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AGI
AGI
AGI - AG Industries Limited - Unaudited interim results for the six months
ended 31 December 2006
AG Industries Limited
Registration number: 1980/004051/06
Share code: AGI
ISIN: ZAE000039467
("AGI" or "the Group")
Unaudited interim results for the six months ended 31 December 2006
Highlights
- Significant spend during the period has positioned the Group for growth
- R60 million capital equipment commissioned during the period
- Development costs had a short-term impact, however:
- Revenues increased by 6%
- Operating margins maintained at 10,7% (2005: 10,6%)
- Record performance in Glass Division
- Earnings increased by 8% to R42 million (2005: R39 million)
- Earnings per share increased by 5% to 20,8 cents (2005: 19,8 cents)
Overview
During the reporting period, AGI focused on bedding down its large capital
projects in line with the Group`s strategy of vertically integrating and
extracting efficiencies in the value-added glass and aluminium markets. The
investment is designed to create a new and larger platform for local and
international growth and to further enhance margins.
The increase in capital expenditure and focus on improving factory efficiencies
therefore had a short-term impact on the results. However, the new base is now
set to enhance operating profits and margins over the short to medium term.
Group revenues increased by 6% to R621 million (2005: R586 million). The
International Division delivered an improved performance and added to a sound
domestic base.
In line with the Group`s vertical integration strategy, the Group spent R60
million on plant and equipment commissioned during the reporting period. This
led to additional depreciation on plant and equipment of R2,6 million.
Property, plant and equipment and inventory therefore increased significantly as
new plant was commissioned and inventory added as production ramped up from a
zero base. As expected, gearing increased to 81% and finance costs increased by
88% to R14,5 million (2005: R7,7 million). However, management`s target is to
reduce the Group`s gearing within the next three years.
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 was approximately R12 million. Despite this, due to
price increases, the Group managed to maintain operating margins at
approximately 11%, in line with levels in the previous year. Operating profit
increased by 7% to R66,6 million (2005: R62,0 million).
The working capital ratio moved to 27% as inventories increased to cater for
additional production capacity. Return on equity was 21% (2005: 26%) and was
impacted by the additional costs of commissioning, borne during the period. The
tax rate reduced to 20% due to the utilisation of assessed tax losses. These
factors combined to result in an 8% increase in earnings from R38,6 million to
R41,7 million for the period.
Operational review
Domestic
The Group`s domestic businesses contribute around 93% to Group revenue.
Introduction
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.
However, as expected, volume growth in the Aluminium Division was lower than the
exceptional levels seen last year. The decline in finished products, such as
showers, doors and windows, was in line with lower 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 resulted in a 6% revenue growth in the period and, as outlined above,
also buffered operating profit and margins against the impact of capital
expenditure costs.
Management believes that revenue growth will be enhanced by the full effect of
price increases and by volume growth as the Aluminium Division focuses on
growing its custom-made offering.
Glass Division
The market remained robust with good volume growth and stability in selling
prices. In the Unbeneficiated Glass Division, operating margins were stable and
revenues grew by 8% to R240 million (2005: R222 million), in line with growth in
the market.
In the Value-Added Glass Division the product mix improved as more value-added
products were supplied into commercial building projects resulting in an
improved gross margin in the division. The division maintained its overhead to
revenue ratio and this, together with the improved gross margin, resulted in an
all-time record performance for the division.
Aluminium Division
Finished products
The Finished Products Division focused on bedding down its capital projects and
moving certain of its standard product fabrication lines to its new
consolidated, high-tech site in Roodekop. Although these initiatives will lead
to significant cost savings and increased volume growth over the medium-term and
positions the Group uniquely in the industry, it temporarily constrained volume
growth during the period as fabrication lines were moved, affecting production.
As outlined above, it also resulted in an increase in costs of approximately R12
million. As a result, the operating margin was impacted.
Solutions, lengths and hardware ("Sheerline")
Sheerline, through their technical expertise, has continued to win an increasing
number of projects, both residential and commercial through their Solutions
Division. The number of projects awarded is encouraging and augurs well for the
future of this division.
