| Mon 12 Sep 2005, 17:59 | | AGI - Reviewed results for the year ended 30 June |
|
AGI - Reviewed results for the year ended 30 June 2005
AG INDUSTRIES LIMITED
Registration number: 1980/004051/06
Share code: AGI ISIN: ZAE000039467
(`AGI` or `the Group`)
REVIEWED RESULTS FOR THE YEAR ENDED 30 JUNE 2005
CONSOLIDATED INCOME STATEMENT
Reviewed Restated
year ended year ended
30 June 30 June
2005 2004 Change
R`000 R`000 %
CONTINUING OPERATIONS:
Revenue 924 512 829 438 11
Profit before depreciation and
amortisation 110 549 103 882 6
Depreciation (21 603) (17 964)
Other amortisation (1 188) (1 087)
Profit after depreciation and
amortisation 87 758 84 831 3
Operating margin 9,5% 10,2%
Loss on disposal of property, plant
and equipment (192) (193)
Goodwill amortised (6 026)
Goodwill impaired (284)
Profit from operations 87 282 78 612 11
Net financing costs (16 275) (16 695)
Share of profits of associates 1 943 2 309
Profit before taxation 72 950 64 226 14
Taxation (19 923) (22 275)
normal activities (19 979) (22 333)
headline adjustments 56 58
Profit for the year from continuing
operations 53 027 41 951 26
DISCONTINUED OPERATIONS:
Loss for the year from discontinued
operations (38 416) (7 143) 438
Profit for the year 14 611 34 808 (58)
Attributable to:
Equity holders of the parent company 13 161 32 072
Minority interest 1 450 2 736
Reconciliation:
Profit for the year attributable to
equity holders
of the parent company 13 161 32 072
Loss on disposal of property, plant
and equipment 136 135
Goodwill impaired 284
Goodwill amortised 9 139
Loss on disposal/impairment of
investments 23 289
Headline earnings from continuing
and discontinued operations 36 870 41 346 (11)
STATISTICS
Number of ordinary shares in issue
(`000) 195 478 195 478
Weighted average number of ordinary
shares in issue (`000) 194 312 194 178
Diluted number of ordinary shares in
issue (`000) 201 688 199 144
Basic earnings per ordinary share
(cents) 6,8 16,5
Headline earnings per ordinary share
(cents) 19,0 21,3
Diluted basic earnings per ordinary
share (cents) 6,5 16,1
Diluted headline earnings per ordinary
share (cents) 18,3 20,8
Capital distribution/capitalisation
share award
Capital distribution proposed per
ordinary share (cents) - 6,5*
Capital distribution/capitalisation share
award proposed per ordinary share (cents) 6,5 -
* Capital distribution declared in respect of year ended 30 June 2004
CONSOLIDATED BALANCE SHEET
Reviewed Restated
year ended year ended
30 June 30 June
2005 2004
R`000 R`000
ASSETS
Non-current assets
Property, plant and equipment 103 235 88 424
Intangible assets 94 089 108 337
Investments and loans 18 570 17 255
Deferred taxation assets 9 041 13 161
Current assets
Other current assets 361 288 343 664
Cash and cash equivalents 16 882 27 576
Total assets 603 105 598 417
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` equity 296 403 293 437
Minority shareholders` interest
Outside shareholders` interest 4 404 5 109
Non-current liabilities
Interest bearing shareholder`s loan 4 252 3 944
Deferred taxation liabilities 11 713 10 855
Long-term interest bearing debt 65 689 59 737
Long-term deferred income 21 690 18 586
Current liabilities
Amounts due to vendors within one year 176 176
Other current liabilities 133 730 156 453
Short-term interest bearing debt 65 048 50 120
Total equity and liabilities 603 105 598 417
Net asset value per ordinary share (cents) 152 150
Net tangible asset value per ordinary share
(cents) 104 95
ADDITIONAL INFORMATION
Capital expenditure for the year 45 818 25 381
Capital expenditure committed or authorised 53 524 40 757
Directors` valuation of investments and loans 18 570 17 255
Finance and operating lease commitments 190 878 208 585
Interest capitalised 198
Contingent liabilities 12 363 22 955
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Reviewed Restated
year ended year ended
30 June 30 June
2005 2004
R`000 R`000
Cash flows from operations 100 996 105 190
Working capital changes (40 314) 1 172
Net financing costs and taxation paid (36 522) (39 191)
Net cash inflow from operating activities 24 160 67 171
Net capital expenditure (44 156) (21 903)
Dividend received from associate 780 585
Decrease in investments and loans 2 260 36
