AECI LIMITED
(Incorporated in the Republic of South
Africa)
Registration number 1924/002590/06
Tax reference number 9000008608
Share code: AFE
ISIN: ZAE000000220
JSE Bond company code: AECI (“AECI” or “the Company”)
Summarised audited consolidated financial results and final cash
dividend declaration for the year ended 31
December 2017
Highlights
Profit from operations +18% to R1 579m
Highest-ever recorded HEPS +17,2% to 959c
Trading margin +8,5%
Strategic progress
Acquisitions announced
* Geographic and earnings diversification
Reporting aligned with pillar strategy
Final ordinary cash dividend +13% to 340cps
Income statement
|
|
|
2017 |
2016 |
R millions |
Note |
% change |
Audited |
Audited |
Revenue |
2 |
(1) |
18 482 |
18 596 |
Net operating costs |
|
|
(16 903) |
(17 261) |
Profit from operations |
|
18 |
1 579 |
1 335 |
Share of profit of
equity-accounted |
|
|
|
|
investees, net of tax |
|
|
— |
28 |
Profit from operations and
equity- |
|
|
|
|
accounted investees |
|
|
1 579 |
1 363 |
Net finance costs |
|
|
(167) |
(215) |
Interest expense |
|
|
(202) |
(270) |
Interest received |
|
|
35 |
55 |
Profit before tax |
|
|
1 412 |
1 148 |
Tax expense |
|
|
(429) |
(336) |
Profit for the year |
|
|
983 |
812 |
Profit for the year attributable
to: |
|
|
|
|
— Ordinary shareholders |
|
|
950 |
777 |
— Preference shareholders |
|
|
3 |
3 |
— Non-controlling interest |
|
|
30 |
32 |
|
|
|
983 |
812 |
Headline earnings are derived
from: |
|
|
|
|
Profit attributable to ordinary
shareholders |
|
|
950 |
777 |
Impairment of goodwill |
|
|
3 |
28 |
Impairment of property, plant and
equipment |
|
|
10 |
54 |
Loss on disposal of
equity-accounted |
|
|
|
|
investee |
|
|
2 |
— |
Impairments recognised by
equity- |
|
|
|
|
accounted investee |
|
|
54 |
— |
(Surplus)/loss on disposal of
property, |
|
|
(8) |
9 |
plant and equipment |
|
|
|
|
Foreign currency translation
differences |
|
|
|
|
reclassified on net investments
in |
|
|
|
|
foreign operations |
|
|
18 |
17 |
Tax effects of the above items |
|
|
(17) |
(21) |
Headline earnings |
|
|
1 012 |
864 |
Per ordinary share (cents): |
|
|
|
|
Headline earnings |
|
17 |
959 |
818 |
Diluted headline earnings |
|
915 |
800 |
|
Basic earnings |
|
22 |
900 |
735 |
Diluted basic earnings |
|
859 |
720 |
|
Ordinary dividends declared after
the |
|
|
|
|
reporting date |
|
13 |
340 |
300 |
Ordinary dividends paid |
|
438 |
395 |
|
Statement of comprehensive income
|
2017 |
2016 |
R millions |
Audited |
Audited |
Profit for the year |
983 |
812 |
Other comprehensive income net of
tax |
|
|
Items that may be reclassified
subsequently to |
|
|
profit or loss: |
|
|
— Foreign currency translation
differences |
(212) |
(376) |
— Effective portion of cash flow
hedges |
(4) |
(3) |
Items that may not be reclassified
subsequently to |
|
|
profit or loss: |
|
|
— Remeasurement of defined-benefit
and post-retirement |
|
|
medical aid obligations |
11 |
— |
Total comprehensive income for the
year |
778 |
433 |
Total comprehensive income
attributable to: |
|
|
Ordinary shareholders |
752 |
405 |
Preference shareholders |
3 |
3 |
Non-controlling interest |
23 |
25 |
|
778 |
433 |
Statement of changes in equity
|
2017 |
2016 |
R millions |
Audited |
Audited |
Total comprehensive income for the
year |
778 |
433 |
Dividends paid |
(497) |
(435) |
Share-based payment reserve |
29 |
45 |
Shares repurchased |
— |
(39) |
Equity at the beginning of the
year |
9 046 |
9 042 |
Equity at the end of the year |
9 356 |
9 046 |
Made up as follows: |
|
|
Ordinary share capital |
110 |
110 |
Reserves |
1 102 |
1 280 |
— Foreign currency translation
reserve |
883 |
1 086 |
— Other reserves |
(5) |
(1) |
— Share-based payment reserve |
224 |
195 |
Retained earnings |
8 022 |
7 523 |
Non-controlling interest |
116 |
127 |
Preference share capital |
6 |
6 |
|
9 356 |
9 046 |
Reconciliation of weighted average number of shares
|
2017 |
2016 |
Millions |
Audited |
Audited |
Weighted average number of ordinary
