| Tue 11 Sep 2001, 0:00 | | Africa Glass Industries Limited - Audited Results |
|
2001
AFRICA GLASS INDUSTRIES LIMITED
Registration No: 1980/004051/06
("Africa Glass" or "the Group")
Clearing House Code: AGS
ISIN No.: ZAE000018545
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2001
Growth sustained - 38%
Headline Operating Profit UP 46%
Operating Margin UP 19%
Headline Earnings Per Share UP 38%
Hard Currency Earnings UP 42%
HIGHLIGHTS
Record earnings and operating margins
Exceptional organic growth
Sustainable growth strategy delivers projections
International expansion accelerates
USA acquisition and new Danish operation
rise in margins
strong finished products exports
Domestic expansion continues
aluminium stockist acquisition
additional production capacity
new aluminium and glass outlets
Significant contract wins
COMMENTARY
FINANCIAL PERFORMANCE
During the year under review headline operating profit grew by 46% from
R53,3 million to R77,7 million contributing to an increase of more than 38%
in headline earnings per share from 21,1 cents per share to 29,2 cents per
share. Of note, the exceptional operating profit achieved during the year
was nearly all organic.
Margin improvement and a 22% increase in revenue were largely responsible
for this performance. Combined with a higher effective tax rate, maintained
asset turnover and a marginal increase in gearing, attributable profit
return on equity of above 20% was generated.
The achievement of the past two years is gratifying, during which operating
margins have grown by 44%, turnover almost doubled and headline earnings per
share increased almost one and a half times.
STRATEGY AND STRUCTURE
Africa Glass' "sustainable growth strategy" drives for sustained global
growth in the secondary glass market where value added products, including
aluminium doors and windows, architectural products and safety and security
products are manufactured and distributed alongside "raw" (unbeneficiated)
glass to the tertiary retail market. The strategy aims first to capture
market share and then to integrate into manufacture thereby "trapping"
manufacturing and distribution margins alike.
To effectively implement this strategy, Africa Glass is structured into two
divisions, International Operations and South African Operations which
constitute its primary segmental division.
GOALS SET AND ACHIEVED FOR 2001 FINANCIAL YEAR
International Operations
The division's aims for the year were:
- increase operational margins by expanding the value added product range;
- capture additional market share;
- synergistic acquisitions.
A focus on higher margin products including aluminium shower doors
introduced to the UK market drove margins up by 19%. Several potential
acquisitions were considered and evaluated during the course of the year.
Ongoing discussions continue with the view that correct acquisition
criteria must be achieved in order to deliver outstanding shareholder value.
With effect from 1 April 2001, Africa Glass assumed 75% control of Gulfstar
Industries Incorporated ("Gulfstar") for a consideration of USD 984 600
payable in cash but subject to certain performance warranties. Gulfstar is a
wholesale distributor with several outlets in Florida (USA). A new
operation was also established in Denmark expanding the Group's position in
Europe.
South African Operations
The division's goals for the year were:
- raise margins by vertical integration and an enhanced value added product
range;
- grow market share by increasing production capacity.
Actions taken during the year to raise margins on a sustainable basis
include:
- the introduction of innovative modern aluminium door systems;
- the supply of glass from Group companies to Clearway Aluminium;
- the supply by the Group's aluminium extruder of product to the aluminium
fabrication division;
- the acquisition of two additional tempering furnaces which are shortly to
be commissioned. This will raise manufacturing capacity of toughened safety
glass to meet demand from export expansion and domestic growth, at the same
time "trapping" manufacturing margin;
- the acquisition with effect from 1 May 2001 of Vistalam Glass
(Proprietary) Limited ("Vistalam"), a manufacturer of vinyl laminate glass
products using the autoclave process, for a total consideration of R2 591
335, payable in cash and by the issue of 500 000 Africa Glass shares at 311
cents per share. Vistalam is complementary to Africa Glass and was acquired
to meet demand from within the Group for vinyl laminate products thereby
"trapping" the resulting manufacturing margin.
Market share grew with:
- the establishment of seven new aluminium and glass branches;
- the commissioning of new processing equipment which improved customer
service and relieved capacity constraints;
- entry into the aluminium extrusion and hardware stocking business through
the acquisition with effect from 1 April 2001 of a 51% interest in Anso
Aluminium East London (Proprietary) Limited ("Anso") for a cash
consideration of R459 500 subject to certain performance warranties.
Subsequent Event
Subsequent to the year end, the foothold established in the aluminium
stockist market was entrenched when, subject to certain conditions
precedent, for a cash consideration of R16 932 000, Africa Glass acquired,
with effect from 28 July 2001, the undertaking of Sheerline Aluminium
Systems (Proprietary) Limited ("Sheerline"), a national extrusion and
hardware stockist. This acquisition broadens Africa Glass' aluminium
division from a dedicated value added fabricator to a fabricator and
distributor.