Sheerline, which sells extruded aluminium lengths and hardware, increased
revenues by 20%. The gross margin was maintained and this, together with a
maintained overhead, resulted in an increased operating margin in this division
and another period of record profit.
International Division
The international businesses contribute 7% to Group revenue.
The International Division increased revenues from R63,9 million in 2005 to
R64,7 million for the current period and increased operating margin from R1,0
million to R4,7 million.
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 operating margins,
resulting in a record performance for the reporting period. Mauritius performed
in line with expectations.
Prospects
The spend during the period under review has built a strong platform for
continued growth and has positioned the Group uniquely in its market due to its
ability to offer an integrated glass and aluminium solution.
Going forward, the Group is therefore confident that it will tap into many
exciting opportunities within the building and construction sector. This has
resulted in a strong pipeline of tenders and project enquiries.
In addition, the Group is well placed to take advantage of the anticipated shift
to infrastructural spend in the Government`s budget and the opportunities
presented by the 2010 World Cup and beyond.
Once all the costs of moving and commissioning equipment in the Aluminium
Division have abated and production is at planned levels, which is expected by
June 2007, the benefits of the significant spend in establishing the full
vertical integration should result in increased profitability, as margins will
be trapped. This will allow the Group to operate with more flexibility and
speed, thereby servicing its markets more effectively. 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.
Changes in directorate
Mr RK Braithwaite was appointed as an executive director (Group financial
director and company secretary) effective 1 March 2007. Mr CP Kalil has rejoined
the Group and was appointed as executive director - Aluminium effective 1 March
2007. Mrs J Martingano, the Group financial director and company secretary, has
moved into the roll of executive director with operational and commercial
responsibilities effective 1 March 2007. Mr TY Worthington has retired, at the
age of 78, as a non-executive director effective 1 March 2007.
Accounting policies
The unaudited results for the six month period ended 31 December 2006 have been
prepared in accordance with the Group`s accounting policies, which comply with
IFRS.
These interim results have not been audited or reviewed by the Group`s auditors.
Distribution to shareholders
The Board has adopted a policy of one distribution to shareholders at the end of
each financial year. In line with this policy, no interim distribution to
shareholders has been proposed.
For and on behalf of the Board
AA Barrell J Martingano
Chief Executive Officer Commercial Director
6 March 2007
Consolidated income statement
for the six months ended 31 December 2006
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 December 31 30 June
December
2006 2005 Change 2006
R`000 R`000 % R`000
Continuing operations
Revenue 620 967 586 143 6 1 086 076
Profit before depreciation 78 240 70 957 10 145 151
Depreciation (11 722) (9 092) (15 351)
Operating profit 66 518 61 865 8 129 800
Operating margin (%) 10,7 10,6 12,0
Profit on disposal of
property, plant and
equipment 70 111 58
Profit from operations 66 588 61 976 7 129 858
Net financing costs (14 482) (7 720) (16 135)
Share of profits of 1 198 1 749 3 269
associates
Profit before taxation 53 304 56 005 (5) 116 992
Taxation (10 467) (15 594) (33 651)
- normal activities (10 447) (15 562) (33 634)
- headline adjustments (20) (32) (17)
Profit for the period from
continuing operations 42 837 40 411 6 83 341
Discontinued operations
Loss for the period from
discontinued operations - (648) (947)
Profit for the period 42 837 39 763 8 82 394
Attributable to:
Equity holders of the
holding company 41 709 38 601 8 80 559
Minority interest 1 128 1 162 1 835
Profit for the period 42 837 39 763 82 394
Reconciliation:
Profit for the period
attributable to equity
holders of the holding
company 41 709 38 601 80 559
Profit on disposal of
property, plant and
Equipment (50) (79) (50)
Headline earnings from
continuing and
discontinued
Operations 41 659 38 522 8 80 509
Statistics
Number of ordinary shares
in issue (`000) 203 276 197 045 197 045
Weighted average number
of ordinary shares in
issue (`000) 200 200 195 346 196 062
Diluted number of ordinary
shares in issue (`000) 206 791 199 866 198 905
Basic earnings per
ordinary
share (cents) 20,8 19,8 41,1
Headline earnings per
ordinary share (cents) 20,8 19,7 41,1
Diluted basic earnings per
ordinary share (cents) 20,2 19,3 40,5
Diluted headline earnings
per ordinary share (cents) 20,2 19,3 40,5
*Capital distribution/
capitalisation share award
Capital distribution
proposed per ordinary
share (cents), and/or - - 9,0*
Capitalisation share award
per 100 ordinary shares
(shares) - - 2,90*
Capital distribution/capitalisation share award proposed in respect of year
ended 30 June 2006 - paid/awarded on 16 October 2006.
