| Tue 28 Jul 2009, 7:05 | | AFE - AECI - Condensed consolidated unaudited interim financial results for the |
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AFE
AFE
AFE - AECI - Condensed consolidated unaudited interim financial results for the
half-year ended 30 June 2009
AECI LIMITED
(Incorporated in the Republic of South Africa)
(Registration No. 1924/002590/06)
Share code: AFE ISIN No.: ZAE000000220
("AECI" or "the Company" or "the Group")
www.aeci.co.za
Condensed consolidated unaudited interim financial results for the half-year
ended 30 June 2009
Revenue from continuing operations at R5 263 million
Cash of R396 million available from operating activities
Gross margins and market share maintained in a difficult trading environment
HEPS down to 105c
Dividend of 28c declared
Good progress made in strategic growth projects
Income statement
2009 2008 2008
First half First half Year
% Unaudited Unaudited Audited
change R millions R millions R millions
Continuing
operations
Revenue(2) -9 5 263 5 793 12 876
Net operating costs (4 935) (5 241) (11 841)
Profit from
operations -41 328 552 1 035
Net (loss)/income
from Pension Fund
employer surplus
account * 6 (13)
Net loss from plan
assets for post-
retirement medical
aid liabilities (20) (3) (57)
308 555 965
Fair value
adjustments -
interest * 3 (16)
Interest expense(3) (168) (104) (233)
Interest received 30 19 28
Income from
associates and
investments 5 8 13
175 481 757
Impairment of
goodwill - (1) (42)
Other impairments
and disposals - (6) (4)
Profit before tax 175 474 711
Income tax expense (64) (146) (238)
Net profit from
continuing
operations 111 328 473
Net profit/(loss)
from discontinued
operations 4 10 (94)
Profit before tax 7 15 154
Closure costs - - (204)
Impairments and
disposals - 5 (56)
Tax (3) (10) 12
Profit for the
period 115 338 379
Profit for the
period attributable
to:
- ordinary
shareholders 118 350 385
- preference
shareholders 1 1 2
- minority interest (4) (13) (8)
115 338 379
Headline earnings
are derived from:
Net profit
attributable to
ordinary
shareholders 118 350 385
Impairment of
goodwill - 1 42
Other impairments
and disposals before
tax - 1 60
Surplus on disposal
of property, plant
and equipment (9) * (38)
Tax effects of the
above items 3 - (6)
Headline earnings 112 352 443
Per ordinary share
(cents):
Headline earnings -68 105 325 412
Diluted headline
earnings(4) 104 323 410
Attributable
earnings 110 324 358
Diluted attributable
earnings(4) 110 321 356
Continuing earnings 107 314 445
Diluted continuing 106 312 443
earnings(4)
Discontinued
earnings 4 9 (87)
Dividends declared -69 28 90 231
Dividends paid 141 141 231
Ordinary shares
(millions)(5)
- in issue 107 107 107
- weighted average
number of shares 107 108 108
- diluted weighted
average number of
shares(4) 107 109 108
* nominal amount
Statement of comprehensive income
2009 2008 2008
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Profit for the period 115 338 379
Other comprehensive income
net of tax:
Revaluation of derivative
instruments (12) 19 6
Foreign currency
translation differences (145) 96 146
Changes in the Group - - (3)
Other * 1 *
Total comprehensive income
for the period (42) 454 528
Total comprehensive income
attributable to:
- ordinary shareholders (38) 459 550
- preference shareholders 1 1 2
- minority interest (5) (6) (24)
(42) 454 528
* nominal amount
Statement of changes in equity
2009 2008 2008
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Total comprehensive income
for the period (42) 454 528
Dividends paid (152) (152) (250)
Share repurchase - (237) (238)
Equity at the beginning of
the period 3 969 3 929 3 929
Equity at the end of the
period 3 775 3 994 3 969
Made up as follows:
Issued ordinary capital 215 216 215
Non-distributable reserves 271 374 427
Surplus arising on
revaluation of property,
plant and equipment 240 236 240
Foreign currency
translation reserve net of
deferred tax 23 111 168
Other 8 27 19
Retained income 3 177 3 269 3 210
Preference capital 6 6 6
Minority interest 106 129 111
3 775 3 994 3 969
Balance sheet
2009 2008 2008
30 June 30 June 31 Dec
Unaudited Unaudited Audited
R millions R millions R millions
Assets
Non-current assets 5 022 3 847 4 510
Property, plant and
equipment 2 912 1 871 2 431
Investment property 429 410 422
Goodwill 1 062 978 1 013
Pension Fund employer
surplus account 213 232 213