UNIQUE OPPORTUNITIES
Several outstanding opportunities poise Africa Glass for sustained global
growth:
- the secondary glass market is enormous but highly fragmented with no
dominant players;
- Africa Glass is fairly unique, combining glass and aluminium fabrication
in one organisation;
- low manufacturing costs (forced by years of intense competition) and a
weak Rand exchange rate make Africa Glass a singularly low cost door and
window producer in international terms;
- Africa Glass owns its own foreign distribution channels in Europe, the UK
and the USA;
the global growth trend in value added products.
PROSPECTS
International
The international drive for volume and margin will be led by the export of
value added products and components to the USA, the UK and Europe. Aluminium
doors and windows are key products in this strategy. Export to the UK of
aluminium shower doors is already underway. Exports to Europe and the USA
(following mandatory testing procedures) will commence shortly. New
operations planned for Southern Germany, the Benelux countries and the USA
will add further market share.
Evaluation of value added manufacturing opportunities in the UK will
continue until an outstanding opportunity is offered.
South African
The standardisation of the aluminium window market in South Africa will
drive volume growth. Africa Glass is the only national aluminium fabricator
capable of standardising the currently fragmented window market which is
several times larger than the aluminium door market. Therefore, this
strategy represents a significant growth opportunity. Substantial benefits
are also expected from the Sheerline and Anso acquisitions and the expansion
of tempering and laminate production facilities.
The record earnings which have flowed from Africa Glass' "sustainable growth
strategy" reflect a truly outstanding performance. Africa Glass is well
positioned to reap the benefits of recent acquisitions and to sustain the
real growth which is projected for the 2002 financial year and the
forthcoming years thereafter.
CHANGE IN ACCOUNTING POLICIES
The accounting policies have been consistently applied and comply with the
South African Statements of Generally Accepted Accounting Practice. During
the current period, Statements AC116 - Employee Benefits, AC128 - Impairment
of Assets, AC129 - Intangible Assets and AC130 - Provisions, Contingent
Liabilities and Contingent Assets were adopted for the first time. The
effect of adopting AC116 and AC129 are material to the financial statements
and the appropriate adjustments have been made to comparative amounts.
DIVIDEND DECLARATION
The Board intends retaining a policy of paying one dividend at the end of
each financial year while maintaining a dividend cover of between 4 and 5
times. The Board has declared a dividend of 6,5 cents per share (2000: 5,5
cents per share) for the year ended 30 June 2001. The last day to trade
("cum" dividend) in Africa Glass shares in order to participate in the
dividend will be Friday, 28 September 2001. From Monday, 1 October 2001
Africa Glass shares will commence trading "ex" dividend. The record date
will be Friday, 5 October 2001. Dividend payments will be initiated on
Monday, 8 October 2001.
Certificated shareholders are advised that no dematerialization of Africa
Glass Share certificates will take place between Friday, 21 September 2001
and Friday, 5 October 2001, both days inclusive.
For and on behalf of the Board
AA Barrell JB Rosenberg J Martingano
Executive Chairman Group Financial Director Group Commercial Director
10 September 2001
Consolidated Income Statement
Audited Audited
year ended year ended
30 June 2001 30 June 2000 Change
R'000 R'000 %
Revenue 540 716 441 788 22
Operating profit before depreciation 87 686 62 065 41
Depreciation (8 933) (8 469)
Other amortisation (1 083) (332)
Headline operating profit 77 670 53 264 46
Operating margin 14,4% 12,1% 19
Surplus on sale of assets - 4 815
Cost of investment written down (3) (1 047)
Amortisation of goodwill (5 570) (4 008)
Operating profit 72 097 53 024 36
Net financing costs (2 702) (2 165)
Income from associated companies 3 466 2 276
Profit before taxation 72 861 53 135 37
Taxation (20 509) (12 082)
Profit after taxation 52 352 41 053 28
Attributable to outside
shareholders in subsidiaries (851) (267)
Preference dividend (112) (112)
Attributable profit 51 389 40 674 26
Surplus on sale of assets - (4 815)
Cost of investment written down 3 1 047
Amortisation of goodwill 5 570 4 008
Headline earnings 56 962 40 914 39
Statistics
Number of ordinary shares in
issue (`000) 192 553 191 490
Weighted average number of
ordinary shares in issue (`000) 195 062 193 628
Basic earnings per ordinary
share (cents) 26,3 21,0
-as previously stated 26,3 24,2
-change in accounting policy - (3,2)
Headline earnings per ordinary
share (cents) 29,2 21,1
Dividend paid
Dividend per ordinary share
(cents) 5,5* 2,4
Dividend declared in respect
of the financial year
Dividend per ordinary share (cents) 6,5 5,5
* Dividend declared in
respect of year ended 30 June 2000.