shares at the |
|
|
beginning of the year |
131,9 |
132,4 |
Weighted average number of unlisted
ordinary shares |
|
|
held by consolidated EST |
(10,1) |
(10,1) |
Weighted average number of
contingently returnable |
|
|
ordinary shares held by CEDT |
(4,4) |
(4,4) |
Weighted average number of shares
held by consolidated |
|
|
Subsidiary |
(11,9) |
(11,9) |
Weighted average number of shares
repurchased during |
|
|
the year |
— |
(0,3) |
Weighted average number of ordinary
shares for basic |
|
|
earnings per share |
105,5 |
105,7 |
Dilutive adjustment for potential
ordinary shares |
5,0 |
2,3 |
Weighted average number of ordinary
shares for diluted |
|
|
earnings per share |
110,5 |
108,0 |
Statement of financial position as at 31 December
|
|
2017 |
2016 |
R millions |
Note |
Audited |
Audited |
Assets |
|
|
|
Non-current assets |
|
7 365 |
7 538 |
Property, plant and equipment |
3 |
3 965 |
3 990 |
Investment property |
|
216 |
140 |
Intangible assets |
|
188 |
211 |
Goodwill |
|
1 524 |
1 541 |
Pension fund employer surplus
accounts |
|
487 |
583 |
Investments in joint ventures |
|
274 |
327 |
Investments in associates |
4 |
199 |
194 |
Other investments |
5 |
117 |
25 |
Deferred tax |
|
395 |
527 |
Current assets |
|
8 606 |
8 282 |
Inventories |
|
3 355 |
3 174 |
Accounts receivable |
|
3 793 |
3 342 |
Other investments |
|
155 |
190 |
Assets classified as held for
sale |
7 |
— |
60 |
Tax receivable |
|
97 |
51 |
Cash |
|
1 206 |
1 465 |
Total assets |
|
15 971 |
15 820 |
Equity and liabilities |
|
|
|
Equity |
|
9 356 |
9 046 |
Ordinary share capital and
reserves |
|
9 234 |
8 913 |
Non-controlling interest |
|
116 |
127 |
Preference share capital |
|
6 |
6 |
Non-current liabilities |
|
1 614 |
2 324 |
Deferred tax |
|
93 |
254 |
Non-current borrowings |
|
1 100 |
1 600 |
Contingent consideration |
|
29 |
58 |
Non-current provisions and employee
benefits |
|
392 |
412 |
Current liabilities |
|
5 001 |
4 450 |
Accounts payable |
|
4 272 |
4 148 |
Current borrowings |
|
530 |
162 |
Loans from joint ventures |
|
130 |
75 |
Tax payable |
|
69 |
65 |
Total equity and liabilities |
|
15 971 |
15 820 |
Statement of cash flows
|
2017 |
2016 |
R millions |
Audited |
Audited |
Cash generated by operations |
2 350 |
2 328 |
Dividends received |
55 |
46 |
Interest paid |
(202) |
(238) |
Interest received |
35 |
55 |
Tax paid |
(481) |
(636) |
Changes in working capital |
(358) |
488 |
Cash outflows relating to
defined-benefit and post- |
|
|
retirement medical aid
obligations |
(101) |
(27) |
Cash outflows relating to
non-current provisions and |
|
|
employee benefits |
(77) |
(76) |
Cash available from operating
activities |
1 221 |
1 940 |
Dividends paid |
(497) |
(435) |
Cash flows from operating
activities |
724 |
1 505 |
Cash flows from investing
activities |
(753) |
(491) |
Net investment activities |
(97) |
(3) |
Net capital expenditure |
(656) |
(488) |
Net cash (utilised)/generated before
financing |
|
|
activities |
(29) |
1 014 |
Cash flows from financing
activities |
(121) |
(1 523) |
Loans with joint ventures |
55 |
39 |
Shares repurchased |
— |
(39) |
Settlement of performance
shares |
(44) |
(22) |
Borrowings raised |
250 |
1 110 |
Borrowings repaid |
(382) |
(2 620) |
Net decrease in cash |
(150) |
(518) |
Cash at the beginning of the
year |
1 465 |
2 114 |
Translation loss on cash |
(109) |
(131) |
Cash at the end of the year |
1 206 |
1 465 |
Industry segment analysis
Basis of segmentation
In 2014, AECI revised its strategy and developed key growth
pillars. The Group’s businesses have been aligned in terms of these
pillars and internal reporting was altered to reflect this
realignment. The Group’s key growth pillars, which are its
reportable segments, are described below. Businesses in the pillars
offer differing products and services, and are managed separately
because they require different technology and marketing
strategies.
The following summary describes the operations of each
reportable segment.
