to non-current (26) (31) (67)
provisions Expenditure relating to (102) (12) (1)restructuring Cash available from operating 64 155 126activities Dividends paid (152) (156) (237)
Cash flows from operating activities (88) (1) (111) Cash flows from investing activities (372) (255) 74
Proceeds from disposal of - 5 17investments and businesses Proceeds from disposal of - 22 761discontinued operations Investments (1) (7) (59) Net capital expenditure (371) (275) (645)
Expenditure on repurchasing own (237) - -shares Net cash utilised (697) (256) (37) Cash flows from financing activities 767 271 108 Increase/(decrease) in cash and cash 70 15 71equivalents Cash and cash equivalents at the 428 375 375beginning of the period Translation gain/(loss) on cash and 39 4 (5)cash equivalents Classified as held for sale (16) - (13) Cash and cash equivalents at the end 521 394 428of the period
STATEMENT OF CHANGES IN EQUITY
2008 2007 2007 First half First half Year Unaudited Unaudited Audited R millions R millions R millions Profit for the period 338 264 467 Dividends paid (152) (156) (237) Revaluation of derivative 19 (3) (1)instruments Foreign currency translation 96 4 (8)
differences net of deferred tax
Changes in the Group - - (17) Other 1 (4) (2)
Net increase in equity for the 302 105 202period before share repurchase Repurchase of own shares (237) - - Equity at the beginning of the 3 929 3 727 3 727period Equity at the end of the period 3 994 3 832 3 929
Made up as follows: Issued ordinary capital 216 453 453 Non-distributable reserves 374 289 271
Surplus arising on revaluation of
property, plant and equipment 236 257 243 Foreign currency translation 89 24 17reserve net of deferred tax
Retained earnings of associates 1 1 1 Derivative revaluation reserve 19 - -
Other 29 7 10 Retained income 3 269 2 956 3 064 Preference capital 6 6 6 Minority interest 129 128 135 3 994 3 832 3 929OTHER SALIENT FEATURES 2008 2007 2007 First half First half Year Unaudited Unaudited Audited R millions R millions R millions
Capital expenditure - property, 395 282 688
plant and equipment - expansion 260 170 381 - replacement 135 112 307 Capital commitments 1 379 1 264 1 251 - contracted for 887 17 340 - not contracted for 492 1 247 911
Future rentals on property, plant 211 298 253
and equipment leased - payable within one year 36 64 77 - payable thereafter 175 234 176
Net contingent liabilities and 141 117 140
guarantees Net borrowings 1 675 1 192 1 001 Gearing (%) 42 31 25 Current assets to current 1,2 1,3 1,4liabilities Net asset value per ordinary 3 608 3 349 3 430share (cents) Depreciation - continuing 100 79 164operations - discontinued operations - 35 69Notes(1) Basis of preparation
The Group 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 financial year.
The Group 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, 1973, as amended.
(2) Includes foreign sales of R1 223 million (2007: R725 million).
(3) Interest capitalised in the period amounted to R11 million
(2007: nil).
(4) Calculated in accordance with IAS 33. 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 treasury shares held by a subsidiary company.
(6) 2007 half-year headline earnings included retrenchment costs paid. In September 2007 SAICA issued Circular 9/2008 which outlined remeasurements to be excluded from headline earnings. As a result, headline earnings for the year ended 31 December 2007 were not adjusted for the retrenchment costs. Therefore, the half-year 2007 mining solutions trading profit and Group headline earnings decreased by R11 million before tax while attributable earnings are unchanged.
(7) Disposal groups and discontinued operations
Dulux and SANS Fibres have been classified as discontinued operations and the comparative figures adjusted accordingly. Dulux was disposed of in 2007. SANS Fibres' assets and liabilities were classified as held for sale in December 2007 and property, plant and equipment has not been depreciated in 2008.
(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
Headline earnings per ordinary share were 325 cents, 35% higher than in the first six months of 2007. All of the Group's businesses delivered improved results, with Chemical Services Limited (Chemserve) being the largest contributor and recording an outstanding 53% increase in trading profit.
An interim dividend of 90 cents per ordinary share has been declared, compared with 72 cents per share in 2007.
Group revenue increased by 43%, reflecting pleasing growth in the specialty chemicals and mining solutions sectors. The Group's margins have been under pressure over the last two years and high oil prices again impacted on oil-based raw material costs in the period. However, major efforts were made to avoid margins decreasing further. As a result of these efforts and tight cost control, Group operating margin remained at 9,3%, the same level as the first half of 2007.
AEL
African Explosives Limited (AEL) performed to expectations in the first six months of 2008. Sales increased by more than 25%, buoyed by growth in the South African Surface and Massive division as well as in AEL's African businesses. Operating margins remained under pressure at 5,5%.
The performance of the South African Narrow Reef business mirrored the difficulties, in volume terms, experienced by the gold and platinum sectors. The international business made satisfactory progress at the new assembly plant in South East Asia and, in addition, in setting up distribution partnerships in other regions.
Capital projects supporting growth and cost reduction initiatives progressed as expected, despite material cost escalation pressures. The initiating systems automation project made steady progress on delay powder capacity, shocktubing lines, delay detonators and the first two automated assembly machines. A routine project assessment was done and the strategic and financial case remains sound.
