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AGI
AGI
AGI - AG Industries Limited - Unaudited interim results for the six months ended
31 December 2008
AG INDUSTRIES LIMITED
Registration number: 1980/004051/06
Share code: AGI
ISIN: ZAE000039467
("AGI" or "the Group")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2008
SALIENT FEATURES
- Revenue increased by 4% to R646 million (2007: R621 million)
- Operating profit increased by 17% to R24 million (2007: R21 million)
- Improved operating margin
- Profit before depreciation improved by 16% to R39 million (2007: R34 million)
- Improved working capital to revenue ratio
- Cash generated from operations positive R6 million compared to an outflow of
R60 million in the prior period
Condensed consolidated income statement
for the six months ended 31 December
Unaudited Unaudited Audited
six six year
months months
ended ended ended
31 31 30 June
December December
2008 2007 Change 2008
R`000 R`000 % R`000
Revenue 646 139 621 023 4 1 222
588
Profit before depreciation 39 113 33 671 16 54 842
Depreciation (15 012) (13 007) (27
306)
Profit from operations 24 101 20 664 17 27 536
Operating margin (%) 3,7 3,3 2,3
Non-trading items
Profit on disposal of 6 314 - -
investment
Loss on disposal of property,
plant and equipment (662) (42) (697)
Loss on disposal of associate - - (356)
Impairment of goodwill (17 058) - -
Impairment of property, plant
and
equipment - - (962)
Profit before financing costs
and
associate income 12 695 20 622 (38) 25 521
Net financing costs (23 318) (26 147) (47
416)
Share of profits of 959 1 360 2 932
associates
Loss before taxation (9 664) (4 165) (132) (18
963)
Taxation (3 869) (578) (13
290)
- normal activities (3 041) (590) (13
486)
- headline adjustments (828) 12 196
Loss for the period (13 533) (4 743) (185) (32
253)
Attributable to:
Equity holders of the holding (13 832) (5 413) (156) (33
company 242)
Minority interest 299 670 989
(13 533) (4 743) (32
253)
Basic loss per share
Number of ordinary shares in 205 626 205 626 205 626
issue (`000)
Weighted average number of
ordinary
shares in issue (`000) 204 261 204 149 204 149
Diluted number of ordinary
shares in
issue (`000) 204 261 207 198 207 198
Basic loss per ordinary share (6,8) (2,7) (16,3)
(cents)
Diluted basic loss per
ordinary
share (cents) (6,8) (2,6) (16,0)
Headline loss per share
Reconciliation
Loss for the period
attributable to
equity holders of the holding (13 832) (5 413) (33
company 242)
Profit on disposal of (6 314) - -
investment
Loss on disposal of property,
plant
and equipment 662 42 697
Loss on disposal of associate - - 356
Impairment of property, plant
and equipment - - 962
Impairment of goodwill 17 058 - -
Tax effect of headline 828 (12) (196)
adjustments
Headline loss (1 598) (5 383) 70 (31
423)
Headline loss per ordinary
share (cents) (0,8) (2,6) (15,4)
Diluted headline loss per
ordinary
share (cents) (0,8) (2,6) (15,2)
Earnings before interest,
tax,
depreciation and amortisation
(excluding goodwill impaired)
Reconciliation:
Profit before depreciation 39 113 33 671 54 842
Profit on disposal of 6 314 - -
investment
Loss on disposal of property,
plant
and equipment (662) (42) (697)
Loss on disposal of associate - - (356)
44 765 33 629 33 53 789
Cents per ordinary share 21,9 16,5 33 26,3
Condensed consolidated balance sheet
as at 31 December
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 31 30 June
December December
2008 2007 2008
R`000 R`000 R`000
ASSETS
Non-current assets
Property, plant and equipment 191 843 198 886 196 105
Goodwill 108 619 114 889 121 522
Investments and loans 11 497 14 372 10 857
Deferred taxation assets 38 031 46 399 36 555
349 990 374 546 365 039
Current assets
Inventories 235 818 235 871 263 360
Trade and other receivables 232 756 256 871 238 968
Receivable due from sale of 7 152 - -
investment
Other current assets 15 674 10 919 15 579
Cash and cash equivalents 16 943 48 382 24 101
508 343 552 043 542 008
Total assets 858 333 926 589 907 047
EQUITY AND LIABILITIES
Total equity
Equity attributable to equity
holders of the parent company 379 466 408 151 388 537
Minority interest 1 396 5 321 3 145
