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AGI
AGI
AGI - Ag Industries Limited - Unaudited interim results for the six months ended
31 December 2007
AG INDUSTRIES LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1980/004051/06
Share code: AGI & ISIN: ZAE000039467
("AGI" or "the Group")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2007
GLASS & ALUMINIUM INFINITE INNOVATIVE APPLICATIONS
Poised for growth
SALIENT FEATURES
- Headline earnings per share down 113%, with a loss of 2,6 cps (2006:
earnings 20,8 cps)
- Group revenues remained constant at R621 million (2006: R621 million),
although a number of divisions achieved good revenue growth
- Profit before depreciation improved from a loss of R9,6 million in the six
months to 30 June 2007 to a profit of R33,7 million in the six months ended
31 December 2007
- The working capital to revenue ratio improved from 27% to 26%, with trade
receivables decreasing 7% on the prior period
- Gearing reduced from 81% to 62% upon receipt of proceeds from the disposal
of the Roodekop property
- Capital expenditure abated from R72,0 million to R25,1 million as all major
projects near completion
- Strong international growth despite global uncertainty
COMMENTARY
Introduction
The Group`s strategy of vertically integrating and extracting efficiencies in
the value added (beneficiated) glass and aluminium markets remains a key driver.
Over the last 18 months, AGI has committed considerable resources and capital
expenditure to achieve sustainable growth into the future. With all of the major
projects nearing completion, the Group is poised to take full advantage of the
increased production capacity.
During the reporting period, management continued to focus on addressing
operational problems and productivity issues at the Roodekop manufacturing
facility. As a result of corrective action plans taken during the period, steady
capacity and productivity improvements were made, despite a strike in July and
further press breakdowns in August. The planned replacement of the billet heater
and shearer was completed over the December 2007 shutdown. The second extrusion
press is now able to operate at its required production capacity and should
start to contribute positively to productivity.
Domestic
The Group`s domestic businesses contributed 92% (2006: 93%) to Group revenue and
77% (2006: 93%) to profit before financing costs and associate income.
Trading conditions in the South African market became increasingly difficult in
the first half of the financial year, particularly in the second quarter.
Consumers were affected by rising inflation, higher interest rates and household
debt, which saw a slowdown in consumer spending and the new residential sector
of the market.
Whilst these conditions negatively affected volumes, the Group managed to
counter the impact by growing volumes in the commercial and construction sector
due to the country`s increased infrastructural spend. This resulted in strong
growth in the Value Added Glass and Lengths, Hardware and Solutions
("Sheerline") Divisions. Pressure on volumes in the Aluminium Division continued
due to cheaper imports from China and the slowdown in the residential market.
International
The Group`s international businesses contributed 8% (2006: 7%) to Group revenue
and 23% (2006: 7%) to profit before financing costs and associate income.
While there was weaker global growth as a result of turmoil in the world`s
financial markets and increased uncertainty, trading conditions for the Group`s
International Division was strong, with solid growth in the German, UK and
Mauritian markets. All of these operations posted record results for the period
under review.
FINANCIAL REVIEW
Income statement
Group revenue remained constant at R621 million, predominantly owing to the
decrease in volumes in the Aluminium Division. The Value Added Glass, Sheerline
and International Divisions had above inflationary growth, with Unbeneficiated
Glass remaining constant.
Basic earnings per share decreased by 113% with a loss of 2,7 cps (2006:
earnings 20,8 cps). Headline earnings per share decreased by a similar amount,
with a loss of 2,6 cps (2006: earnings 20,8 cps).
Although profit before depreciation fell 57% to R33,7 million (2006: R78,2
million) compared to the six months ended 31 December 2006, profit before
depreciation improved from a loss of R9,6 million in the six months ended 30
June 2007 to a profit of R33,7 million in the current period. Whilst capacity
and productivity improvements were made throughout the period, as expected,
profit was still impacted by delays and under recoveries at the Roodekop
manufacturing facility. Volatility in commodity prices, cheaper imports and
higher input costs fuelled the squeeze on operating margins and put pressure on
selling prices.
Depreciation increased by 11% to R13,0 million (2006: R11,7 million) and net
financing costs increased by 81% to R26,1 million (2006: R14,5 million), as the
majority of the major assets were brought to book during the second half of the
2007 financial year.
Associate companies involved in the business of flat and auto glass fabrication
and distribution contributed a slightly increased share of profit at R1,4
million (2006: R1,2 million).
