| Fri 21 Sep 2007, 12:00 | | AGI - AG Industries Limited - Trading Update and D |
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AGI
AGI
AGI - AG Industries Limited - Trading Update and Disposal of the Roodekop
Property
AG INDUSTRIES LIMITED
(Incorporated in the Republic of South Africa)
Registration Number: 1980/004051/06
SHARE CODE: AGI
ISIN: ZAE000039467
("AGI" or "the Group")
TRADING UPDATE AND DISPOSAL OF THE ROODEKOP PROPERTY
TRADING STATEMENT
The Group is currently finalising its results for the year ended 30 June 2007.
In terms of the JSE Limited Listing Requirements in relation to trading
statements, shareholders are advised that the anticipated basic earnings per
share for the financial year ended 30 June 2007 ("the reporting period") will be
15% to 20% lower than the results of the previous corresponding period, whilst
headline earnings per share will be 70% to 75% lower than the results of the
previous corresponding period.
Although the majority of operations met or exceeded expectations, the rest of
the businesses were negatively impacted by significant operating problems
experienced at the Aluminium Division`s manufacturing facility situated in
Roodekop in Gauteng.
GLASS; SOLUTIONS, LENGTHS AND HARDWARE ("SHEERLINE"); AND INTERNATIONAL
DIVISIONS
These businesses represent 56% of the Group`s revenue.
* The Glass Division traded satisfactorily and remains a solid performer in the
Group. The Division increased volumes of value added glass and made good
progress in securing profitable project work. Despite significant capital
expansion in the Eastern Cape, the division maintained its operating margin.
* The Sheerline Division expanded its geographic footprint with the launch of
seven new branches. This, together with penetration into commercial projects,
resulted in a 14% increase in revenue and ensured that the Division traded
profitably and in line with expectations.
* The International Division performed beyond expectation with another record
year of lifting both revenue and operating profits.
ALUMINIUM DIVISION
These businesses represent 44% of the Group`s revenue.
Roodekop manufacturing facility
As mentioned above, the Group results were materially impacted by major
operating problems at AGI`s wholly-owned Roodekop manufacturing facility:
* Unexpected production setbacks in the second half of the reporting period
were experienced. These included a major delay during the planned
decommissioning of the extrusion press at the Group`s Lea Glen premises and in
the subsequent relocation, refurbishing and re-commissioning of the press at the
Roodekop premises. This relocation was planned to coincide with the
commissioning of another new extrusion press at Roodekop. Technical problems
beyond the Group`s control were experienced on the new extrusion press, which
resulted in a greater than normal downtime. These disruptions to the flow of
extruded components to the rest of the Group had a knock-on effect throughout
the Group, materially impacting production volumes and revenues.
* Since September, the new extrusion press has been operating at acceptable
levels, while the refurbished press is currently at 65% of production capacity.
It is expected to be fully operational by the second quarter of the 2008
financial year.
* Due to the additional costs associated with the various large capital
projects and the under-recovery in production overheads as production volumes
did not meet management`s projections in the given timeframe, Group gross
margins were impacted. The Group gearing also increased substantially in line
with the necessary capital investment in property, plant and equipment,
resulting in a 105% increase in finance charges and a 30% increase in
depreciation.
During the period, the property on which the Roodekop manufacturing facility is
situated, was disposed of (with an agreement to leaseback) for R163 million plus
value added taxation ("VAT"). Details, including the positive financial effects
of the transaction, are set out below under the heading "Disposal of the
Roodekop Property".
Outside of operational problems at Roodekop, the Aluminium Division, as a whole,
was also impacted by extreme volatility in the aluminium commodity price, which
attained record levels during the third quarter. This, coupled with similar
volatility in the Rand/Dollar exchange rate, resulted in an increase in
aluminium input costs. The Group was unable to pass this increased cost through
to the market due to severe competition from cheaper imported extrusions from
China. These factors combined to adversely affect gross margins in the second
half of the year. The industry as a whole has applied for "anti-dumping" duty
protection, and the notice of intention to investigate was gazetted by the
Department of Trade and Industry. Finalisation is awaited.
Finished Goods
Finished Goods experienced a drop in volumes, particularly in the shower doors
segment of the market. Revenues were marginally down, but volumes were lower due
to an increase in imports of showers out of China. This contributed to an under-
recovery in overheads, which affected the operating margin. A strategy to
address the above issues has been implemented.
