South African chemicals and explosives company AECI on Tuesday reported a 23% increase in headline earnings per share to 482 cents for the year ended December 2005, from 392 cents a year ago. On a fully diluted basis, headline earnings per share were 473 cents from 383 cents per share.
An increased final dividend of 121 cents per share was declared from 94 cents a year ago. This brought the total dividend for the year to 175 cents from 138 cents previously.
The group’s revenue was up by 11% to R8,768-billion, while net attributable profit rose to R486-million from a previous R283-million.
The group said restructuring costs equivalent to 15 cents per share were incurred, compared with 27 cents per share in 2004.
Sales revenue was bolstered in part by additions to the Chemical Services (Chemserve) portfolio. Demand from the local mining and manufacturing sectors continued to improve from the second quarter in response to strong export markets and a somewhat weaker rand exchange rate against the dollar.
Gross margins were largely maintained despite the effect of high oil prices on many raw-material costs. The ongoing containment of operating costs enabled a further increase in the overall trading margin to 10,1% of sales from 9,4% in 2004, the group said.
In African Explosives, an outstanding performance by operations elsewhere in Africa more than offset the effects of a continuing decline in gold-mining activity in South Africa. Local margins were pressured by the lagged recovery of steep increases in ammonia costs.
State-subsidised initiators from China continued to have a limited volume impact on some sectors of the South African initiating systems market during the year, but contributed to extreme resistance to price adjustments by some gold-mining customers.
Commissioning of the first phase of automated production of initiating systems at Modderfontein is expected in the first half of 2006, it said.
DetNet, the 50:50 joint venture with Dyno Nobel ASA, recorded an improved result for the period with accelerating international sales of the new-generation electronic detonator in the second half of the year.
Chemserve again experienced varied trading conditions with buoyant growth in demand from suppliers to local markets, outpacing that from export-dependent sectors.
Highlights included a remarkable turnaround in automotive coatings following restructuring and new alliances with strong technology partners, an outstanding performance by the polyurethanes business, and a pleasing contribution from Chemiphos, the food-grade phosphate business acquired in May 2005, AECI added.
Restructuring costs of R15-million were incurred in the period, and the benefits of these and other actions are expected to enhance further the performance of the specialty chemicals portfolio in 2006.
SANS Fibres delivered a much improved result for the year with higher margins on dollar-based sales to international markets supported by the disciplined containment of local manufacturing costs. Customer accreditation of new products such as airbag yarns has proved a longer process than envisaged, and significant sales of such products are not expected before 2007.
The outlook for sales volumes and margins of existing products to international markets is positive, AECI said.
However, SANS’s performance will continue to be sensitive to this dollar-based business until the programme of initiatives to reduce this exposure is further advanced.
Dulux again achieved excellent results in South Africa from significantly higher sales volumes of its premium branded products, despite the impact of escalating raw-material costs on margins. Profits from its export and African operations were lower due to currency effects and unfavourable market conditions.
The property activities of Heartland delivered impressive profits and cash flow in supportive market conditions. Further substantial sales of land for residential, commercial and light industrial use were recorded at Modderfontein, Somerset West and Umbogintwini.
Net capital expenditure of R339-million during the year was R127-million higher than the depreciation charge. The investments comprised mainly expansion projects in AEL and Chemserve, which company in addition acquired five businesses to the value of R207-million.
The empowerment transaction involving the sale of a 25,1% equity interest in ImproChem, a Chemserve business, to the Tiso Group became effective in September 2005. Chemserve also completed the acquisition of JE Orlick and Associates in October 2005 and announced the acquisition of Leochem, a producer of personal-care intermediates, for a consideration of R100-million. This transaction will take effect in March this year.
The packaging coatings business has been included in the specialty chemicals segment of the portfolio, and the site services business at Umbogintwini is reported under property instead of group services.
Looking ahead, AECI said the prevailing environment of gross domestic product growth, firm commodity prices and rand exchange rate accompanied by low inflation and interest rates is not expected to change materially in the year ahead, and the group’s portfolio of businesses is well positioned to benefit in these conditions, AECI said.
The extent of land available for sale during 2006 will be lower than in 2005. Nonetheless, provided the rand exchange rate does not strengthen substantially from the 2005 average, management is again targeting an increase in headline earnings for the full financial year. — I-Net Bridge