| Tue 16 Sep 2003, 8:41 | | Reviewed Results for year ended 30 June 2003 |
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AG Industries Limited - Reviewed Results for year ended 30 June 2003
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")
SALIENT FEATURES
SOUND DOMESTIC REVENUE GROWTH:
- Strong organic growth in domestic revenues
- Aluminium Division continues to perform strongly
- Margin pressure in Glass Divisions due to appreciation of the Rand and
competitive imports
- Additional research & development and infrastructural costs
- Slow down in certain sectors of the economy dampens growth
INTERNATIONAL PERFORMANCE IMPACTED BY RESTRUCTURE, DEVELOPMENT COSTS AND FOREIGN
EXCHANGE:
- Margins fall on exports from South Africa as Rand appreciates
- Volumes fall on exports from South Africa as certain commodity products
become unprofitable as a result of Rand strength
- Costly re-engineering of USA business and export campaign development costs
impact profitability
- Economies in which the International Division operates remained stagnant
FINANCIAL PERFORMANCE CONSTRAINED BY FOREIGN EXCHANGE AND FINANCE COSTS:
- R11,6 million fall in foreign exchange earnings impacts performance
- Finance costs increase by R11,4 million as higher level of gearing is borne
for the full year
COMMENTARY
STRATEGIC FOCUS
AGI traded in a domestic market dominated by Rand strength and serviced sectors
of that economy with low or negative growth, particularly in the latter half of
the year under review. The international markets in which it operates had
economies which either stagnated or contracted. These conditions collectively
made growth difficult in the current year, however, AGI remains committed to its
core strategy.
AGI"s strategy aims to:
- Increase volumes by capturing market share internationally and
domestically; and
- Raise margins by focussing on value added and hard currency business.
Domestically, market share was increased through marketing innovative products
such as Kal-Kote, a decorative finish applied to aluminium extrusions, by making
further in-roads into the aluminium window and shower market and by targeting
outlying areas (outside the main hubs) to ensure efficient sales coverage
nationally.
Internationally, certification for the hurricane resistant door was obtained and
a range of new products, developed in South Africa, including tub enclosures and
shower doors, were introduced to the market late in the financial year. The
introduction of hurricane resistant laminated glass, produced in South Africa,
proved extremely successful and resulted in pleasing market share growth.
Margins, however, came under pressure as a result of the appreciation of the
Rand, higher overhead due to earlier infrastructural development and the fact
that domestically market share was increased at the expense of margin as
importers competed for market share and the local glass manufacturer"s price
adjustments lagged.
REVIEW
FINANCIAL PERFORMANCE
Revenue growth for the Group , reflected at 37% at the interim stage, was a
modest 7% at the end of the financial year. The latter six months of the year
saw a further appreciation in the Rand, negative growth in certain sectors of
the economy serviced by the Group and a short term slow down of contract awards.
In addition, international economies stagnated and selling prices reduced to
maintain market share. Headline operating profit before foreign exchange
differences fell by 23% compared to the previous year.
This was due to:
- a 24% increase in the depreciation and amortisation charge;
- a 10% appreciation in the average Rand/Dollar exchange rate leading to
lower revenues and sharply lower gross margins generated by commodity and
component exports;
- a reduction in revenues and gross margins as importers became extremely
competitive; and
- the overhead to revenue ratio moving up 5% as a result of research and
development expenditure and restructuring costs borne in the current year.
As reported at the interim stage, the swing in foreign exchange earnings (R11,6
million) and higher finance costs (R11,4 million), impacted on profitability.
The full impact of gearing, which increased from 31% to 42% , and which arose
from earlier infrastructural development, was borne for the full year under
review with returns only to be generated in future periods. This resulted in a
100% increase in finance costs. The tax rate increased from 30% to 37% due to
the Secondary Taxation charge on the company"s dividend declared in the previous
year and the higher proportion of non-deductible expenses, such as goodwill
amortisation, to profit before tax. The effective tax rate before these items
decreased when compared to the previous year. Tighter operating margins, higher
finance charges and an increased tax rate combined to result in a headline
return on equity of 10% (2002: 21%).
