| Mon 5 Sep 2005, 8:30 | | Consol Limited - Audited Results For The Year Ende |
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Consol Limited - Audited Results For The Year Ended 3o June 2005
Consol Limited
(`Consol` or `the Group`)
Registration number 1946/021828/06
Share code: CSL & ISIN: ZAE000063251
AUDITED RESULTS FOR THE YEAR ENDED 3O JUNE 2005
Key features
Volume growth of 5,9%
Revenue up 6,1% to R2,2 billion
EBITDA up 11,4% to R713,0 million
Headline earnings per share up 4,6% to 109,7 cents
Cash flows from operations increased by R55,6 million to R450,3 million
Dividend policy enhanced to two times cover
`We have delivered a pleasing set of results following from a positive consumer
market and a strong operational performance. Consumer demand is forecast to
remain buoyant and consequently the food and beverage industries, our key
markets, are expected to generate commensurate growth. To meet future demand
additional glass capacity of 25% has been planned to be commissioned over the
next 18 months. Within the current economic environment the Group is expected to
achieve real earnings growth for the next year.`
Mike Arnold, Group Managing Director.
Enquiries
Consol +27 11 874 0000
Mike Arnold, Group Managing Director
Karuna Nayager, Group Financial Director
College Hill +27 11 447 3030
Johannes van Niekerk
Nicola White
Group overview
Performance for the year was pleasing and a positive consumer market resulted in
Group volume growth of 5,9% and revenue growth of 6,1% with selling prices
constrained by deflation and product mix. Earnings before interest, tax,
depreciation and amortisation (EBITDA) increased by 11,4% to R713,0 million.
Headline earnings increased by 4,4% to R345,5 million.
The effect of the strong Rand on selling prices, input costs, export
competitiveness (particularly in the wine industry) and cheaper imports, proved
a challenge in the year under review. However, domestic consumption growth,
driven by lower interest rates and inflation, and an increase in real disposable
income, has been positive for most of our customers` volumes and market
segments.
Consumer demand for our key market segments, food and beverage glass packaging,
was slightly ahead of GDP and disposable income growth rates of circa 4%.
Overall selling price increases were limited to low single digit percentages
which were facilitated by lower input prices and efficiency gains despite
payroll and utility services costs increasing at levels ahead of inflation.
Strategically, we continue to manage margins to ensure industry competitiveness
both in the short and long term.
The Group has adopted International Financial Reporting Standards (`IFRS`) ahead
of the 2006 deadline prescribed by the JSE Limited. The impact of the adoption
of IFRS on the financial statements is not material and full details are set out
in the notes to the financial statements. The Group`s results will now be
comparable internationally.
Strategic overview
Consol`s strategic objective remains to be the leading food and beverage
consumer glass packaging solutions company in southern Africa and to leverage
this position to service glass packaging requirements in the pharmaceutical,
cosmetic, tableware and export segments. We also seek to be the leading plastic
consumer packaging company in South Africa in chosen product segments which are
complementary to our leadership position in consumer glass packaging. This will
reinforce overall leadership for Consol in our industry, a position from which
it will, together with its customers and shareholders, derive sustained value.
The essence of our strategy over the past five years has been our transformation
into a highly focused business based on a customer and consumer driven culture
that places partnerships with customers at the centre of the business. We have
largely succeeded in this strategy, while our drive for operational excellence
has enabled the delivery of lower costs, improved quality and rate of innovation
to our customers.
To complement organic growth in our existing markets, we aim to pursue new
business in a number of high growth consumer packaging and related industries.
The opportunities identified include African markets, speciality plastic and
glass packaging, and glass tableware.
The glass tableware market in South Africa remains an attractive market. Demand
is largely being met by imports, other than the relatively small output produced
by Consol. The Group has decided to adopt an incremental approach with a view to
over time develop core manufacturing competencies in tableware.
In March the Group installed a further 15 000 tons of capacity at Bellville with
the rebuild of the number three furnace. In September last year 10 000 tons of
capacity was added to the number four furnace at the CSG plant in Pretoria. This
brings total glass capacity to 620 000 tons per annum.
Additional glass capacity totalling 150 000 tons is planned to be commissioned
over the next eighteen months in the north and south to meet future demand. This
will be funded from the Group`s strong cash generation ability.
