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Consol - Unaudited Interim Results For The Six Months Ended 31 December 2004
CONSOL LIMITED
(`Consol` or `the Group`)
Registration number 1946/021828/06
Share code: CSL ISIN: ZAE000063251
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2004
* Turnover up 3,5% to R1,24 billion
* Earnings before interest, taxation, depreciation and amortisation
(`EBITDA`) up 13,4% to R382,1 million
* Operating profit up 8,7% to R279,9 million
* Operating profit margin 22,6% (2003: 21,6%)
* Headline earnings per share up 4,7% to 58,2 cents
* Cash retained from operating activities of R260,3 million
(2003: R143,1 million) with healthy balance sheet
* Positive outlook for second half of the year
`This is a very solid set of half-year results achieved in a challenging
trading environment. Our trading performance was very strong and we look forward
to another positive performance in the second half of the year as we continue to
focus attention on driving operational efficiencies, lowering costs and
increasing market and pack shares.`
M Arnold - Group Managing Director
Salient features
Unaudited half-year ended
31 December %
2004 2003 Change
Group summary (Rm)
Volume tons 329 588 322 220 2,3
Turnover 1 237,1 1 195,0 3,5
EBITDA 382,1 336,9 13,4
Operating profit 279,9 257,6 8,7
Profit before taxation 281,9 272,6 3,4
Capital expenditure 106,6 135,3 (21,2)
Share performance (cents per share)
Basic headline earnings # 58,2 55,6 4,7
Diluted headline earnings ## 58,2 55,5 4,7
Financial ratios
Operating profit margin 22,6% 21,6% 4,6
Return on ordinary shareholders` interest ** 22,9% 24,9% (8,0)
Notes:
# - Basic headline earnings per share for the half years ended 31 December
2003 and 2004 have been calculated using 315 386 460 ordinary shares,
being the number of shares in issue on the listing date of Consol.
## - Diluted headline earnings per share have been calculated using 315 691
565 weighted average number of shares.
** - Return calculated for the 12 month period from 1 January to 31 December.
Group overview
Consol has performed extremely well in the period under review in all of its
glass operations.
However, imports and higher input costs adversely affected the plastics
business.
Turnover for the period increased by 3,5% to R1,2bn resulting from volume gains
of 2,3% and price increases of about 2,5%, with a slight adverse change in
product mix. Consumer demand for beverage and food packaging was in the main
pleasing, although it did not match the high volume growth experienced in the
retail durable and semi-durable markets.
Imports of carbonated soft drink (`CSD`) containers, estimated at 24,000 tons
or 3% of capacity across the industry, have placed pressure on volume growth.
Excluding CSDs, overall volume growth was a very strong 7,6%.
EBITDA increased by 13,4% to R382,1m over the previous year. Depreciation was
up by 29% to R102,2m largely as a result of the significant capital
expenditure, which included investments adding approximately 9% of capacity at
the end of the prior financial year.
Operating profit increased by 8,7% to R279,9m. Operating profit margin improved
from 21,6% to 22,6% due to volume gains, assisted to some degree by dollar
related input savings. This was offset by lower than inflation price adjustments
and the change in product mix.
Earnings for the six month period increased by 4,7% to R183,6m. Net financing
income of R2,0m was lower than the prior period (2003: R14,9m) mainly as a
result of the redemption of the investment in AVI Limited (`AVI`) preference
shares, which funded payment of a special dividend of R200,0m to AVI on 1
November 2004 as part of the unbundling process, lower interest rates and
capital expenditure of R499,3m undertaken in the prior financial year.
Basic headline earnings per share for the six month period, based on the
number of shares in issue at 28 February 2005, increased by 4,7% to 58,2 cents.
Consol remains strongly cash generative with cash retained from operating
activities amounting to R260,3m for the period (2003: R143,1m). Capital
expenditure for the period amounted to R106,6m. Authorised and committed
capital expenditure of R92,8m includes the Bellville B3 furnace rebuild and
capacity expansion.
The SAP overhaul and expansion, scheduled for completion by the end of June
2005, is well on track. Significant benefits were brought to the business
processes in the form of standardisation, efficiency improvement through
automation, as well as increased visibility, monitoring and control. Improved
overall planning capability and supply chain integration will also be achieved.