INTERNATIONAL OPERATIONS
During the latter half of the financial year the Group obtained certification
for its hurricane resistant door. The first shipment was only received in the
USA at the beginning of the new financial year. A full range of shower doors and
tub enclosures were in stock by the end of the financial year. Consistent with
Group strategy, Gulfstar has displayed its product at a number of trade shows.
The product has been favourably received and exciting leads are being pursued.
Laminated products supplied into this market have fared extremely well and a
laminated cutting machine was commissioned in the USA in June 2003, resulting in
a substantial increase in sales. As little benefit has accrued from the export
campaign during the year under review, and as additional infrastructure and
restructuring costs were borne, the overhead to revenue ratio increased
substantially, resulting in losses in this operation. The German economy
contracted and the Group lost volumes and margins. To regain volumes at higher
gross margins the Group commissioned glass cutting equipment in order to capture
niche markets around the Hamburg hub. This strategy proved successful and the
company was once again trading profitably by the end of the financial year. The
company operating in Denmark was equally hard hit by the contracting economy.
Although seeing a measure of recovery due to a concerted sales effort and the
overhead reduction program, the company was unable to recover its operating
losses and contributed to a lacklustre performance in European operations.
Results delivered by the UK company were satisfactory. The International
Division had many changes to management and structures and the costs associated
with these changes severely impacted profitability.
SOUTH AFRICAN OPERATIONS
The Aluminium Division performed well with all its operations contributing to
profitability, most notably its extrusion operation which increased operating
profits by 170%. The Division achieved excellent organic growth, particularly in
the window and shower door sectors. The Division saw a 252% increase in volumes
of Kal-Kote product, after commissioning a new plant in the first half of the
financial year. New products developed for the North American market, including
shower doors, tub enclosures and hurricane resistant doors were produced and
shipped towards the end of the financial year. Therefore, no substantial benefit
was enjoyed during the current year from the export campaign. The Unbeneficiated
Glass Division achieved an impressive volume growth of 11% (2002: 3%) as a
result of an increase in contract awards, especially in the first half of the
year, and effective use of high-tech processing equipment commissioned early on
in the financial year. Gross margins were again under pressure as importers
competed and the glass manufacturer"s price adjustments lagged. The Value Added
Division was hard hit in the second half of the year by a slow down in contracts
requiring toughened glass and by import competition on mirrors and laminated
glass. Although revenue increased, margins dropped as plant utilisation became
less efficient causing operating margins to fall.
PROSPECTS
The Group has embarked on an overhead reduction program which will streamline
operations and improve the value chain in our established markets. The volume of
finished goods export campaign product is expected to increase due to increased
availability of product and a focussed sales campaign. These increased volumes
will result in capacity laid in during the previous year being more fully
utilised and will improve operating margins. Improved cash flows can be expected
to reduce gearing and abate finance costs. The fall in prime lending rates is
expected to further contribute to improved profitability.
INTERNATIONAL PROSPECTS
The Group looks forward to a year in which economic growth is anticipated and
the world economies experience a gradual turnaround. The US operation has
consolidated its product range and will endeavour to grow its market share in a
focussed segment of the market. A range of tub enclosures, showers and hurricane
resistant doors are in store and an introduction of the product to the market is
underway. Strategic alliances with US based suppliers will allow Gulfstar to
offer a comprehensive product range. The anticipated increased volumes can be
expected to result in a more satisfactory overhead to revenue ratio and to
contribute to gross margin. Further rationalisation of the Danish operation,
which we intend to convert to a distribution warehouse, with sales and
administration functions performed by Germany, will result in better utilisation
of the German infrastructure and improved profitability in European operations
as a whole. Any weakening of the Rand will immediately and positively impact
operating profit.
