| Mon 15 Sep 2008, 17:30 | | AGI - AG Industries Limited - Reviewed Results For The Year Ended 30 June 2008 |
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AGI
AGI
AGI - AG Industries Limited - Reviewed Results For The Year Ended 30 June 2008
AG INDUSTRIES LIMITED ("AGI" or "the Group")
Registration number: 1980/004051/06
Share code: AGI
ISIN: ZAE000039467
Reviewed results for the year ended 30 June 2008
SALIENT FEATURES
- Revenue increases by 6% to R1,223 million (2007: R1,151 million)
- Gearing improves to 67% (2007: 81%)
- Capital expenditure on property, plant and equipment reduces to R34 million
(2007: R99 million)
- Strong international growth despite global downturn
- Operating losses at Roodekop were reduced to R23 million (2007: R32 million)
- Headline loss of 15,4 cps (2007: earnings of 10,9 cps)
- The working capital to revenue ratio increases to 25% (2007: 23%) due to
increased input costs of glass and aluminium
Commentary
OPERATIONAL REVIEW
Domestic
The Group`s domestic businesses contributed 89% (2007: 92%) to Group revenue and
57% (2007: 81%) to profit from operations.
The year under review continued to be difficult for the South African
operations. The results were influenced by the operational problems at Roodekop
which started having a material impact on both operating revenues and margins
from January 2007 onwards. As expected, these problems resulted in a loss in
this division of approximately R37 million for the year under review. Whilst
corrective action was taken, operational problems were only resolved by the end
of January 2008, after the replacement of the aluminium billet shearer/heater on
the extrusion press in the December shutdown period. Pleasingly, the extrusion
manufacturing facility delivered operating profits from March to June 2008. As a
result of the knock-on effect of these problems, full recovery of the Group`s
domestic operations is expected within the next 18 months.
The domestic market was impacted by the power outages in January and February,
which are traditionally the Group`s slower months. The impact on the business
through the loss of sales due to lower production, as well as negative sentiment
in the economy in general, resulted in losses in these two months of
approximately R28 million. This is substantially more than the historic trend
during these months.
Trading conditions in the South African market became increasingly difficult as
the softening economic climate, rising inflation, higher interest rates and
household debt impacted consumer spending. The slowdown in the residential
market was buffered to some extent in the second half of the year as the
country`s infrastructural spend gained momentum.
Glass Division
This division, which consists of Unbeneficiated and Value Added Glass,
contributes around 35% of the Group`s revenue and increased revenue by 3% to
R587 million (2007: R572 million).
- Unbeneficiated Glass
Revenues in Unbeneficiated Glass (wholesale distribution of bulk and cut to size
glass) increased by 1% to R321 million (2007: R318 million). Volumes decreased
by 6% predominantly due to the residential slowdown. Improved gross margins, due
to a more favourable product mix, and a constant overhead to revenue ratio,
delivered an improved operating margin in the year under review.
- Value Added Glass
Revenues in Value Added Glass increased by 5% to R266 million (2007: R254
million). There was strong growth into the non-residential market, however, this
was somewhat offset by a drop in off-take from the Aluminium Division due to the
residential slowdown. Although operating margins decreased as a result of an
increase in the overhead to revenue ratio brought about by double digit
inflation in the current year, the division continued to trade profitably.
Aluminium Division
This division contributes around 42% of the Group`s revenue. It consists of
Finished Goods and the Roodekop aluminium manufacturing facility.
Revenues in this division increased by 4% to R686 million (2007: R661 million).
Operating margins improved, particularly in the second half of the year, as the
production problems at Roodekop were largely resolved.
- Finished Goods
This division derives approximately 29% of its revenue from the retail sector,
while 71% is from the residential and small commercial building sector and has
been impacted by reduced consumer spending. This resulted in a decrease of 9% in
revenues to R385 million (2007: R421 million).
Operating margins remained constant as overheads were trimmed by R13 million in
the current year to match the decrease in revenue. This division remains
profitable.
