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AGI
AGI
AG Industries Limited - Reviewed results for the year ended 30 June 2006
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 2006
SALIENT FEATURES
Operational performance
* Revenues increase by 21% (2005: 11%)
* Growth almost entirely organic
* Operating margins increase to 12% from 10%
* International operations profitable
Financial performance
* Headline earnings per share increases by 93%
* Headline return on equity for continuing operations improves to 24% from
21%
* Working capital ratio 23% for year under review
* Gearing increased to 64% - asset acquisitions for growth
REVIEW
Market overview
The construction sector of the economy remained buoyant over the year under
review, although the last quarter saw the sector slow slightly as demand
for residential buildings reduced. This should be seen, however, in
relation to the strong growth experienced over the past two years in the
new residential building sector. The renovations market has seen an upswing
owing to the increases in building costs and, furthermore, Government"s
move towards rehabilitation of city centres. Demand in the non-residential
sector remains solid with strong demand for industrial and commercial
buildings. Consumer spending has remained brisk as evidenced by the growth
in revenues through retail outlets.
Key focus areas
The focus over the past year has been:
* To build additional volume capacity throughout the Group and continue
the strategy of vertical integration where possible through:
* The establishment of the aluminium production facility which includes:
- A new extrusion press which was commissioned in May 2006 and produced
its first extrusions during June 2006. This effectively doubles the Group"s
capacity to produce aluminium profiles and enhances the ability to trap
margin and improve production efficiency in this sector of the business,
which has seen significant volume growth during the year under review.
- The commissioning of new finished goods production lines for standard
doors and windows. This addresses a lack of capacity to produce additional
volumes experienced during the past two years, which has constrained
growth. These lines will enable the Group"s regional operations to focus on
the production of purpose made windows, doors and shower enclosures, an
area with significant growth potential for the Group. These assembly lines
should be fully commissioned in the second half of the 2006 calendar year.
- In addition, a new tempering glass facility is currently being
commissioned and a new powder coating plant for extrusions will be
commissioned in the latter half of the 2006 calendar year, both to be used
solely for the manufacture of components for glass and aluminium finished
products. Besides alleviating capacity constraints on existing equipment,
the new facilities will also reduce handling and transport costs and result
in manufacturing efficiencies and productivity improvements.
* To improve margins through:
* Improving efficiencies and productivity. Productivity gains have
manifested in the last quarter of the financial year in the Aluminium
Division in particular, with a number of initiatives aimed at optimising
production in the bigger regional hubs and the introduction of additional
production skills into the Group.
* The ongoing commitment to reducing the overhead to revenue ratio.
Financial performance
Continuing operations
The Group enjoyed a growth of 21% in revenues for the financial year under
review. A substantial investment in capital equipment was made and this
resulted in an increase of 7% in depreciation. Overheads as a percentage of
revenue fell for the year under review resulting in an improvement in the
Group"s operating margin from 10% to 12%. Although finance costs remained
at similar levels to the previous financial year, gearing increased to 64%,
from 44% in the previous financial year, as a consequence of major capital
expenditure. The Group"s tax rate increased to 29% from 27% due to the
majority of income being earned in the South African tax jurisdiction. The
Group"s working capital ratio was maintained at 23% as debtors days were
decreased by four days while stock days increased due to a higher level of
imports in the current year and increased stock holdings due to
commissioning of the new extrusion press. A higher operating margin and
maintained finance costs combined to result in a headline return on equity
of 24% (2005: 21%).
South African operations
Glass Division
The market in which the Glass Division traded remained robust with good
volume growth in value added products. Commercial project work increased
towards the end of the financial year with a healthy order book for the
forthcoming year. New processing equipment, as well as the tempering
furnace commissioned in KwaZulu-Natal, resulted in organic growth and added
to profitability in the Division. The Glass Division had improved margins
as a result of a more favourable sales mix as well as efficiency
improvements throughout the businesses.
Aluminium Division
Finished products
Demand remained brisk for shower enclosures, windows and doors resulting in
a 21% increase in revenues. An improvement in operating margins was
attained through strict internal control, resulting in less shrinkage and
wastage as well as tighter overhead control. These factors resulted in the
Division increasing operating margin by 31%.
Sheerline and AGI Solutions
This Division saw a pleasing increase in project work, both commercial and
residential during the year under review. In addition, the Sheerline
aluminium and hardware business increased revenues by 42% resulting in a
record performance for the Division. Gross margins were impacted slightly
by the increase in global commodity prices but the lower overhead to
revenue ratio more than compensated for this resulting in a slight widening
in the operating margin.