The effective tax rate was increased as a result of the non deductibility of
certain capital items.
The above factors all resulted in a loss for the half year of R4,7 million
(2006: profit R42,8 million).
Balance sheet and cash flow
Capital expenditure of R25 million (2006: R72 million) was incurred during the
half year under review. The majority of the expenditure was allocated to Value
Added Products Divisions, with Roodekop being the main beneficiary, accounting
for 47% (2006: 66%) of this spend.
The working capital to revenue ratio improved from 27% in the prior period to
26% in the current period, with trade debtors decreasing 7% on the prior period.
This decrease was counteracted by an amount receivable from the Receiver of
Revenue for a VAT refund due from an input credit on the disposal of the
Roodekop premises. Trade debtor days decreased from 61 days to 57 days in the
current period.
As expected, gearing decreased from 81% to 62% as the proceeds from the sale of
the Roodekop property were received on 12 December 2007.
Net movement in cash and cash equivalents for the current period improved from a
cash outflow of R7,0 million in the prior period to a cash inflow of R67,1
million in the current period. This was mainly as a result of the proceeds on
disposal of the Roodekop property.
OPERATIONAL REVIEW
Domestic
Glass Division
This division, which consists of Unbeneficiated and Value Added Glass,
contributed around 38% of the Group`s revenue and remains a consistent
performer. Revenue in the division increased by 7,7% to R322,2 million (2006:
R299,3 million) in the current period.
Unbeneficiated Glass
Revenues in Unbeneficiated Glass (wholesale distribution of bulk and cut to size
glass) increased to R176,9 million from R175,6 million in the prior period. This
was in line with expectations and the Group`s strategy of maintaining market
share within this competitive segment.
This division encountered elements of price competition from importers. This,
together with a consistent overhead to revenue ratio and excluding foreign
exchange gains or losses, resulted in operating margins decreasing from 6% to
5%.
Value Added Glass
Revenues in Value Added Glass increased to R145,3 million from R123,7 million in
the prior period.
The results in Value Added Glass were achieved against a further slowdown in the
residential market, which was predominantly offset by the continuing upturn in
the commercial market. Revenue therefore increased by 17,5% (2006: 2,9%) along
with a marginal increase in volumes following the revenue mix shifting towards
servicing the commercial market with higher selling prices. Start-up costs and
under-recoveries in manufacturing equipment in the new facilities in the Eastern
Cape and Roodekop tempering facility resulted in margins decreasing from 20% to
14%.
Aluminium Division
This division contributed around 42% of the Group`s revenue. It consists of
Finished Goods and the Roodekop aluminium manufacturing facility.
As mentioned in previous announcements and the 2007 Annual Report, the Group
results were materially impacted by operating problems at the wholly-owned
Roodekop manufacturing facility. These problems had a significant impact on
revenues and operating margins from January 2007 onwards.
During the six months to December 2007, revenues in this division decreased from
R419,7 million to R355,3 million in the current period. Whilst the operating
margins were significantly lower than the six months to December 2006 at -3%
(2006: 2%), the operating margin improved from -18% to -3% on the prior six
months to June 2007.
* Finished Goods
Revenues decreased from R229,6 million to R198,8 million and operating margins
decreased from 9% to 1% compared to the previous corresponding period as a
result of volumes being put under pressure due to cheaper imports from China and
the slowdown in the residential market. However, when compared to the prior six
months to June 2007, revenues increased from R197,6 million to R198,8 million`
and operating margins improved from -2,3% to 1,3% following a restructuring
drive to improve productivity and efficiencies. This resulted in this division
returning to profitability.
* Roodekop
Revenues decreased from R190,1 million to R156,5 million in the current period.
This was after the effect of once off inter-company revenues of R69,8 million in
the six months to December 2006 following stock movements due to the restructure
within this division. Had these stock movements not taken place in the previous
corresponding period, revenues for the six months to December 2007 would have
increased from R120,3 million to R156,5 million.
Operating losses were reduced to R13,7 million during the current period from
R39,4 million in the immediate prior six-month period. Production from the
presses has grown steadily in the current period despite certain production
setbacks experienced and is currently running at around 90% (June 2007: 65%) of
the planned production targets.