Condensed consolidated balance sheet
as at 31 December 2006
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 December 31 December 30 June
2006 2005 2006
R`000 R`000 R`000
Assets
Non-current assets
Property, plant and equipment 264 561 102 872 210 212
Intangible assets 121 116 108 583 116 174
Investments and loans 16 732 18 950 15 008
Deferred taxation assets 15 296 14 537 12 465
Current assets
Inventories 239 072 153 276 208 692
Trade and other receivables 252 094 236 766 225 850
Other current assets 4 473 4 259 4 383
Cash and cash equivalents 16 065 8 709 2 829
Total assets 929 409 647 952 795 613
Equity and liabilities
Total equity
Equity attributable to equity
holders of the holding company 389 643 299 009 346 168
Minority interest 5 541 5 568 4 858
Non-current liabilities
Interest-bearing shareholder`s loan 8 214 9 909 11 423
Deferred taxation liabilities 9 613 11 090 11 034
Long-term interest-bearing debt 189 564 71 333 90 078
Long-term deferred income 206 485 412
Long-term lease accrual 15 586 21 408 15 196
Current liabilities
Trade and other payables 152 345 154 331 178 409
Other current liabilities 25 526 17 426 15 193
Short-term interest-bearing debt 133 171 57 393 122 842
Total equity and liabilities 929 409 647 952 795 613
Net asset value per ordinary share
(cents) 192 152 176
Additional information
Capital expenditure for the period 72 046 11 065 130 350
Capital expenditure committed or
authorised 38 133 178 263 95 796
Directors` valuation of investments
and loans 16 732 18 950 15 008
Finance and operating lease
commitments 332 739 229 197 265 477
Interest capitalised 1 110 236 1 238
Contingent liabilities 33 573 18 812 28 842
Cost of sales 324 693 337 836 570 699
Condensed consolidated cash flow statement
for the six months ended 31 December 2006
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 December 31 December 30 June
2006 2005 2006
R`000 R`000 R`000
Cash flows from operations 77 347 70 521 143 730
Working capital changes (83 689) (46 788) (82 673)
Net financing costs and taxation
paid (18 548) (9 981) (33 378)
Net cash (outflow)/inflow from
operating activities (24 890) 13 752 27 679
Net capital expenditure (65 995) (9 932) (124 008)
Dividend received from associate - 780 2 145
Decrease in investments and loans 63 - 995
Increase in investment in
subsidiaries (3 181) (144) (3 961)
Net cash outflow from investing
activities (69 113) (9 296) (124 829)
Capital distribution (3 429) (8 188) (8 184)
Other financing activities 90 384 (4 060) 28 992
Net cash inflow/(outflow) from
financing activities 86 955 (12 248) 20 808
Net decrease in cash and cash
equivalents (7 048) (7 792) (76 342)
Cash and cash equivalents at
beginning of the period (96 836) (23 187) (23 187)
Movement resulting from
acquisitions, disposals and FCTR (119) (8 458) 2 693
Cash and cash equivalents at end
of the period (104 003) (39 437) (96 836)
Consolidated statement of changes in equity
for the six months ended 31 December 2006
Attri-
butable
to equity
Share Group holders
capital accumu- of the
and Other lated holding Minorit Total
premium reserve profit company y equity
s interes
t
R`000 R`000 R`000 R`000 R`000 R`000
Balance at
30 June 2005 85 081 4 106 180 594 269 781 4 406 274 187
Capital
distribution (8 210) - - (8 210) - (8 210)
Movement in