International operations
Continuing operations
The UK economy grew steadily over the last two quarters of the financial
year with the construction sector showing growth in private housing and
commercial projects. The business in the UK had stable selling prices with
maintained volumes in the value added Glass Division. Volumes of
unbeneficiated glass fell marginally as the business focused on the value
added offering and made the decision not to drop prices in line with market
forces in these products. This decision resulted in a slight drop in
profitability in this Division but should result in benefits in the coming
financial year.
The German economy has been the most positive in six years but is not
expected to gain much momentum in the short term. The German business again
focused on value added processing and this resulted in increased gross
margins and, together with tight overhead control, resulted in achievement
of profit targets for the year under review.
Mauritius delivered results in line with expectation.
Although exports continue to be constrained by Rand strength, any weakening
of the Rand should represent good growth opportunities for the Group in the
future.
Discontinued operations
The amounts reflected under discontinued operations represent the final
costs in winding down the operations in Denmark and legal expenses incurred
in finalising the sale of the business in the USA.
Balance sheet and cash flow
Property, plant and equipment increased significantly over the year under
review as the Group laid the platform for future growth by investing in its
new manufacturing hubs. A large portion of the investment relates to fixed
property which is now owned by the Group. This investment, totalling
approximately R67 million, has been financed through short-term bank
overdraft, pending the registration of a mortgage bond against the title
deeds of the property. This amount will then constitute long-term
borrowings. This investment has also resulted in an anticipated increase in
gearing in the current year to 64%. This ratio should improve steadily in
the medium term as the assets deliver returns on the investments.
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 calendar year and
beyond;
- Vertical integration by the introduction of a second aluminium extrusion
press, tempering furnace and powder-coater 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
The Group previously recorded discounts and rebates received as other
income and discounts granted to customers as an expense. In terms of
Circular 09/2006 issued by the South African Institute of Chartered
Accountants, the Group now accounts for discounts and rebates received as
part of the cost of the asset acquired and discounts granted to customers
against revenue.
The report is prepared on the historical cost basis except for financial
instruments and certain property, plant and equipment which have been fair
valued. This is in accordance with the recognition and measurement
principles of International Financial Reporting Standards (IFRS) expected
to be applicable at 30 June 2006, IAS34: Interim Financial Reporting, the
requirements of the South African Companies Act and the Listings
Requirements of the JSE Limited. The results are presented in terms of IFRS
statements and interpretations applicable at the date of publication.
The Group is reporting under IFRS for the first time for the year ended 30
June 2006.
The transition date is 1 July 2004 ("the transition date"). The Group"s
opening IFRS balance sheet at the transition date has therefore been
restated to reflect all statements expected to be applicable at 30 June
2006. Certain accounting policy changes and reclassifications were applied
to comply with IFRS1 and the comparative figures in respect of 2005 have
been adjusted to reflect these changes.
Accordingly, the following new accounting policies have been introduced:
Property, plant and equipment
In terms of IFRS 1, a first time adoptor may elect to use the fair value of
individual items of property, plant and equipment at the transition date as
the deemed cost. Alternatively, one may elect to measure individual items
of property, plant and equipment at depreciated cost, determined in
accordance with IFRS.
These elections are available to each individual asset. The Group has made
its transition election on individual asset levels, as the circumstances of
each asset requires.
Share-based payments
In terms of IFRS 2, the fair value of equity settled share-based payment
transactions is charged to the income statement and the reciprocal credit
is shown in equity in the balance sheet.
Deferred tax
Deferred tax has been adjusted for the changes made to the carrying value
of assets and liabilities.
Minority interests
Minority interests have been adjusted for the changes made to the carrying
value of assets and liabilities.
REVIEW REPORT
The results for the year have been reviewed, but not audited, by the
Group"s auditors, Deloitte & Touche, and their unmodified review report is
available at the Company"s registered office for inspection.
SUBSEQUENT EVENTS
No material events have occurred in the period between the year-end date
and the date of this report.
