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AGI
AGI
AGI - AG Industries Limited - Reviewed results for the year ended 30 June 2007
AG INDUSTRIES LIMITED ("AGI" or "the Group")
(Incorporated in the Republic of South Africa)
Registration number: 1980/004051/06
Share code: AGI
ISIN: ZAE000039467
Reviewed results for the year ended 30 June 2007
Poised for growth
SALIENT FEATURES
Operational performance
* The majority of operations met or exceeded expectations, although the
Aluminium Division was negatively impacted by significant operating problems
experienced at the manufacturing facility situated at Roodekop in Gauteng
- Glass and Sheerline delivered performances in line with expectations
- The international operations outperformed year on year
- Operational problems on the new aluminium press constrained revenue
and service delivery
Financial performance
* Revenue increased by 6% to R1,151 billion (2006: R1,086 billion)
* Basic earnings per share down 18% to 33,5 cps (2006: 41,1 cps)
* Headline earnings per share down 73% to 10,9 cps (2006: 41,1 cps)
* Pre-tax profit of R67,1 million from disposals of property, plant and
equipment
* Operating margins decreased to 4% from 12% as a result of losses sustained
in the Aluminium Division
* Improvement in working capital ratio to revenue from 24% to 23%
* Capital expenditure of R107 million lifts gearing to 81% (2006: 64%)
Property disposal proceeds to reduce gearing by 40%
GROUP PROFILE
AGI is an innovative group that has created a distinctive merger of glass and
aluminium systems and fabrication. The Group is South Africa`s leading
distributor of glass and aluminium fabrication used in construction as diverse
as skyscrapers and modern homes.
As a value-added specialist in the glass and aluminium products industry,
location is crucial and the Group operates from over 50 manufacturing and
distribution centres. The Group receives 92% (2006: 92%) of its revenue from
Southern Africa and 8% (2006: 8%) from the UK and Europe.
Beneficiated products (aluminium extrusions; finished products comprising
windows, doors and shower enclosures; and toughened, laminated and other
specialised glass applications) comprise 71% (2006: 68%) of total revenue, with
unbeneficiated products (bulk and cut to size glass) contributing 29% (2006:
32%).
COMMENTARY
Introduction
The Group`s strategy of vertically integrating and extracting efficiencies in
the value-added (beneficiated) glass and aluminium markets remained a key
driver, with considerable resources and capital expenditure again being
committed during the year under review.
Domestic
The Glass and Solutions, Lengths and Hardware ("Sheerline") Divisions achieved
satisfactory results. This was achieved in spite of a contracting new
residential market, particularly in the fourth quarter, as the newly introduced
National Credit Act and successive interest rate increases pegged back growth in
this sector. Investment in the non-residential and industrial construction
sector accelerated in the third quarter of the financial year and remains
robust. This provided meaningful growth to the Glass and Sheerline Divisions.
Volumes in the Aluminium Division came under pressure due to cheaper imports of
both shower doors and aluminium extrusions, as well as operational problems at
the Roodekop manufacturing facility. This, together with a slowdown in growth in
the new residential building sector, impacted on the profitability of the
Aluminium Division.
International
The German economy grew strongly during the second half of the financial year,
while the UK market remained stable, creating a favourable environment for the
international operations.
FINANCIAL REVIEW
Income statement
Group revenue increased by 6% to R1,151 billion (2006: R1,086 billion) with
satisfactory growth in the Glass, Sheerline and the International Divisions.
Although revenues grew in the Aluminium Division, the growth was below
expectation due to operational issues at the Group`s Roodekop manufacturing
facility.
Profit before depreciation fell 53% to R69 million (2006: R145 million). Profit
was impacted by delays in the commissioning of new and refurbished capital
equipment at the Roodekop manufacturing facility and high input commodity
prices, especially aluminium billet. This squeezed operating margins, as selling
price increases were difficult to impose as a result of the influx of cheaper
imports out of China.
The commissioning of the new Roodekop plant also resulted in an expected
increase in depreciation of 46% to R22 million (2006: R15 million) and an
increase in net financing costs of 109% to R34 million (2006: R16 million).
The working capital to revenue ratio improved encouragingly from 24% in the
prior year to 23% in the current year, despite higher than normal inventory
holdings in the Roodekop manufacturing facility. This was mainly due to the
receipt of committed aluminium billet orders with lower production levels.
Associate companies involved in the business of flat and auto glass fabrication
and distribution contributed a reduced share of profit at R1,4 million (2006:
R3,3 million) due to additional costs incurred as a result of capital expansion.