Innovation in the Group is driven by an absolute commitment to delivering
exceptional value to customers. Innovation takes many forms, from improving
customer-service, to exploiting IT, introducing new products and creating new
uses for established products. Over the past year Consol has been successful in
designing and developing light weight glass containers in the wine, beer and
carbonated soft drink (CSDs) categories offering improved efficiencies and
costs, and improved consumer branding and enjoyment.
Within the information systems arena we have continued to invest to further
improve operating performance and competitiveness. After two years of business
process re-engineering and systems design, we have recently completed the
overhaul of the SAP platform by implementing the mySAP business suite in the
glass business.
Consol has had a long and rewarding relationship with Owens-Illinois (O-I) , the
world`s leading supplier of glass containers. This relationship will continue
through a new technology agreement which runs until 2016 and provides Consol
with leading glass manufacturing technology.
Financial highlights
Revenue increased by 6,1% to R2,2 billion and EBITDA increased by 11,4% to
R713,0 million. Depreciation was up by R42,4 million as a result of additional
capacity investment.
Operating profit increased by 6,3% to R509,2 million after accounting for the
additional depreciation charge. Operating profit margin at 22,7% was in line
with the prior year of 22,6%. Whilst selling price adjustments were below
inflation, margin was maintained through cost savings and increased throughput
due to market demand.
The Group`s effective tax rate decreased to 30,4% (2004: 33,0%) largely due to
the decrease in the statutory tax rate from 30% to 29% benefiting both normal
and deferred tax.
Headline earnings for the year increased by 4,4% to R345,5 million. The net
financing charge amounted to R1,7 million compared to net finance income of
R25,9 million in the prior year. Headline earnings per share increased by 4,6%
to 109,7 cents.
Group cash flow remained strong with cash flow from operations of R450,3 million
(2004: R394,7 million) which enabled the Group to comfortably fund investment to
support its existing operations as well as additional capacity. Maintenance
capital was R145,0 million (2004: R246,6 million) while expansion capex was
R65,6 million (2004: R252,8 million). The most significant expansion projects
were 10 000 tons of capacity at CSG and 15 000 tons of wine capacity at the
Bellville glass plant.
Working capital increased by R151,4 million, with inventories increasing by
R101,7 million, receivables by R25,4 million in line with revenue and payables
decreasing by R24,3 million due to capital accruals reflected in the prior year.
Finished goods stock holdings increased by R50,2 million as a result of a
planned stock build up to meet future demand. Plastic divider board investment
increased by R27,8 million to meet the food and beverage industry GMP (Good
Management Practice) and HACCP (Health and Allied Consumer Controlled Practices)
requirements.
Net debt was R171,1 million (2004: R93,4 million) after paying ordinary
dividends of R149,4 million and special dividends of R351,0 million as a result
of the unbundling from AVI. Tax payments amounted to R116,5 million and capital
expenditure to R210,6 million. Consol shares purchased by the Consol Limited
Executive Share Purchase Trust amounted to R31,2 million. Gearing of 13,5% was
well within the internal ceiling of 25%.
Return on average capital employed, following the planned investment in fixed
and working capital, was 23,6% (2004: 24,8%).
Segmental review
Glass Plastics Total
Division Division
Rm Rm Rm
Revenue
- 30 June 2005 1 980,2 265,5 2 245,7
- 30 June 2004 1 869,5 247,7 2 117,2
Percentage change 5,9 7,2 6,1
Operating profit
- 30 June 2005 492,8 16,4 509,2
- 30 June 2004 454,7 24,1 478,8
Percentage change 8,4 (31,9) 6,3
Net assets
- 30 June 2005 1 220,7 159,4 1 380,1
- 30 June 2004 1 419,0 137,2 1 556,2
Percentage change (14,0) 16,2 (11,3)
Glass Division
Revenue grew by 5,9% to R2,0 billion lifted by volume growth of 5,9% and price
adjustments that averaged 2%. These were offset by an adverse product mix in
respect of lower sales of CSD`s and lower realisation for the export and
tableware categories due to a strong Rand.
Excluding CSDs in respect of which volumes were lost to imports, volume growth
was 9,5%, with total beverage volumes up by 10,4%. Strong growth was recorded
from alcoholic fruit beverages, beer and wine, which was partially offset by the
reduction in CSD`s volumes. The food market segment volumes grew by 13,5% with
pack substitution building on the underlying consumer demand. Tableware also
showed good growth.