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") of the Company. The distribution will be paid in terms of a
general authority to make such payments granted to the board by
shareholders at the Company"s annual general meeting held on Wednesday, 30
November 2005. The distribution will amount to 9,0 cents per ordinary share
(2005: 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
2,90 new ordinary shares for every 100 shares held (2005: 2,28 ordinary
shares per 100 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, 6 October 2006
Trading commences "ex" the distribution
and/or capitalisation award Monday, 9 October 2006
Record date Friday, 13 October 2006
Date of payment Monday, 16 October 2006
Documentation, including a form of election dealing with the capitalisation
on or about Friday, 22 September 2006. 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 12h00 on Friday, 13 October 2006.
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, 9 October 2006. It is expected that distribution
cheques and share certificates in respect of new ordinary shares will be
posted to certificated shareholders on or about Monday, 16 October 2006.
Dematerialised shareholders will have their CSDP or broker accounts
credited/updated on Monday, 16 October 2006. The uncertificated securities
in terms of this capitalisation award can be traded from Monday, 9 October
2006. Share certificates may not be dematerialised or rematerialised
between Monday, 9 October 2006 and Friday, 13 October 2006, both days
inclusive.
For and on behalf of the board
AA Barrell GFD Twigg J Martingano
Chief Executive Officer Chief Operating Officer Group Financial
Director
5 September 2006
CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2006
Reviewed Restated
year ended year ended
30 June 30 June
2006 2005 Change
R"000 R"000 %
CONTINUING OPERATIONS:
Revenue 1 086 076 901 270 21
Profit before depreciation 145 151 108 298 34
Depreciation (15 351) (14 297)
Operating profit 129 800 94 001 38
Operating margin (%) 12,0 10,4
Profit/(loss) on disposal of
property, plant and equipment 58 (192)
Goodwill impaired - (284)
Profit from operations 129 858 93 525 39
Net financing costs (16 135) (16 275)
Share of profits of 3 269 1 943
associates
Profit before taxation 116 992 79 193 48
Taxation (33 651) (21 696)
- normal activities (33 634) (21 752)
- headline adjustments (17) 56
Profit for the year from
continuing operations 83 341 57 497 45
DISCONTINUED OPERATIONS:
Loss for the year from
discontinued operations (947) (38 416)
Profit for the year 82 394 19 081 332
Attributable to:
Equity holders of the holding
company 80 559 17 629
Minority interest 1 835 1 452
Reconciliation:
Profit for the year
attributable to
equity holders of the holding
company 80 559 17 629
(Profit)/loss on disposal of
property, plant and equipment (50) 136
Goodwill impaired - 284
Loss on disposal/impairment
of investments - 23 289
Headline earnings from
continuing
and discontinued operations 80 509 41 338 95
STATISTICS
Number of ordinary shares in
issue ("000) 196 577 195 478
Weighted average number of
ordinary
shares in issue ("000) 196 062 194 312
Diluted number of ordinary
shares in issue ("000) 198 905 197 643
Basic earnings per ordinary
share (cents) 41,1 9,1 352
Headline earnings per
ordinary share (cents) 41,1 21,3 93
Diluted basic earnings per
ordinary share (cents) 40,5 8,9 355
Diluted headline earnings per
ordinary share (cents) 40,5 20,9 94
Capital
distribution/capitalisation
share award
Capital distribution
proposed per ordinary share
(cents), and or 9,0 6,5*
Capitalisation share award
per 100 ordinary shares 2,90 2,28*
(shares)
* Capital distribution/capitalisation share award proposed in
respect of the year ended 30 June 2005 - paid/awarded on 17 October
2005.