380 862 413 472 391 682
Non-current liabilities
Deferred taxation liabilities 17 050 14 134 11 579
Long-term interest-bearing debt 74 231 89 671 68 274
Long-term lease accrual 22 336 16 998 20 035
Other non-current liabilities - 1 271 -
113 617 122 074 99 888
Current liabilities
Trade and other payables 149 594 170 035 196 983
Other current liabilities 1 577 10 150 2 571
Short-term interest-bearing debt 212 683 210 858 215 923
363 854 391 043 415 477
Total equity and liabilities 858 333 926 589 907 047
Net asset value per ordinary 185 198 189
share (cents)
Net tangible asset value per
ordiinary share (cents) 132 143 130
ADDITIONAL INFORMATION
Capital expenditure for the 15 659 25 065 48 373
period
Capital expenditure committed or 8 220 13 156 23 879
authorised
Directors` valuation of 11 497 14 372 10 857
investments and loans
Finance and operating lease 442 544 518 929 496 028
commitments
Contingent liabilities 6 235 5 545 2 124
Cost of sales 372 613 358 943 698 934
Taxation Reconciliation
South African normal taxation at
28% (2007: 29%) (2 706) (1 208) (5 310)
Deferred taxation asset not 2 667 - 15 303
raised
Capital profits (1 407) - (349)
Change in tax rate - - 841
Other items 279 1 619 1 821
Non deductable expenditure 5 036 167 984
Taxation per income statement 3 869 578 13 290
Condensed consolidated cash flow statement
for the six months ended 31 December
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 31 30 June
December December
2008 2007 2008
R`000 R`000 R`000
Cash flows from operations 39 936 35 042 59 292
Working capital changes (8 358) (56 880) (38 175)
Net financing costs and taxation (25 218) (38 174) (74 059)
paid
Net cash inflow/(outflow) from
operating activities 6 360 (60 012) (52 942)
Additions to property, plant and (12 570) (20 724) (34 263)
equipment
Proceeds on disposal of property,
plant and equipment 1 527 164 536 165 321
Dividend received from associate - - 585
Decrease in investments and loans - 1 711 1 813
Increase in investments in (1 000) (4 341) (5 844)
subsidiaries
Net cash (outflow)/inflow from
investing activities (12 043) 141 182 127 612
Other financing activities (9 482) (14 115) (56 394)
Net cash outflow from financing (9 482) (14 115) (56 394)
activities
Net (decrease)/increase in cash
equivalents
and bank borrowings (15 165) 67 055 18 276
Cash equivalents and bank
borowings at beginning of the (161 901) (183 386) (183
period 386)
Movements resulting from FCTR (2 432) 1 331 3 209
Cash equivalents and bank
borrowings at end of the period (179 498) (115 000) (161
901)
Cash and cash equivalents 16 943 48 382 24 101
Bank borrowings (196 441) (163 382) (186
002)
Cash equivalents and bank
borrowings at end of the period (179 498) (115 000) (161
901)
Condensed consolidated statement of changes in equity
for the six months ended 31 December
Attributable
Share to
capital equityholders
of
and Other Retained the parent Minority Total
premium reserves earnings company interest equity
R`000 R`000 R`000 R`000 R`000 R`000
Balance at
30 June 2007 81 491 3 343 327 540 412 374 4 511 416
885
Movement in
treasury shares 904 - - 904 - 904
Movement in - 1 038 (966) 72 - 72
reserves
Transfer to
share-based - 214 - 214 - 214
compensation
reserve
Investment by
minorities - - - - 140 140
Loss for the - - (5 413) (5 413) 670 (4
period 743)
Balance at
31 December 2007 82 395 4 595 321 161 408 151 5 321 413
472
Movement in - 6 797 1 106 7 903 - 7 903
reserves
Transfer to
share-based - 312 - 312 - 312
compensation
reserve
Minority
interest - - - - (2 369) (2
acquired 369)
Dividend paid - - - - (185) (185)
Investment by
minorities - - - - 59 59
Loss for the - - (27 829) (27 829) 319 (27
period 510)
Balance at 30
June 2008 82 395 11 704 294 438 388 537 3 145 391
682
Movement in - 7 187 (948) 6 239 - 6 239
reserves
Transfer from
share-based
compensation - (1 478) - (1 478) - (1
reserve 478)
Minority
interest - - - - (2 048) (2
acquired 048)
Loss for the - - (13 832) (13 832) 299 (13
period 533)
Balance at 31
December 2008 82 395 17 413 279 658 379 466 1 396 380
862
Group segmental analysis
for the six months ended 31 December
Intersegment
Southern sales
