| Tue 14 Sep 2004, 8:38 | | Reviewed Results For The Year Ended 30 June 2004 |
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AG Industries Limited - Reviewed Results For The Year Ended 30 June 2004
AG INDUSTRIES LIMITED
(`AGI` or `the Group`)
(Registration number: 1980/004051/06)
Share code: AGI ISN: ZAE000039467
REVIEWED RESULTS FOR THE YEAR ENDED 30 JUNE 2004
* HEADLINE OPERATING PROFIT UP 29% TO R84,8m
* HEADLINE EARNINGS UP 45% TO R43,7m
* GEARING DOWN TO 28% FROM 42%
* CASH INFLOW FROM OPERATING ACTIVITIES R66,9m
CONSOLIDATED INCOME STATEMENT
Reviewed Audited
year ended year ended
30 June 30 June
2004 2003 Change
R`000 R`000 %
Revenue 910 350 890 822 2
Profit before depreciation 105 190 85 655 23
Depreciation (19 285) (18 965)
Other amortisation (1 087) (912)
Headline operating profit 84 818 65 778 29
Operating margin 9,3% 7,4%
(Loss)/profit on disposal of
property, plant and equipment (194) 426
Goodwill amortised (9 139) (9 464)
Profit from operations 75 485 56 740 33
Net financing costs (17 538) (22 840)
Income from associates 2 309 2 251
Profit before taxation 60 256 36 151 67
Taxation (23 098) (13 537)
- normal activities (23 156) (13 409)
- headline adjustments 58 (128)
Profit after taxation 37 158 22 614 64
Minority interest (2 736) (1 661)
Profit for the year 34 422 20 953 64
Reconciliation:
Profit for the year 34 422 20 953
Loss/(profit) on disposal of
property, plant and equipment 136 (298)
Goodwill amortised 9 139 9 464
Goodwill amortised in associate - 89
Headline earnings 43 697 30 208 45
STATISTICS
Number of ordinary shares
in issue (`000) 195 478 195 478
Weighted average number of
ordinary shares in issue (`000) 194 181 195 478
Diluted number of ordinary shares
in issue (`000) 200 314 196 875
Basic earnings per ordinary
share (cents) 17,6 10,7 64
Diluted basic earnings per
ordinary share (cents) 17,2 10,6 62
Headline earnings per ordinary
share (cents) 22,5 15,5 45
Diluted headline earnings per
ordinary share (cents) 21,8 15,3 42
Capital distribution proposed
Capital distribution per
ordinary share (cents) 6,5 5,0*
*Capital distribution declared in respect of year ended 30 June 2003.
CONSOLIDATED BALANCE SHEET
Reviewed Audited
year ended year ended
30 June 30 June
2004 2003
R`000 R`000
ASSETS
Non-current assets
Property, plant and equipment 88 424 87 004
Intangible assets 108 337 125 550
Investments and loans 17 255 15 905
Deferred taxation assets 7 851 9 009
Current assets
Other current assets 339 083 310 526
Bank balances and cash 21 388 39 384
Total assets 582 338 587 378
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` equity 306 633 294 472
Minority shareholders` interest
Outside shareholders` interest 5 109 2 551
Non-current liabilities
Non-interest bearing shareholders` loans - 1 330
Interest bearing shareholder`s loan 3 944 4 639
Deferred taxation liabilities 11 071 9 653
Long-term interest bearing debt 59 737 38 767
Current liabilities
Amounts due to vendors within one year 176 528
Other current liabilities 151 735 116 730
Short-term interest bearing debt 43 933 118 708
Total equity and liabilities 582 338 587 378
Net asset value per ordinary
share (cents) 157 151
ADDITIONAL INFORMATION
Capital expenditure for the year 25 381 25 975
Capital expenditure committed
or authorised 40 757 8 365
Directors` valuation of investments
and loans 17 255 15 905
Finance and operating lease commitments 208 585 223 844
Contingent liabilities 22 955 24 520
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Reviewed Audited
year ended year ended
30 June 30 June
2004 2003
R`000 R`000
Cash flows from operations 104 878 85 655
Working capital changes 1 172 (27 749)
Net financing costs, dividends and
taxation paid (39 198) (62 985)
Net cash inflow/(outflow) from
operating activities 66 852 (5 079)
Net capital expenditure (21 903) (19 409)
Dividend received from associate 585 926
Decrease in investments and loans 36 1
Acquisition of subsidiaries - (27)
Net cash outflow from investing