RECONCILIATION OF INCOME STATEMENT
From SA GAAP to IFRS
Restated
year ended
30 June
2005
R"000
Profit attributable to equity holders of the holding
company
as previously reported under SA GAAP 13 161
IFRS adjustments: 7 803
IAS 16 - Property, plant and equipment 7 046
Intangible assets 1 188
IFRS 2 - Share-based payments (431)
Circular 09/2006 (1 364)
Other adjustments (196)
Taxation (1 773)
As reported under IFRS 17 631
Attributable to equity holders of the holding company 17 629
Minority interest 2
17 631
Adjustments in terms of circular 09/2006
- Decrease in revenue (23 242)
- Decrease in cost of sales (27 843)
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 June 2006
Reviewed Restated
year ended year ended
30 June 30 June
2006 2005
R"000 R"000
ASSETS
Non-current assets
Property, plant and equipment 210 212 99 378
Intangible assets 116 174 86 905
Investments and loans 16 003 18 570
Deferred taxation assets 12 465 13 899
Current assets
Other current assets 437 930 340 770
Cash and cash equivalents 2 829 16 882
Total assets 795 613 576 404
EQUITY AND LIABILITIES
Total equity
Equity attributable to equity holders
of the holding company 346 168 269 781
Minority interest 4 858 4 406
Non-current liabilities
Interest bearing shareholder"s loan 11 423 4 252
Deferred taxation liabilities 11 034 11 535
Long-term interest bearing debt 90 078 65 689
Long-term deferred income 412 485
Long-term lease accrual 15 196 21 205
Current liabilities
Amounts due to vendors within one year 276 176
Other current liabilities 193 326 133 827
Short-term interest bearing debt 122 842 65 048
Total equity and liabilities 795 613 576 404
Net asset value per ordinary share (cents) 176 138
Net tangible asset value per ordinary share
(cents) 117 94
ADDITIONAL INFORMATION
Capital expenditure for the year 130 350 45 818
Capital expenditure committed or authorised 95 796 53 524
Directors" valuation of investments and 16 003 18 570
loans
Finance and operating lease commitments 265 477 190 878
Interest capitalised 1 238 198
Contingent liabilities 28 842 12 363
Cost of sales 570 699 476 829
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June 2006
Reviewed Restated
year ended year ended
30 June 30 June
2006 2005
R"000 R"000
Cash flows from operations 143 741 99 437
Working capital changes (81 676) (38 756)
Net financing costs and taxation paid (33 371) (36 522)
Net cash inflow from operating activities 28 694 24 159
Net capital expenditure (124 007) (40 337)
Dividend received from associate 2 145 780
Decrease in investments and loans 5 2 260
Increase in investments in subsidiaries (3 961) (3 819)
Net cash outflow from investing activities (125 818) (41 116)
Capital distribution (8 204) (12 606)
Other financing activities 28 991 10 401
Net cash inflow/(outflow) from financing
activities 20 787 (2 205)
Net decrease in cash equivalents (76 337) (19 162)
Cash and cash equivalents at beginning of
the year (23 187) (1 902)
Movement resulting from acquisitions,
disposals and FCTR 2 688 (2 123)
Cash and cash equivalents at end of the (96 836) (23 187)
year
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2006
Attributable
Share to equity
capital Group holders of
and Other accumulated the holding Minority Total
premium reserve profit company interest equity
s
R"000 R"000 R"000 R"000 R"000 R"000
Restated
balance
at 30 96 295 4 508 161 113 261 916 5 109 267 025
June
2004
- as
previous
ly 96 295 2 905 194 237 293 437 5 109 298 546
reported
- IFRS
adjustme - 1 603 (17 243) (15 640) - (15
nts 640)
-
Circular - - (14 192) (14 192) - (14
09/2006 192)
- Other
adjustme - - (1 689) (1 689) - (1 689)
nts
Treasury 1 408 - - 1 408 - 1 408
shares
Movement - (680) 1 382 702 - 702
in
reserves
Fair - (153) 470 317 - 317
value of
investme
nts
Transfer - 431 - 431 - 431
to share-
based
compensa
tion
reserve
- as - - - - - -
previous
ly
reported
- IFRS - 431 - 431 - 431
adjustme
nts
Profit - - 17 629 17 629 1 452 19 081
for the
year
- as - - 13 161 13 161 1 450 14 611
previous
ly
reported
- IFRS - - 5 863 5 863 2 5 865
adjustme
nts
- - - (968) (968) - (968)
Circular
09/2006
- Other - - (427) (427) - (427)
adjustme
nts
Dividend - - - - (779) (779)
paid
Minority
interest