Africa International eliminated Total
R`000 R`000 R`000 R`000
Geographical
Revenue:
Unaudited period ended 31
December 2008 729 393 122 104 (205 358) 646 139
% to total 86 14
Unaudited period ended 31
December 2007 768 973 70 166 (218 116) 621 023
% to total 92 8
Audited year ended 30 June 1 459 173 900 (410 881) 1 222
2008 569 588
% to total 89 11
Result:
Profit from operations
Unaudited period ended 31 -
December 2008 18 605 5 496 24 101
% to total 77 23
Unaudited period ended 31
December 2007 15 932 4 732 - 20 664
% to total 77 23
Audited year ended 30 June 15 670 11 866 - 27 536
2008
% to total 57 43
Unaudited Unaudited Audited
six months six months year ended
ended ended
31 December 31 December 30 June
2008 2007 2008
R`000 % R`000 % R`000 %
Business segment
Revenue:
Unbeneficiated 287 620 34 240 986 29 483 885 30
products
Value added glass 140 439 16 145 262 17 266 308 16
Finished goods 170 831 20 198 835 24 385 032 24
Extrusions 252 607 30 254 056 30 498 244 30
851 497 100 839 139 100 1 633 100
469
Intersegment sales (205 358) (218 (410
eliminated 116) 881)
646 139 621 023 1 222
588
COMMENTARY
FINANCIAL REVIEW
Income statement
The Group increased its revenue by 4% to R646 million (2007: R621 million),
with the Extrusion and International Divisions experiencing volume growth for
the six months ended 31 December 2008 ("the period under review").
Pleasingly, profit before depreciation increased by 16% to R39 million (2007:
R34 million) and profit from operations increase 17% to R24 million (2007: R21
million) as a result of improved productivity and overhead reductions in the
Group`s Southern African businesses. This resulted in operating margins
improving to 4% (2007: 3%). This is particularly pleasing given the deflationary
effects in revenue of reducing aluminium commodity prices coupled with the
inflationary cycle in operating costs experienced in the period under review.
Depreciation increased by 15% to R15 million (2007: R13 million).
Net financing costs decreased by 11% to R23 million (2007: R26 million) as a
result of the reduced average borrowings in the period under review.
Associated companies involved in the business of flat and auto-glass fabrication
and distribution contributed a decreased share of profit of R1,0 million (2007:
R1,4 million) due to the slowdown in the economy in general, which affected both
the flat and auto-glass markets.
Given the current economic conditions as well as the current performance of the
Aluminium Division and after consideration of the ongoing programme of product
range rationalisation in this division, management decided to impair goodwill in
the amount of R17 million in this division.
The effective tax rate increased as a result of the non-deductibility of certain
capital items namely, the impairment of goodwill and further, management deemed
it prudent to defer the raising of a R2,6 million deferred taxation asset in
certain trading entities in the Extrusion Division until such time as they
return to profitability, which is expected during the 2010 financial year.
As a result of the steps to improve operational efficiencies, headline earnings
per share increased 69% to a loss of 0,8 cents per share (2007: loss of 2,6
cents per share) despite the non-raising of the deferred taxation asset. As a
result of the impairment of goodwill and the non-raising of the deferred
taxation asset, basic earnings per share decreased by 152% to a loss of 6,8
cents per share (2007: loss of 2,7 cents per share).
Balance sheet and cash flow
Capital expenditure on property, plant and equipment reduced to R13 million
(2007: R25 million) during the period under review and consisted predominantly
of replacement assets. Capital expenditure is expected to remain at the same
levels as the period under review for the remainder of the year.
In terms of a long-standing agreement, dated 25 April 2001, the Group acquired
the final 7,3% of West Cape Safety Glass (Pty) Limited ("West Cape") from
minority shareholders for a cash consideration of R3,1 million effective 1
November 2008. West Cape is now a wholly owned subsidiary of the Group.
