| Tue 8 Mar 2005, 9:29 | | Ag Industries Limited - Unaudited Results for six |
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Ag Industries Limited - Unaudited Results for six months ended 31 December 2004
AG INDUSTRIES LIMITED
Registration No. 1980/004051/06
(`AGI` or `the Group`)
Share code: AGI
ISIN: ZAE000039467
Unaudited Results for six months ended 31 December 2004
SALIENT FEATURES
Domestic
- Volume growth of 24%
- Revenues increase by 22%
- Margins remain stable despite further strengthening of the Rand
- Increased productivity yields benefits
International
- U.K. operation delivers record performance
- European and USA operations stabilised
- Export volumes and margins negatively impacted by further
strengthening of the Rand
Balance Sheet and Cash Flow
- Headline Return on Equity improves to 20% from 14% for year ended
30 June 2004
- Interest cover increases from 4.4 times to 6.4 times
COMMENTARY
REVIEW
Domestic
Glass Division
A buoyant domestic market fuelled good sales volume growth. This growth was
further enhanced by:
- new processing equipment commissioned during the period which resulted
in improved quality and service;
- increase in demand for toughened safety glass products in the market
generally, and as a result of increased volumes in the Aluminium
Division specifically; and
- increase in demand for laminated safety glass.
As a result of this volume growth and a greater proportion of revenue being
made up of value added glass products, revenue increased by 28% (2003: decrease
of 16%).
In the early part of the financial year the sole domestic supplier increased
glass input prices by 5%. Due to further strengthening of the Rand and an ever
present importer presence, the Glass Division was unable to pass this increase
through to the market. However, due to increased efficiencies in the Glass
Division, gross margins were not affected. The greater demand for toughened and
laminated glass products resulted in better plant efficiency and drove the cost
per unit down.
There was a marginal decrease in the overheads to revenue ratio. The Glass
Division experienced large increases in the costs of delivery and depreciation
increased significantly as a result of new processing equipment being
commissioned.
However, the overhead savings drive yielded benefits to offset these increases.
As a result operating margins increased by 11%.
Aluminium Division
The market demand for the Aluminium Division`s products was
robust and that Division focused on improving productivity so that the greater
demand could be met. Service levels and customer satisfaction are also being
addressed and an improvement is expected to contribute to further growth over
the next six months.
Volume growth of 33% ( 2003: 17%) was achieved with all products lines
contributing to this growth. Revenue increased by 17% (2003: decrease of 10%).
The market was price competitive resulting in selling prices reducing by
approximately 12%. The Aluminium Division is moving out of this deflationary
cycle and announced a price increase in the early part of the second half of
the financial year. Material gross margins were negatively impacted by this
reduction in selling prices but increased efficiencies and greater cost control
countered this effect while greater volumes resulted in plant efficiencies and
lower unit costs. These factors combined to result in an unchanged gross margin
percentage.
Overheads as a percentage of revenue increased slightly due to:
- increased variable overheads including additional shifts and increased
overtime;
- retrenchment costs; and
- the cost of converting factories previously geared around exports to
factories capable of meeting the increased domestic demand.
All in all, the Aluminium Division produced a highly satisfactory performance
for the period under review.
International Division
The U.K. business grew revenue and at the same time
increased gross margins. This was achieved as higher volumes of value added
products were sold and input costs were reduced. At the same time the overhead
to revenue ratio went from 25% in the corresponding period to 20% in the period
under review. These factors combined to result in a record financial
performance in the U.K.
In the European business, maintained gross profits and a substantially reduced
overhead resulted in a much improved performance. Although the European
business incurred a small loss for the period under review, the trend is
positive and it is expected that the business will produce profits in the next
six month period.
The U.S. business operated much as expected, with improved margins and well
maintained overheads. Marginal operating losses were incurred, for the most
part, in the early part of the financial year. The business has established
valuable business relationships and has a well organised strategy for growing
organically off this more stable base.
Due to Rand strength, export revenues have been constrained over the past
reporting periods. The Group, whose focus over the past years has been on an
export strategy, has been forced to place less reliance on export revenues. As
a result, export revenues and margins have decreased and factories geared
around these exports have shifted focus to service the strong growth in
domestic markets.
CASH FLOW
Trade receivables outstanding as at 31 December 2004 increased seasonally due
to the builders holidays, resulting in a significant additional investment
in working capital. This was a short term increase which was substantially
corrected by early February 2005.