Reportable segment |
Operations |
Mining Solutions |
The businesses in this pillar
provide a mine-to- metal |
|
solution for the mining sector
internationally. The |
|
offering includes commercial
explosives, initiating |
|
systems and blasting services right
through the value |
|
chain to chemicals for ore
beneficiation and tailings treatment. |
Water & Process |
Provides integrated water treatment
and process chemicals, |
|
and equipment solutions, for a
diverse range of applications |
|
in Africa. These include, inter
alia, public and industrial |
|
water, desalination and
utilities. |
Plant & Animal Health |
Manufacturer and supplier of an
extensive range of crop protection |
|
products, plant nutrients and
services for the agricultural sector |
|
In Africa |
Food & Beverage |
The businesses in this pillar supply
ingredients and commodities |
|
to the dairy, beverage, wine, meat,
bakery, health and nutrition |
|
industries. The other main activity
is the manufacture and |
|
distribution of a broad range of
juice-based products and drinks, |
|
including formulated compounds,
fruit concentrate blends and |
|
Emulsions. |
Chemicals |
Supply of chemical raw materials and
related services for use |
|
across a broad spectrum of customers
in the manufacturing |
|
and general industrial sectors. |
Property & Corporate |
Mainly property leasing and
management in the office, industrial and |
|
retail sectors, and corporate centre
functions including the treasury. |
|
|
There are varying levels of integration between the segments.
This includes transfers of raw materials and finished goods, and
property management services. Inter-segment pricing is determined
on terms that are no more and no less favourable than transactions
with unrelated external parties.
Information relating to reportable segments
Information relating to each reportable segment is set out
below. Segmental profit from operations is used to measure
performance because management believes that this information is
the most relevant in evaluating the results of the respective
segments relative to other entities that operate in the same
industries. The comparative figures have been restated to reflect
the revised operating segments.
|
Audited |
Audited |
|
Restated |
|
R millions |
2017 |
2016 |
External revenue |
|
|
Mining Solutions |
9 643 |
9 856 |
Water & Process |
1 409 |
1 368 |
Plant & Animal Health |
2 479 |
2 496 |
Food & Beverage |
1 190 |
1 121 |
Chemicals |
3 445 |
3 427 |
Property & Corporate |
316 |
328 |
Inter-segment |
— |
— |
|
18 482 |
18 596 |
Profit/(loss) |
|
|
from operations |
|
|
Mining Solutions |
1 097 |
911 |
Water & Process |
182 |
159 |
Plant & Animal Health |
133 |
172 |
Food & Beverage |
64 |
13 |
Chemicals |
365 |
394 |
Property & Corporate |
(262) |
(314) |
|
1 579 |
1 335 |
Operating assets |
|
|
Mining Solutions |
6 308 |
6 216 |
Water & Process |
1 228 |
1 150 |
Plant & Animal Health |
1 664 |
1 558 |
Food & Beverage |
819 |
862 |
Chemicals |
2 244 |
2 117 |
Property & Corporate |
778 |
555 |
|
13 041 |
12 458 |
|
Audited |
Audited |
|
Restated |
|
R millions |
2017 |
2016 |
Inter-segment |
|
|
revenue |
|
|
Mining Solutions |
75 |
82 |
Water & Process |
45 |
40 |
Plant & Animal Health |
64 |
44 |
Food & Beverage |
5 |
1 |
Chemicals |
119 |
121 |
Property & Corporate |
90 |
82 |
Inter-segment |
(398) |
(370) |
|
— |
— |
Depreciation and |
|
|
amortisation |
|
|
Mining Solutions |
424 |
437 |
Water & Process |
50 |
53 |
Plant & Animal Health |
12 |
10 |
Food & Beverage |
15 |
17 |
Chemicals |
71 |
82 |
Property & Corporate |
25 |
27 |
|
597 |
626 |
Operating liabilities |
|
|
Mining Solutions |
1 730 |
1 557 |
Water & Process |
277 |
218 |
Plant & Animal Health |
1 089 |
1 087 |
Food & Beverage |
259 |
252 |
Chemicals |
798 |
693 |
Property & Corporate |
150 |
341 |
|
4 303 |
4 148 |
|
Audited |
Audited |
|
Restated |
|
R millions |
2017 |
2016 |
Total segment |
|
|
revenue |
|
|
Mining Solutions |
9 718 |
9 938 |
Water & Process |
1 454 |
1 408 |
Plant & Animal Health |
2 543 |
2 540 |
Food & Beverage |
1 195 |
1 122 |
Chemicals |
3 564 |
3 548 |
Property & Corporate |
406 |
410 |
Inter-segment |
(398) |
(370) |
|
18 482 |
18 596 |
Impairments |
|
|
Mining Solutions |
10 |
54 |
Water & Process |
— |
— |
Plant & Animal Health |
— |
— |
Food & Beverage |
— |
28 |
Chemicals |
3 |
— |
Property & Corporate |
— |
— |
|
13 |
82 |
Capital expenditure |
|
|
Mining Solutions |
435 |
298 |
Water & Process |
21 |
8 |
Plant & Animal Health |
64 |
29 |
Food & Beverage |
11 |
14 |
Chemicals |
42 |
78 |
Property & Corporate |
131 |
75 |
|
704 |
502 |
Operating assets comprise property, plant and equipment,
investment property, intangible assets, goodwill, inventories,
accounts receivable and assets classified as held for sale.