*Sheerline Division
This division contributed around 12% of the Group`s revenue. The division traded
satisfactorily, with revenues increasing from R79,1 million to R91,4 million in
the current period. However, volatility in commodity prices and cheaper imports
of aluminium extrusions from China put pressure on selling prices. This,
together with an increase in the overhead to revenue ratio in the current
reporting period due to the expansion of this division`s geographic footprint
through the opening of seven new branches in the latter part of the previous
financial year, resulted in a decrease in operating margin from 15% to 6%.
*International
This division contributed around 8% of the Group`s revenue and experienced
continued growth. Revenues increased by 9% to R70,2 million (2006: R64,7
million) in the current period. The trading operations in Germany, United
Kingdom and Mauritius reported record operating profits for the period on the
back of growing revenues. Operating margins decreased from 7,3% to 6,8% as a
result of the start-up costs of approximately R1,0 million incurred in the
opening of a trading office in South East Asia.
PROSPECTS
During the period, the last of the major operational issues at Roodekop were
resolved. Going forward, productivity improvement will remain a core focus of
management. This, together with a concerted effort to manage costs downwards, as
well as improving cost recoveries by achieving production objectives, should
improve margins further in the Aluminium Division.
Given the weakening of the Rand, less price pressure as a result of competition
from importers is expected and margins should normalise in the Glass Division.
The commercial building and construction sector remains buoyant and presents
promising growth opportunities for both the Glass and Sheerline Divisions. A
further shift to infrastructural spend is expected. This bodes well for the
Group, as it has both the technical ability and capacity to meet this demand.
The Group has a focused strategy to regain lost market share in the Finished
Goods Division. This, together with an ongoing drive to improve the overhead to
revenue ratio should restore the Aluminium Division to previous levels of
profitability over the medium term.
The 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 in
resolving the operational problems in the Aluminium Division, should result in
improved profitability going forward in the medium term.
POST-BALANCE SHEET EVENT
As a result of the national budget speech on 20 February 2008 and the proposed
reduction in the company tax rate from 29% to 28%, the Group will incur an
additional tax charge of around R1,0 million for the 2008 financial year due to
a reduction in the net deferred taxation assets carried forward from the prior
year.
CHANGES IN DIRECTORATE
Mrs J Martingano has, in addition to her role as Executive Director, assumed the
role of Managing Director of Africa Glass SA Holdings (Proprietary) Limited,
effective from 2 November 2007. She is now directly responsible for all Southern
African business operations.
Mr RK Braithwaite, the Group Financial Director, resigned with effect from 31
January 2008 and Mr MJE Geldenhuys, the Group Risk Director and Company
Secretary, assumed the role of acting Group Financial Director effective from 1
February 2008.
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed financial statements for the period ended 31 December 2007 were
prepared in accordance with International Accounting Standard 34 (IAS 34:
Interim Financial Reporting) and the JSE Limited Listing Requirements. The
condensed consolidated annual financial statements do not include all the
information required by IFRS for full financial statements.
These interim results have not been audited or reviewed by the Group`s auditors.
DISTRIBUTION TO SHAREHOLDERS
The Board has reviewed the policy of declaring one dividend a year after its
financial year end. Given the current performance of the Group, the current
economic climate and high cost of interest, the Board has decided not to alter
its policy and consequently, no interim dividend is declared.