activities (21 282) (18 509)
Capital distribution paid (9 704) -
Other financing activities 22 441 (2 196)
Net cash inflow/(outflow) from
financing activities 12 737 (2 196)
Net increase/(decrease) in cash
equivalents 58 307 (25 784)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
capital,
share Total
premium Non- share-
and distri- Group equity
treasury butable retained holders`
shares reserves earnings equity
R`000 R`000 R`000 R`000
Balance at 30 June 2002 108 776 35 491 168 140 312 407
Movement in reserves - (23 667) (560) (24 227)
Profit for the year - - 20 953 20 953
Ordinary dividend - - (14 661) (14 661)
Balance at 30 June 2003 108 776 11 824 173 872 294 472
Treasury shares (2 772) - - (2 772)
Change in accounting
policy 210 210
Movement in reserves - (9 229) (1 073) (10 302)
Fair value of investments - 312 - 312
Profit for the year - - 34 422 34 422
Capital distribution (9 709) - - (9 709)
Balance at 30 June 2004 96 295 2 907 207 431 306 633
GROUP SEGMENTAL ANALYSIS
Eliminations/
Europe headline
Southern and the earnings
Africa USA adjustments Total
R`000 R`000 R`000 R`000
Geographical
Revenue:
Year ended 30 June 2004 912 682 210 214 (212 546) 910 350
% to total 81 19
Year ended 30 June 2003 929 892 253 029 (292 099) 890 822
% to total 79 21
Result:
Profit from operations
Reviewed year ended
30 June 2004 92 161 (7 344) (9 332) 75 485
% to total 109 (9)
Audited year ended
30 June 2003 74 495 (8 718) (9 037) 56 740
% to total 113 (13)
Reviewed Audited
year ended year ended
30 June 30 June
2004 2003
R`000 % R`000 %
Business segment
Revenue:
Unbeneficiated products 433 888 39 461 582 39
Value added products
- Glass 133 727 12 165 170 14
- Aluminium 555 281 49 545 769 46
Services - - 10 400 1
1 122 896 100 1 182 921 100
Inter-segment sales
eliminated (212 546) (292 099)
910 350 890 822
SALIENT FEATURES
DOMESTIC
Strong organic volume growth in all divisions
Consolidation of Aluminium Division yields significant productivity improvements
AGI Solutions wins large construction projects throughout Africa
Margins improve as costs are managed down.
INTERNATIONAL
Export revenues negatively impacted by strong Rand
Restructured US operation creates platform for growth
Rationalised German and Scandinavian operation yields cost savings.
BALANCE SHEET AND CASH FLOW
Gearing improves to 28% from 42%
Interest cover increased to 4,3 times from 2,5 times
Headline return on equity improves to 14% from 10%
Strong operating cash flow results in reduced gearing, lower finance costs and
improved profitability.
COMMENTARY
STRATEGIC FOCUS
The focus over the past year has been fourfold:
1. Neutralising the impact of Rand strength which had previously compressed
margins and severely impacted profitability in domestic markets.
2. Rationalising the Aluminium Division`s channels to market, products and
operations to enhance service levels and create efficiencies.
3. Improving efficiencies throughout the Group thereby enhancing shareholder
value.
4. Addressing poor performance in the German and US operations.
1. Neutralising the impact of the Rand strength
The Group has addressed Rand strength on two fronts; firstly by negotiating
input prices more effectively, and doing so on a consistent basis throughout the
year, and secondly by maintaining volumes despite price pressure from imports in
key markets. It is significant to note that organic growth was achieved while
improving margins by 26%. This was achieved by improving product mix and service
levels as well as reducing input costs and improving efficiencies.
2. Rationalisation of the aluminium division
The Group has restructured the Aluminium Division, integrating the Kal and
Clearway businesses. Through this integration of product lines, sites and
channels to market have been consolidated. This was a challenging process,
driven by three initiatives referred to below, that is now complete and has
resulted in improved service to customers and a considerable increase in output
from the factories.