Chemserve
Chemserve's performance exceeded expectations. Profit from operations was 53% higher than in the first half of 2007 with increased contributions from most businesses, but especially from those supplying the mining and agricultural sectors. Operating margins increased slightly to 10% (2007: 9,7%) due to fixed cost control and diligent attention to pricing in an environment of substantial and frequent price increases, not only in oil-derived products, transport and energy, but also in many commodity products. Supply shortages occurred during the half-year but these were managed. Electricity outages in the first quarter negatively impacted profits, as customers' and Chemserve's volumes and operational efficiencies were affected.
Overall, the capital expenditure programme approved in 2007 is progressing well, although some timing delays have been experienced. These are attributable to design completion, and construction and fabrication resource shortages in South Africa. A further R325 million of capital expenditure has been approved in 2008, R200 million of which relates to scope changes and increased costs in current projects. A review of Chemserve's major investments in mining, sulphonation and oleo-chemicals (Brazil) has shown returns to be maintained under current conditions. The acquisition of Chemfit, a small diverse chemical company, was approved by the competition authorities and took effect from 1 July 2008.
Heartland
The property activities, managed by Heartland, recorded a trading profit of R88 million net of R37 million of remediation costs. The latter include an additional provision of R30 million in respect of further clean-up at Somerset West. The availability of land ready for release and sale, as well as the unfavourable conditions now prevailing in the market, are likely to result in modest activity in the second half-year. Heartland is continuing to invest in infrastructure that will enhance the value of its assets in the years ahead. A total of R350 million has been earmarked for this over the next 24 months.
The investment property is carried at R410 million in the balance sheet. The Valuation Division of Old Mutual Investment Group Property Investments has completed a full review of Heartland's development plans and has compiled an independent valuation of R2,5 billion as at 1 July 2008 for the AECI-owned property portfolio located in Modderfontein and Somerset West. The value reported was completed on a market valuation basis, which assumes the premise of willing buyer willing seller. The value is an independent professional estimate of what a buyer might be prepared to pay for the land in its current form, discounted at an average, real rate of 25%, being the developer's assumed required rate of return.
Strategic alternatives for the property portfolio have been reviewed. The Board has decided that better value for shareholders will be provided by retaining the property portfolio in the Group in the medium term.
Discontinued operations
SANS Fibres (SANS) exited the non-performing nylon and polyester heavy decitex industrial (HDI), as well as the polyester light decitex industrial (LDI) yarn businesses, at the end of 2007. The remaining nylon LDI and the polyethylene terephthalate (PET) businesses at Bellville were adversely affected by power outages in the first quarter of the year, and both had to contend with sharp increases in raw material prices. These challenges notwithstanding, SANS posted a significant increase in trading profit compared with the first half of 2007, as the positive effects of major restructuring in the yarn business begin to be realised.
Financial
Net capital expenditure of R395 million included R260 million for expansion projects, mainly in respect of the major investments in progress at AEL and Chemserve. Group working capital increased in line with the 43% increase in sales to R2 020 million, representing 19,8% (2007: 17%) of annual sales (excluding businesses sold).
Net income from the pension fund employer surplus account and the plan assets for post-employment medical aid liabilities reduced from R60 million in the first half of 2007 to R3 million in 2008. The reduction is due to poor equity markets performance, particularly in the month of June.
In line with the working capital investment of R282 million in the half-year and the capital spending of R395 million, Group borrowings increased to R1 675 million from R1 001 million at the end of 2007. Cash interest cover remained robust at 7 times. Gearing increased to 42% of shareholder funds (25% at December 2007).
The assets and liabilities classified as held for sale are the carrying value of SANS.
In line with the general authority given by shareholders at the annual general meeting, the Company has repurchased 3,5 million ordinary shares, representing just under 3% of the share capital at a cost of R237 million.
Portfolio
The Group remains focused on the growth of its core businesses, providing mining solutions and specialty chemicals to the mining and industrial sectors. Significant capital expenditure programmes are underway to support this growth. Whilst SANS performed well in the half-year, the business does not fit with AECI's strategic focus. The sale process for SANS' nylon LDI business should be completed by the end of the third quarter. A tender process for the PET business is underway with indicative offers due in July, whereafter a due diligence process will precede final offers. There is a good level of interest in the PET business and it is expected to be sold before the end of 2008.
Outlook
Oil prices, inflation and interest rates are expected to remain high for the remainder of the year. However, the trading outlook appears supportive for the Group's businesses. It is anticipated that property sales will be slow in the second half.
Assuming trading conditions remain buoyant, the 2008 year will see muchimproved results compared to 2007, particularly from Chemserve. Beyond 2008,the capital investments are expected to start delivering substantial benefitsin 2010.Fani Titi Graham Edwards Chairman Chief executive Woodmead, Sandton28 July 2008
Directorate: F Titi (Chairman)¢â‚¬ , G N Edwards (Chief executive),
F P P Baker, R M W Dunne¢â‚¬ *, S Engelbrecht¢â‚¬ , Z Fuphe¢â‚¬ , M J Leeming¢â‚¬ ,
L M Nyhonyha¢â‚¬ , A C Parker¢â‚¬ , L C van Vught¢â‚¬ , R A Williams*
¢â‚¬ Non-executive *British
Company secretary: A Kennedy
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