treasury
shares 5 - - 5 - 5
Movement in
reserves - (708) (460) (1 168) - (1 168)
Profit for the
period - - 38 601 38 601 1 162 39 763
Balance at 31
December 2005 76 876 3 398 218 735 299 009 5 568 304 577
Movement in
treasury
shares 590 - - 590 - 590
Movement in
reserves - 4 355 (299) 4 056 - 4 056
Transfer to
share-based
compensation
reserve - 555 - 555 - 555
Dividend paid - - - - (504) (504)
Minority
interest
acquired - - - - (879) (879)
Profit for the
period - - 41 958 41 958 673 42 631
Balance at 30
June 2006 77 466 8 308 260 394 346 168 4 858 351 026
Capital
distribution (3 457) - - (3 457) - (3 457)
Ordinary
shares issued 5 868 - - 5 868 - 5 868
Movement in
treasury
shares 516 - - 516 - 516
Movement in
reserves - 811 (894) (83) - (83)
Transfer from
share-based
compensation
reserve - (1 078) - (1 078) - (1 078)
Dividend paid - - - - (445) (445)
Profit for the
period - - 41 709 41 709 1 128 42 837
Balance at 31
December 2006 80 393 8 041 301 209 389 643 5 541 395 184
Group segmental analysis
for the six months ended 31 December 2006
Continuing operations
Eliminations/
headline
Southern earnings Total
Africa Europe adjustments continuing
R`000 R`000 R`000 R`000
Geographical
Revenue:
Unaudited period
ended 31 December
2006 798 106 64 655 (241 794) 620 967
Percentage to total 93 7
Unaudited period
ended 31 December
2005 685 028 63 860 (162 745) 586 143
Percentage to total 91 9
Audited year ended
30 June 2006 1 294 255 114 076 (322 255) 1 086 076
Percentage to total 92 8
Result:
Profit/(loss) from
operations
Unaudited period
ended 31 December
2006 61 859 4 729 - 66 588
Percentage to total 93 7
Unaudited period
ended 31 December
2005 60 825 1 040 111 61 976
Percentage to total 98 2
Audited year ended
30 June 2006 125 754 4 033 71 129 858
Percentage to total 97 3
Discontinued
operations
Europe Total
and the USA group
R`000 R`000
Geographical
Revenue:
Unaudited period ended 31 December 2006 - 620 967
Unaudited period ended 31 December 2005 - 586 143
Audited year ended 30 June 2006 - 1 086 076
Result:
Profit/(loss) from operations
Unaudited period ended 31 December 2006 - 66 588
Unaudited period ended 31 December 2005 (648) 61 328
Audited year ended 30 June 2006 (950) 128 908
Unaudited Unaudited Audited
six months six months year ended
ended ended
31 December 31 December 30 June
2006 2005 2006
R`000 % R`000 % R`000 %
Business segment
Revenue:
Unbeneficiated
products 240 238 28 222 094 30 449 227 32
Value-added
products
- Glass 123 661 14 120 183 16 214 584 15
- Aluminium 498 862 58 406 611 54 744 520 53
862 761 100 748 888 100 1 408 331 100
Inter-segment
sales eliminated (241 794) (162 745) (322 255)
620 967 586 143 1 086 076
Directors: AA Barrell (CEO), RK Braithwaite (Financial), J Martingano, JC
Saville, CP Kalil, MJE Geldenhuys, HR Levin* (Non-Executive Chairman), GFD
Twigg*#, BE Danoher*#^,
* Non-Executive #Irish ^Independent
Registered office: Corner Kruger Street and Mimetes Road, Denver Extension 11,
Johannesburg 2094, PO Box 40443, Cleveland 2022
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited, 70
Mashall Street, Johannesburg 2001, PO Box 61051, Mashalltown 2107, South Africa
Visit our website: www.ag-industries.com
Date: 06/03/2007 07:05:01 Produced by the JSE SENS Department.
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