In spite of the current operational issues at Roodekop, the board remains of the
opinion that the new facility positions the Group uniquely by enabling it to
offer an integrated glass and aluminium solution. The opportunities in the
market brought about by the buoyant commercial building and construction sector
and the shift to infrastructural spend are real and the Group has the capacity
and the technical ability to meet this demand. The Group has a proven track
record of being able to deliver on large contracts and remains a key supplier in
these markets. The anticipated improvement in gearing and resultant reduction in
finance charges as a result of the disposal of the Roodekop property, as well as
the progress made to resolve the operational problems in the Aluminium Division
should result in significantly improved profitability in the medium term.
Detailed information with regard to the Group`s operations and its prospects for
the 2008 financial year will be furnished in the Group`s announcement of the
results for the reporting period, which will be published on SENS on 28
September 2007.
DISPOSAL OF THE ROODEKOP PROPERTY
1. Introduction and terms
Shareholders are advised that AGI, through its wholly owned subsidiary
Distinctive Systems (Proprietary) Limited, signed an agreement on 29 June 2007
("the effective date"), with Pangbourne Properties Limited ("Pangbourne"), a
property investment company, listed in the Real Estate sector of the JSE
Limited, for the sale and operating leaseback of the property situated in
Roodekop Township ("the disposal") for a consideration of R163,00 million, (plus
VAT of R22,82 million) ("the consideration"). The conditions precedent were all
met on 20 September 2007.
The consideration of R185,82 million, (inclusive of VAT), will be settled by
means of:
* An amount of R163,00 million against transfer; and
* An amount of R22,82 million payable in cash within three months after
transfer.
The proceeds of the disposal will be utilised to reduce both the Group`s long
term and short term liabilities. Had the proceeds been received on 30 June 2007,
it would have had the effect of reducing the Group`s gearing from 81% to 42%.
2. Description of property and rationale for the disposal.
The property is described as Erf 8518 and Erf 1484 Roodekop Township, together
with all buildings and building improvements thereon situated at 1 Setchel Road
Roodekop Township. The rationale for the disposal of the property is:
* The buoyant economic climate surrounding commercial properties at present;
and
* The ability of the Group to reduce gearing in an economic climate of
increasing interest rates.
2.1. The total rentable area for commercial purposes is 33 917 sqm;
2.2. Weighted average rental per square meter is R31,23 sqm for the total
rentable area; and
2.3. The value (i.e. the price) attributed to the property was equal to the
valuation made by the purchaser based on the current market prices of similar
commercial properties in the area ruling at the time.
The property is being acquired by Pangbourne free of all liabilities.
3. Financial effects
The pro forma financial effects of the disposal, based on the published
unaudited results of AGI for the six months ended 31 December 2006 ("the
previous six month period") are set out below. The table below therefore
illustrates the financial effects if the disposal had been implemented on 31
December 2006. The pro forma financial effects have been prepared for
illustrative purposes only. Preparation of the pro forma financial effects is
the responsibility of the directors. Because of their nature, the pro forma
financial effects may not fairly present AGI`s financial position after the
disposal or the effect on future earnings:
For the 6 months ended
31 December 2006
Before the After the
disposal disposal % Change
Earnings (cents per share) 20.8 49.7 139%
Headline earnings (cents per share) 20.8 20.8 0%
Net asset value and net tangible asset
value (cents per share) 192 220 15%
Average and weighted average number
of shares in issue (`000) 200 200 200 200 0%
Notes and assumptions:
(1) Pro forma earnings and headline earnings are based on AGI`s published
unaudited interim results for the six months ended 31 December 2006, after
taking into account the following adjustments:
- Costs associated with the disposal of R4.375 million;
- Interest rate on long term liabilities of 11.5%; and
- Capital gains tax rate of 14.5%.
(2) Net asset value and net tangible asset figures are based on the
assumptions that the disposal occurred on 31 December 2006.
4. Categorisation of the transaction
The disposal is categorised as a Category 3 transaction in terms of the JSE
Limited Listing Requirements.
Johannesburg
21 September 2007
Sponsor: Sasfin Capital
A division of Sasfin Bank Limited
Date: 21/09/2007 12:00:01 Produced by the JSE SENS Department.
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