Segmental review
Unaudited - six month
period Glass Division Plastics Division Total
Rm Rm Rm
Turnover
- 31 December 2004 1 093,3 143,8 1 237,1
- 31 December 2003 1 064,8 130,2 1 195,0
Percentage change 2,7 10,4 3,5
Operating profit
- 31 December 2004 267,2 12,7 279,9
- 31 December 2003 244,0 13,6 257,6
Percentage change 9,5 (6,6) 8,7
Net assets
- 31 December 2004 1 294,2 167,3 1 461,5
- 31 December 2003 1 172,5 167,7 1 340,2
Percentage change 10,4 (0,2) 9,1
Glass Division
Turnover was up by 2,7% to R1,1bn for the first six months of trading, lifted
by volume growth of 2,2%. Excluding CSDs, volume growth in the glass division
was 7,6%.
Operating profit increased by 9,5% partly as a result of improved volumes and
the margin effect of substituting imported wine bottles with own manufactured
production, and increased exports to West Africa.
Volume growth in the alcohol beverage category (excluding wine) was 8,8%.
Growth in the wine category, largely affected by rand strength, slowed to 1,7%
compared to the same period last year. Non-alcoholic beverages declined by
43,1% or 14,300 tons as a result of CSD imports.
Food category volumes grew by 15,7%.
Consol XPRS, a specific sales and distribution channel to small and medium
enterprises, recorded good sales growth of 40,4%. This channel represents 5,4%
of total sales volumes.
The glass manufacturing facilities were fully loaded, operating at 94,6% of
available capacity, after allowing for job and colour change down time.
Manufacturing efficiencies for the period were 89,0%. Capacity was increased at
the CSG Pretoria plant (P4 furnace) by 10,000 tons in September, and a further
15,000 tons of capacity will be added to the Bellville facility (B3 furnace
rebuild) during February and March this year. This will bring total glass
capacity to 620,000 tons per annum.
Plastics Division
Turnover increased by 10,4% to R143,8m for the first six months of trading,
lifted by volume growth of 7,0%, but negatively affected by the lower value
product mix. Operating profit of R12,7m was slightly down on the prior year
(2003: R13,6m). Operating profit margin declined from 10,5% to 8,8%.
Results in all operations were negatively affected by increased polymer prices,
which were only partially recovered from the market. Imports also had a
negative effect on margins, particularly at the Flexibles operations.
During the period the Rigid Packaging facility was remodelled, with the process
and layout changed to give effect to further efficiency and quality
improvements, and additional printing capacity was installed. At the Plastform
plant additional forming and printing capacity was commissioned.
Prospects
Trading conditions are expected to remain positive, driven by continued good
growth in gross domestic product and consumer disposable income. We will
continue to focus our attention on driving operational efficiencies, lowering
costs, and increasing market and pack shares. As a result, a solid performance
is anticipated in the second half of the financial year.
Group balance sheets
Unaudited at 31 December Audited at
30 June
2004 2003 2004
Rm Rm * Rm *
ASSETS
Non-current assets
Property, plant and equipment 1 130,6 847,4 1 126,2
Investments - 225,0 225,0
1 130,6 1 072,4 1 351,2
Current assets
Inventories 433,5 397,8 436,7
Trade and other receivables 395,6 338,7 319,0
Corporate taxation - 5,0 -
Cash, call accounts and cash
equivalents 9,2 68,4 16,0
838,3 809,9 771,7
TOTAL ASSETS 1 968,9 1 882,3 2 122,9
EQUITY AND LIABILITIES
Equity
Share capital and reserves 1 427,1 1 395,3 1 540,0
Minority interests 19,3 13,3 18,7
Total equity 1 446,4 1 408,6 1 558,7
Non-current liabilities
Deferred taxation 130,5 107,7 128,6
Provisions 63,6 61,1 61,2
194,1 168,8 189,8
Current liabilities
Trade and other payables 292,0 304,9 263,3
Corporate taxation 12,1 - 1,7
Bank overdraft and short-term
borrowings 24,3 - 109,4
328,4 304,9 374,4
TOTAL EQUITY AND LIABILITIES 1 968,9 1 882,3 2 122,9
* - Restated for IFRS.