Net cash outflow from investing activities (41 116) (21 282)
Capital distribution (12 606) (9 704)
Other financing activities 10 401 22 441
Net cash (outflow)/inflow from financing
activities (2 205) 12 737
Net (decrease)/increase in cash equivalents (19 161) 58 626
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to
Share Non- Group equity holders`
capital and distributable retained of the parent
premium reserves earnings company
R`000 R`000 R`000 R`000
Balance at
30 June 2003 108 776 11 824 163 237 283 837
As
previously
stated 108 776 11 824 173 872 294 472
Prior year
adjustment
AC105:
Leases (10 846) (10 846)
Consolidatio
n of share
incentive
trust 211 211
Treasury
shares (2 772) (2 772)
Movement in
reserves (9 152) (1 072) (10 224)
Fair value
of
investments 233 233
Profit for
the year 32 072 32 072
As
previously
stated 34 422 34 422
Prior year
adjustment
AC105:
Leases (2 350) (2 350)
Capital
distribution (9 709) (9 709)
Balance at
30 June 2004 96 295 2 905 194 237 293 437
Treasury
shares 1 408 1 408
Movement in
reserves (680) 1 852 1 172
Fair value
of
investments (153) (153)
Profit for
the year 13 161 13 161
Capital
distribution (12 622) (12 622)
Balance at
30 June 2005 85 081 2 072 209 250 296 403
GROUP SEGMENTAL ANALYSIS
Continuing operations
Eliminations
/headline Total
Southern earnings continuing
Africa Europe adjustments operations
R`000 R`000 R`000 R`000
Geographical
Revenue:
Reviewed year ended
30 June 2005 1 072 177 116 733 (264 398) 924 512
% to total 90 10
Restated year ended
30 June 2004 917 796 124 188 (212 546) 829 438
% to total 88 12
Result:
Profit from operations
Reviewed year ended
30 June 2005 86 986 772 (476) 87 282
% to total 99 1
Restated year ended
30 June 2004 88 851 (4 020) (6 219) 78 612
% to total 105 (5)
Discontinued operations
Eliminations
/headline Total
Europe earnings discontinued Total
and the USA adjustments operations group
R`000 R`000 R`000 R`000
Geographical
Revenue:
Reviewed year
ended 30 June
2005 64 058 64 058 988 570
% to total
Restated year
ended 30 June
2004 80 912 80 912 910 350
% to total
Result:
Profit from
operations
Reviewed year
ended 30 June
2005 (11 999) (23 306) (35 305) 51 977
% to total
Restated year
ended 30 June
2004 (3 324) (3 113) (6 437) 72 175
Continuing operations
Reviewed Restated
year ended year ended
30 June 30 June
2005 2004
R`000 % R`000 %
Business segment
Revenue:
Unbeneficiated products 417 137 35 352 976 34
Value added products
Glass 149 806 13 133 727 13
Aluminium 621 967 52 555 281 53
1 188 910 100 1 041 984 100
Inter-segment sales
eliminated (264 398) (212 546)
924 512 829 438
Discontinued operations
Reviewed Restated
year ended year ended
30 June 30 June
2005 2004
R`000 % R`000 %
Business segment
Revenue:
Unbeneficiated products 64 058 100 80 912 100
Value added products
Glass
Aluminium
64 058 100 80 912 100
Inter-segment sales
eliminated
64 058 80 912
AG INDUSTRIES LIMITED REVIEWED RESULTS FOR THE YEAR ENDED 30 JUNE 2005
SALIENT FEATURES
Domestic
Volume growth of 20%
Revenues increase by 17%
Margin pressure in commodity trading
Increase in costs of distribution and labour
International
USA and Denmark operations discontinued
Remaining International operations profitable
Export revenues impacted by Rand strength
Financial Performance
Headline earnings for continuing operations increases by 15%
Restatement of results in line with AC105: Leases impacts operating profit
by R2,6 million
Gearing increased to 40% due to asset acquisitions
Working capital ratio 25% for year under review
Headline return on equity for continuing operations improves to 18% from 15%
COMMENTARY
KEY FOCUS AREAS
The focus over the past year has been:
* To grow volumes through:
Extending reach into key market channels
Improving service levels
* To improve margins through:
Improving efficiencies and productivity
Returning International operations to profitability
The Group has struck a number of key alliances in its retail, building and
construction and furniture channels to market during the latter part of the year
under review. Although few benefits have been enjoyed from these alliances
during the current year, volume increases and a deeper penetration into the
value added market are anticipated as a result of these alliances.