The manufacturing performance remained robust where efficiencies were maintained
at 89% in line with the prior year inspite of a demanding colour and job change
programme. The new Clayville number one furnace operated for the full year at
levels above standard, while the Bellville number three furnace rebuild was
completed on time and is now operating in line with expectations. All the glass
manufacturing facilities were fully loaded.
Operating profit increased by 8,4% as a result of improved volumes and the
margin effect of substituting imported wine bottles with own manufactured
production in the first half of the year. Depreciation increased by 27,3% as a
result of the capacity expansion during the current and prior year.
Net assets decreased by 14,0% to R1 220,7 million and total capital expenditure
for the division amounted to R183,4 million. Major projects undertaken were the
Wadeville number one furnace and bottle decorating plant, Bellville
electrostatic precipitator and number three furnace, Pretoria number four
furnace and press ware machine, and SAP information implementation.
Plastics Division
Revenue increased by 7,2% to R265,5 million with volume growth of 1,8%.
Operating profit declined to R16,4 million (2004: R24,1 million) after deducting
R1,4 million for restructuring and retrenchment costs as a result of the
decision to rationalise the flexible packaging operation. The operating profit
margin within the rigid operations remained healthy but the flexibles business
recorded a small operating loss.
In general operating performance was negatively affected by a strong Rand;
increased raw material prices were only partially recovered in the market, and
in flexible packaging a loss of market share to imports.
Capital expenditure for the year amounted to R27,2 million. Additional forming
and printing capacity was installed at the thermo-forming operation. The
injection and blow moulding facility has been remodelled with the process and
layout changed and additional printing capacity installed to give effect to
better efficiencies and lower production costs. Restructuring in line with
market demand at the flexibles operation has been completed.
Dividends
The dividend policy has been enhanced to two times cover given the cash
generation of the business and taking into account the future capital
expenditure requirements. A final dividend of 39 cents per share has been
declared after taking into account the interim dividend of R49,0 million paid to
AVI on 8 February 2005 prior to listing on the JSE Limited.
Prospects
Consumer demand is expected to remain buoyant, in line with GDP growth. The
domestic food and beverage industries, our key markets, are expected to generate
commensurate growth, while the wine export industry remains on track to resume
its medium term growth expectations of high single digit figures. Within the
current economic environment the Group is expected to achieve real growth in
earnings for the next year.
Group balance sheet
At 30 June 2005
2005 2004
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 1 131,5 1 126,2
Investments 11,2 225,0
1 142,7 1 351,2
Current assets
Inventories 538,4 436,7
Trade and other receivables 345,3 319,9
Cash and cash equivalents 15,5 41,5
899,2 798,1
TOTAL ASSETS 2 041,9 2 149,3
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 11,8 10,5
Non-distributable reserves 2,8 1,8
Treasury shares (31,2) (190,5)
Distributable reserves 1 372,2 1 715,6
Shareholders` interests 1 355,6 1 537,4
Minority interests 24,5 18,8
Total equity 1 380,1 1 556,2
Non-current liabilities
Deferred tax liabilities 151,5 127,1
Provisions 73,5 70,0
225,0 197,1
Current liabilities
Trade and other payables 235,1 259,4
Corporate taxation 15,1 1,7
Short-term borrowings 186,6 134,9
436,8 396,0
TOTAL EQUITY AND LIABILITIES 2 041,9 2 149,3
Group income statement
For the year ended 30 June 2005
2005 2004
% Rm Rm
increase
Revenue 6,1 2 245,7 2 117,2
Cost of sales 1 415,0 1 343,0
Gross profit 830,7 774,2
Operating expenses 321,5 295,4
Profit before finance 6,3 509,2 478,8
income/(expense)
Finance income 6,0 27,1
Finance expense (7,7) (1,2)
Profit before tax 507,5 504,7
Income tax expense 154,3 167,0
Profit for the year 4,6 353,2 337,7
Attributable to:
- Equity holders of the 344,7 329,3
parent
- Minority interests 8,5 8,4
353,2 337,7
Determination of
headline earnings
Attributed to equity 344,7 329,3
holders of the parent
Adjustment for loss on 0,8 1,5
disposal on property,
plant and equipment (net
of tax)
Headline earnings 345,5 330,8
Earnings per share
Basic earnings per share 4,8 109,4 104,4
(cents)
Basic headline earnings 4,6 109,7 104,9
per share (cents)
Diluted earnings per 4,8 109,2 104,2
share (cents)
Diluted headline 4,5 109,4 104,7
earnings per share
(cents)
Weighted average number 314 996 243 315 386 460
of shares*
Weighted average number 315 714 188 315 975 137
of shares - diluted*
* In order to provide a meaningful comparison, the share information for the
prior financial year has been adjusted for share capital changes resulting from
the unbundling and listing on the JSE Limited.