Operating liabilities comprise accounts payable.
Other salient features
|
Note |
2017 |
2016 |
R millions |
|
Audited |
Audited |
Capital expenditure |
|
704 |
502 |
— expansion |
|
288 |
183 |
— replacement |
|
416 |
319 |
Capital commitments |
|
405 |
233 |
— contracted for |
|
119 |
62 |
— not contracted for |
|
286 |
171 |
Acquisitions authorised and
contracted for |
6 |
4 173 |
— |
Future rentals on leased property,
plant and |
|
|
|
equipment |
|
367 |
443 |
— payable within one year |
|
116 |
123 |
— payable thereafter |
|
251 |
320 |
Net borrowings |
|
424 |
297 |
Depreciation and amortisation |
|
597 |
626 |
Gearing (%)??* |
|
5 |
3 |
Current assets to current
liabilities |
|
1,7 |
1,9 |
Net asset value per ordinary share
(cents) |
|
8 399 |
8 107 |
ZAR/US$ closing exchange rate
(rand) |
|
12,31 |
13,73 |
ZAR/US$ average exchange rate
(rand) |
|
13,31 |
14,72 |
* Borrowings less cash, as a percentage of equity.
Notes
(1) (a)Basis of preparation and accounting policies
The summarised consolidated financial results are prepared in
accordance with the requirements of the JSE Limited’s Listings
Requirements (“Listings Requirements”) for provisional reports and
the requirements of the Companies Act of South Africa applicable to summarised
financial statements. The Listings Requirements require provisional
reports to be prepared in accordance with the framework concepts
and the measurement and recognition requirements of International
Financial Reporting Standards (“IFRS”); the South African Institute
of Chartered Accountants Financial Reporting Guides as issued by
the Accounting Practices Committee; Financial Pronouncements as
issued by the Financial Reporting Standards Council; and to also,
as a minimum, contain the information required by IAS 34 Interim
Financial Reporting.
The accounting policies applied in the preparation of the
audited consolidated financial statements, from which the
summarised consolidated financial results were derived, are in
terms of IFRS and are consistent with those applied in the previous
consolidated financial statements. New standards adopted did not
have a material effect on the financial results.
The preparation of these summarised consolidated financial
results for the year ended 31 December
2017 was supervised by the Financial Director, Mr KM Kathan
CA(SA) AMP (Harvard).
(b) Financial statements preparation and independent auditThe
summary report is extracted from audited information but is itself
not audited.
The financial statements were audited by KPMG Inc. which
expressed an unmodified opinion thereon.
The audited financial statements and the auditor’s report
thereon are available for inspection at the Company’s registered
office. The Company’s Directors take full responsibility for the
preparation of the provisional report and for the financial
information having been extracted correctly from the underlying
financial statements.
The summarised consolidated financial results do not include all
of the disclosures required for full financial statements and
should be read in conjunction with the consolidated annual
financial statements for the year ended 31
December 2017.
(2) Revenue includes foreign and export revenue of R6 236
million (2016: R6 479 million).
(3) Impairment of plant and equipment
During the year the Directors performed a detailed impairment
assessment in respect of the property, plant and equipment of
operations in Mozambique included
in the Mining Solutions operating segment. The recoverable amounts
in respect of the cash generating unit was estimated based on the
greater of its value in use and fair value less costs of
disposal.
As a result, a decision was taken to impair the assets in
Mozambique following unsuccessful
attempts to secure the necessary explosives licences.
An impairment loss of R10 million was recognised on the assets,
which represented the net book value of these assets.
(4) Impairments recognised by equity-accounted investee
During the year Crest Chemicals (“Crest”), which is 50% owned by
the Group and treated as an equity-accounted investee, lost a key
customer and this compromised the future of Crest’s caustic soda
business. The Directors performed a detailed impairment assessment
in respect of the cash generating unit to which the lost business
related, resulting in an impairment loss being recognised by
Crest.
The impact of this on the Group is a reduction of the share of
profits received from the equity-accounted investee to the value of
R54 million.
(5) Investment in unlisted shares
In July 2017 AECI invested
US$5 million (R65 million) in Origin
Materials (“Origin”), a start-up company based in California, USA, that has pioneered the
development of bio-based chemicals which can be processed into a
large number of products for application in global markets. Origin
is considered to be a level 3 available-for-sale financial
asset.