- Roodekop
Revenues increased by 25% to R301 million (2007:
R240 million). Operating margins improved as production throughput increased,
improving the overhead to revenue ratio. Despite significant maintenance
expenses, overheads were reduced by R10 million year on year. Production
tonnages increased by 41% in the second half of the year compared to the first
half, while achieving 92% of planned production targets from March to June 2008.
This resulted in a significant operating loss in the first eight months of the
year being converted into an operating profit from March to June 2008. Both
maintenance and scrap rates improved significantly in the second half of the
year and operating losses reduced to R23 million (2007: R32 million) for the
year under review.
Sheerline Division
This division contributes 12% of the Group`s revenue and consists of extruded
aluminium lengths and hardware.
The division traded satisfactorily, with revenues from domestic and
international sales increasing by 21% to R198 million (2007: R163 million). The
increase in revenues was due to both increased commodity prices and volume
growth in aluminium lengths. This volume growth was driven by a high rate of
tenders within the non-residential market. Volatility in the aluminium price
during the year and the resultant time lag in passing on price increases,
resulted in gross margins coming under pressure and decreasing year on year.
This, together with an increased overhead to revenue ratio due to higher
distribution costs and rentals as the division increased its geographic
footprint in the latter part of the previous financial year, resulted in a
decrease in operating margins in the current year.
International
The Group`s international businesses contributed 11% (2007: 8%) to Group revenue
and 43% (2007: 19%) to profit from operations.
While the global economy slowed to some extent, trading conditions for the
Group`s International Division continued to have solid growth in the German, UK
and Mauritian trading operations.
Revenues increased 43% to R174 million (2007: R122 million). All of the trading
operations reported record operating profits for the year on the back of growing
revenues, as well as improved margins due to a more favourable product mix. The
division maintained operating margins in spite of start-up costs of
approximately R2 million incurred in the recently established trading offices in
South East Asia.
FINANCIAL REVIEW
Income statement
Group revenue increased by 6% to R1,223 million (2007: R1,151 million) with the
Value Added Glass, Sheerline and International Divisions all experiencing above
inflationary volume growth for the year while the Aluminium and Unbeneficiated
Glass Divisions felt the effects of a softer domestic residential market.
Profit before depreciation decreased by 20% to R54,8 million (2007: R68,7
million) after once-off costs of around R12 million relating to retrenchments,
impairment of unproductive assets and abnormal maintenance costs, mainly at the
Roodekop facility.
In addition, margins were further impacted by an increased overhead to revenue
ratio due to lower production volumes in the first eight months of the year.
Depreciation increased by 22% to R27,3 million (2007: R22,4 million) and net
financing costs increased by 41% to R47,4 million (2007:
R33,7 million), as the capital expenditure in the prior year of R107 million was
included for the full year under review. As expected, net financing costs
decreased 19% in the second half of the current year compared to the first half
due to the lower level of gearing during that period.
Associate companies involved in the business of flat and auto glass fabrication
and distribution contributed an increased share of profit of R2,9 million (2007:
R1,4 million).
In light of the trading results of certain divisions, management deemed it
prudent to defer the raising of a deferred taxation asset for the current year
of R15,3 million until the trading entities involved return to profitability,
expected within 18 months. This resulted in a substantial increase in the
effective tax rate.
Basic and headline earnings per share decreased to a loss of 16,3 cps and 15,4
cps respectively (2007: earnings of 33,5 cps and 10,9 cps respectively).
Balance sheet and cash flow
Capital expenditure on property, plant and equipment reduced substantially to
R34 million (2007: R99 million) for the year under review of which 73% (2007:
22%) related to replacement capital expenditure. Of the R34 million capital
expenditure in the current year, R21 million was incurred in the first half of
the year under review. Capital expenditure is expected to remain at current
levels.