The effective tax rate was reduced by the recognition of a previously
unrecognised deferred tax asset of R12 million in Showerlux SA (Pty) Limited
("Showerlux") in expectation of a profit turnaround and capital gains tax rates
applicable to the Roodekop property transaction. The recognition of the deferred
tax asset led to a corresponding reassessment of goodwill of R12 million on the
acquisition of Showerlux, which is reflected as a reduction in profit before
financing costs and associate income.
The above factors all resulted in a profit for the year of R69 million (2006:
R82 million).
Balance sheet and cash flow
Capital expenditure of R107 million (2006: R130 million) was incurred during the
year under review. The majority of the spend was allocated to value-added
products, with the Roodekop facility being the main beneficiary as production
processes continued to be overhauled and modernised.
Inventories and receivables were well controlled and kept pace with revenue
growth, increasing by 6% to R466 million (2006: R439 million).
Gearing increased to 81% from 64% in the prior year on the back of the
aforementioned capital expenditure required for the Roodekop facility.
Additional investment in subsidiaries totalled R8 million during the year.
However, following the disposal of the Roodekop property (as outlined on SENS on
21 September 2007), gearing will reduce by 40% on receipt of the proceeds, and a
significant abatement of finance costs is expected in the second half of the
financial year upon finalisation of transfer.
OPERATIONAL REVIEW
Domestic
During the year under review, the domestic businesses created additional value-
added production capacity in various hubs around the country, including new
tempering glass facilities being commissioned in Durban, Port Elizabeth and
Roodekop, as well as increasing capacity in aluminium extrusions, powder-coating
and fabrication of finished products at Roodekop.
Glass Division
The Glass Division traded satisfactorily and remains a solid performer in the
Group. While volumes in unbeneficiated glass remained static, imported volumes
of unbeneficiated products were reduced during the year as a result of global
glass shortages. The Division increased volumes of value-added product to its
external customer base and secured profitable value-added project work at better
margins.
However, the results were impacted by the loss of sales and gross profits to the
Aluminium Division as a result of moving the tempered glass production into that
division.
Despite additional costs incurred through the bedding down of the new tempering
capacity in Durban and the Eastern Cape, the Division maintained its operating
margins.
Aluminium Division
The Aluminium Division`s revenue was constrained by unexpected production
setbacks in the second half of the reporting period, resulting in a revenue
increase of only 10%.
The operational issues 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 recommissioning of that press at the Roodekop
premises.This relocation was planned to coincide with the commissioning of a 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 AGI, materially impacting production
volumes and revenues.
Since September 2007, 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.
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 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.
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.
Gross margins in the Aluminium Division also decreased as a result of the
additional costs associated with the various large capital projects at Roodekop
and the under recovery in production overheads as production volumes did not
meet management`s projections in the given timeframe.
These factors combined to result in a disappointing performance for the
Division, which had a material impact on the Group`s results.
Sheerline Division
Sheerline 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. The pipeline for commercial projects is sound and a
number of tenders are pending. However, during the period, gross margins reduced
due to higher aluminium input costs and the temporary increase in the overhead
to revenue ratio following the opening of the new branches. Notwithstanding
this, the Division traded profitably and in line with expectations.
International
The international operations increased revenues by 7% and operating profits more
than doubled, as all businesses increased volumes and selling prices, as well as
enjoying an improved mix. This resulted in higher gross margins, which, together
with lower overhead to revenue ratios, resulted in significantly increased
operating margins.
PROSPECTS
Productivity improvement, which has been a core focus of management, has been
particularly encouraging and should improve margins during the 2008 year and
beyond. Full benefits will flow through when all operational issues at Roodekop
have been resolved. The extrusion order book is robust and the extrusion market
remains buoyant. Prospects will be further enhanced by a reducing raw aluminium
commodity price.
The Board remains of the opinion that the new Roodekop 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 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 first half of 2008
compared to the second half of 2007.
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed financial statements for the year ended 30 June 2007 were prepared
in accordance with International Accounting Standard 34 (IAS 34: Interim
Financial Reporting) and the JSE Limited Listings Requirements. The condensed
consolidated annual financial statements do not include all the information
required by IFRS for full financial statements.
The principal accounting policies used in the preparing of the results for the
year ended 30 June 2007 are consistent with those applied for the year ended 30
June 2006 in terms of IFRS.
REVIEW REPORT
The results for the year have been reviewed in terms of International Standards
on Review Engagements 2410, by the Group`s auditors, Deloitte & Touche, and
their unmodified review report is available at the Company`s registered office
for inspection.
SUBSEQUENT EVENTS
No material events have occurred in the period between year end and the date of
this report.
