| Tue 2 Mar 2004, 8:16 | | AGI interim results for six months ended 31 Dec 03 |
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AG INDUSTRIES LIMITED - UNAUDITED INTERIM RESULTS FOR THE 6 MONTHS ENDED 31
DECEMBER 2003
AG Industries Limited
Registration No. 1980/004051/06
Share code AGI
ISIN: ZAE000039467
SALIENT FEATURES
Domestic
* Organic volume growth in all divisions
* Consolidation of Aluminium Division will yield significant cost savings
* Establishment of AGI Solutions gears the Group for targeted expansion into
large construction projects throughout Africa
* Margins widen as input costs are effectively managed down
International
* Rationalisation of German and Scandinavian operations
improves margins
* UK operation increases profitability significantly
* First month of profitability achieved in USA
* First order received from a builder"s warehouse chain in USA
* Export volumes and margins negatively impacted by further strengthening of
the Rand
Balance Sheet and cash flow
* Return on Equity improves to 17% from 10% for year ended 30 June 2003
* Strong operating cash flow results in positive cash generation, reduced
finance costs and improved cash prospects going forward
COMMENTARY
FOCUS FOR THE PERIOD
The focus of the Group over the past six months has been fourfold:
- In domestic markets, neutralising the impact of Rand strength, which,
during the previous six-month period, compressed margins and severely
impacted profitability;
- Improving efficiencies through the Group to achieve savings thereby
enhancing shareholder value;
- Returning the International Division to break-even and building on this
solid base to create profitable businesses;
- Consolidating the Aluminium Division into a cohesive unit resulting in
efficiencies in production and costs of delivery as well as superior
service at competitive prices.
The progress in achieving the objectives set has been pleasing.
In the first instance, profitability in the six month period ended 30 June 2003
was severely impacted by Rand volatility. This resulted in a decrease in selling
prices and margins as importers competed aggressively in the market and glass
input price reductions lagged. This impacted both the Unbeneficiated and the
Value Added Glass Divisions. The focus during the period was on negotiating
input prices down to restore margins. Despite further strengthening of the Rand
and continuing competitive import activity, it is significant to note that
organic growth was achieved while returning margins to the same levels as those
in the comparative period (period ended December 2002). This can be attributed
to the combination of a reduction in input costs and a consistent effort to
improve efficiencies.
Secondly, the Group embarked on a cost reduction program in October 2003. This
included a procurement project to reduce input costs, an overhead savings drive
and a focus on areas where the Group could improve efficiencies. The project has
yielded substantial benefits and should further enhance the strength of the
domestic business by improving operating margins in the next six months and
beyond.
Thirdly, the International Division was focused on cutting costs and
establishing a solid base off which to grow profits. To this end cost savings
were achieved by combining the German and Scandinavian operations"
administration and transport while maintaining a warehouse in Scandinavia to
ensure that customer service is not compromised. Processing volumes increased,
further contributing to higher margins and profitability. In the USA, the
immediate objective was to return the business to profitability. Cost saving
initiatives were successfully implemented resulting in the first month of
profitability in December 2003. As expected, the first order of shower doors
from a major builder"s warehouse in the State of Florida has been received.
Finally, the consolidation of the Aluminium Division"s fabrication lines has
resulted in increased efficiencies, which will, in the short-term, translate
into higher production and reduced cost. The production facilities, which
extrude aluminium and apply various coatings to aluminium lengths have been
housed at one site in Lea Glen resulting in reduced handling of material and
hence improved quality. The Division has acquired a new powder coating plant,
which is housed alongside the existing extrusion press. This is expected to free
trapped margin and improve profitability. The consolidation of regional
operations has yielded cost savings, which should benefit the Group in the next
six-month period.
REVIEW
FINANCIAL PERFORMANCE
The domestic operations performed exceptionally well, underpinning the strength
of the Group. Domestic volumes increased organically in all divisions, while
revenue dropped compared to the comparative period as a result of lower selling
prices in the glass and aluminium markets. These lower selling prices can be
attributed directly to the stronger Rand. As local manufacturers came to terms
with the strong Rand, input prices adjusted downward to meet import parity,
restoring margins in both Unbeneficiated and Value Added Divisions to levels in
the comparative period. Efficiencies were carefully managed and the cost savings
drive started to yield benefits.
The International Division returned to profitability during the six-month period
ended December 2003. The business plan implemented in the USA resulted in
improved performance for the reporting period. The focus for the next six months
will be on growing the business organically, building relationships and gaining
further exposure for the available product range. The European economy remained
depressed resulting in continued pressure on volumes in this market. However,
gross margins improved as volumes of higher value processed glass increased.
This combined with the lower cost base resulted in an improved performance. In
the UK, margins increased as input costs were negotiated down, resulting in a
significant increase in operating profits. Export volumes increased by 27%,
however, Rand strength resulted in significantly reduced sales values and
margins.