Additional investments in subsidiaries of approximately R14 million (2007: R8
million) were made during the year under review. This amount is made up as
follows:
- A 70% investment in Ralph`s Mirror and Glass (Proprietary) Limited for R7
million effective 1 October 2008. The consideration is payable in cash and
shares in the amount of R6 million cash and the issue of 258 398 ordinary shares
in AG Industries Limited. As at 30 June 2008, the shares had not been issued;
- A 70% investment in AG Industries Asia-Pacific (Private) Limited and its
wholly owned subsidiary, AG Industries Vietnam Company Limited for a cash
consideration of R600 000, effective 1 July 2007;
- An additional 9,6% investment in West Cape Safety Glass (Proprietary) Limited,
a subsidiary of the Group, for an amount of R6,6 million. This investment was
acquired in two tranches, the first of 6% on 1 November 2007 and the remaining
3,6% on 1 March 2008. The purchase price was settled though a share swap of the
Group`s investment in Allglass Holdings (Proprietary) Limited, an associate of
the Group which had a fair value of R3,8 million on the effective date, with the
balance being settled in cash.
The working capital to revenue ratio deteriorated to 25% (2007: 23%) as a result
of increased stock holding due to higher aluminium and glass input costs. Trade
receivables and payables increased in line with revenue and cost of sales year
on year.
Gearing improved to 67% (2007: 81%) as net movements in cash equivalents and
bank borrowings improved R100 million to an inflow of R18 million (2007: outflow
R82 million) in the current year.
PROSPECTS
The core focus of the Group during the first half of the year under review was
to resolve the operational problems at Roodekop, which have largely been
resolved. The focus has now shifted to the Group`s three-year plan which
addresses the core problems in the domestic part of the Group, namely that of
productivity, overheads and wastage control, as well as improving cash
generation and effective working capital management. The achievement of the
above objectives are expected to improve both operating margins and gearing with
the resultant decrease in net financing costs.
This, coupled with a clear strategy within the Aluminium Division to recapture
market share and focus on new markets, should see improvements in levels of
profitability in this division in the medium term.
A general increase in the non-residential market should see an improvement in
revenues in both the Glass and the Sheerline Divisions of the Group in the year
ahead.
In the International Division the focus will continue to be that of enhancing
the Group`s offerings and, in so doing, improving both volumes and product mix
in their respective niche markets. Given the economic conditions in Europe, the
division should at least maintain levels of profitability in the year ahead.
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 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.
Mr GFD Twigg, a Non-Executive Director, resigned with effect from 30 June 2008.
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed financial statements for the year ended 30 June 2008 were prepared
in accordance with International Accounting Standard 34 (IAS 34: Interim
Financial Reporting) and the JSE Limited Listing Requirements. The condensed
financial statements are prepared on the historical cost basis except for the
revaluaion of financial instruments.
The principal accounting policies adopted for the year ended 30 June 2008 are
consistent with those applied for the year ended 30 June 2007 in terms of IFRS.
REVIEW REPORT
The results for the year have been reviewed by the Group`s auditors, Deloitte &
Touche, and their unmodified review report is available at the Company`s
registered office for inspection.
SUBSEQUENT EVENTS, ACCOUNTING POLICIES AND BASIS OF PREPARATION
No material events have occurred in the period between year-end and the date of
this report.
DISTRIBUTION TO SHAREHOLDERS
Given the current performance of the Group, together with the current economic
climate and the high cost of interest at present, the Board deems it prudent not
to propose or declare a capital distribution, dividend or capitalisation share
award for the year under review.