DISTRIBUTION TO SHAREHOLDERS
There was no capital distribution, dividend or capitalisation share award
proposed or declared for the year under review. However, the Board will review
the policy of declaring a dividend only once a year, and will reassess the
merits of paying an interim dividend once the proceeds from the disposal of the
property have reduced gearing, as mentioned above.
For and on behalf of the Board
AA Barrell RK Braithwaite MJE Geldenhuys
Chief Executive Officer Group Financial Director Company Secretary
Johannesburg
28 September 2007
CONDENSED CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2007
Reviewed Audited
year year
ended ended
30 June 30 June
2007 2006 Change
R`000 R`000 %
CONTINUING OPERATIONS
Revenue 1 151 1 086 6
084 076
Profit before depreciation 68 656 145 129 (53)
Depreciation (22 367) (15 351)
Profit from operations 46 289 129 778 (64)
Operating margin (%) 4 12
Profit on disposal of property, 67 095 80
plant and equipment
Goodwill reassessed (12 347) -
Profit before financing costs and
associate income 101 037 129 858 (22)
Net financing costs (33 676) (16 135)
Share of profits of associates 1 395 3 269
Profit before taxation 68 756 116 992 (41)
Taxation - see additional 299 (33 651)
information
Profit for the year from 69 055 83 341 (17)
continuing operations
DISCONTINUED OPERATIONS
Loss for the year from - (947)
discontinued operations
Profit for the year 69 055 82 394 (16)
Attributable to:
Equity holders of the parent 67 504 80 559
company
Minority interest 1 551 1 835
Basic earnings per share
Number of ordinary shares in issue 205 626 196 577
(`000)
Weighted average number of
ordinary
shares in issue (`000) 201 216 196 062
Diluted number of ordinary shares 205 827 198 905
in issue (`000)
Basic earnings per ordinary share 33,5 41,1 (18)
(cents)
Diluted basic earnings per 32,8 40,5 (19)
ordinary share (cents)
Capital
distribution/capitalisation share
award
Capital distribution proposed per
ordinary share
(cents) and/or - 9,0*
Capitalisation share award
proposed per
100 ordinary shares (shares) - 2,90*
* Capital
distribution/capitalisation share
award proposed in respect of year
ended 30 June 2006 - paid/awarded
on 16 October 2006.
Headline earnings per share
Reconciliation
Profit for the year attributable
to equity holders
of the parent company
67 504 80 559
Profit on disposal of property, (67 095) (71)
plant and equipment
Tax effect of profit on disposal
of property, plant
and equipment
9 273 21
Goodwill reassessed 12 347 -
Headline earnings from continuing
and
discontinued operations
22 029 80 509 (73)
Headline earnings per ordinary 10,9 41,1 (73)
share (cents)
Diluted headline earnings per 10,7 40,5 (74)
ordinary share (cents)
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 June 2007
Reviewed Audited
year year
ended ended
30 June 30 June
2007 2006
R`000 R`000
ASSETS
Non-current assets
Property, plant and equipment 191 223 210 212
Intangible assets 110 110 116 174
Investments and loans 15 163 15 008
Deferred taxation assets 39 595 12 465
356 091 353 859
Current assets
Other current assets 465 838 438 925
Amounts due on disposal of property 163 000 -
Cash and cash equivalents 44 112 2 829
672 950 441 754
Total assets 1 029 041 795 613
EQUITY AND LIABILITIES
Total equity
Equity attributable to equity holders of 412 374 346 168
the parent company
Minority interest 4 511 4 858
416 885 351 026
Non-current liabilities
Deferred taxation liabilities 10 045 11 034
Long-term interest-bearing debt 76 214 90 078
Long-term lease accrual 15 940 15 196
Long-term deferred income 271 412
Interest-bearing shareholders loan - 11 423
102 470 128 143
Current liabilities
Other current liabilities 206 120 193 602
Interest-bearing shareholder`s loan 4 621 -
Short-term interest-bearing debt 298 945 122 842
509 686 316 444
Total equity and liabilities 1 029 041 795 613
Net asset value per ordinary share 201 176
(cents)
Net tangible asset value per ordinary 147 117
share (cents)
ADDITIONAL INFORMATION
Capital expenditure for the year 107 261 130 350
Capital expenditure committed or 38 221 95 796
authorised
Directors` valuation of investments and 15 595 15 008
loans
Finance and operating lease commitments 513 256 265 477
Interest capitalised 4 604 1 238
Contingent liabilities 5 458 28 842
Cost of sales 673 292 570 699
Taxation reconciliation
