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AG Industries Limited - Trading Update
AG Industries Limited
(Incorporated in the Republic of South Africa)
Registration number: 1980/004051/06
Share Code: AGI
ISIN: ZAE000039467
("the Company" or "the Group")
TRADING UPDATE
Shareholders are advised that the results likely to be achieved by the Company
for the year ended 30 June 2003 will be lower than those achieved for the
previous year. The following is an update on trading conditions for the six
month period ended 30 June 2003.
As reported at the interim stage, the appreciation of the Rand/Dollar exchange
rate and the cost of gearing which arose from infrastructural development
required for the Group"s finished product export campaign continued to impact
negatively on earnings. Also as anticipated at the interim stage, no significant
benefit from this campaign is to be realised until the 2004 financial year.
Again as expected, this has resulted in the absorption of overheads with the
associated benefits in earnings only to be generated in future periods.
Domestic
In the domestic market, the strength of the Rand resulted in a drop in raw and
value-added glass prices as importers became extremely competitive. The local
glass manufacturer"s price adjustments lagged and this resulted in a fall in
gross margins across the glass divisions. However, Distribution Division volumes
grew by 12,5% over the comparative six-month period.
As a result of a slow down in the economy in general, and a short term slow down
in contract awards in the construction sector in particular, trading conditions
in the Value-Added Glass Division were sluggish and this, together with
increased competition from imports, resulted in a drop in volumes and margins in
this division.
The Aluminium Division, although experiencing less buoyancy in the market when
compared to the previous year, saw satisfactory growth as a result of increased
volumes and maintenance of gross margins. Additional infrastructural, research
and development and restructuring costs to prepare the business for the finished
product export campaign resulted in increased overheads. With significant
benefit from the campaign still expected only from 2004 financial year, the
effect was a reduction in operating margins in the division.
Increased finance costs also negatively impacted on domestic profitability.
International
Although the average Rand/Dollar exchange rate appreciated by only 10% when
compared with the previous financial year, the effect during the six months
ended 30 June 2003 was exacerbated by a 28% appreciation in the average
Rand/Dollar exchange rate when compared to the comparative six month period.
This resulted in:
a fall in hard currency revenues;
sharply lower gross margins generated by commodity and component exports; and
a R11.5 million swing in foreign exchange earnings for the year.
The U.S and German economies stagnated leading to lower glass volumes. As a
result, revenues in the Group"s international operations fell, this aggravated
further by increased competition in commodity type products as international
glass manufacturers traded downstream. In addition, value-added glass products
and finished products from South Africa only became readily available towards
the end of the financial year. Moreover, while no benefit from the Company"s
export campaign was enjoyed during the year under review, the full cost of
funding the infrastructure necessary for that campaign was borne.
Prospects
The volume of finished goods export campaign products is expected to increase
substantially in the forthcoming year due to increased availability of product
and a focused sales campaign. In spite of the current Rand/Dollar exchange rate,
finished goods margins remain attractive. These increased volumes are expected
to impact positively on the Company"s profitability for the following reasons:
the capacity laid in during previous periods can be expected to be more fully
utilised resulting in increased margins and hence improved profitability in the
domestic division;
the increased volumes in the International Division can be expected to result in
a more satisfactory overhead to revenue ratio and to contribute to gross margin;
finance costs can be expected to abate as cash inflows increase.
In addition, the Company"s overhead reduction programme and the rationalisation
of its operating divisions, are expected to increase its competitive advantage.
The fall in prime lending rates will further improve profitability.
Fuller details of the Company"s operations and its" prospects for the 2004
financial year will be provided with the announcement of the audited results for
the year ended 30 June 2003 which will be published on or about 16 September
2003.
13 August 2003
Johannesburg
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