SOUTH AFRICAN PROSPECTS
Development of the international finished goods market remains an important
focus in the year ahead. The South African Division has the capacity to cope
with substantial increases in volume without adding significant overhead, and
the export campaign therefore represents an opportunity for good operating
profit growth, as the infrastructure becomes more fully utilised and product
unit costs abate. A rationalisation program has been embarked on in the new
financial year. The program will result in substantial cost savings as
duplicated, and at times triplicated structures are rationalised down.
Distribution of the product is expected to become more efficient, resulting in
lower cost and an improved service to the customer.
ACCOUNTING POLICIES AND REVIEW
The accounting policies have been consistently applied and comply with the South
African Statements of GAAP. In the current year, statement AC133 - Financial
Instruments: Recognition and Measurement, was adopted for the first time. No
adjustments to comparative amounts were necessary.
The year end financial results have been reviewed in terms of Rule 3.23 of the
Listing Requirements of the JSE Securities Exchange SA by the Group"s auditors,
Deloitte & Touche. This review opinion is available for inspection at AGI"s
registered office.
CHANGES IN DIRECTORATE
Mr G.F.D. Twigg resigned as a non-executive director and was appointed as an
executive director (Chief Operating Officer) effective 1 August 2003.
Mr J.B. Rosenberg resigned as Group Financial Director and Company Secretary and
was appointed as a non-executive director effective 1 August 2003.
Mrs J. Martingano, an executive director, was appointed as Group Financial
Director and Company Secretary effective 1 August 2003.
CAPITAL DISTRIBUTION
In accordance with the authority given to the Board of Directors by way of an
ordinary resolution passed on 27 November 2002, the Board of Directors has
declared a capital distribution out of share premium of 5,0 cents per ordinary
share (2002: dividend of 7,5 cents declared) for the year ended 30 June 2003.
The last day to trade in AGI shares "cum" the capital distribution in order to
participate in the capital distribution will be Friday, 3 October 2003. From
Monday, 6 October 2003 AGI shares will commence trading "ex" the capital
distribution. The record date will be Friday, 10 October 2003. Date of payment
will be Monday, 13 October 2003.
Share certificates may not be dematerialised or rematerialised between Monday,
6 October 2003 and Friday, 10 October 2003, both days inclusive.
For and on behalf of the Board
A A Barrell J Martingano
Executive Chairman Group Financial Director
15 September 2003
CONSOLIDATED INCOME STATEMENT
Reviewed Audited
year ended year ended
30 June 30 June
2003 2002 Change
R"000 R"000 %
Revenue 890,822 829,956 7
Operating profit before depreciation and
foreign
exchange (loss)/gain 91,329 108,501 -16
Depreciation -18,965 -14,878
Other amortisation -912 -1,204
Headline operating profit before foreign
exchange (loss)/gain 71,452 92,419 -23
Operating margin 8.0% 11.1%
Foreign exchange (loss)/gain -5,674 5,941
Headline operating profit 65,778 98,360 -33
Profit on disposal of property, plant and 426 583
equipment
Goodwill amortised -9,464 -7,526
Profit from operations 56,740 91,417 -38
Net financing costs -22,840 -11,445
Income from associates 2,251 2,540
Profit before taxation 36,151 82,512 -56
Taxation -13,537 -24,550
- normal activities -13,409 -24,375
- headline adjustments -128 -175
Profit after taxation 22,614 57,962 -61
Minority interest -1,661 34
Profit for the year 20,953 57,996 -64
Profit on disposal of property, plant and -298 -408
equipment
Goodwill amortised 9,464 7,526
Goodwill amortised in associates 89 51
Headline earnings 30,208 65,165 -54
STATISTICS
Number of ordinary shares in issue ("000) 195,478 195,478
Weighted average number of ordinary
shares in issue ("000) 195,478 195,478
Basic earnings per ordinary share (cents) 10.7 29.7
Headline earnings per ordinary share 15.5 33.3
(cents)
Dividend paid
Dividend per ordinary share (cents) 7.5* 6.5
* Dividend declared in respect of year ended 30 June 2002.