Investments 98 134 98
Deferred tax 308 222 333
Current assets 5 002 6 237 6 441
Inventories 2 033 2 276 2 795
Accounts receivable 2 514 2 668 3 188
Assets classified as held
for sale 14 772 14
Cash and cash equivalents 441 521 444
Total assets 10 024 10 084 10 951
Equity and liabilities
Ordinary capital and
reserves 3 663 3 859 3 852
Preference capital and
minority interest 112 135 117
Total shareholders` interest 3 775 3 994 3 969
Non-current liabilities 2 406 1 037 2 385
Deferred tax 57 73 61
Non-current borrowings 1 731 557 1 745
Non-current provisions 618 407 579
Current liabilities 3 843 5 053 4 597
Accounts payable 2 221 2 924 3 225
Current borrowings 1 558 1 639 1 058
Liabilities classified as
held for sale - 325 -
Tax payable 64 165 314
Total equity and liabilities 10 024 10 084 10 951
Industry segment analysis
Revenue Profit from Net assets
operations
2009 2008 2009 2008 2009 2008
Unaudited Unaudited Unaudited
R millions R millions R millions
Continuing
operations 5 263 5 793 328 552 6 750 5 459
Mining solutions 1 945 1 655 92 92 2 138 1 693
Specialty
chemicals 3 233 3 863 241 386 4 008 3 141
Property 152 292 45 88 588 525
Specialty fibres
(USA) 100 134 (7) 25 126 175
Group services,
intergroup and
other (167) (151) (43) (39) (110) (75)
Discontinued
operations 458 724 7 16 (21) 238
Specialty fibres 458 724 7 16 (21) 238
5 721 6 517 335 568 6 729 5 697
Net assets consist of property, plant, equipment, investment property, goodwill,
inventory and accounts receivable less accounts payable.
Cash flow statement
2009 2008 2008
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Cash generated by
operations 474 715 1 590
Dividends received 6 7 12
Interest paid (209) (117) (276)
Interest received 30 20 30
Income tax paid (294) (151) (232)
Changes in working capital 481 (282) (921)
Expenditure relating to non-
current provisions (8) (26) (71)
Expenditure relating to
retrenchments and
restructuring (84) (102) (103)
Cash available from
operating activities 396 64 29
Dividends paid (152) (152) (250)
Cash flows from operating
activities 244 (88) (221)
Cash flows from investing
activities (676) (372) (1 002)
Proceeds from disposal of
investments and businesses - - 24
Investments (61) (1) (103)
Net capital expenditure (615) (371) (923)
Net cash utilised (432) (460) (1 223)
Cash flows from financing
activities 486 530 1 136
Share repurchase - (237) (238)
Borrowings 486 767 1 374
Increase/(decrease) in cash
and cash equivalents 54 70 (87)
Cash and cash equivalents
at the beginning of the
period 444 428 428
Translation (loss)/gain on
cash and cash equivalents (57) 39 90
Classified as held for sale - (16) 13
Cash and cash equivalents
at the end of the period 441 521 444
Other salient features
2009 2008 2008
First half First half Year
Unaudited Unaudited Audited
R millions R millions R millions
Capital expenditure -
property, plant and
equipment(3) 675 395 1 044
- expansion 544 260 683
- replacement 131 135 361
Capital commitments 589 1 379 978
- contracted for 451 887 550
- not contracted for 138 492 428
Future rentals on property,
plant and equipment leased 211 211 317
- payable within one year 90 36 144
- payable thereafter 121 175 173
Contingent liabilities 105 94 82
Performance guarantees 69 47 34
Net borrowings 2 848 1 675 2 359
Gearing (%) 75 42 59
Current assets to current
liabilities 1,3 1,2 1,4
Net book value per ordinary
share (cents) 3 425 3 608 3 601
Depreciation - continuing
operations 122 100 211
-discontinued operations - - 5
Notes
(1) Basis of preparation
The condensed consolidated interim financial results have been prepared in
accordance with the historic cost convention except for certain financial
instruments, which have been stated at fair value.
Accounting policies have been applied consistently by all entities in the Group
and are consistent with those applied in the previous reporting period.
The condensed consolidated interim financial results and accounting policies
comply with the Listings Requirements of the JSE Limited, International
Financial Reporting Standards, the disclosure requirements of IAS 34 - Interim
Financial Reporting and the South African Companies Act (Act 61 of 1973) as
amended.
(2) Includes foreign sales of R1 240 million (2008 first half - R1 223 million).
(3) Interest capitalised in the period amounting to R41 million (2008 first half
- R11 million).