Consolidated balance sheet
Audited Audited
at at
30 June 2001 30 June 2000
R'000 R'000
ASSETS
Non-current assets
Property, plant and equipment 47 150 34 052
Intangible assets 118 484 97 055
Investments and loans 13 659 12 026
Deferred taxation assets 2 560 2 895
Current assets
Bank balances and cash 16 752 17 580
Other current assets 235 879 179 239
Total assets 434 484 342 847
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders' equity 248 348 199 259
Preference share capital and premium - 700
Outside shareholders' interest 1 754 568
Non-current liabilities
Shareholders' loans 667 1 012
Amounts due to vendors 115 11 000
Deferred taxation liabilities 4 470 3 443
Long-term interest bearing debt 11 393 6 983
Other long-term borrowings 569 -
Current liabilities
Short-term interest bearing debt 35 087 7 449
Short-term portion of amounts
due to vendors 12 846 11 000
Other current liabilities 119 235 101 433
Total equity and liabilities 434 484 342 847
Net asset value per ordinary
share (cents) 129 104
-as previously reported 129 110
-change in accounting policy - (6)
ADDITIONAL INFORMATION
Capital expenditure for the period 18 457 26 612
Capital expenditure committed
or authorized 32 514 144
Directors' valuation of
investments and loans 13 659 12 026
Finance and operating lease
commitments 157 092 141 854
Interest capitalized 20 504
Contingent liabilities 1 275 1 140
Abridged consolidated cash flow statement
Audited Audited
year ended year ended
30 June 2001 30 June 2000
R'000 R'000
Cash flows from operations 86 295 61 401
Working capital changes (33 277) (22 654)
Net financing costs, dividends
and taxation paid (32 623) (9 752)
Net cash inflow from operating
activities 20 395 28 995
Net capital expenditure (12 329) (13 473)
Dividends received from associate 720 824
Increase in investments and loans (150) (639)
Acquisition of subsidiary companies (13 715) (24 250)
Net cash outflow from investing
activities (25 474) (37 538)
Net cash (outflow)/inflow
from financing activities (23 724) 59 208
Net (decrease)/increase
in cash equivalents (28 803) 50 665
Consolidated statement of changes in equity
Share Non- Group Ordinary
capital and distributable retained shareholders'
premium reserves earnings equity
R'000 R'000 R'000 R'000
Balance at 30 June
1999 35 733 3 432 49 281 88 446
-as previously reported 35 733 3 432 54 974 94 139
-change in accounting
policy - - (5 693) (5 693)
Ordinary and contingency
shares issued 72 314 - - 72 314
Listing expenses (826) - - (826)
Movement in reserves - 3 112 106 3 218
Attributable profit - - 40 674 40 674
-as previously reported - - 46 776 46 776
-change in accounting
policy - - (6 102) (6 102)
Ordinary dividend - - (4 567) (4 567)
Balance at 30 June 2000 107 221 6 544 85 494 199 259
Contingency shares
issued 1 555 - - 1 555
Movement in reserves - 8 387 (1 708) 6 679
Attributable profit - - 51 389 51 389
Ordinary dividend - - (10 534) (10 534)
Balance at 30 June 2001 108 776 14 931 124 641 248 348
Segmental review
Eliminations/
headline
Southern Europe and earnings
Africa the U.S.A. adjustments Total
R'000 R'000 R'000 R'000
Geographical
Revenue:
Year ended 30 June 2001 541 625 150 227 (151 136) 540 716
% to total 78 22
Year ended 30 June 2000 381 955 123 983 (64 150) 441 788
% to total 75 25
Result:
Operating profit
Year ended 30 June 2001 60 190 17 480 (5 573) 72 097
% to total 77 23
Year ended 30 June 2000 40 974 12 290 (240) 53 024
% to total 77 23
Audited Audited
year ended year ended
30 June 2001 30 June 2000
R'000 % R'000 %
Segmental
Revenue:
Unbeneficiated products 294 960 43 226 645 45
Value added products
- Glass 131 930 19 102 714 20
- Aluminium 264 962 38 156 779 31
Services - - 19 800 4
691 852 100 505 938 100
Inter-segment sales eliminated (151 136) (64 150)
540 716 441 788
Directors: AA Barrell (Executive Chairman), JB Rosenberg (Financial),
J Martingano, MJE Geldenhuys, JC Saville, TY Worthington, HR Levin
(Non-executive), BE Danoher (Non-executive)
Company Secretary: JB Rosenberg
Registered Office: Corner Kruger Street and Mimetes Road, Denver Extension
11, Johannesburg 2094 (PO Box 40443, Cleveland 2022)
Transfer Secretaries: Mercantile Registrars Limited, 11 Diagonal Street,
Johannesburg 2001 (PO Box 1053, Johannesburg 2000)
Website: www.afglass.co.za
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