For and on behalf of the Board
AA Barrell
Chief Executive Officer
MJE Geldenhuys
Group Financial Director and
Company Secretary
16 September 2008
Condensed consolidated income statement
for the year ended 30 June
Reviewed Audited
year ended year ended
30 June 30 June
2008 2007 Change
R`000 R`000 %
Revenue 1 222 588 1 151 084 6
Profit before depreciation 54 842 68 656 (20)
Depreciation (27 306) (22 367)
Profit from operations 27 536 46 289 (41)
Operating margin (%) 2 4
(Loss)/profit on disposal of (697)
property, plant and equipment 67 095
Loss on disposal of associate (356) -
Impairment of property, plant and (962) (15)
equipment
Negative goodwill and goodwill
reassessed - (12 332)
Profit before net financing costs
and associate income 25 521 101 037 (75)
Net financing costs (47 416) (33 676)
Share of profits of associates 2 932 1 395
(Loss)/profit before taxation (18 963) 68 756 (128)
Taxation (13 290) 299
(Loss)/profit for the year (32 253) 69 055 (147)
Attributable to:
Equity holders of the parent
company (33 242) 67 504
Minority interest 989 1 551
Basic (loss)/earnings per share
Number of ordinary shares in issue
(`000) 205 626 205 626
Weighted average number of
ordinary shares
in issue (`000) 204 149 201 216
Diluted number of ordinary shares
in issue (`000) 207 198 205 827
Basic (loss)/earnings per ordinary
share (cents) (16,3) 33,5 (149)
Diluted basic (loss)/earnings per
ordinary share (cents) (16,0) 32,8 (149)
Headline (loss)/earnings per share
Reconciliation:
(Loss)/profit for the year
attributable to equity holders
of the parent company (33 242) 67 504
Loss/(profit) on disposal of
property, plant and equipment 697 (67 095)
Loss on disposal of associate 356 -
Impairment of property, plant and
equipment 962 15
Negative goodwill and goodwill
reassessed - 12 332
Tax effect of headline adjustments (196) 9 273
Headline (loss)/earnings (31 423) 22 029 (243)
Headline (loss)/earnings per
ordinary share (cents) (15,4) 10,9 (241)
Diluted headline (loss)/earnings
per ordinary share (cents) (15,2) 10,7 (242)
Condensed consolidated balance sheet
as at 30 June
Reviewed Audited
year ended year ended
30 June 30 June
2008 2007
R`000 R`000
ASSETS
Non-current assets
Property, plant and equipment 196 105 191 223
Goodwill and intangible assets 121 522 110 110
Investments and loans 10 857 15 163
Deferred taxation assets 36 555 39 595
365 039 356 091
Current assets
Other current assets 517 907 465 838
Amounts due on disposal of property - 163 000
Cash and cash equivalents 24 101 44 112
542 008 672 950
Total assets 907 047 1 029 041
EQUITY AND LIABILITIES
Total equity
Equity attributable to equity holders of the
parent company 388 537 412 374
Minority interest 3 145 4 511
391 682 416 885
Non-current liabilities
Deferred taxation liabilities 11 579 10 045
Long-term interest-bearing debt 68 274 76 214
Long-term lease accrual 20 035 15 940
Long-term deferred income - 271
99 888 102 470
Current liabilities
Other current liabilities 199 554 206 120
Interest-bearing shareholder`s loan - 4 621
Short-term interest-bearing debt 215 923 298 945
415 477 509 686
Total equity and liabilities 907 047 1 029 041
Net asset value per ordinary share (cents) 189 201
Net tangible asset value per ordinary share
(cents) 130 147
ADDITIONAL INFORMATION
Capital expenditure for the year 48 373 107 261
Capital expenditure committed or authorised 23 879 38 221
Directors` valuation of investments and
loans 10 857 15 595
Finance and operating lease commitments 496 028 513 256
Interest capitalised - 4 604
Contingent liabilities 2 124 5 458
Cost of sales 698 934 673 292
Taxation reconciliation
South African normal taxation at 28%
(2007: 29%) (5 310) 19 939
Deferred taxation asset not previously
raised - (12 480)
Deferred taxation asset not raised 15 303 -
Goodwill reassessed - 3 619
Capital profits (349) (10 185)