Even though finance costs decreased due to lower interest rates and slightly
reduced borrowings, gearing remained at 40%. The stronger Rand impacted the
foreign currency translation reserve, which reduced shareholders" equity.
Operating cash flows together with a reduced working capital cycle are expected
to improve gearing by the year-end. Higher operating margins, lower finance
costs and a lower tax rate combined to result in an improved headline return on
equity of 17% (30 June 2003:10%).
PROSPECTS
South African Operations
The drive in South African operations is to achieve world-class manufacturing
capability. To this end, the rationalisation of the Aluminium and Glass
Divisions was completed during the reporting period. The full effect of overhead
savings as well as increased efficiencies throughout the operations should flow
over the next six to twelve months. The establishment of AGI Solutions, a
dedicated and experienced marketing and architectural solutions team, will
enhance existing product ranges, introduce new products and concentrate on
providing a unique service to construction projects. This team has secured a
number of large contracts, the benefits of which will flow in the next six to
twelve months. The Glass Division will expand into neighbouring countries to
further its reach into African markets.
International Operations
The Group is committed to grow its international businesses over the long term.
Now that the Group has rationalised its operations it will actively seek to grow
the business organically or by acquisition. In the USA, organic growth is
expected in the shower door and hurricane resistant door market. Additional
processing equipment, in Europe and the USA, will lead to additional revenue in
the value added glass market. Exports of value added glass products and shower
doors into Africa and Europe are expected to increase, enabling the European
operations to increase their share in their chosen markets.
Conclusion
Assuming a stable market, a much-improved performance is expected in the second
half of the 2004 year.
DIVIDEND
The board has the policy of paying one ordinary dividend at the end of each
financial year. In line with this policy no interim dividend has been proposed.
ACCOUNTING POLICIES
The accounting policies have been consistently applied and comply with the South
African Statements of Generally Accepted Accounting Practice.
For and on behalf of the Board
A A Barrell (Executive Chairman,) G F D Twigg (C.O.O.), J Martingano(Financial),
J.C. Saville, M.J.E. Geldenhuys, C.P. Kalil, H.R.Levin, B.E. Danoher, T.Y.
Worthington, J.B. Rosenberg
Registered Address
Corner Kruger Street & Mimetes Road, Denver, Extension 11, Johannesburg, 2094
Transfer Secretaries:
Computershare Investor Services Limited, 11 Diagonal Street, Johannesburg, 2001
Registration No. 1980/004051/06
Share code AGI
ISIN : ZAE000039467
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
six months six months year ended
ended ended
31 December 31 December 30 June
2003 2002 2003
R"000 R"000 R"000
Cash flows from operations 55,481 57,525 85,655
Working capital changes -20,688 -45,630 -27,749
Net financing costs , dividend -12,231 -29,635 -62,985
and taxation paid
Net cash inflow/(outflow) from 22,562 -17,740 -5,079
operating activities
Net capital expenditure -9,191 -3,788 -19,409
Dividend received from 0 446 926
associate
Decrease in investments and 36 118 1
loans
Acquisition of subsidiaries 0 -23 -27
Net cash outflow from investing -9,155 -3,247 -18,509
activities
Capital distribution -9,774 0 0
Other financing activities -3,367 -8,144 -2,196
Net cash outflow from financing -13,141 -8,144 -2,196
activities
Net increase/(decrease) in cash 266 -29,131 -25,784
equivalents
CONSOLIDATED BALANCE SHEET
Unaudited Unaudited Audited
six months six months year ended
ended ended
31 December 31 December 30 June
2003 2002 2003
R"000 R"000 R"000
ASSETS
Non-current assets
Property, plant and equipment 85,631 81,872 87,004
Intangible assets 117,497 140,598 125,550
Investments and loans 16,931 15,610 15,905
Deferred taxation assets 10,718 6,722 9,009
Current assets
Other current assets 350,482 360,828 310,526
Bank balances and cash 34,434 36,643 39,384
Total assets 615,693 642,273 587,378
EQUITY AND LIABILITIES
Shareholders" equity
Ordinary shareholders" equity 300,466 307,406 294,472
Minority shareholders" interest
Outside shareholders" interest 4,022 2,095 2,551
Non-current liabilities
Non-interest bearing 490 1,330 1,330
shareholders" loans
Interest bearing shareholder"s 4,166 0 4,639