A recent market survey tasked to evaluate service levels in the Aluminium
Division showed an 85% satisfaction rate amongst the customer base. In order to
further improve service levels and enhance channels to market, the Group is in
the process of re-engineering the business to service its markets by
establishing national manufacturing hubs in the Glass and Aluminium Divisions.
The Aluminium manufacturing hub is expected to be fully operational by June
2006. This is expected to result in an increase in capacity and should improve
efficiencies and productivity.
Efficiency and productivity gains achieved through the overhead reduction
programme were counteracted by:
increased depreciation as a result of capital expenditure;
significant increases in the costs of distribution due to the increased volumes
as well as 23% inflation in transport costs due to increased fuel prices;
in order to maintain service levels and meet increased market demands labour
costs increased substantially.
In the International Division, the USA and Denmark operations have been
discontinued, however, management is committed to growing the international
businesses in the medium to long term.
REVIEW
FINANCIAL PERFORMANCE
Continuing operations
Double digit volume growth in most product categories translated into revenue
growth of 11%. To improve service levels and to cope with ever increasing market
demands a substantial investment in capital equipment was made. This resulted in
an increase of 20% in depreciation, which in addition to the factors mentioned
in the South African Operations review, impacted operating margins which fell
from 10.2% in the previous year to 9.5% for the year under review. As a result
of lower costs of funding, finance costs reduced by 3% even though gearing
increased to 40% from 29% in the previous year on the back of the aforementioned
capital expenditure. The tax rate decreased to 27% from 35% due to non-
deductible goodwill amortised in the previous year which, due to the change in
accounting policy was not required to be amortised in the current year. The
working capital ratio increased moderately from 23% to 25% in the current year
as creditors days decreased. Tighter operating margins, maintained finance
charges and a lower tax rate combined to result in a headline return on equity
of 18% (2004:15%).
SOUTH AFRICAN OPERATIONS
Volume growth has been driven by a buoyant economy. The weighted average volume
growth was 20%, with double digit growth in most of the Group`s product lines.
This growth translated into a 17% increase in revenue. The revenue growth was
not in line with volume growth due to a change in mix as well as pricing
pressure on commodity products. Gross margins were impacted by inflationary
increases in raw material inputs which could not be passed onto the market as
there was a further 10% appreciation of the Rand making importers more
competitive. Stock shrinkage, which has been successfully dealt with, further
impacted margins in the Aluminium Division. Through the overhead reduction
programme a significant reduction in certain overheads was achieved. However,
significant increases in distribution costs and increased labour costs required
to meet the additional volumes and to improve service levels counteracted these
savings. The above factors combined to result in operating margins of 10% (2004:
12%).
INTERNATIONAL OPERATIONS
Continuing operations
The UK business exceeded its profit target by a significant margin by increasing
volumes, improving sales mix and reducing overhead by 26%.
There was little improvement in market conditions in the construction industry
in Europe resulting in continued pricing pressure and declining volumes. In
response the German business cut overheads by 44% by simplifying administration
and by concentrating the sales effort around the Hamburg hub thus reducing
distribution and staff costs considerably. A greater focus was placed on value-
added processing and this has resulted in increased gross margins. The net
effect is a significant improvement in profitability for the year under review.
Although Mauritius is a relatively small market, the business almost doubled
revenues in the year under review. Gross margins remained unchanged and the
business delivered results in line with expectation.
Exports have been severely constrained by continued Rand strength resulting in
an inability to increase selling prices into export markets. Increases in
freight costs and inland transport as well as inflationary pressures on most
input costs resulted in lower profitability. The Group continues to supply
strategic markets at reduced margins so that relationships in these markets are
maintained. Should there be any weakening of the Rand this will represent a good
growth opportunity for the Group in the future.
Discontinued operations
The Executive Committee of the Company (`EXCO``) had set a target that the USA
business should be profitable on a sustainable basis by April 2005, which target
was not achieved. To achieve a sustainable business model would have required
considerable additional capital investment in order to grow the market in custom
products. Given Rand strength and more attractive growth opportunities in the
domestic market a decision was taken to dispose of the business. Substantially
all costs relating to this disposal have been accounted for in the current year.
Notwithstanding, a potentially attractive market exists in the USA for the
Groups finished products and AGI will continue to monitor these markets and take
advantage of opportunities as they arise.
Denmark has been wound down and is reflected as a discontinued operation in the
current year. The revenue relating to this business will be serviced through the
German business. This will have the effect of improving Germany`s profitability
by reducing administration costs.
