Last checked at 4 Nov 2008 08:00
AECI LIMITED Incorporated in the Republic of South Africa (Registration No. 1924/002590/06) Share code: AFE ISIN No. ZAE000000220 ("AECI" or "the Company")
CLOSURE OF SANS BUSINESSES
Shareholders are referred to the SENS announcement published on 29 September 2008 indicating that negotiations for the sale of the nylon light decitex (LDI) business of SANS Fibres (Proprietary) Limited ("SANS") had been terminated. In that same announcement, AECI stated that it would, by year-end, make a final decision on exiting not only the nylon LDI business but also SANS's polyethylene terephthalate polymer (PET) business. Accordingly, AECI advises as follows.
The Company contemplates closing both the nylon LDI and the PET manufacturing operations at the SANS Bellville site, Western Cape. It is envisaged that subject to the consultation process, the businesses will cease manufacturing on 31 March 2009. Thereafter, the site will be cleared and realisation of the land will commence.
Regrettably, these contemplated closures are expected to result in 640 direct job losses. The costs associated with this, as well as other closure costs, will be finalised once consultations have been concluded with all stakeholders including employees, the trade union, customers and suppliers.
NYLON LDI BUSINESS, BELLVILLE
In recent years, SANS's fibres business has come under increasing pressure for several reasons. These include technology improvements of new plants in the Far East, which are closer to main markets; cost increases in raw materials and utilities; and the lack of a reliable electricity supply.
SANS's management and AECI attempted to address these challenges by rationalising the business and seeking a trade purchaser who could add value by addressing some of the strategic issues. The intended sale of the nylon business was not concluded and the rationalisation programme has not placed the company in a position to adequately reward its working capital. Unfortunately, this situation is expected to worsen in the coming years.
PET BUSINESS, BELLVILLE
The sustainability of this business is questionable in terms of its ability to reward the capital invested in its assets. Furthermore, it is expected that the business will continue to be adversely affected by local and international oversupply, as a result of new South African capacity, and the global economic crisis. The PET business, too, has been impacted by cost increases in raw materials and utilities and the lack of a reliable electricity supply. After completing an extensive due diligence process, a successful agreement for the sale of the business could not be reached with prospective purchasers.
NYLON BUSINESS AT STONEVILLE, USA
The Stoneville operation, SANS Technical Fibers USA, is a stand-alone entity which has a sustainable profit stream and is self-funding. It remains AECI's intention to exit this business. In the meantime, certain strategic plant and equipment from Bellville will be transferred to Stoneville. This will not only enhance the revenue of that business, but also improve its market offering globally.
ESTIMATED FINANCIAL IMPACT
As a result of the contemplated closure and the subsequent disposal of SANS Bellville's assets, the cash from the disposal, after providing for closure costs, will be approximately equal to the carrying value to the net assets on the balance sheet. This process is expected to be completed in the next 12 to 18 months and will include the sale of the land. The immediate effect of the above is that a provision for closure costs of approximately R150 million will have to be taken against headline earnings in 2008, and this will cause a reduction in HEPS of approximately 140 cents for the financial year ending 31 December 2008.
Woodmead, Sandton4 November 2008
Sponsor: RAND MERCHANT BANK (A division of FirstRand Bank Limited)
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