AECI Ltd · JSE:AFE
AECI — H1 2006 Earnings Presentation
26 slides from AECI's earnings presentation, Jul 26, 2006
Slide 1: Group interim financial results 2006
Group interim financial results 2006 S Presentation to investors, analysts and media 25 and 26 July 2006 specialty product and service solutions
Slide 2: Summary
Summary Mixed performance from portfolio; profits boosted by large property disposal Headline earnings +95%, with property sector contributing additional 180 cents per share. Dividend +19% Excellent result from Chemserve AEL (margin pressure) and SANS (power outages, operational efficiencies) disapp
Slide 3: Business environment
Business environment Much debate around currency weakness and volatility, high oil price sustained at record levels, increased inflation trends, current account deficit, risk aversion towards emerging markets and fears of further interest rate hikes Moderation in economic growth foreseen Local manuf
Slide 4: Results for 2006 H1
Results for 2006 H1 Headline earnings per share (cents) HEPS +95% 500 400 Volumes mixed; SANS disruptions, 300 acquisitions 200 100 Revenue +17%, and +12% excluding 0 '01 '02 '03 '04 '05 '06H1 acquisitions Trading margin (%) 13 TP margin 12.4% (9.3%) 12 11 10 TP +56% 9 8 Foreign sales +12% in rand 7
Slide 5: Financial
Financial Chemserve acquisitions R145m Capex R210m, R104m higher than Borr Gearing depreciation charge; AEL and CSL expansions 1400 50 WC inflated by Milnerton property 1200 40 sale; excluding this receivable WC 1000 was 18% compared to 17% end 800 30 June 2005; target remains 16% 600 20 Borrowings
Slide 6: Share price
Share price AECI share price relative to JSE Ind index 500 Relative rating to 400 industrials comparable with 04/05, but below 300 02/03 peak 200 Graph adjusted for R6 special 100 dividend (Nov ’99) 0 '98 '99 '00 '01 '02 '03 '04 '05 '06H1 specialty product and service solutions
Slide 7: Segmental trading profit (Rm)
Segmental trading profit (Rm) 300 250 200 150 100 50 0 -50 Min sol Sp chem Sp fibre Dec coat Prop Corp 05H1 06H1 specialty product and service solutions
Slide 8: Group EVA (Rm)
® Group EVA (Rm) 300 200 100 0 -100 Calculated CalculatedatatWACC WACCofof 15% 15%for for’98 ’98toto’03 ’03 14% for ’04 -200 14% for ’04 13% 13%for for’05 ’05and and’06 ’06 -300 '98 '99 '00 '01 '02 '03 '04 '05 '06 H1 specialty product and service solutions
Slide 9: EVA by business (Rm)
® EVA by business (Rm) 2005 2006 H1 250 200 150 100 50 0 -50 Includes Includesgoodwill goodwill -100 atatcost cost -150 Min sol Sp chem Sp fibres Dec coat Other specialty product and service solutions
Slide 10: Mining solutions
Mining solutions Revenue R1 153m (+6%); TP R105m (-9%) Margin 9.1% (10.7%) Ammonia prices remained high, contributed to margin squeeze Explosives and initiating systems volumes flat in SA Rest of Africa still growing, but pace has slowed Fixed costs well controlled, somewhat offsetting decline in ma
Slide 11: Mining solutions
Mining solutions Factory modernisation and automation programme progressing well First phase (cost = R75m) undergoing mechanical commissioning; second phase (R100m) approved and construction progressing well Designed for quality improvements, cost reductions and new product offerings Will be most ad
Slide 12: Mining solutions
Mining solutions Imports of state-subsidised initiators from China had detrimental effect on margins and, to lesser extent, volumes Contained through a range of actions AEL has approached the High Court to review ITAC’s decision to revoke its investigation AEL also finalising submission of a third p
Slide 13: Mining solutions
Mining solutions DetNet progress Product being sold in US, Australia and Chile; slowly gaining confidence of international market Volume ramp-up slower than expected but still growing steadily JV with the newly-listed Dyno Nobel working well; all parties remain committed to increasing rate of introd
Slide 14: Specialty chemicals