Group income statements
% Audited for
Unaudited for the half-year Increase/ the year ended
ended 31 December (decrease) 30 June
2004 2003 2004
Rm Rm * Rm *
Turnover 1 237,1 1 195,0 3,5 2 117,1
Operating profit
before capital
items 279,9 257,6 8,7 480,9
Net financing
income 2,0 14,9 (86,6) 25,9
Capital items - 0,1 (100,0) (2,2)
Profit before
taxation 281,9 272,6 3,4 504,6
Taxation (94,9) (94,2) (0,7) (167,0)
Profit for the
period 187,0 178,4 4,8 337,6
Attributable to:
- Equity holders
of Consol 183,6 175,4 329,2
- Minority
interest 3,4 3,0 8,4
187,0 178,4 337,6
Determination of
headline
earnings
Attributed to
equity holders
of Consol 183,6 175,4 329,2
Adjustment for
capital items
(net of
taxation) - (0,1) 1,6
Headline earnings 183,6 175,3 330,8
Share
information
based on shares
in issue
at 31 December
2004
Basic earnings
per share
(cents) 398,7 380,9 4,7 714,9
Basic headline
earnings per
share (cents) 398,7 380,6 4,7 718,4
Diluted earnings
per share
(cents) 398,7 380,9 4,7 714,9
Diluted headline
earnings per
share (cents) 398,7 380,6 4,7 718,4
Number of shares 46 054 400 46 054 400 - 46 054 400
Share
information
based on number
of
shares in issue
at 28 February
2005
Basic earnings
per share
(cents) 58,2 55,6 4,7 104,4
Basic headline
earnings per
share (cents) 58,2 55,6 4,7 104,9
Diluted earnings
per share
(cents) 58,2 55,5 4,7 104,1
Diluted headline
earnings per
share (cents) 58,2 55,5 4,7 104,6
Number of shares 315 386 460 315 386 460 - 315 386 460
Weighted average
number of shares
- diluted 315 691 565 315 691 565 - 315 691 565
* - Restated for IFRS.
Group cash flow statements
Unaudited for the half- Audited
year ended for the
31 December year ended
30 June
2004 2003 2004
Rm Rm * Rm *
OPERATING ACTIVITIES
Profit before interest and taxation 279,9 257,6 480,9
Cash flow from investments 2,0 14,9 25,9
Adjustment for depreciation 102,2 79,3 161,3
Other non-cash items 1,0 (19,8) 20,7
(Increase)/decrease in working capital (42,2) 12,2 (48,5)
Cash flows from operations 342,9 344,2 640,3
Taxation paid (82,6) (201,1) (245,6)
Cash retained from operating activities 260,3 143,1 394,7
INVESTING ACTIVITIES
Property, plant and equipment
- acquisitions (106,6) (135,3) (499,3)
- disposals - - 0,9
Net investment in property, plant and
equipment (106,6) (135,3) (498,4)
Redemption of investments 225,0 59,5 59,5
Net cash flows from investing activities 118,4 (75,8) (438,9)
FINANCING ACTIVITIES
Dividends paid (297,6) (136,5) (188,5)
Payment to minority shareholder (2,8) (2,3) (0,6)
Net cash flows from financing activities (300,4) (138,8) (189,1)
Net increase/(decrease) in cash and cash
equivalents 78,3 (71,5) (233,3)
Net (borrowings)/cash and cash equivalents
At beginning of period (93,4) 139,9 139,9
Net (borrowings)/cash and cash equivalents
at end of period (15,1) 68,4 (93,4)
* - Restated for IFRS.