The Group has applied the IAS 39 exemption (paragraph 46c) and
carries the investment at cost. Included in the unlisted shares is
a R22 million investment in the Good Chemistry Fund, which is also
considered to be a level 3 available-for-sale financial asset.
(6) Events after the reporting date
AECI Mauritius Limited, a wholly-owned subsidiary of AECI,
acquired 100% of the share
capital in Schirm GmbH and shareholder loan claims from Imperial
Chemical Logistics GmbH
(“ICL”), a wholly-owned subsidiary of Imperial Holdings Limited.
The effective date of this transaction was 30 January 2018. As part of the acquisition,
Schirm GmbH acquired the contract manufacturing service business of
ICL, and a property in Wolfenbüttel, Germany (collectively, “Schirm”). On
17 January 2018, all conditions
precedent to the transaction
had been fulfilled and the transaction became unconditional. The
financial results of Schirm will be consolidated from the effective
date as part of the Group’s Plant & Animal Health segment.
However, Schirm will operate as a stand-alone entity.
The purchase consideration of the transaction was €128,4 million
(R1,901 billion), subject to certain adjustments based on the
closing accounts, and was settled in cash on the effective
date.
AECI already has well-established businesses in Africa, South East
Asia, the USA and
Australia. Domestic and
international growth in the areas of Mining Solutions, Water &
Process, Plant & Animal Health, Food & Beverage, and
Chemicals is a strategic focus. The acquisition of Schirm is in
line with the Company’s international expansion strategy as Schirm
is a market leader in the provision of formulation services for
agrochemicals in Europe; it has
long-standing customer relationships with its blue-chip customer
base; it has invested substantially in capital expenditure over the
past two years and it is expected that this investment will enable
significant revenue growth as well as cost efficiencies.
Furthermore, there are potential synergies associated with the
extension of Schirm’s manufacturing expertise to AECI as well as
expansion and supply chain opportunities for the Group’s existing
Plant & Animal Health pillar.
This includes opportunities for AECI to replace some of the raw
materials it currently imports from third parties; enhanced
geographic and product diversity for AECI’s wider Chemicals
portfolio; synergistic benefits associated with differing seasonal
demand cycles in the northern and southern hemispheres; and
currency diversification for AECI.
The initial accounting for the business combination has not been
completed. As a result it was impracticable for certain IFRS 3
Business Combinations disclosures to be made.
The Group has entered into an agreement with Capitalworks
Private Equity, MIC Investment Holdings Proprietary Limited and the
Much Asphalt management team to acquire 100% of the issued share
capital in Much Asphalt, for a total consideration of R2,272
billion which is payable in cash, subject to the conditions
precedent being fulfilled.
Apart from the above, no other events after the reporting date
occurred that may give rise to further disclosures or reported
figures.
(7) Assets classified as held for sale
The disposal of Olive Pride, a
business that was part of the Food & Beverage operating segment
and which was classified as held for sale at 31 December 2016, was completed on 1 April 2017. The assets disposed of were
transferred initially to a separate legal entity, Clover Pride
Proprietary Limited (“Clover Pride”), that was wholly-owned by the
Group through its subsidiary Southern Canned Products Proprietary
Limited. Subsequent to the transfer of the assets, the interest in
Clover Pride was distributed to the Company as a dividend in
specie.
The shareholding in Clover Pride was then reduced through the
sale of a 51% stake to Clover S.A. Proprietary Limited for a total
consideration of R30 million.
The Group’s remaining 49% stake in Clover Pride is treated as an
equity- accounted investee in terms of IAS 28 Investments in
Associates and Joint Ventures, and it is part of the Food &
Beverage segment.
The carrying amount of total assets sold was:
|
2016 |
2017 |
2017 |
R millions |
At 31 Dec |
Movements |
At 1 April |
Goodwill |
27 |
1 |
28 |
Property, plant and equipment |
1 |
1 |
|
Intangible assets |
21 |
21 |
|
Inventory |
11 |
(3) |
8 |
Assets classified as held for
sale |
60 |
(2) |
58 |
Exchanged for: |
|
|
|
— trade loan with associate |
|
|
4 |
— investment in associate |
|
|
24 |
Proceeds on disposal |
|
|
30 |
Surplus/(shortfall) on disposal |
|
|
— |
(8) Contingent liabilities
The investigation process undertaken by the Competition
Commission of South Africa (“the
Commission”) in 2014, into collusion by Akulu Marchon (“Akulu”) and
a competitor, was concluded. Both parties concluded separate
settlement agreements with the Commission. Akulu made a payment of
the penalty of R13 905 600 on 30 October
2017. Akulu also agreed to and implemented behavioural
remedies which will be applied across the Group.
The Group is involved in various legal proceedings and is in
consultation with its legal counsel, assessing the outcome of these
proceedings on an ongoing basis. As proceedings progress, the
Group’s management makes provision in respect of legal proceedings
where appropriate. Litigations, current or pending, are not likely
to have a material adverse
effect on the Group.