For and on behalf of the Board
AA Barrell MJE Geldenhuys
Group Chief Executive Group Financial Director
03 March 2008
CONDENSED CONSOLIDATED INCOME STATEMENT
for the six months ended 31 December 2007
Unaudited Unaudited Audited
six months six year
months
ended ended ended
31 31 30 June
December December
2007 2006 Change 2007
R`000 R`000 % R`000
Revenue 621 023 620 967 - 1 151 084
Profit before
depreciation 33 671 78 240 (57) 68 656
Depreciation (13 007) (11 722) (22 367)
Profit from 20 664 66 518 (69) 46 289
operations
Operating margin 3,3 10,7 4,0
(%)
(Loss)/profit on
disposal of
property,
plant and (42) 70 67 095
equipment
Goodwill
reassessed,
negative
goodwill
and impairment
of investments - - (12 347)
Profit before
financing costs
and
associate income 20 622 66 588 (69) 101 037
Net financing (26 147) (14 482) (33 676)
costs
Share of profits
of associates 1 360 1 198 1 395
(Loss)/profit
before taxation (4 165) 53 304 (108) 68 756
Taxation (578) (10 467) 299
- normal (590) (10 447) 9 572
activities
- headline 12 (20) (9 273)
adjustments
(Loss)/profit
for the period (4 743) 42 837 (111) 69 055
Attributable to:
Equity holders
of the parent (5 413) 41 709 (113) 67 504
company
Minority 670 1 128 1 551
interest
Basic earnings (4 743) 42 837 69 055
per share
Number of
ordinary shares 205 626 203 276 205 626
in issue (`000)
Weighted average
number of
ordinary
shares in issue 204 149 200 200 201 216
(`000)
Diluted number
of ordinary
shares in
issue (`000) 207 198 206 791 205 827
Basic
(loss)/earnings (2,7) 20,8 33,5
per ordinary
share (cents)
Diluted basic
(loss)/earnings
per ordinary
share (cents) (2,6) 20,2 32,8
Headline
earnings per
share
Reconciliation
(Loss)/profit
for the year
attributable to
equity holders
of the parent (5 413) 41 709 67 504
company
Loss/(profit) on
disposal of
property,
plant and 42 (70) (67 095)
equipment
Tax effect on
loss/(profit) on
disposal
of property,
plant and (12) 20 9 273
equipment
Goodwill - - 12 480
reassessed
Negative - - (148)
goodwill
Impairment of
investments - - 15
Headline (5 383) 41 659 (113) 22 029
(loss)/earnings
Headline
(loss)/earnings
per ordinary
share (cents) (2,6) 20,8 10,9
Diluted headline
(loss)/earnings
per ordinary
share (cents) (2,6) 20,2 10,7
CONDENSED CONSOLIDATED BALANCE SHEET
as at 31 December 2007
Unaudited Unaudited Audited
six six year
months months
ended ended ended
31 31 30 June
December December
2007 2006 2007
R`000 R`000 R`000
ASSETS
Non-current assets
Property, plant and 198 886 264 561 191 223
equipment
Intangible assets 114 889 121 116 110 110
Investments and loans 14 372 16 732 15 163
Deferred taxation assets 46 399 15 296 39 595
374 546 417 705 356 091
Current assets
Inventories 235 871 239 072 228 409
Trade and other 256 871 252 094 228 003
receivables
Receivable due from sale - - 163 000
of property
Other current assets 10 919 4 473 9 426
Cash and cash 48 382 16 065 44 112
equivalents
552 043 511 704 672 950
Total assets 926 589 929 409 1 029 041
EQUITY AND LIABILITIES
Total equity
Equity attributable to
equity holders of
the parent company 408 151 389 643 412 374
Minority interest 5 321 5 541 4 511
413 472 395 184 416 885
Non-current liabilities
Deferred taxation 14 134 9 613 10 045
liabilities
Long-term interest- 89 671 189 564 76 214
bearing debt
Long-term lease accrual 16 998 15 586 15 940
Amounts due to vendor 1 000 - -
Long-term deferred 271 206 271
income
Interest-bearing - 8 214 -
shareholder`s loan
122 074 223 183 102 470
Current liabilities
Trade and other payables 170 035 152 345 190 784
Other current 10 150 25 526 15 336
liabilities
Other interest-bearing 47 476 13 103 76 068
short-term debt
Bank borrowings 163 382 120 068 227 498
391 043 311 042 509 686
Total equity and 926 589 929 409 1 029 041
liabilities
Net asset value per
ordinary share (cents) 198 192 201
Net tangible asset value
per ordiinary share 143 132 147
(cents)
ADDITIONAL INFORMATION
Capital expenditure for 25 065 72 046 107 261
the period
Capital expenditure
committed or authorised 13 156 38 133 38 221
Directors` valuation of
investments and loans 14 372 16 732 15 595
Finance and operating
lease commitments 518 929 332 739 513 256
Interest capitalised - 1 110 4 604
Contingent liabilities 5 545 33 573 5 458
Cost of sales 358 943 324 693 673 292
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 31 December 2007