The three initiatives were:
- Site rationalisation
This has yielded a highly productive dedicated assembly plant in Alrode,
and allowed the Group to develop a new powder coating and Kal-Kote plant
(unique decorative coating plant) on the Group`s Lea Glen site to
compliment our existing extrusion press.
- Product consolidation
This has yielded efficiencies in production and stockholding, and provided
the catalyst to review and improve the product range. The Group has
developed a new range of products and improved the current product range.
This enhanced range of products will be introduced to the market during the
course of the coming year. AGI customers will benefit from an increased and
unrivalled choice of products and very competitive service levels.
- Channels to market
The Group has completed a multi-divisional initiative to simplify channels
to market by regionalising the Aluminium Division sales force, and aligning
sales activity across the Group`s three main product categories, namely
glass, finished products and lengths and hardware. Through this initiative,
the Group has seen an increase in sales across categories and a conversion
of key divisional customers to Group accounts.
3. Group Efficiency Drive
Efficiencies have increased considerably as a result of a range on initiatives
across the Group, resulting in a significant cost reduction and improvement in
productivity.
In the Glass Division the headcount has been reduced, overtime controlled, shift
output maximised, yield increased through better production process
configuration, and JIT (Just in Time) manufacturing techniques introduced. These
initiatives have doubled service levels and have resulted in a 35% increase in
headline operating profit.
In the Aluminium Division overheads have been reduced and efficiencies captured
which have resulted in a 17% increase in headline operating profit.
Group Services have been streamlined and, in many cases, decentralised or
outsourced, yielding a further reduction in costs.
The Group expects to see further efficiencies, in all domestic divisions, from
these initiatives during the coming year.
4. International performance
The Group has had a difficult year in both Germany and the United States. This
poor performance has been partially offset by a satisfactory performance in the
United Kingdom.
The German economy stagnated for the fourth year in succession resulting in
depressed prices which were further exacerbated by cheap imports. The business
in Germany lost significant sales volumes but managed to increase its share of
the processing market, and the Group hopes to extend its capability in that
regard over the coming year. There are encouraging signs that the German economy
is recovering.
The business in the United States has continued to underperform. The Group took
action during the year to address this underperformance and, as a result, has
significantly reduced losses over the last year. A new management team is in
place, and they have further reduced overhead, renegotiated input prices with
the Group`s major suppliers and restructured the USA business under the AGI
brand as AGI USA Fabrication. The USA team has grown revenue by 10% over the
comparative year through increasing glass processing, improving service levels,
and is selling a greater volume of finished products, predominantly tub
enclosures and shower doors, into the building sector.
Financial review
Domestic volumes increased in all divisions by a weighted average of 22%. Growth
in sales revenue, however, was suppressed by lower selling prices being achieved
as the Glass Division in particular reduced prices to counter competition from
imports.
The primary driver of earnings growth was the ability of the divisions to grow
margin through effective reduction of input costs and overheads. Manufacturing
efficiencies further contributed to profitability. This resulted in an increase
in domestic headline operating margins to 10% from 8% in the comparative year.
International volumes remained under pressure and the stronger Rand impacted
negatively on export volumes and margins. In the USA, although the break-even
target set by management was not achieved, volumes increased by 10% while the
overheads were reduced by 27% resulting in a much improved performance for the
year. Headline operating losses, in the International Division were reduced by
16% when compared with the 2003 year.
Finance costs decreased by 23% as a result of lower interest rates as well as
positive cash flows during the year. Gearing fell to 28% from 42% in the prior
year as strong operating cash flows, tight working capital control and the
reorganisation of short-term debt into longer term borrowings resulted in a
positive cash flow of R58 million.
The tax charge remained high as certain deferred taxation assets in the
international businesses were not raised. Although management believe that the
tax losses in the International Division will be utilised within the next two to
three years, a prudent and conservative approach was adopted.
Prospects
South African Operations
The Board is confident of the Group`s ability to sustain momentum in key areas:
Volume growth should be driven by a buoyant economy. There has been a surge in
demand in domestic markets and this trend is expected to continue.