CONSOLIDATED BALANCE SHEET
Reviewed Audited
year ended year ended
30 June 30 June
2003 2002
R"000 R"000
ASSETS
Non-current assets
Property, plant and equipment 87,004 88,430
Intangible assets 125,550 153,696
Investments and loans 15,905 15,347
Deferred taxation assets 9,009 4,821
Current assets
Bank balances and cash 39,384 31,443
Other current assets 310,526 325,389
Total assets 587,378 619,126
EQUITY AND LIABILITIES
Shareholders" equity
Ordinary shareholders" equity 294,472 312,407
Minority shareholders" interest
Outside shareholders" interest 2,551 1,284
Non-current liabilities
Non interest bearing shareholders" loans 1,330 1,512
Interest bearing shareholder"s loan 4,639 0
Deferred taxation liabilities 9,653 8,399
Long-term interest bearing debt 38,767 44,204
Current liabilities
Short-term interest bearing debt 118,708 83,536
Amounts due to vendors within one year 528 6,088
Other current liabilities 116,730 161,696
Total equity and liabilities 587,378 619,126
Net asset value per ordinary share (cents) 151 160
Number of ordinary shares in issue ("000)
ADDITIONAL INFORMATION
Capital expenditure for the period 25,975 92,100
Capital expenditure committed or 8,365 18,003
authorised
Directors" valuation of investments and 15,905 15,347
loans
Finance and operating lease commitments 223,844 225,167
Interest capitalised 0 309
Contingent liabilities 24,520 29,332
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Non- Group Total
capital and distributable retained shareholders"
premium reserves earnings equity
R"000 R"000 R"000 R"000
Balance at 30 June 108,776 14,931 124,641 248,348
2001
Income from associates 0 1,791 -1,791 0
Currency translation 0 18,769 18,769
movement
Profit for the year 0 57,996 57,996
Ordinary dividend 0 -12,706 -12,706
Balance at 30 June 108,776 35,491 168,140 312,407
2002
Income from associates 0 560 -560 0
Currency translation 0 -24,227 -24,227
movement
Profit for the year 0 20,953 20,953
Ordinary dividend 0 -14,661 -14,661
Balance at 30 June 108,776 11,824 173,872 294,472
2003
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Reviewed Audited
year ended year ended
30 June 30 June
2003 2002
R"000 R"000
Cash flows from operations 85,655 114,442
Working capital changes -27,749 -36,127
Net financing costs , dividends and taxation -62,985 -45,553
paid
Net cash (outflow)/inflow from operating -5,079 32,762
activities
Net capital expenditure -19,409 -51,570
Dividend received from associate 926 0
Decrease in investments and loans 1 103
Acquisition of subsidiaries -27 -36,667
Net cash outflow from investing activities -18,509 -88,134
Net cash (outflow)/inflow from financing -2,196 35,780
activities
Net decrease in cash equivalents -25,784 -19,592
GROUP SEGMENTAL ANALYSIS
Elimina
tions /
Southern Europe headline
earnings
Africa and the adjustments Total
USA
R"000 R"000 R"000 R"000
Geographical
Revenue :
Year ended 30 June 2003 929,892 253,029 -292,099 890,822
% to total 79 21
Year ended 30 June 2002 780,591 287,119 -237,754 829,956
% to total 73 27
Result :
Profit from operations
Year ended 30 June 2003 74,495 -8,718 -9,037 56,740
% to total 113 -13
Year ended 30 June 2002 75,967 22,393 -6,943 91,417
% to total 77 23
Reviewed Audited
year ended year ended
30 June 30 June
2003 2002
R"000 % R"000 %
Business segment
Revenue :
Unbeneficiated products 461,582 39 477,453 45
Value added products
- Glass 165,170 14 148,631 14
- Aluminium 545,769 46 441,626 41
Services 10,400 1 0 0
1,182,921 100 1,067,710 100
Inter-segment sales -292,099 -237,754
eliminated
890,822 829,956
Date: 16/09/2003 07:30:13 AM Produced by the JSE SENS Department