The Group improved its working capital days to 93 days (2007: 94 days) as a
result of the improvement in inventory and debtors days. Cash flows from
operations increased by 14% to R40 million (2007:
R35 million), with cash flows from operating activities improving to an inflow
of R6 million (2007: outflow of R60 million) in the period under review.
However, the Group`s gearing increased from 67% at
30 June 2008 to 71% (2007: 62%) as a result of the decrease in equity due to the
impairment of goodwill, the non-raising of deferred taxation assets and the
losses sustained during the second half of the 2008 financial year.
Given the high levels of gearing, management is exploring various options to
raise capital.
OPERATIONAL REVIEW
Southern African Operations
The Group`s domestic businesses contributed 86% (2007: 92%) to the Group revenue
and 77% (2007: 77%) to profit from operations. These businesses included the
Glass, Extrusion and Finished Goods Divisions.
As outlined to the market during its year-end results in September 2008, the
Group implemented a three-year turnaround plan in its South African business to
address productivity, overheads and wastage control, as well as improving cash
generation and effective working capital management.
At the time, the Group said that the benefits of this programme were expected to
flow by the first half of 2010.
To date, the Group is on track and has achieved the following:
* Staff costs reduced by R19 million, after discounting the effects of
inflation. The number of people reduced by 340 during the 2008 calendar year.
* General operating costs reduced by R22 million, after discounting the effects
of inflation.
* Productivity targets set in the three-year plan were met or exceeded.
* Working capital improvements were achieved through a reduction in inventories
of R28 million from 30 June 2008. Furthermore, debtors days improved from 48 to
46 from the corresponding prior period.
* The margin of profit before depreciation to revenue improved from 5% to 8%.
Trading conditions in the South African market became increasingly difficult as
the uncertainty surrounding the global financial crisis started having a
meaningful impact on the local economy, particularly in the latter part of the
second quarter under review. New residential building and renovations contracted
further during this period.
Given that 72% of domestic revenues are derived from the residential building
sector, domestic revenues were impacted. A severe decrease in the price of
aluminium led to weighted average deflation of 13% in selling prices in the
Extrusion Division when compared to the six months ended 31 December 2007. This
led to pricing pressure in the Aluminium Finished Goods Division. Despite the
above factors, the revenue decrease was limited to 2%. This was done through the
Group`s strategy of successfully focusing on several other channels to market
such as retail and non-residential building.
Glass Division
This division consists of local unbeneficiated and value-added glass and
contributed around
37% (2007: 38%) to Group revenue and decreased revenues by 2% to R316 million
(2007: R322 million).
* Unbeneficiated glass
Revenue in the Unbeneficiated Glass Division (wholesale distribution of bulk and
cut to size glass) decreased marginally to R176 million (2007: R177 million), in
line with the Group`s strategy of maintaining market share. Despite some price
compression during the reporting period, the division maintained operating
margins through a reduction in overheads.
* Value-added glass
Revenue in value-added glass decreased by 3% to R140 million (2007: R145
million) mainly as a result of reduced inter-company revenues. The division grew
external revenues by 2% by focusing on the buoyant non-residential market,
which resulted in a much improved operating margin in this division.
Aluminium Division
This division contributed around 49% (2007: 53%) of the Group`s revenue. It
consists of the Finished Goods and Extrusion Divisions (Roodekop and Sheerline).
Revenues in this division decreased by 9% to R413 million (2007: R447 million).
* Finished Goods
This division derives approximately 30% of its revenues from the retail sector
of the market while 70% is from the residential and small commercial building
sector.
The establishment of a dedicated retail team and the successful implementation
of the retail strategy during the prior financial year has produced a
significant turnaround in retail profitability during the period under review
with profit from operations exceeding budget.
Although overheads of R10 million have been taken out during the reporting
period, retrenchment costs and product rationalisation costs of R2 million
impacted on operating margins. Further cost reductions are planned for the next
half of the year to counter the reduction in revenues.
* Roodekop
Consolidated revenue remained constant year-on-year despite deflation of 13% in
selling prices. The presses increased volume throughput by 43% when compared to
the prior period. The down time on the presses was 2% against a target of 4% and
the scrap rate was marginally higher than targeted at 23% (target: 22%). This
improved productivity, along with reduced overheads, resulted in the operating
loss in this division reducing from R14 million to R3 million in the period
under review.