PROSPECTS
South African Operations
A buoyant domestic market is expected to contribute to volume growth in the
foreseeable future. In addition:
- the Group believes that the market has shifted out of a deflationary
cycle and that single digit inflation should result in increases in
selling prices. Input prices have been adjusted and no additional price
increases are anticipated in the next six months. This is expected to
result in increased margins going forward;
- increased volumes together with ever increasing productivity levels
should further enhance gross margins by reducing costs per unit
produced;
- improving service levels and the resultant customer satisfaction is
expected to positively impact volumes and profitability;
- vertical integration by the introduction of a second aluminium
extrusion press in the last quarter of the calendar year should have the
effect of trapping margin, thereby increasing operating margins;
- opportunities exist for the Group to maximise profitability through the
correct utilisation of its buying power and by sourcing major inputs
from the most cost effective suppliers. This is expected to
significantly enhance operating margins; and
- a culture of cost consciousness and an ethic of continuous improvement
in the manufacturing environment are expected to yield additional
benefits.
In conclusion, continued real growth in the domestic market is projected for
the remainder of the 2005 financial year.
International Operations
Having stabilised the USA and European operations, firstly by establishing
valuable local business networks which enable these businesses to operate
independently from exported product from South Africa and, secondly by reducing
overhead and increasing gross margins, the businesses are now well positioned
to grow organically.
Margin growth is expected through the addition of new value added product lines
and businesses will also be augmented by selective high value added product
exports from South Africa.
A continued strong performance is expected from the UK operation.
DISTRIBUTION TO SHAREHOLDERS
The board has the policy of making one distribution to shareholders at the end
of each financial year. In line with this policy, no interim distribution to
shareholders has been proposed.
ACCOUNTING POLICIES
The accounting policies have been consistently applied and comply with the
South African Statements of Generally Accepted Accounting Practice. In the
current period, the Group has adopted AC140: Business Combinations with
prospective effect from 1 July 2004. The effect of this change is an increase
in profit for the period of R3,896,382 as goodwill is no longer amortised.
AC140 requires a fair value assessment to be performed on the carrying amount
of goodwill. This process will be completed by 30 June 2005 and may impact
basic earnings for the full financial year.
Comparative figures on the income statement have not been reclassified. These
interim results have not been audited or reviewed by the Group`s auditors.
For and on behalf of the Board
A A Barrell G F D Twigg J Martingano
Chief Executive Officer Chief Operating Officer Group Financial Director
Visit our website: www.ag-industries.com
CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 December 31 December 30 June
2004 2003 Change 2004
R`000 R`000 % R`000
Revenue 508 986 471 991 8 910 350
Profit before depreciation 62 268 55 664 12 105 190
Depreciation (11 115) (10 079) (19 285)
Other amortisation (594) (523) (1 087)
Headline operating profit 50 559 45 062 12 84 818
Operating margin 9,9% 9,5% 9,3%
Profit/(loss) on disposal of
property, plant and equipment 160 (13) (194)
Goodwill amortised - (3 530) (9 139)
Profit from operations 50 719 41 519 22 75 485
Net financing costs (7 900) (9 483) (17 538)
Income from associates 1 134 1 255 2 309
Profit before taxation 43 953 33 291 32 60 256
Taxation (11 125) (10 276) (23 098)
- normal activities (11 077) (10 280) (23 156)
- headline adjustments (48) 4 58
Profit after taxation 32 828 23 015 43 37 158
Minority interest (1 180) (1 471) (2 736)
Profit for the period 31 648 21 544 47 34 422
Reconciliation:
Profit for the period 31 648 21 544 34 422
(Profit)/loss on disposal of
property, plant and equipment (112) 9 136
Goodwill amortised - 3 530 9 139
Headline earnings 31 536 25 083 26 43 697
STATISTICS
Number of ordinary shares in
issue (`000) 195 478 195 478 195 478
Weighted average number of
ordinary shares in issue (`000) 194 178 195 478 194 178
Diluted number of ordinary
shares in issue (`000) 203 778 195 478 199 144
Basic earnings per ordinary
share (cents) 16,3 11,0 48 17,7
Headline earnings per ordinary
share (cents) 16,2 12,8 27 22,5
Diluted basic earnings
per ordinary share (cents) 15,5 11,0 41 17,3
Diluted headline earnings
per ordinary share (cents) 15,5 12,8 21 21,9
Capital distribution
Capital distribution proposed
per ordinary share (cents) - - 6,5*
*Capital distribution proposed in respect of year ended 30 June 2004
- paid on 11 October 2004.