acquired - - - - (1 376) (1 376)
Capital
distribu (12 - - (12 622) - (12
tion 622) 622)
Restated
balance
at 30 85 081 4 106 180 594 269 781 4 406 274 187
June
2005
Treasury
shares 595 - - 595 - 595
Movement
in - 3 647 (759) 2 888 - 2 888
reserves
Transfer
to share-
based
compensa - 555 - 555 - 555
tion
reserve
Profit
for the - - 80 559 80 559 1 835 82 394
year
Dividend
paid - - - - (504) (504)
Minority
interest
acquired - - - - (879) (879)
Capital
distribu
tion
capitali
sation (8 210) - - (8 210) - (8 210)
share
award
Balance
at 30 77 466 8 308 260 394 346 168 4 858 351 026
June
2006
GROUP SEGMENTAL ANALYSIS
for the year ended 30 June 2006
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 2006 1 294 255 114 076 (322 255) 1 086 076
% to total 92 8
Restated year ended
30 June 2005 1 049 290 116 378 (264 398) 901 270
% to total 90 10
Result:
Profit from
operations
Reviewed year ended
30 June 2006 125 755 4 032 71 129 858
% to total 97 3
Restated year ended
30 June 2005 93 881 120 (476) 93 525
% to total 100 -
Discontinued operations
Eliminations/
Europe headline Total
earnings discontinued Total
and the USA adjustments operations Group
R"000 R"000 R"000 R"000
Geographical
Revenue:
Reviewed year
ended 30 June
2006 - - - 1 086 076
% to total
Restated year
ended 30 June
2005 63 890 - 63 890 965 160
% to total
Result:
Profit from
operations
Reviewed year
ended 30 June
2006 (950) - (950) 128 908
% to total
Restated year
ended 30 June
2005 (11 999) (23 306) (35 305) 58 220
% to total
Continuing operations Discontinued operations
Reviewed Restated Reviewed Restated
year year ended year year
ended ended ended
30 June 30 June 30 June 30 June
2006 2005 2006 2005
R"000 % R"000 % R"000 % R"000 %
Business
segment
Revenue:
Unbene-
ficiated
products 449 227 32 417 474 36 - - 63 890 100
Value added
products
- Glass 214 584 15 149 470 13 - - - -
- Aluminium 744 520 53 598 724 51 - - - -
1 408 331 100 1 165 668 100 - - 63 890 100
Inter-
segment
sales
eliminated (322 255) (264 398) - -
1 086 076 901 270 - 63 890
RECONCILIATION OF ASSETS, LIABILITIES AND EQUITY
From SA GAAP to IFRS
Property, Net
plant and Intangible deferred Net
equipment assets taxation taxation Inventories
R"000 R"000 R"000 R"000 R"000
30 June 2004
As
previously
reported 88 424 108 337 2 306 (1 712) 148 587
Adjustments: (10 903) (8 372) 6 683 2 852 (19 011)
Circular
09/2006 - - 2 945 2 852 (19 011)
Other
adjustments - - 103 - -
IFRS 2 -
Share-based
payments - - 465 - -
IAS 16 -
Property,
plant and
equipment (10 903) (8 372) 3 170 - -
As reported
under IFRS 77 521 99 965 8 989 1 140 129 576
30 June 2005
As
previously
reported 103 235 94 089 (2 672) 1 111 151 505
Adjustments: (3 857) (7 184) 5 036 2 726 (14 177)
Circular
09/2006 - - 3 467 2 726 (14 177)
Other
adjustments - - (128) - -
IFRS 2 -
Share-based
payments - - 590 - -
IAS 16 -
Property,
plant and
equipment (3 857) (7 184) 1 107 - -
As reported
Under IFRS 99 378 86 905 2 364 3 837 137 328
Share-
based
Trade and Trade and Accumu- compen-
other other lated sation Minority
receivables payables profit reserve interest
R"000 R"000 R"000 R"000 R"000
30 June 2004
As
previously
reported 182 298 (141 950) (194 237) - (5 109)
Adjustments: (2 005) (765) 33 124 (1 603) -
Circular
09/2006 (2 005) 1 027 14 192 - -
Other
adjustments - (1 792) 1 689 - -
IFRS 2 -
Share-based
payments - - 1 138 (1 603) -
IAS 16 -
Property,
plant and
equipment - - 16 105 - -
As reported
under IFRS 180 293 (142 715) (161 113) (1 603) (5 109)
30 June 2005
As
previously
reported 203 692 (128 722) (209 250) - (4 404)
Adjustments: (7 959) (1 205) 28 656 (2 034) (2)
Circular
09/2006 (7 959) 783 15 160 - -
Other
adjustments - (1 988) 2 116 - -
IFRS 2 -
Share-based
payments - - 1 444 (2 034) -
IAS 16 -
Property,
plant and
equipment - - 9 936 - (2)
As reported
under IFRS 195 733 (129 927) (180 594) (2 034) (4 406)
Visit our website: www.ag-industries.com
Directors: AA Barrell (CEO), GFD Twigg# (COO), J Martingano (Financial), JC
Saville, MJE Geldenhuys, HR Levin* (Non-Executive Chairman), BE Danoher*#+,
TY Worthington*+
* Non-Executive #Irish +Independent
Date: 04/09/2006 05:35:19 PM Produced by the JSE SENS Department
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