(9) The Group entered into various sale and purchase
transactions with related parties in the Group in the ordinary
course of business, the nature of which is consistent with those
previously reported. Those transactions were concluded on terms
that are no more and no less favourable than transactions with
unrelated external parties. All transactions and balances with
these related parties have been eliminated appropriately in the
consolidated results.
(10) The Group measures forward exchange contracts at fair value
(amounting to a net liability of R66 million) using inputs as
described in level 2 of the fair value hierarchy. The fair values
for forward exchange contracts are based on quotes from brokers.
Similar contracts are traded in an active market and the quotes
reflect the actual transactions on similar instruments. Forward
exchange assets and liabilities amounted to R43 million and R109
million, respectively. Other financial assets and financial
liabilities, carried at fair value through profit or loss, amounted
to R155 million and R29 million respectively, using inputs
described in level 1 and level 3 respectively of the fair value
hierarchy.
There were no transfers between levels 1, 2 or 3 of the fair
value hierarchy during the year ended 31
December 2017.
Commentary
Financial performance
AECI delivered a most pleasing result for 2017, due largely to a
strong performance in the last quarter of the year. Positive
contributors were a recovery in the global resources sector, the
benefits of the Group’s diversification strategy and disciplined
cost control. Negative factors included the effects of severe
drought conditions in the Western Cape and other Southern Africa regions on agriculture and the
water treatment industry, the stronger ZAR/US dollar exchange rate
(particularly around year-end) and sluggish economic growth in
South Africa which led to the
local manufacturing sector contracting further.
Earnings per share (“EPS”) increased by 22% from 735 cents to 900
cents. In the prior year EPS was negatively affected by the
R54 million (40 cents per share)
impairment of assets deployed in the local coal mining sector.
Headline earnings improved from R864 million last year to R1 012
million, in line with the 17% growth in headline earnings per share
(“HEPS”) to 959 cents (2016:
818 cents). HEPS in 2016 was impacted
by the settlement cost (non-cash) of AECI’s post-retirement medical
aid liability. In 2017, costs associated with the completion of two
acquisitions had an effect on HEPS.
The Board has declared a final gross cash dividend of
340 cents per ordinary share, an
increase of 13% from 2016’s 300 cents
per share, bringing the total dividend for the 2017 financial year
to 478 cents, 10% higher than the
prior year’s 435 cents.
A South African dividend withholding tax of 20% will be
applicable to the final dividend, resulting in a net dividend of
272 cents per share payable to those
shareholders who are not eligible for exemption or reduction.
Safety
Tragically, a fatality occurred on 26
July 2017. Mr Yandisa Nondlwana, a contractor tanker driver
who was delivering molten sulphur to the Chloorkop site on behalf
of a supplier, succumbed to injuries he sustained when he fell from
the top of the tanker while in the process transferring the
product.
AECI’s aspiration remains zero harm to employees and
contractors.
The Total Recordable Injury Rate (“TRIR”) was 0,39 (2016: 0,45),
a good overall improvement. The TRIR measures the number of
incidents per 200 000 hours worked.
Segmental performance
Mining Solutions
This segment comprises explosives (AEL Mining Services) and
mining chemicals (Experse and Senmin).
Revenue declined by 2,2% to R9 718 million (2016: R9 938
million), due mainly to lower ammonia prices for most of the year
and a stronger rand against the US dollar. More than 50% of revenue
in this segment is US dollar based. Profit from operations improved
significantly to R1 097 million – 20,4% ahead of last year’s R911
million as a result of volume growth and a more favourable product
mix in the segment as a whole. The operating margin also improved
from 9,2% to 11,3%.
Explosives
Overall bulk explosives volumes increased by 6,5% and by 1,7%
for initiating systems.
In South Africa, explosives
volumes were 4,8% higher with robust demand in the second half-year
from customers in the surface coal, iron ore and platinum mining
sectors. Underground gold and platinum mining customers remained
under significant cost pressure and there were several mine
closures. The conclusion of a number of corporate actions will see
consolidation of mine ownership in the underground market in 2018.
Volumes of initiating systems grew by 1%.
In the rest of Africa,
explosives volumes grew by 5,2%. Higher copper prices benefited the
business in Central Africa while
the West African gold mining sector came under pressure as
customers mined their stock piles. Deployment to service new
business gained in the first half of the year commenced in the last
quarter.
Volumes in the Asia Pacific
region were 12,5% higher year-on-year on the back of higher demand
from coal mining customers and additional contracts secured. The
businesses in Indonesia and
Australia were profitable and cash
generative.
Mining chemicals
The mining chemicals businesses delivered a solid
performance. There was good growth in surfactants, with
improved conditions in the mining sector. Senmin’s export sales did
not recover in full, primarily as a result of the key distributor
losing market share in its market. In South Africa, Senmin grew in line with the
improvement in mining output.