Statements of changes in equity
Share Non- Distributable Total
capital and distributable reserves
share reserves
premium
Rm Rm Rm Rm
HALF-YEAR ENDED
31 DECEMBER 2004
At 30 June 2004
- audited 10,5 0,6 1 530,6 1 541,7
IFRS
adjustments:
- depreciation
on idle plant
and
equipment - (1,7) (1,7)
- share-based
payments 0,2 (0,2) -
At 30 June 2004
- restated for
IFRS 10,5 0,8 1 528,7 1 540,0
Movements
recognised
through the
income
statement:
- earnings 183,6 183,6
- dividends paid (297,6) (297,6)
Share-based
payments 0,2 - 0,2
Movement not
recognised
through
the income
statement:
- cash flow
hedge reserve 0,9 - 0,9
At 31 December
2004 -
unaudited 10,5 1,9 1 414,7 1 427,1
HALF-YEAR ENDED
31 DECEMBER 2003
At 30 June 2003
- audited 10,5 (19,9) 1 386,2 1 376,8
IFRS adjustment
- share based
payments 0,1 (0,1) -
At 30 June 2003
- restated for
IFRS 10,5 (19,8) 1 386,1 1 376,8
Movements
recognised
through the
income
statement:
- earnings 175,4 175,4
- dividends paid (136,5) (136,5)
Share-based
payments 0,1 - 0,1
Movement not
recognised
through
the income
statement:
- cash flow
hedge reserve (20,5) - (20,5)
At 31 December
2003 -
unaudited 10,5 (40,2) 1 425,0 1 395,3
Notes to the interim financial statements
Basis of preparation
Consol has elected to adopt International Financial Reporting Standards (`IFRS`)
for the year ending 30 June 2005. The interim results have been prepared and
presented in accordance with IAS 34 - Interim Financial Reporting. The financial
statements for the year ending 30 June 2005 will be Consol`s first consolidated
IFRS complaint financial statements and hence IFRS 1 - First Time Adoption of
IFRS, has been applied in preparing this interim report.
Significant changes to Consol`s accounting policies as a result of IFRS
Property, plant and equipment
Consistent with IFRS, Consol has depreciated idle assets. Previously, these
assets were not depreciated upon removal from use until recommissioned or
disposed of.
Share-based payments
The fair value of share options, deferred delivery shares and convertible
preference shares granted to Consol employees is recognised as an employee
expense with a corresponding increase in equity. These instruments were granted
by the Anglovaal Industries Limited Executive Share Incentive Scheme and the
Anglovaal Industries Limited Equity Participation Plan. The fair value is
measured at grant date and expensed over the period during which the employee
becomes unconditionally entitled to the equity instruments. The fair value of
the instruments granted is measured using generally accepted valuation
techniques, taking into account the terms and conditions upon which the
instruments are granted. The amount recognised as an expense is adjusted to
reflect the actual number of instruments that vest, except where forfeiture is
only due to share prices not achieving the threshold for vesting. This
accounting policy has been applied to all equity instruments granted after 7
November 2002 that had not yet vested at 1 July 2003, the date of transition to
IFRS. The fair value of these share based payments were not recognised under
Consol`s previous accounting policies.
IFRS Reconciliation
As noted above, these are Consol`s first consolidated financial statements
prepared in accordance with IFRS. The accounting policies used have been
applied in preparing the interim report for the six months ended 31 December
2004, the comparative information presented in the interim report for the six
months ended 31 December 2003 and the year ended 30 June 2004, and in the
preparation of the opening IFRS balance sheet at 1 July 2003 (Consol`s date of
transition).
In preparing the opening IFRS balance sheet, Consol has adjusted amounts
previously reported in the financial statements and interim reports prepared in
accordance with its previous basis of accounting, being South African Generally
Accepted Accounting Practice (`SA GAAP`). An explanation of how the transition
from SA GAAP to IFRS has affected Consol`s financial position, financial
performance and cash flows is set out in the following tables and the notes
accompanying the tables.
Balance sheet - IFRS adjustments
31 December 2003 30 June 2004
Rm Rm
Property, plant and equipment
Property, plant and equipment as
previously reported - SA GAAP 848,0 1 128,6
- depreciation on idle plant and equipment (0,6) (2,4)
Property, plant and equipment as
currently reported 847,4 1 126,2
Deferred taxation as previously reported
- SA GAAP 107,9 129,3
- adjustment due to depreciation on idle
plant and equipment (0,2) (0,7)
Deferred taxation as currently reported 107,7 128,6
Share based payments
Non-distributable reserves as previously
reported - SA GAAP (40,3) 0,6
- share-based payments 0,1 0,2
Non-distributable reserves as currently
reported (40,2) 0,8
An adjustment of R0,1m was made to opening distributable reserves at 1 July
2003 to account for the effects of the share based payment transactions on the
date of transition.
Income statement - IFRS adjustments
31 December 2003 30 June 2004
Rm Rm
Profit after tax as previously reported -
SA GAAP 178,9 339,5
- depreciation on idle plant and equipment (0,6) (2,4)
- taxation effect on above depreciation 0,2 0,7
- employee costs, share based payments (0,1) (0,2)
Profit after tax as currently reported 178,4 337,6
Cash flow statement - IFRS adjustments
The IFRS adjustments reflected in the above tables do not have an impact oncash
and cash equivalents. Consequently, the only adjustments that would have
been made to the cash flow statement is to reported profits and a like
adjustment to non-cash items.
