| Wed 14 Feb 2007, 17:00 | | AGI - A G Industries Limited - Trading update |
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AGI
AGI
AGI - A G Industries Limited - Trading update
(Incorporated in the Republic of South Africa)
Registration number: 1980/004051/06
Share Code: AGI
ISIN: ZAE000039467
("The Company"or "the Group")
TRADING UPDATE
Shareholders are advised that headline earnings per share and earnings per
share for the six months ended 31 December 2006 ("the reporting period") will
be 2% to 7% higher than the results of the previous corresponding period. The
information in this trading statement has not been reviewed or reported on by
the company`s auditors.
During the reporting period, AGI focused on bedding down its large capital
projects, designed to create a new and larger platform for future growth,
locally and for the export market. These capital projects were in line with
the Group`s strategy of vertically integrating and extracting efficiencies in
the value-added glass and aluminium markets, which should further enhance
margins. The resultant increase in capital expenditure and focus on improving
factory efficiencies had a short-term impact on the results. However, the new
platform is set to enhance operating profits and margins over the short-to
medium-term.
The following is a brief update on trading conditions during the reporting
period.
Domestic
The group`s domestic businesses contribute around 91% to group revenue.
The domestic market saw robust demand for products supplied into both the new
and refurbished commercial building sector and resulted in a record
performance for the Glass Division. As expected, growth in finished products,
such as showers, doors and windows, slowed compared to the previous year in
line with slower levels of growth in the residential market. This, together
with the focus on bedding down the capital projects impacted volume growth in
the Aluminium Division. However, the Group passed on an inflationary increase
in selling prices of products across the board giving credence to the Group`s
view that this represents the end of a four year deflationary cycle. The
increased selling prices buffered operating profit and margins against the
impact of capital expenditure costs and revenue growth was 6%. Although lower
than the exceptional levels of last year due to lower volume growth in the
Aluminium Division, management believes this growth will improve as the full
impact of price increases kicks in and the Aluminium Division focuses on
growing its custom-made offering.
In line with the strategy of further vertical integration and increasing the
custom-made offering in the Aluminium Division R60 million was spent on the
commissioning of plant and equipment during the reporting period. This led to
additional depreciation on equipment of R2,6 million. Furthermore, production
costs per unit were higher, as the equipment moved from zero production to
break-even by the end of the reporting period. The estimated impact on
operating margins is approximately R12 million. Despite this, the group
managed to maintain operating margins at similar levels to the previous year.
Interest costs increased by 88%, impacting headline earnings per share by 3,4
cents per share. This was abated to some extent by a lower average tax rate
for the year.
Going forward, the Group is confident that many exciting opportunities exist
for growth, with the Building and Construction sector looking buoyant. This
has already resulted in a record order book and a strong pipeline of tenders
and project enquiries.
In addition, the Group has capacity and the technical capability to take
advantage of the anticipated shift to Infrastructural spend in the
Government`s budget and the opportunities presented by the World Cup 2010.
Once the costs of commissioning in the Aluminium Division have abated and
production is at planned levels - expected by June 2007 - the vertical
integration should also result in increased profitability, as margins will be
trapped and should enable the Group to operate with more flexibility and
speed, thereby servicing our markets efficiently. Volumes and margins are set
to further increase by focusing on custom-made windows and doors, where the
group has a strong positioning due to centralising the supply chain, thereby
freeing local operations to focus on this sector.
International
The international businesses contribute 9% to group revenue.
The UK once again delivered results above expectations and improved its
operating margins by increasing revenues through further market penetration,
with no corresponding increase in operating costs. Germany took advantage of a
slight upswing in the economy and grew both revenues and gross margins,
resulting in a record performance for the reporting period. Mauritius
performed in line with expectations.
Conclusion
Full details of the Company`s operations and its prospects for the second
half of the 2007 financial year will be provided with the announcement of the
results for the reporting period, which will be published on SENS on or about
6 March 2007.
14 February 2007
Johannesburg
Sponsor :
Sasfin Capital
(a division of Sasfin Bank Limited)
Date: 14/02/2007 17:00:23 Produced by the JSE SENS Department.