Group cash flow statement
For the year ended 30 June 2005
2005 2004
Rm Rm
OPERATING ACTIVITIES
Cash generated by operations 568,5 614,4
Interest and preference share dividends 6,0 27,1
received
Interest paid (7,7) (1,2)
Tax paid (116,5) (245,6)
Cash flows from operations 450,3 394,7
Dividends paid (500,4) (188,5)
Cash (outflows)/inflows from operating (50,1) 206,2
activities
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment
- acquisitions (210,6) (499,4)
- disposals 0,4 1,0
Net investment in property, plant and (210,2) (498,4)
equipment
Own shares acquired (31,2) -
Decrease in investments 213,8 59,5
Net cash outflows from investing (27,6) (438,9)
activities
CASH FLOWS FROM FINANCING ACTIVITIES
Minority loan repaid - (0,6)
Increase/(decrease) in short-term 51,7 (242,8)
borrowings
Net cash inflow/(outflow) from financing 51,7 (243,4)
activities
NET DECREASE IN CASH AND CASH EQUIVALENTS (26,0) (476,1)
Net cash and cash equivalents at beginning 41,5 517,6
of the year
Net cash and cash equivalents at the end 15,5 (41,5)
of the year
Condensed statement of changes in equity
For the year ended 30 June 2005
Share Non-distri-
capital butable
and reserves Distri-
share and butable
treasury
premium shares reserves Total
Rm Rm Rm Rm
Balances at 10,5 (189,0) 1 576,7 1 398,2
1 July 2003
IFRS
adjustments:
- post- (3,5) (3,5)
employment
medical aid
obligation
- share- 0,1 (0,1)
based
payments
At 1 July 10,5 (188,9) 1 573,1 1 394,7
2003 -
restated for
IFRS
Profit for 329,3 329,3
the year
Share-based 0,2 0,2
payments
Ordinary (186,8) (186,8)
dividends
At 30 June 10,5 (188,7) 1 715,6 1 537,4
2004
Treasury (0,3) 190,8 (190,5) -
shares
cancelled
Scheme (31,2) (31,2)
shares
purchased
Shares 1,6 1,6
issued
Profit for 344,7 344,7
the year
Share-based 0,7 0,7
payments
Ordinary (497,6) (497,6)
dividends
At 30 June 11,8 (28,4) 1 372,2 1 355,6
2005
Notes to the financial statements
Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (`IFRS`), the interpretations
adopted by the International Accounting Standards Board and the requirements of
the South African Companies Act.
The Group has elected to adopt IFRS for the year ended 30 June 2005. The
financial statements for the year ended 30 June 2005 will be the Group`s first
consolidated financial statements prepared in compliance with IFRS and hence
IFRS 1 - First time adoption of IFRS, has been applied in preparing these
financial statements. The Group has adopted all applicable IFRS issued or
revised up to 30 June 2005. An explanation of how the transition to IFRS has
affected the reported financial position and performance of the Group is
provided in the notes below.
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 decommissioning.
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, the
Anglovaal Industries Limited Equity Participation Plan and the Consol Limited
Executive Share Incentive Scheme. 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.
Defined benefit plans
The Group has made an election in terms of IFRS 1 that previously unrecognised
actuarial gains and losses on defined benefit plans as at 1 July 2003, the date
of transition to IFRS, were recognised directly against distributable reserves
in determining the opening IFRS balance sheet at that date. Actuarial gains and
losses that arose subsequent to 1 July 2003 and any future actuarial gains and
losses, are recognised with the existing policy in this regard.
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 the comparative information presented in the annual financial statements for
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 annual financial statements 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 accompanying notes.
Balance sheet - IFRS adjustments
30 June 2004
Rm
Property, plant and equipment
Property, plant and equipment as previously 1 128,6
reported - SA GAAP
- depreciation on idle plant and equipment (2,4)
Property, plant and equipment as currently 1 126,2
reported
Deferred tax
Deferred tax liabilities as previously 129,3
reported - SA GAAP
- adjustment due to depreciation on idle (0,7)
plant and equipment
Deferred tax liabilities as currently 128,6
reported
Share based payment
Non-distributable reserves as previously 1,6
reported - SA GAAP
- share based payments 0,2
Non-distributable reserves as currently 1,8
reported
An adjustment of R0,1 million was made to the opening distributable reserves at
1 July 2003 to account for the effects of the share-based payment transactions
on the date of transition. In addition, in order to account for unrecognised
actuarial losses on the post-employment medical aid obligation, an adjustment of
R5,0 million was made to provisions and an adjustment of R1,5 million to
deferred tax liability. The net after tax adjustment of R3,5 million for the
post-employment medical aid obligation was processed to opening distributable
reserves at 1 July 2003.