(4) Calculated in accordance with IAS33. The Company has purchased call options
over AECI shares which will obviate the need for the Company to issue new shares
in terms of the AECI share option scheme. In practice, therefore, there will be
no future dilution.
(5) Net of 11 884 699 (2008 - 11 884 699) treasury shares held by a subsidiary
company.
(6) Discontinued operations
During 2008 a decision was taken that SANS Technical Fibers, USA, will not be
disposed of and will run as a stand-alone and self-sustaining entity for the
foreseeable future. It has, therefore, been reclassified in the comparative
figures for June 2008 as a continuing operation. The remaining South African
businesses of SANS Fibres discontinued manufacturing activities at the end of
March 2009 and will be closed.
(7) The preparation of the financial statements requires management to make
judgements, estimates and assumptions that affect the application of policies
and reported amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
Commentary
Performance
AECI stated in February 2009 that trading conditions in respect of the current
financial year would be challenging for the Group`s businesses as a consequence
of the global recession.
The challenges have been more severe than expected and the magnitude of the
recession`s impact is reflected in the Company`s results for the half-year ended
30 June 2009. Furthermore, R141 million in respect of fair value, net realisable
value adjustments and restructuring costs impacted on earnings. Consequently,
headline earnings at R112 million were 68% lower than the R352 million achieved
in the corresponding period in 2008. Headline earnings per share totalled 105
cents (2008: 325 cents) and profit from continuing operations of R328 million
(2008: R552 million) declined by 41%. Net financing costs of R138 million (2008:
R83 million) increased by 66% as additional borrowings of R486 million were
drawn, primarily to fund the strategic capital expenditure programme.
Revenue from continuing operations decreased by 9% to R5 263 million. The
decrease is largely attributable to significant volume declines experienced by
the Group`s customers in the mining and manufacturing sectors.
The strengthening of the rand in the period required fair value adjustments and
recognition of exchange differences of R46 million and lower commodity prices
resulted in net realisable value adjustments to inventory of R65 million. The
Group has begun restructuring programmes in areas where it believes that markets
will remain under pressure in the medium- to long-term. To date, R30 million has
been incurred in restructuring costs.
An interim dividend of 28 cents per ordinary share has been declared, compared
to 90 cents in 2008. It is proposed that the dividend be declared as scrip with
a cash alternative ("the capitalisation award"). The capitalisation award
declaration is published separately on SENS and contains the salient dates.
Mining solutions
Revenue from the mining solutions business increased by 18% on 2008`s
performance, despite difficult market conditions. This was largely due to AEL`s
increased footprint in Central Africa, product mix changes in initiating systems
as shocktube units replaced capped fuse, and price differentials over the first
half of last year.
The South African narrow reef market continued its slow contraction while the
Southern African region experienced significant volume declines in platinum,
copper and diamonds. Sales to the coal sector in Asia Pacific grew
significantly.
AEL`s trading margin remained under pressure at 4,7% (2008: 5,6%), due mainly to
additional depreciation charges and increased resourcing costs to cover market
demand and increased shocktube conversion activities in the South African narrow
reef market. The capped fuse plant and the traditional shocktube plants are
still being run and will come off line as the Initiating Systems Automation
Programme (ISAP) plants ramp-up.
ISAP`s detonator and extruded shocktube plants will both be fully installed and
commissioned by end-2009. To date, over 40 million ISAP detonators have been
produced and sold, the extrusion lines are running at 95% efficiencies and have
produced over 180 000km of tubing. Still to be completed is the shocktube auto-
assembly plant where the first set of lines has been installed and has
successfully started producing for the narrow reef market. The launched
Reefmaster product has been well received and market and plant ramp-ups are
underway.
In the six months under review AEL spent R245 million on capital investment
projects, R125 million of this on ISAP.
Specialty chemicals
Chemical Services Limited (Chemserve) recorded a 16% decrease in revenue to R3
233 million and a 38% decrease in trading profit to R241 million (2008: R386
million), with severe declines in demand from the mining, agricultural,
manufacturing and automotive sectors. Volumes were 36% lower in the period,
particularly in the first quarter, with traded sulphur sales being the worst
affected. In response to the changed external environment, Chemserve is
restructuring some of its businesses, such as those serving the automotive
sector, where adverse trading conditions are expected to persist. Costs
associated with restructuring totalled R25 million at end-June.
The strengthening rand and lower commodity prices exacerbated Chemserve`s
challenges. Fair value, translation and inventory net realisable value
adjustments accounted for R78 million of the decline in trading profit.
Chemserve`s capital expansion programme made pleasing progress. R416 million was
invested in capital projects, R338 million of this in the strategic projects.