Overall mining chemicals volumes declined by 1,3%. Senmin’s R90
million xanthates expansion project is progressing well and
commissioning is expected in the second half of 2018.
Water & Process (ImproChem)
Revenue of R1 454 million was 3,2% higher (2016: R1 408 million)
and profit from operations grew by 14,2% to R182 million (2016:
R159 million). Growth in the South African core market was
curtailed by poor conditions in the manufacturing sector and
drought effects in the Western Cape.
In the rest of Africa, pleasing
progress continued to be made in the public water and industrial
sectors. 30% of ImproChem’s total revenue is now generated in other
African countries.
Four contracts for the installation of desalination plants for
industrial customers in the Western Cape were secured for 2018.
ImproChem also continued to supply containerised water plants to
communities living in areas where access to potable water is a
challenge.
Plant & Animal Health (Nulandis)
Revenue was flat at R2 543 million (2016: R2 540 million).
Profit from operations declined by 22,9% to R133 million (2016:
R172 million), primarily as a consequence of the drought in the
Western Cape and the stronger rand exchange rate. Drought effects
also had an impact on Farmers Organisation in Malawi.
The investment in the calcium nitrates and ammonium nitrates
plant at Modderfontein was completed and Nulandis recorded robust
growth in its bulk nutrition division.
Biocult’s trials in both the US and Canada were successful and the next phase of
the expansion programme will be pursued following regulatory
approval.
Food & Beverage (Lake Foods and Southern Canned Products
(“SCP”)) Revenue of R1 195 million was 6,5% higher than 2016’s R1
122 million. Profit from operations was R64 million (2016: R13
million). In the prior year, goodwill relating to the poultry
business was impaired at a cost of R28 million.
Lake Foods’ food additives and perlite filtration divisions
performed well. Solid progress was made in implementing the
strategy to grow the formulated juice business and to focus less on
trading activities. A site adjacent to SCP’s current Cape Town operations was acquired for the
expansion of warehousing and distribution facilities. It is
intended that all Food & Beverage activities in the Western
Cape will ultimately be consolidated on that site.
Chemicals (Chemfit, Chemical Initiatives, ChemSystems,
Industrial Oleochemical Products, SANS Technical Fibers)
Revenue was flat at R3 564 million (2016: R3 548 million) and
profit from operations of R365 million declined by 7,2% (2016: R394
million). The main contributors to this decline were the closure of
Huntsman Tioxide at the end of 2016, with a negative R25 million
impact on contribution, and the sharp strengthening of the local
currency against the US dollar at year-end.
In a poor trading environment, overall volumes in this diverse
portfolio of businesses increased by 1% while operating margins
remained robust at 10,2% (2016: 11,1%). The segment remained highly
cash generative.
In 2016, the Group earned R28 million from its joint ventures
and associates. No earnings were received in 2017 as a result of a
R54 million impairment of Crest Chemicals’ caustic soda business.
Crest Chemicals is a 50% joint venture with Brenntag AG.
Property & Corporate
The revenue base of Group’s remaining property activities
comprises mainly the leasing of buildings at Modderfontein
(Gauteng) and Umbogintwini (KwaZulu-Natal), as well as the
provision of utilities and services at the multi-user Umbogintwini
Industrial Complex.
Revenue from these activities was R406 million. The R410 million
earned in the prior year included the once-off sale of land that
remained available for redevelopment at the Group’s Somerset West
site.
Net corporate costs declined to R262 million (2016: R314
million). In 2016, these corporate costs included R149 million in
part settlement of the Group’s post-retirement medical aid
liabilities. Included in the current year was R105 million for
transaction costs associated with the acquisition of Much Asphalt
and Schirm.
Cash utilisation
R1 221 million was generated by the Group’s operating activities
(2016: R1 940 million). The year-on-year decline was attributable
mainly to cash outflow in respect of working capital. Higher levels
of working capital resulted from the extension of credit terms by
certain global customers and higher than usual sales in the last
quarter of the year.
Accounts receivable increased to R3 793 million (2016: R3 342
million) as a consequence.
Fixed capital expenditure was R704 million (2016: R502 million),
of which R288 million was for expansion. Key capital projects
included the statutory shutdown of AEL Mining Services’ No. 11
Nitric Acid plant at Modderfontein, investments in support of
business expansion in the rest of Africa, and the Nulandis and Food &
Beverage investments.
Cash interest cover was robust at 13 times (2016: 10,9 times),
while cash interest paid declined to R167 million (2016: R183
million). The Group continued repatriating dividend proceeds, net
of withholding taxes, from its subsidiaries.
Acquisitions and investments
Two significant acquisitions were announced in the last quarter.
Both are in pursuit of the Group’s strategy to accelerate its
growth by expanding into new markets and diversifying its
geographic footprint.