Specialty chemicals Revenue R2 082m (+23%); TP R210m (+19%) margin 10.1% (10.4%) About half of revenue increase from acquisitions Contribution margin squeezed by weakening and volatile currency, but trading margin maintained by good cost management Solid performances in portfolio; also benefiting fr
Slide 15: Specialty chemicals
Specialty chemicals Higher rate of capital investment continues with mining chemicals (CMC and Guar) plant commissioned in Sasolburg Sulphur dioxide storage and loading facility operational; significantly reduced risk circles at Umbogintwini Several additional capital investments to support mining c
Slide 16: Specialty chemicals
Specialty chemicals Growth strategies Acquisitions: R145m spent in period Leochem (petroleum jelly) effective March ’06 and Resitec (oleo-chemicals) April ’06 New initiative: Brazil country strategy; acquired 60% shareholding in oleo-chemical business for R43m cash; initial results as expected; inve
Slide 17: Specialty fibres
Specialty fibres Revenue R786m (-5%); TP -R28m (+R19m in 05H1) Recovery programme set back severely in Q1 by two power outages which impacted operations for weeks Insurance claim covered only part of the cost Output of polyester polymer and PET restricted following scheduled maintenance shutdown and
Slide 18: Specialty fibres
Specialty fibres Recovery plan Original plan on track but influenced by persistent strong rand, (break even now R6.20/$; averaged R6.10/$ for first four months) Price increases lag raw material surges and, locally, sudden weakness in rand creates short-term margin squeeze Product development plan ac
Slide 19: Specialty fibres
Specialty fibres Profit and exchange rate 120 12.0 100 11.0 PBIT R/$ 80 10.0 60 Rm R/$ 40 9.0 20 8.0 0 7.0 -20 -40 6.0 02H1 02H2 03H1 03H2 04H1 04H2 05H1 05H2 06H1 specialty product and service solutions
Slide 20: Decorative coatings
Decorative coatings Revenue R297m (+11%); TP R13m (unchanged) Good volume growth in low season in SA Margin depressed as price adjustments did not adequately cover raw material increases Continue to grow presence in specialty stores and builders’ outlets Acquired Sent Packing, small distributor of s
Slide 21: Property
Property Revenue R458m (+103%); TP R292m (+R224m) Includes sale of 61 ha Milnerton property for R260m, substantially exceeding previous expectations Stock of land immediately available for sale is limited 1 380 ha of the original 3 700 ha excess land available sold (including 81 ha in 2006) specialt
Slide 22: Property
Property Continued constructive discussions with Gautrain technical experts to resolve outstanding issues, such as bridges to connect planned routes Good progress with remediation at various sites, particularly Milnerton and Somerset West; expensed R37m against income and further R53m from provision
Slide 23: Post-employment costs
Post-employment costs AECI Pension Fund Trustees resolved to establish general reserve account of R750m To transfer amounts on regular basis to employer surplus account Will be used primarily to fund an allowance to pensioners over 65 equivalent to portion of medical aid contributions paid by Compan
Slide 24: Post-employment costs
Post-employment costs Effect will be to reduce the amount of medical aid contributions paid by Company on behalf of retired employees Value of post-employment medical aid benefit provision in balance sheet will also reduce Quantum to be finalised specialty product and service solutions
Slide 25: Outlook
Outlook Positive outlook for domestic manufacturing and mining sectors, particularly if rand remains at current levels supporting export and import competing sectors Group to benefit from acquisition and investment activities Less land available for sale in 06H2 Weaker currency assists SANS Fibres’
Slide 26: Calendar
Calendar 7 September: AEL presentation and visit to new automated detonator plant at Modderfontein 20 February 2007: release of 2006 full financial year results 20 February 2007: presentation in Johannesburg 21 February 2007: presentation in Cape Town specialty product and service solutions