Unaudited Unaudited Audited
six six year
months months
ended ended ended
31 31 30 June
December December
2007 2006 2007
R`000 R`000 R`000
Cash flows from 35 042 77 347 69 624
operations
Working capital changes (56 880) (83 689) (9 100)
Net financing costs and (38 174) (18 548) (65 683)
taxation paid
Net cash outflow from
operating activities (60 012) (24 890) (5 159)
Additions to property,
plant and equipment (20 724) (66 725) (99 237)
Proceeds on disposal of
property, plant and 164 536 730 30
equipment
Dividend received from - - 585
associate
Decrease in investments 1 711 63 166
and loans
Increase in investments (4 341) (3 181) (8 024)
in subsidiaries
Net cash 141 182 (69 113) (106 480)
inflow/(outflow) from
investing activities
Capital distribution - (3 429) (3 432)
Other financing (14 115) 90 384 33 258
activities
Net cash
(outflow)/inflow from (14 115) 86 955 29 826
financing activities
Net increase/(decrease)
in cash and
cash equivalents 67 055 (7 048) (81 813)
Cash and cash
equivalents at beginning
of the period (183 386) (96 836) (96 836)
Movements resulting from 1 331 (119) (4 737)
FCTR
Cash and cash
equivalents at end of (115 000) (104 003) (183 386)
the period
Cash and cash 48 382 16 065 44 112
equivalents
Bank borrowings (163 382) (120 068) (227 498)
(115 000) (104 003) (183 386)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 December 2007
Attribu-
table to
Share equity
capital holders
and Other Retained of Minority Total
premium reserves earnings the interest equity
parent
company
R`000 R`000 R`000 R`000 R`000 R`000
Balance at 30
June 2006 77 466 8 308 260 394 346 168 4 858 351 026
Capital (3 457) - - (3 457) - (3 457)
distribution
Ordinary
shares issued 5 868 - - 5 868 - 5 868
Movement in
treasury 516 - - 516 - 516
shares
Movement in
reserves - 811 (894) (83) - (83)
Transfer from
share-based
compensation
reserve - (1 078) - (1 078) - (1 078)
Dividend paid - - - - (445) (445)
Profit for - - 41 709 41 709 1 128 42 837
the period
Balance at 31
December 2006 80 393 8 041 301 209 389 643 5 541 395 184
Ordinary
shares issued 5 375 - - 5 375 - 5 375
Movement in
treasury (4 277) - - (4 277) - (4 277)
shares
Movement in
reserves - (5 463) 536 (4 927) - (4 927)
Transfer to
share-based
compensation - 765 - 765 - 765
reserve
Minority
interest - - - - (1 453) (1 453)
acquired
Profit for - - 25 795 25 795 423 26 218
the period
Balance at 30
June 2007 81 491 3 343 327 540 412 374 4 511 416 885
Movement in
treasury 904 - - 904 - 904
shares
Movement in
reserves - 1 038 (966) 72 - 72
Transfer to
share-based
compensation - 214 - 214 - 214
reserve
Increase in
minority - - - - 140 140
interest
Loss for the - - (5 413) (5 413) 670 (4 743)
period
Balance at 31
December 2007 82 395 4 595 321 161 408 151 5 321 413 472
GROUP SEGMENTAL ANALYSIS
for the six months ended 31 December 2007
Intersegment
Southern sales
Africa International eliminated Total
R`000 R`000 R`000 R`000
Geographical
Revenue:
Unaudited period
ended 31 December 768 973 70 166 (218 116) 621 023
2007
% to total 92 8
Unaudited period
ended 31 December 798 106 64 655 (241 794) 620 967
2006
% to total 93 7
Audited year ended
30 June 2007 1 396 121 799 (367 340) 1 151
625 084
% to total 92 8
Result:
Profit before
financing costs
and associate
income
Unaudited period
ended 31 December 15 877 4 745 - 20 622
2007
% to total 77 23
Unaudited period
ended 31 December 61 859 4 729 - 66 588
2006
% to total 93 7
Audited year ended
30 June 2007 92 104 8 933 - 101 037
% to total 91 9
Unaudited Unaudited Audited
six six months year
months ended ended
ended
31 31 December 30 June
December
2007 2006 2007
R`000 % R`000 % R`000 %
Business
segment
Revenue:
Unbeneficiated
products 240 986 29 240 238 28 439 338 29
Value Added
products
- Glass 145 262 17 123 661 14 254 146 17
- Aluminium 355 307 42 413 464 48 661 454 43
- Sheerline 97 584 12 85 398 10 163 486 11
839 139 100 862 761 100 1 518 424 100
Intersegment
sales (218 116) (241 794) (367 340)
eliminated
621 023 620 967 1 151 084
Directors: AA Barrell (CEO), MJE Geldenhuys (Financial), 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
SPONSOR
SASFIN CAPITAL
(A DIVISION OF SASFIN BANK LIMITED)
Visit our website:
www.ag-industries.com
Date: 03/03/2008 14:00:11 Produced by the JSE SENS Department.
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