loan
Deferred taxation liabilities 7,808 5,745 9,653
Long-term interest bearing debt 45,009 46,617 38,767
Current liabilities
Amounts due to vendors within 179 528 528
one year
Other current liabilities 149,263 165,882 116,730
Short-term interest bearing 104,290 112,670 118,708
debt
Total equity and liabilities 615,693 642,273 587,378
Net asset value per ordinary 154 157 151
share (cents)
ADDITIONAL INFORMATION
Capital expenditure for the 10,288 9,428 25,975
period
Capital expenditure committed 16,648 8,598 8,365
or authorised
Directors" valuation of 16,931 15,610 15,905
investments and loans
Finance and operating lease 204,609 217,934 223,844
commitments
Interest capitalised 0 74 74
Contingent liabilities 23,976 30,558 24,520
CONSOLIDATED INCOME Unaudited Unaudited Audited
STATEMENT
six months six months
ended ended
year ended 31 December 31 December 30 June
2003 2002 Change 2003
R"000 R"000 % R"000
Revenue 471,991 528,344 -11 890,822
Operating profit before
depreciation and foreign
exchange loss 55,953 60,501 -8 91,329
Depreciation -10,079 -9,502 -18,965
Other amortisation -523 -377 -912
Headline operating profit before
foreign
exchange loss 45,351 50,622 -10 71,452
Operating margin 9.6% 9.6% 8.0%
Foreign exchange loss -289 -2,976 -5,674
Headline operating profit 45,062 47,646 -5 65,778
(Loss)/profit on disposal
of property,
plant and equipment -13 104 426
Goodwill amortised -3,530 -4,245 -9,464
Profit from operations 41,519 43,505 -5 56,740
Net financing costs -9,483 -10,628 -22,840
Income from associates 1,255 1,184 2,251
Profit before taxation 33,291 34,061 -2 36,151
Taxation -10,276 -12,843 -13,537
- normal activities -10,280 -12,812 -13,409
- headline adjustments 4 -31 -128
Profit after taxation 23,015 21,218 8 22,614
Minority interest -1,471 -912 -1,661
Profit for the period 21,544 20,306 6 20,953
Reconciliation:
Profit for the period 21,544 20,306 20,953
Loss/(profit) on disposal of property,
plant and equipment 9 -73 -298
Goodwill amortised 3,530 4,245 9,464
Goodwill amortised in 0 0 89
associates
Headline earnings 25,083 24,478 2 30,208
STATISTICS
Number of ordinary shares 195,478 195,478 195,478
in issue ("000)
Weighted average number of 195,478 195,478 195,478
ordinary
shares in issue ("000)
Basic earnings per 11.0 10.4 10.7
ordinary share (cents)
Headline earnings per 12.8 12.5 15.5
ordinary share (cents)
Capital distribution
Capital distribution 0 0 5.0*
proposed per ordinary
share (cents)
* Capital distribution proposed in respect of year
ended
30 June 2003 - paid on 13 October
2003.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Non- Group Total
capital distributable retained shareholders"
and
premium reserves earnings equity
R"000 R"000 R"000 R"000
Balance at 30 June 108,776 35,491 168,140 312,407
2002
Movement in reserves 0 -10,264 -382 -10,646
Profit for the period 0 0 20,306 20,306
Ordinary dividend 0 0 -14,661 -14,661
Balance at 31 December 108,776 25,227 173,403 307,406
2002
Movement in reserves 0 -13,403 -178 -13,581
Profit for the period 0 0 647 647
Balance at 30 June 108,776 11,824 173,872 294,472
2003
Capital distribution -9,774 0 0 -9,774
Movement in reserves 0 -4,897 -879 -5,776
Profit for the period 0 0 21,544 21,544
Balance at 31 December 99,002 6,927 194,537 300,466
2003
UNAUDITED INTERIM RESULTS FOR THE 6 MONTHS ENDED 31 DECEMBER
2003
GROUP SEGMENTAL ANALYSIS
Eliminations /
Southern Europe headline
earnings
Africa and the adjustmen Total
USA ts
R"000 R"000 R"000 R"000
Geographical
Revenue :
Period ended 31 December 2003 454,025 110,783 -92,817 471,9
91
% to total 80 20
Period ended 31 December 2002 528,009 132,200 -131,865 528,3
44
% to total 80 20
Year ended 30 June 2003 929,892 253,029 -292,099 890,8
22
% to total 79 21
Result :
Profit/(loss) from operations
Period ended 31 December 2003 43,457 1,605 -3,543 41,51
9
% to total 96 4
Period ended 31 December 2002 51,388 -3,742 -4,141 43,50
5
% to total 108 -8
Year ended 30 June 2003 74,495 -8,718 -9,037 56,74
0
% to total 113 -13
Unaudited Unaudited Audite
d
six six months year
months ended ended
ended
31 31 30
December December June
2003 2002 2003
R"000 % R"000 % R"000 %
Business segment
Revenue :
Unbeneficiated products 208,572 37 266,785 40 461,58 39
2
Value added products
- Glass 80,484 14 88,217 13 165,17 14
0
- Aluminium 275,752 49 294,807 45 545,76 46
9
Services 0 0 10,400 2 10,400 1
564,808 100 660,209 100 1,182, 100
921
Inter-segment sales -92,817 -131,865 -
eliminated 292,09
9
471,991 528,344 890,82
2
Date: 02/03/2004 08:04:21 AM Produced by the JSE SENS Department