PROSPECTS
The board is confident in the Group`s ability to sustain momentum in key areas:
Volume growth should be driven by a buoyant domestic economy and further
penetration into key channels to market;
Productivity improvements, driven by the manufacturing hub, should improve
margins and drive volume growth in the 2007 year and beyond;
Increased service levels are expected to positively impact volumes and
profitability;
Key alliances in the value added market are expected to increase sales and
improve mix and gross margins;
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 profit;
A culture of cost consciousness and an ethic of continuous improvement in the
manufacturing environment are expected to yield additional benefits.
ACCOUNTING POLICIES AND REVIEW
The accounting policies used in the 2004 annual report have been consistently
applied in these results and comply with the South African Statements of GAAP
applicable to interim financial reporting except for the adoption of AC140
Business Combinations. AC140 requires that goodwill is no longer amortised but
that impairment reviews are done annually or more frequently if there is an
indication that goodwill may be impaired. No adjustments to comparative amounts
were necessary. The adoption of AC140 has no impact on headline earnings per
share but has the effect of decreasing basic earnings per share by 8 cents. The
impairment of goodwill was as a result of the discontinuation of operations in
the USA and Denmark.
The Group restated operating lease payments in line with AC105: Leases and
circular 7/2005 issued by SAICA on 2 August 2005 with retrospective effect.
These statements require payments under an operating lease to be recognised as
an expense on a straight line basis over the lease term. The effect of this
change is to decrease headline earnings and basic earnings per share in the
current year by 1 cent. Comparative figures on the consolidated income statement
have been restated.
The year end financial results have been reviewed in terms of Rule 3.23 of the
Listings Requirements of the JSE Limited (`JSE`) by the Group`s auditors,
Deloitte & Touche. This review opinion is available for inspection at AGI`s
registered office.
CHANGES IN DIRECTORATE
Mr C.P. Kalil resigned as an executive director and was appointed as a non-
executive director effective 30 June 2005.
CAPITAL DISTRIBUTION WITH CAPITALISATION SHARE AWARD ELECTION
Notice is hereby given that the board of directors (`the board`) has resolved to
distribute to ordinary shareholders a portion of the share premium account in
lieu of a dividend to ordinary shareholders (`the distribution`). The
distribution will be paid in terms of a general authority for the board to make
such payments as approved by shareholders at the Company`s annual general
meeting on Tuesday, 30 November 2004. The distribution will amount to 6.5 cents
per ordinary share (2004: capital distribution of 6.5 cents per ordinary share).
Shareholders are entitled and will be given the opportunity to decline the
distribution and may elect to receive an award of new capitalisation shares in
respect of all or part of their shareholding (`the capitalisation award`).
Shareholders will be entitled to 2.28 new ordinary shares for every 100 ordinary
shares held.
The following salient dates apply to the distribution and capitalisation award:
Last date to trade `cum` the distribution
and / or capitalisation award Friday, 7 October 2005
Trading commences `ex` the distribution
and / or capitalisation award Monday, 10 October 2005
Record date Friday, 14 October 2005
Date of payment Monday, 17 October 2005
Documentation, including a form of election dealing with the capitalisation
award, will be posted to certificated and own name dematerialised shareholders
on or about Friday, 23 September 2005. Shareholders who have not yet
dematerialised their shares (`certificated shareholders`) and who wish to elect
to receive the capitalisation award should complete the form of election and
deliver/post it to the Transfer Secretaries so that it is received by them by no
later than 12:00 on Friday, 14 October 2005. Shareholders who have
dematerialised their share certificates are required to notify their Central
Securities Depository Participant (`CSDP`) or broker, and advise them of their
election in the manner and time stipulated in the agreement governing the
relationship between the shareholder and his/her CSDP or broker.
Application will be made to the JSE for the maximum number of capitalisation
shares to be listed with effect from the commencement of business on Monday, 10
October 2005. It is expected that dividend cheques and share certificates in
respect of new ordinary shares will be posted to certificated shareholders on or
about Monday, 17 October 2005. Dematerialised shareholders will have their CSDP
or broker accounts credited/updated on Monday, 17 October 2005. The
uncertificated securities in terms of this capitalisation award can be traded
from Monday, 10 October 2005. Share certificates may not be dematerialised or
rematerialised between Monday, 10 October 2005 and Friday, 14 October 2005, both
days inclusive.
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
13 September 2005
Sponsor
Sasfin Corporate Finance
A division of Sasfin Bank Limited