CONSOLIDATED BALANCE SHEET
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 December 31 December 30 June
2004 2003 2004
R`000 R`000 R`000
ASSETS
Non-current assets
Property, plant and equipment 95 411 85 631 88 424
Intangible assets 107 897 117 497 108 337
Investments and loans 15 251 16 931 17 255
Deferred taxation assets 10 934 10 718 7 771
Current assets
Other current assets 411 069 350 482 343 664
Bank balances and cash 844 34 434 27 576
Total assets 641 406 615 693 593 027
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` equity 322 262 300 466 306 633
Minority shareholders` interest
Outside shareholders` interest 4 525 4 022 5 109
Non-current liabilities
Non-interest bearing shareholders`
loans - 490 -
Interest bearing shareholder`s loan 3 605 4 166 3 944
Deferred taxation liabilities 15 956 7 808 10 855
Long-term interest bearing debt 70 717 45 009 59 737
Current liabilities
Amounts due to vendors within
one year 2 767 179 176
Other current liabilities 142 541 149 263 156 453
Short-term interest bearing debt 79 033 104 290 50 120
Total equity and liabilities 641 406 615 693 593 027
Net asset value per ordinary
share (cents) 165 154 157
ADDITIONAL INFORMATION
Capital expenditure for the period 22 327 10 288 25 381
Capital expenditure committed
or authorised 22 249 16 648 40 757
Directors` valuation of investments
and loans 15 251 16 931 17 255
Finance and operating lease
commitments 211 383 204 609 208 585
Contingent liabilities 18 039 23 976 22 955
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 December 31 December 30 June
2004 2003 2004
R`000 R`000 R`000
Cash flows from operations 62 268 55 481 105 190
Working capital changes (87 835) (20 688) 1 172
Net financing costs and taxation
paid (12 319) (12 231) (39 191)
Net cash (outflow)/inflow from
operating activities (37 886) 22 562 67 171
Net capital expenditure (18 186) (9 191) (21 903)
Dividend received from associate 780 - 585
Decrease in investments and loans 2 252 36 36
Increase in investment in
subsidiaries (1 228) - -
Net cash outflow from investing
activities (16 382) (9 155) (21 282)
Capital distribution (12 014) (9 774) (9 704)
Other financing activities 4 066 (3 367) 22 441
Net cash (outflow)/inflow from
financing activities (7 948) (13 141) 12 737
Net (decrease)/increase in cash
equivalents (62 216) 266 58 626
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 2003 108 776 11 824 173 872 294 472
Capital distribution (9 774) - - (9 774)
Movement in reserves - (4 897) (879) (5 776)
Profit for the period - - 21 544 21 544
Balance at 31 December 2003 99 002 6 927 194 537 300 466
Treasury shares (2 772) - - (2 772)
Capital distribution on
treasury shares 65 - - 65
Change in accounting policy - - 211 211
Movement in reserves - (4 255) (193) (4 448)
Fair value of investments - 233 - 233
Profit for the period - - 12 878 12 878
Balance at 30 June 2004 96 295 2 905 207 433 306 633
Capital distribution (12 706) - - (12 706)
Capital distribution on
treasury shares 84 - - 84
Movement in reserves - (3 619) (14) (3 633)
Fair value of investments - 236 - 236
Fair value of investments
realised - (469) 469 -
Profit for the period - - 31 648 31 648
Balance at 31 December 2004 83 673 (947) 239 536 322 262
GROUP SEGMENTAL ANALYSIS
Eliminations/
headline
Southern Europe earnings
Africa and the USA adjustments Total
R`000 R`000 R`000 R`000
Geographical
Revenue:
Period ended
31 December 2004 552 282 87 437 (130 733) 508 986
% to total 86 14
Period ended
31 December 2003 454 025 110 783 (92 817) 471 991
% to total 80 20
Year ended 30 June 2004 917 796 205 100 (212 546) 910 350
% to total 82 18
Result:
Profit/(loss) from operations
Period ended
31 December 2004 52 595 (2 036) 160 50 719
% to total 104 (4)
Period ended 31 December 2003 43 457 1 605 (3 543) 41 519
% to total 96 4
Year ended 30 June 2004 92 161 (7 344) (9 332) 75 485
% to total 109 (9)
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 December 31 December 30 June
2004 2003 2004
R`000 % R`000 % R`000 %
Business segment
Revenue:
Unbeneficiated
products 233 562 36 208 572 37 433 888 39
Value added
products
- Glass 86 800 14 80 484 14 133 727 12
- Aluminium 319 357 50 275 752 49 555 281 49
639 719 100 564 808 100 1 122 896 100
Inter-segment
sales
eliminated (130 733) (92 817) (212 546)________
508 986 471 991 910 350________
AG INDUSTRIES LIMITED
Registration No. 1980/004051/06
(`AGI` or `the Group`)
Share code: AGI
ISIN: ZAE000039467
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*
*Non-Executive @Irish #Independent
REGISTERED OFFICE: Corner Kruger Street and Mimetes Road, Denver
Extension 11, Johannesburg 2094 (P.O. Box 40443, Cleveland 2022)
TRANSFER SECRETARIES: Computershare Investor Services 2004 (Pty) Limited,
70 Marshall Street, Johannesburg 2001 (P O Box 61051, Marshalltown 2107,
South Africa)
Sponsor:
Sasfin Corporate Finance
A Division of Sasfin Bank Limited
Date: 08/03/2005 07:00:36 AM
Produced by the JSE SENS Department