The acquisition of Schirm, for a consideration of €128,4 million
from Imperial Holdings, became effective on 30 January 2018. Schirm, based in Germany, is a contract manufacturer of
agrochemicals and fine chemicals with a European and US footprint.
It is the largest provider of external agrochemical formulation
services in Europe. The business
is being integrated and the initial accounting for the business
combination is in progress. It will operate as a standalone entity
in the Plant & Animal Health segment.
The acquisition of Much Asphalt from Capitalworks Private Equity
and its partners is awaiting approval from South Africa’s
competition authorities. Much Asphalt is South Africa’s leading
manufacturer and supplier of hot and cold mix asphalt products, and
a manufacturer, supplier and applicator of bituminous road binders,
emulsions, primes, pre-coats and modified binders. This business
will be integrated into the Chemicals segment.
Also in line with its pursuit of accelerated growth through
diversification, the Group made a strategic investment of
US$5 million (R65 million) in Origin
Materials (“Origin”).
Origin is a privately-owned company in the US with new
technology in renewable chemicals.
R22 million has been invested in the newly established Good
Chemistry Fund. The objective of the Fund is to facilitate
enterprise and supplier development for Black entrepreneurs in
South Africa generally and for the
chemical industry supply chain in particular.
Changes to the Board
Moses Kgosana and Liziwe Mda resigned as Non-executive Directors
of the Company on 29 September 2017
and 27 November 2017, respectively.
The Board thanks them for their contribution to the affairs of the
Company and the Board during their tenure.
Outlook and strategic focus
The recent changes in South Africa’s political environment have
created a more positive sentiment in terms of the country’s
political and economic outlook. Business and investor confidence is
improving in line with this, as is the prospect of higher GDP
growth going forward.
Global commodity prices have increased due to stronger demand
and chemical prices have increased on the back of higher oil
prices.
This more favourable environment should present opportunities
for AECI’s diverse portfolio of businesses. At the same time the
focus will be on the integration of the new businesses, Schirm and
Much Asphalt, into the Group and ensuring that they deliver to
expectations.
Together, these acquisitions represent an investment of more
than R4 billion. The management of cash and the control of costs
will continue to be managed very closely to ensure that the
Company’s balance sheet remains strong.
The rate of exchange of the rand against the US dollar and
uncertain weather patterns are two key factors that could have an
important effect on the current year's performance.
Khotso Mokhele |
Mark Dytor |
Chairman |
Chief Executive |
Woodmead, Sandton
27 February 2018
Directors: KDK Mokhele (Chairman), GW Dempster, MA Dytor (Chief
Executive), Z Fuphe,
G GomweD*, KM Kathan (Executive), AJ Morgan, R Ramashia.
* Zimbabwean
Group Company Secretary: EN Rapoo
Notice to shareholders
Declaration of final ordinary cash dividend No. 168
Notice is hereby given that on Monday, 26
February 2018, the Directors of AECI declared a gross final
cash dividend of 340 cents per share
in respect of the financial year ended 31
December 2017. The dividend is payable on Monday,
9 April 2018 to holders of ordinary
shares recorded in the register of the Company at the close of
business on the record date, being Friday, 6
April 2018.
The last day to trade “cum” dividend will be Tuesday,
3 April 2018 and shares will commence
trading “ex” dividend as from the commencement of business on
Wednesday, 4 April 2018.
A South African dividend withholding tax of 20% will be
applicable to all shareholders who are not either exempt or
entitled to a reduction of the withholding tax rate in terms of a
relevant Double Taxation Agreement, resulting in a net dividend of
272 cents per share payable to those
shareholders who are not eligible for exemption or reduction.
Application forms for exemption or reduction may be obtained
from the Transfer Secretaries and must be returned to them on or
before Tuesday, 3 April 2018.
The issued share capital at the declaration date is 121 829 083
listed ordinary shares, 10 117 951 unlisted redeemable convertible
B ordinary shares and 3 000 000 listed cumulative preference
shares. The dividend has been declared from the income reserves of
the Company.
Any change of address or dividend instruction must be received
on or before Tuesday, 3 April
2018.
Share certificates may not be dematerialised or rematerialised
from Wednesday, 4 April 2018 to
Friday, 6 April 2018, both days
inclusive.
By order of the Board
E N Rapoo
Group Company secretary
Woodmead, Sandton
27 February 2018
Transfer secretaries
Computershare Investor Services Proprietary Limited Rosebank
Towers, 15 Biermann Avenue,
Rosebank, 2196
and
Computershare Investor Services PLC
PO Box 82, The Pavilions, Bridgwater Road, Bristol BS 99 7NH,
England
Registered Office
First floor, AECI Place, 24 The Woodlands, Woodlands Drive,
Woodmead, Sandton, 2196
Sponsor
Rand Merchant Bank (A division of
FirstRand Bank Limited)
1 Merchant Place, Cnr Fredman Drive and Rivonia Road, Sandton,
2196