Change in tax rate 841 -
Other items 2 805 (1 192)
Taxation per income statement 13 290 (299)
Condensed consolidated cash flow statement
for the year ended 30 June
Reviewed Audited
year ended year ended
30 June 30 June
2008 2007
R`000 R`000
Cash flows from operations before working
capital changes 59 292 69 624
Working capital changes (38 175) (9 100)
Net financing costs and taxation paid (74 059) (65 683)
Net cash outflow from operating activities (52 942) (5 159)
Capital expenditure (34 263) (99 237)
Proceeds on disposal of property, plant and
equipment 165 321 30
Dividend received from associate 585 585
Decrease in investments and loans receivable 1 813 166
Increase in investments in subsidiaries (5 844) (8 024)
Net cash inflow/(outflow) from investing
activities 127 612 (106 480)
Capital distribution - (3 432)
Other financing activities (56 394) 33 258
Net cash (outflow)/inflow from financing
activities (56 394) 29 826
Net movement in cash equivalents and bank
borrowings 18 276 (81 813)
Cash equivalents and bank borrowings at
beginning of the year (183 386) (96 836)
Movement resulting from FCTR 3 209 (4 737)
Cash equivalents and bank borrowings at end
of the year (161 901) (183 386)
Cash and cash equivalents 24 101 44 112
Bank borrowings (186 002) (227 498)
Cash equivalents and bank borrowings at end
of the year (161 901) (183 386)
Condensed consolidated statement of changes in equity
for the year ended 30 June
Attri-
butable
to equity
Share holders
capital of the
and Other Retained parent Minority Total
premium reserves earnings company equity
interest
R`000 R`000 R`000 R`000 R`000 R`000
Audited
balance at 30
June 2006
77 466 8 308 260 394 346 168 4 858 351 026
Treasury
shares (3 762) - - (3 762) - (3 762)
Shares issued
11 243 - - 11 243 - 11 243
Movement in
reserves
- (4 652) (358) (5 010) - (5 010)
Transfer from
share-based
compensation
reserve - (313) - (313) - (313)
Profit for the
year - - 67 504 67 504 1 551 69 055
Dividend paid
- - - - (445) (445)
Minority
interest
acquired - - - - (1 453) (1 453)
Capital
distribution/
capitalisation
share award
(3 456) - - (3 456) - (3 456)
Audited
balance at 30
June 2007
81 491 3 343 327 540 412 374 4 511 416 885
Treasury
shares 904 - - 904 - 904
Movement in
reserves
- 7 835 140 7 975 - 7 975
Transfer to
share-based
compensation
reserve - 526 - 526 - 526
Loss for the
year - - (33 242) (33 242) 989 (32 253)
Dividend paid
- - - - (185) (185)
Minority
interest
acquired - - - - (2 369) (2 369)
Investment by
minorities
- - - - 199 199
Reviewed
balance at 30
June 2008
82 395 11 704 294 438 388 537 3 145 391 682
Group segmental analysis
for the year ended 30 June
Inter-
segment
Southern Inter- sales Total
Africa national eliminated Group
R`000 R`000 R`000 R`000
Geographical
Revenue:
Reviewed year ended 1 459 569 173 900 (410 881) 1 222 588
30 June 2008
% to total 89 11
Audited year ended 1 396 625 121 799 (367 340) 1 151 084
30 June 2007
% to total 92 8
Result:
Profit from operations
Reviewed year ended 15 670 11 866 - 27 536
30 June 2008
% to total 57 43
Audited year ended 37 419 8 870 - 46 289
30 June 2007
% to total 81 19
Reviewed
year Audited
ended year ended
30 June 30 June
2008 2007
R`000 % R`000 %
Business segment
Revenue:
Unbeneficiated
products 483 885 30 439 338 29
Value Added products
- Glass 266 308 16 254 146 17
- Aluminium 685 580 42 661 454 43
- Sheerline 197 696 12 163 486 11
1 633 469 100 1 518 424 100
Inter-segment sales
eliminated (410 881) (367 340)
1 222 588 1 151 084
DIRECTORS
AA Barrell (CEO), MJE Geldenhuys (Financial), CP Kalil, J Martingano,
JC Saville, HR Levin* (Non-Executive Chairman), BE Danoher*^+
*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)
www.ag-industries.com
Date: 15/09/2008 17:30:02 Produced by the JSE SENS Department.
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