* Sheerline
Revenue increased by 24% to R114 million (2007: R91 million) despite the
deflation in the aluminium extrusion selling prices of 13% when compared to the
prior period. The increase in volumes was due to the expanded geographical
footprint established in the prior year, and the successful tendering into the
non-residential building market.
Despite this growth, deflation in selling prices, exacerbated by increased
competition impacted gross margin. This together with inflation in the cost base
led to a decrease of 3% in operating margins.
International Operations
The Group`s international businesses contributed 14% (2007: 8%) to Group revenue
and 23% (2007: 23%) to profit from operations. Revenues in this division
increased by 74% to R122 million (2007: R70 million). These operations consist
of businesses operating in Germany, the UK, South East Asia, Mauritius as well
as South African exports.
* Germany
The German business shrugged off the effects of the European recession by
focusing on the expansion linked to the Hamburg waterfront development. As a
result, revenues grew by 14% in Euro terms and gross margins also improved.
Overheads have, however, increased in line with increased demand. Operating
margins remained constant at 6%.
* United Kingdom
The UK business has been adversely affected by the current UK recession, which
resulted in a decrease in revenue of 12% in GBP terms. This has not been at the
expense of gross margin, which has been maintained. However, the gross margin is
expected to come under pressure as the business environment becomes more
competitive. The decreased revenues together with an increased overhead resulted
in a decrease in operating margin from 14% to 10%.
* South East Asia
During the period under review, the business recorded its maiden operating
profit with revenues increasing from a zero base. The business trades in
hardware, aluminium billet and glass.
* Mauritius
The business benefited from a boom in construction on the island mainly from
hotels and luxury apartments. Revenue grew by 27% in Mauritian Rupee terms with
an increased gross margin due to a more favourable product mix. Overheads have
increased in line with local inflation resulting in a much improved operating
margin.
* Exports
Export revenues remained constant with a marginally reduced operating margin due
to the inflationary impacts on the local cost base.
PROSPECTS
Southern Africa
In an environment of significant uncertainty, the year ahead will be
challenging. The Group will continue to focus on its three-year turnaround plan,
in particular on further improving the Group`s overall overhead to revenue
ratio. This will include increasing productivity, ensuring cost containment,
limiting input costs, reinforcing controls over expenses and improving cash flow
generation through effective working capital control over both inventory and
debtors.
International
Given the deterioration in international markets the focus will be on
endeavouring to ensure that the overhead to revenue ratio is maintained and that
the division continues to take advantage of the niche markets in which it
operates.
POST-BALANCE SHEET EVENT
No material events have occurred in the period between 31 December 2008 and the
date of this report.
CHANGES IN DIRECTORATE
Mr HF Brown was appointed as Independent Non-Executive Director, effective from
16 February 2009.
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The condensed financial statements for the period ended 31 December 2008 were
prepared in accordance with International Accounting Standard 34 (IAS 34:
Interim Financial Reporting) and the JSE Limited Listings Requirements. The
condensed financial statements are prepared on the historical cost basis except
for the revaluation of financial instruments.
The principal accounting policies adopted for the six months ended 31 December
2008 are consistent with those applied for the year ended 30 June 2008 in terms
of IFRS.
These interim results have not been audited or reviewed by the Group`s
auditors..
DISTRIBUTION TO SHAREHOLDERS
The Board has a policy of declaring a dividend once a year. Given the current
performance of the Group and in line with this policy, no interim dividend has
been declared.
For and on behalf of the Board
AA Barrell
Chief Executive Officer
MJE Geldenhuys
Group Financial Director and
Company Secretary
9 March 2009
Directors: AA Barrell (CEO), MJE Geldenhuys (Financial), CP Kalil, J Martingano,
JC Saville, HR Levin* (Non-executive Chairman), BE Danoher*+, HF Brown*+
*Non-executive Irish +Independent
REGISTERED OFFICE
Corner Kruger Street and Mimetes Road, Denver Extension 11, Johannesburg 2094
PO Box 40443, Cleveland 2022
Johannesburg
9 March 2009
SPONSOR
Sasfin Capital (a division of Sasfin Bank Limited)
TRANSFER SECRETARIES
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Date: 09/03/2009 16:00:01 Produced by the JSE SENS Department.
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