The oleochemical plant at Resitec, in Brazil, the second xanthate reactor at
Senmin, in Sasolburg, and Akulu Marchon`s sulphonation plant in Chloorkop have
all been commissioned successfully. These plants are being ramped up to
optimised production levels. The carbon disulphide plant at Senmin will be
commissioned in the third quarter and the acrylamide and polyacrylamide plants,
also at Senmin, will be commissioned in the last quarter of 2009. The business
case for all these projects remains favourable and, once fully on line, the
investments will be earnings-enhancing.
The acquisitions of CH Chemicals and Cobito, at a cost of R70 million, were
finalised and successfully integrated into the Chemserve group.
Property
Heartland recorded a trading profit of R45 million (2008: R88 million) net of R1
million (2008: R37 million) of remediation costs. Remediation expenditure is
being prioritised in line with land sales and legal requirements. The property
development sector remains depressed, largely as a result of a shortage in cash
liquidity in the market and market demand. Developers have had difficulty
raising debt and financial institutions have imposed more stringent conditions
in this regard. The profit achieved to June 2009 was driven largely by the
leasing business in the segment.
As indicated in the previous reporting period, Heartland has continued the
processes necessary to prepare land for release when the property market shows
signs of recovery. Expenditure was limited to R30 million in respect of land
development activities in the half-year.
SANS Fibres
Continuing operation
SANS Technical Fibers (USA) incurred a loss of R7 million (2008: R25 million
operating profit) as a result of very poor market conditions in the automotive
sector in the USA. Revenue declined by 25% to R100 million, compared to R134
million in 2008. The business has been restructured to cope with these
depressed conditions and, in June, already returned a profit. It has remained
cash positive and has increased its cash by liquidating working capital over the
half-year.
Discontinued operation
SANS Fibres at Bellville, Western Cape, ceased manufacturing in March 2009.
Working capital has largely been liquidated and had generated R280 million in
cash by 30 June 2009. The site is currently being cleared and redundant plant
and equipment is being sold. It is anticipated that this process will be
completed by March 2010.
Financial
The Group invested R675 million in capital expenditure, of which R542 million
related to growth projects in AEL and Chemserve. The Group is expecting capital
expenditure of R1,2 billion for the full financial year.
Net working capital decreased as revenue declined and R481 million in cash was
generated in the period. The working capital ratio to gross revenue improved to
17,2% (2008: 19,8%).
The Pension Fund employer surplus account and the plan assets for post-
retirement medical aid liabilities incurred a further loss of R20 million (2008:
R3 million profit), due to poor investment market performances and strengthening
of the rand. Part of the Group`s pension portfolio is invested offshore.
In line with capital expenditure of R675 million, Group borrowings increased to
R2 848 million from R2 359 million at December 2008. Cash interest cover was 2,8
times (2008: 4,6 times) largely as a result of lower profits and continued
investment in the strategic capital expenditure programme. As a consequence,
gearing increased to 75% of shareholder funds (59% at December 2008).
Earlier in the year, the Board decided to postpone the anticipated BBBEE
transaction, involving Group employees and a community trust, primarily as a
result of market volatility.
Board changes
Ms A Kennedy resigned as Company secretary, with effect from 31 March 2009. Mr
EA Rea was appointed to serve as Acting Company secretary from 1 April 2009.
Outlook and strategic focus
Depressed market conditions are expected to continue for the remainder of the
year. In the first six months, as outlined above, the Group incurred fair value
and exchange difference adjustments of R111 million. Based on current commodity
prices and currency exchange rates, it is not expected that these charges will
recur. In line with the trading statement published on SENS on 11 June 2009,
management expects an improved performance in the second half-year and thus does
not expect headline earnings per share for the full financial year, ending 31
December 2009, to be considerably lower than the 412 cents achieved in 2008.
The Group will continue to sustain its strategic focus, and will:
optimise cash flow by controlling working capital aggressively;
continue to progress strategic capital projects at AEL and Chemserve;
reduce costs in line with reduced activity; and
maintain market share and margins through continued excellent service.
Fani Titi Graham Edwards
Chairman Chief executive
Woodmead, Sandton
27 July 2009
Directors: F Titi (Chairman), GN Edwards (Chief executive)+, FPP Baker+, RMW
Dunne*, S Engelbrecht, Z Fuphe, KM Kathan+, MJ Leeming, LM Nyhonyha, AC Parker.
+Executive *British
Acting Company secretary: EA Rea
Date: 28/07/2009 07:05:03 Produced by the JSE SENS Department.
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