Income statements - IFRS adjustments
30 June 2004
Rm
Profit after tax as previously reported - 339,6
previous SA GAAP
- depreciation on idle plant and equipment (2,4)
- taxation effect on above depreciation 0,7
(deferred taxation)
- employee costs, share based payments (0,2)
Profit after tax as currently reported 337,7
Cash flow statement - IFRS adjustments
The IFRS adjustments reflected in the above tables do not have an impact on cash
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.
Supplementary notes
Contingent liabilities
The Competition Commission referred a complaint to the Competition Tribunal
relating to the purchase of cullet by the glass division of the Nampak Group of
Companies (`Nampak`) and Consol. The Competition Commission has requested the
Competition Tribunal to impose on each of the parties an administrative penalty
of up to 10% of their respective annual revenues in and exports from South
Africa during their respective preceding financial years. In the event of the
Competition Tribunal making an adverse finding against Consol, the Consol
directors believe that any penalty to be levied should be based on the value of
the input, being the cullet, used in the manufacturing process and not the price
of the finished product. During the period in question, the value of cullet
purchased by Consol amounted to approximately R30 million per annum. The Consol
directors disagree with the findings of the Competition Commission and Consol
will defend the matter before the Competition Tribunal.
Related party disclosure
During the year, Consol entered into various sale and purchase transactions with
its former holding company (AVI) and former 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:
Year ended 30
June
2005 2004
Rm Rm
Dividends paid to holding company 497,6 150,8
Packaging sales to fellow subsidiary 21,8 36,3
companies
Finance income received from fellow 5,6 23,5
subsidiaries
Finance expense paid to fellow subsidiaries 4,1 -
Fees paid to fellow subsidiary companies 15,4 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.
Since 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 subsidiaries, nor in
the level of fees paid, which consist mainly of information technology costs.
Post-balance sheet events
To the date of this report, there have been no material adjusting post-balance
sheet events or transactions.
Report of the independent auditors
The annual financial statements have been audited by the Group`s auditors, KPMG
Inc., and their unqualified report is available for inspection at the registered
office of the company.
Annual report
The annual financial statements for the year ended 30 June 2005 will be posted
to shareholders on or about Monday, 26 September 2005. The financial statements
will include the notice of the annual general meeting of shareholders to be
convened on Tuesday, 18 October 2005.
Final dividend declaration and payment
The directors have resolved to declare a final dividend, number 59, of 39 cents
per share.
Last day to trade `cum` the Friday, 14 October 2005
dividend
Shares commence trading `ex` the
dividend from commencement
of business on Monday, 17 October 2005
Record date Friday, 21 October 2005
Payment date Monday, 24 October 2005
Share certificates may not be dematerialised or rematerialised between Monday,
14 October 2005, and Friday, 21 October 2005, both days inclusive.
For and on behalf of the board
RT Vice M Arnold
Chairman Group Managing Director
1 September 2005
Corporate information
Directors
RT Vice (Chairman)*, M Arnold#, AWB Band*, SD Jagoe*, SW Mncwango*, K Nayager,
HC Turner*
*Independent non-executive director #British
Administration
Group Company Secretary:
HR Falgate
Business address and registered office:
Consol House,
Osborn Road, Wadeville, 1407
Postal address:
PO Box 562, Germiston, 1400
Telephone: +27 (11) 874 0000
Telefax: +27 (11) 827 0213
E-mail: information@consol.co.za
Auditors: KPMG Inc.
Sponsor:
The Standard Bank of South Africa Limited
Transfer secretaries:
Computershare Investor Services 2004 (Pty) Limited
Business address:
70 Marshall Street, Johannesburg 2001
Postal address:
PO Box 61051 Marshalltown 2107
Telephone: +27 (11) 370 5000
Telefax: +27 (11) 370 5271
For more information visit
www.consol.co.za
Date: 05/09/2005 07:05:17 AM
Produced by the JSE SENS Department