Dividend payments and declarations
The following dividends were declared and paid to AVI during the interim period
ended 31 December 2004:
- a final dividend of R97,6m for the year ended 30 June 2004 on 12 October
2004; and
- a special dividend of R200,0m on 1 November 2004 as part of the unbundling
process.
The special dividend was funded from the proceeds on the redemption of the
preference shares held in AVI.
Subsequent to the balance sheet date, on 8 February 2005, the following
dividends were declared and paid to AVI:
- an interim dividend of R49,0m for the six month period ended 31 December
2004; and
- a special dividend of R151,0m as part of the unbundling process.
Litigation statement
As set out in the Consol pre-listing statement, dated 14 January 2005, the
Competition Commission referred a complaint to the Competition Tribunal
relating to the purchase of cullet by Consol during the period September 1999
to June 2002. The Consol directors disagree with the findings of the
Competition Commission and will defend the matter before the Competition
Tribunal.
Capital commitments and contingent liabilities
The capital expenditure commitments are set out below:
Unaudited 31 December Audited 30 June
2004 2003 2004
Rm Rm Rm
Contracted for 92,8 373,6 125,6
Authorised, but not
contracted for - 0,3 5,0
92,8 373,9 130,6
Consol has sufficient available resources to fund this expenditure. There were
no other commitments entered into other than in the normal course of business.
There have been no material changes to the commitments and contingent
liabilities, as disclosed in the Consol pre-listing statement.
Consol has entered into forward exchange contracts in the normal course of
business.
Related party disclosure
During the period, Consol entered into various sale and purchase transactions
with its former holding company (AVI) and fellow AVI subsidiary companies. The
transactions occurred under terms that are no less favourable than those
arranged with third parties. The related party transactions included:
Unaudited half-year ended Audited year
31 December ended
2004 2003 30 June 2004
Rm Rm Rm
Dividends paid to holding company 297,6 110,2 150,8
Sales to fellow subsidiary companies 17,5 16,3 36,3
Fees paid to fellow subsidiary companies 11,4 9,4 21,8
Surplus cash was invested with AVI at market related interest rates. In
addition, any borrowings from AVI were also made at market related rates.
Due to the unbundling and separate listing of Consol, AVI and its subsidiaries
are no longer considered to be related parties. It is not anticipated that
there will be a material change in sales made to previous fellow AVI
subsidiaries, nor in the level of fees paid, which consist mainly of information
technology costs.
General
To the date of this report, other than for dividends paid to AVI of R200,0
million, as noted in the dividend payments and declarations section, there have
been no material adjusting post balance sheet events or transactions.
For and on behalf of the board
AWB Band M Arnold
Director Director 2 March 2005
Contact information
Consol Tel: +27 11 874-0000
Mike Arnold (Group Managing Director) Tel: +27 11 874-2228
Hylton R Falgate (Group Company Secretary) Tel: +27 11 874-2296
College Hill :
Nicholas Williams Tel: +27 11 447 3030
Corporate information
Directors
Executive
M Arnold (Group Managing Director)
K Nayager (Group Financial Director)
Independent non-executive
RT Vice (Chairman) * #
AWB Band # @
SD Jagoe #
SW Mncwango * @
HC Turner * @
* Appointed 1 March 2005
# Member of the Appointments and
Remuneration Committee
@ Member of the Audit and Corporate
Governance Committee
Administration
Group Company Secretary
HR Falgate
Business address and registered office
Consol House
Osborn Road
Wadeville
1407
Postal address
PO Box 562
Germiston
1400
Telefax: +27 (11) 827-0213
Website: www.consol.co.za
e-mail: information@consol.co.za
Auditors
KPMG Inc.
Sponsor and commercial bankers
The Standard Bank of South Africa Limited
Transfer secretaries
Computershare Investor Services 2004 (Proprietary) Limited
Business address Postal address
70 Marshall Street PO Box 61051
Johannesburg Marshalltown
2001 2107
Telephone: +27 (11) 370-5000
Telefax: +27 (11) 370-5271
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