South African normal taxation at 29% 19 939 33 928
Deferred taxation asset not previously (12 480) -
raised
Goodwill reassessed 3 619 -
Profit on disposal of property taxed at (10 185) -
CGT rate of 14,5%
Other items (1 192) (277)
Taxation per income statement (299) 33 651
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June 2007
Reviewed Audited
year year
ended ended
30 June 30 June
2007 2006
R`000 R`000
Cash flows from operations before working 69 622 143 730
capital changes
Working capital changes (9 098) (82 673)
Net financing costs and taxation paid (65 683) (33 378)
Net cash (outflow)/inflow from operating (5 159) 27 679
activities
Net capital expenditure (99 208) (124 008)
Dividend received from associate 585 2 145
Decrease in investments and loans 167 995
receivable
Increase in investments in subsidiaries (8 023) (3 961)
Net cash outflow from investing activities (106 479) (124 829)
Capital distribution (3 432) (8 184)
Other financing activities 33 257 28 992
Net cash inflow from financing activities 29 825 20 808
Net movement in cash equivalents and bank (81 813) (76 342)
borrowings
Cash equivalents and bank borrowings at (96 836) (23 187)
beginning of year
Movements resulting from acquisition and (4 738) 2 693
FCTR
Cash equivalents and bank borrowings at (183 387) (96 836)
year-end
Cash and cash equivalents 44 112 2 829
Bank borrowings (227 499) (99 665)
(183 387) (96 836)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2007
Attributable
Share to equity
capital holders of
and the parent
premium company
Other Retained Minority Total
reserves earnings interest equity
R`000 R`000 R`000 R`000 R`000 R`000
Audited 85 081 4 106 180 594 269 781 4 406 274
balance at 30 187
June 2005
Treasury 595 - - 595 - 595
shares
Movement in - 3 647 (759) 2 888 - 2 888
reserves
Transfer to
share-based
compensation
reserve
- 555 - 555 - 555
Profit for the - - 80 559 80 559 1 835 82 394
year
Dividend paid - - - - (504) (504)
Minority - - - - (879) (879)
interest
acquired
Capital
distribution/
capitalisation
share award (8 210) - - (8 210) - (8
210)
Audited 77 466 8 308 260 394 346 168 4 858 351
balance at 30 026
June 2006
Treasury (3 762) - - (3 762) - (3
shares 762)
Shares issued 11 243 - - 11 243 - 11 243
Movement in - (4 652) (358) (5 010) - (5
reserves 010)
Transfer from
share-based
compensation
reserve - (313) - (313) - (313)
Profit for the - - 67 504 67 504 1 551 69 055
year
Dividend paid - - - - (445) (445)
Minority - - - - (1 453) (1
interest 453)
acquired
Capital
distribution/
capitalisation
share award (3 456) - - (3 456) - (3
456)
Reviewed 81 491 3 343 327 540 412 374 4 511 416
balance at 30 885
June 2007
GROUP SEGMENTAL ANALYSIS
for the year ended 30 June 2007
Discontinued
Continuing operations operations
Interseg Total
ment
Souther sales continu Total
n ing
Africa Europe eliminat operati Europe Group
ed ons
R`000 R`000 R`000 R`000 R`000 R`000
Geographical
Revenue:
Reviewed year
ended
30 June 2007 1 396 121 (367 1 151 - 1 151
625 799 340) 084 084
% to total 92 8
Audited year ended
30 June 2006 1 294 114 (322 1 086 - 1 086
255 076 255) 076 076
% to total 92 8
Result
Profit from
operations
Reviewed year
ended
30 June 2007 37 419 8 870 - 46 289 - 46 289
% to total 81 19
Audited year ended
30 June 2006 125 754 4 024 - 129 778 (950) 128 828
% to total 97 3
Continuing operations
Reviewed Audited
year year ended
ended
30 June 30 June
2007 2006
R`000 % R`000 %
Business segment
Revenue:
Unbeneficiated products 439 338 29 449 227 32
Value-added products
- Glass 254 146 17 214 584 15
- Aluminium 661 454 43 601 658 43
- Sheerline 163 486 11 142 862 10
1 518 424 100 1 408 331 100
Intersegment sales (367 340) (322 255)
eliminated
1 151 084 1 086 076
Directors: AA Barrell (CEO), RK Braithwaite (Financial), MJE Geldenhuys, CP
Kalil, J Martingano, JC Saville, HR Levin* (Non-Executive Chairman), BE
Danoher*+, GFD Twigg*
*Non-Executive Irish +Independent
REGISTERED OFFICE
Corner Kruger Street and Mimetes Road, Denver Extension 11, Johannesburg 2094
PO Box 40443, Cleveland 2022
TRANSFER SECRETARIES
Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street, Johannesburg 2001. PO Box 61051, Marshalltown 2107, South
Africa
Visit our website:
www.ag-industries.com
Date: 28/09/2007 08:00:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
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