The full effect of the overhead reduction programme and the improvement in
efficiencies is expected to enhance profitability in the 2005 financial year.
The productivity improvements will be sustained and improvements on distribution
of product will be a strong focus.
The Group will improve the representation of previously disadvantaged
individuals at senior levels as well as develop and nurture talented human
capital.
Customer service initiatives aimed at improving and attaining excellence in
services, will be introduced. The Group expects these initiatives to support
growth.
During the financial year AGI introduced a new line of business, AGI Solutions,
to address the needs of the specifying community, i.e. architects and quantity
surveyors, in order to provide solutions to glass and fenestration on buildings.
This business unit has operated for eight months and has made considerable
progress in relation to large commercial and residential construction projects.
It has won a number of prestigious projects domestically and across Africa.
In summary, the Group`s domestic business should yield improved revenues and
profitability.
International Operations
The Group remains committed to growing its international business over the long
term.
On the back of restructuring businesses in both Germany and USA, the Group seeks
to grow as follows:
By improving the product mix: The Group will introduce aluminium in kit form to
predominantly glass-based operations, increase glass processing capability and
endeavour to strike alliances with a wider range of suppliers of both raw and
finished product.
By improving input prices of raw materials at local and international levels.
The Group will seek, in its UK operations, to expand through both acquisition
and organic growth, with a focus on the glass processing market. The UK economy
is growing strongly and margins are holding up well, and a good growth is
expected going forward.
Conclusion
This has been a year of considerable change. The aim of this change over the
financial year has been to build a solid platform on which to grow both the
domestic and international businesses. This aim was achieved and augurs well for
growth in the future.
Accounting policies and Review
The accounting policies have been consistently applied and comply with the South
African Statements of GAAP. In the current year the Africa Glass Share Incentive
Trust has been consolidated in accordance with the requirements of the JSE
Securities Exchange South Africa to ensure compliance with AC 132 - Consolidated
Financial Statements and accounting for investments in subsidiaries. The effect
of this change on retained earnings was immaterial.
The year-end financial results have been reviewed in terms of AC 127 - interim
financial reporting and in terms of Rule 3.23 of the Listing Requirements of the
JSE Securities Exchange South Africa by the Group`s auditors, Deloitte & Touche.
This unqualified review opinion is available for inspection at AGI`s registered
office.
Capital Distribution
In accordance with the authority given to the Board by way of an ordinary
shareholders` resolution passed on 26 November 2003, the Board of Directors has
declared a capital distribution of 6,5 cents per ordinary share (2003: 5,0
cents) for the year ended 30 June 2004. The last day to trade in AGI shares
`cum` the capital distribution in order to participate in the capital
distribution will be Friday, 1 October 2004. From Monday, 4 October 2004 AGI
shares will commence trading `ex` the capital distribution. The record date will
be Friday, 8 October 2004, and the date of payment will be Monday, 11 October
2004.
Share certificates may not be dematerialised or rematerialised between Monday, 4
October 2004 and Friday, 8 October 2004, both days inclusive.
For and on behalf of the Board
A A Barrell
Chief Executive Officer
G F D Twigg
Chief Operating Officer
J Martingano
Group Financial Director
DIRECTORS: A.A. Barrell (C.E.O), G.F.D. Twigg (C.O.O)+, J. Martingano
(Financial), J.C. Saville, M.J.E Geldenhuys, C.P. Kalil, H.R. Levin (Non-
executive chairman)*, B.E. Danoher*+#, T.Y. Worthington*, J.B. Rosenberg*
*Non-Executive, +Irish, #Independent.
REGISTERED OFFICE: Corner Kruger Street and Mimetes Road, Denver, Extension 11,
Johanensburg 2094.
(P.O. Box 40443, Cleveland 2022).
TRANFER SECTRETARIES: Computershare Investor Services 2004 (Pty) Limited, 70
Marshall Street, Johannesburg 2001.
(PO Box 61051, Marshalltown 2107, South Africa).
www.ag-industries.com
Date: 14/09/2004 07:00:31 AM Produced by the JSE SENS Department
