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Financial results 2005
Presentation to investors, analysts and media
S
21 and 22 February
2006
specialty product and service solutions
Summary
Pleasing performance with all operations improving
against prior year
Headline earnings +23% to new record of 482 cents per
share. Dividend +27%
Headline earnings include restructuring charges
equivalent to 15 cents per share (2004 - 27 cents)
Sound balance sheet in spite of expansion capital ahead
of depreciation, acquisitions in Chemserve, call options
over 2.95 million shares, and higher working capital
Volumes, in aggregate, higher boosted by strong local
demand in some sectors
specialty product and service solutions
SHE issues
Major environmental remediation underway at Somerset West
approx. 250 000t of contaminated soil moving to mono-cell
at approved disposal site at Vissershok
bulk of work by June ’06 at total cost of R80m
Significant reduction in risk circles at Umbogintwini
mainly through R20m investment in handling and storage
of sulphur dioxide
specialty product and service solutions
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TRIR
2005 Total Recordable Incident Rate
2005 Total Recordable Incident Rate
2.5
2
1.5
1
0.5
0
specialty product and service solutions
Business environment
Low inflation and interest rate environment
Strong consumer-driven demand boosted the economy,
confidence remained high and retail, housing and
automotive saw healthy growth in demand
Commodity prices, including oil, remained high but stable
currency restricted inflationary pressures
Local manufacturing benefited from consumer spending
Higher commodity prices assisted the resources sector,
gold mining recovered somewhat on back of higher prices
and platinum miners announced new projects
specialty product and service solutions
Chemical industry
Global industry no benchmark for AECI
portfolio of customer focused specialty product and
service solutions businesses, operating in global and
regional niche markets
But purchase large volumes of chemical raw materials
from a diversified geographical base
2005: significant profit improvements for industry, as
companies used operating leverage to boost prices
Prolonged high cost of natural gas and higher crude oil
prices, supply and demand imbalances and hurricanes off
the Gulf Coast, led to “cycles within the cycle”
China still a factor in demand/supply for vast range of
products, and an investment base for multinationals
specialty product and service solutions
Results for 2005
500
HEPS +23%
Revenue-weighted
volumes +2%
Headline
earnings per
share (cents)
450
400
350
TP Margin 10.1%
(9.4%)
300
2002
2003
2004
2005
11
TP +19%
Foreign sales +21%
in rand
10
Trading
margin (%)
9
8
7
specialty product and service solutions
2001 2002 2003 2004 2005
Financial
Chemserve acquisitions R207m
Capex R339m, R127m higher than
depreciation charge; AEL and CSL
expansions
WC 15.6% at year-end, compared
to 12.0% in ’04 and 14.2% in ’03
Borr
1200
50
1000
40
Purchased call options over 2.95
million shares for cash premium of
R120m
800
Borrowings up by R183m to
R798m = gearing ratio of 27%
(23% at Dec ’04)
400
Cash interest cover up to 12 times
specialty product and service solutions
Gearing
30
600
20
10
200
0
0
'01
'02
'03
'04
'05
Share price
AECI share price
relative to JSE IND index
500
Relative rating to
industrials (at year-end) in
line with previous year, but
below 02/03 peak
400
300
200
Graph adjusted for R6 special
dividend (Nov ’99)
100
0
'98
'99
'00
'01
'02
'03
'04
specialty product and service solutions
'05
Economic empowerment
R1.6b AEL/Tiso transaction operational for full year
Tiso AEL Development Trust: focus on
• education support
• HIV/Aids effects on children
R850 000 invested in 2005
Tiso Group also acquired 25.1% equity interest from
Chemserve, for R94m, in ImproChem (water treatment
business), effective Sep ’05
specialty product and service solutions
Segmental trading profit (Rm)
450
400
350
300
250
200
150
100
50
0
-50
-100
R15m
restructuring
R33m
restructuring
R23m postemployment
medical aid
R28m provision
for remediation
Min sol
Sp chem
Sp fibres
2004
specialty product and service solutions
D coat
2005
Prop
Corp
®
Group EVA (Rm)
150
100
50
0
-50
-100
-150
Calculated at WACC of
15% for ’98 to ’03
14% for ’04
13% for ’05
-200
-250
-300
'98
'99
'00
specialty product and service solutions
'01
'02
'03
'04
'05
®
EVA by business (Rm)
2004
2005
100
75
50
25
0
-25
-50
Includes goodwill
at cost
-75
-100
-125
Min sol
Sp chem
specialty product and service solutions
Sp fibres
D coat
Other
Mining solutions
Revenue R2 314m (+8%); TP R257m (+21%)
margin 11.1% (9.9%)
restructuring: R33m charge recognised in previous period
TP +5% on restructured business, but trading margin -0.3
percentage points from extreme resistance to price
adjustments on initiators by some gold mining customers
lagged recovery of steep increases in ammonia costs
depressed margins
specialty product and service solutions
Mining solutions
Explosives volumes increased, but initiating systems
declined (gold)
Strong performance from rest of Africa, good growth in
West Africa, Botswana, Tanzania and Zambia
Fixed costs well controlled, with aggressive reduction
initiatives yielding significant results and somewhat
offsetting the decline in margins
Export of 36 000t of ammonium nitrate to Australia
completed
specialty product and service solutions
Mining solutions
Factory modernisation and automation programme
accelerated
First phase at cost of R75m near completion
Second phase of R100m approved
Designed for quality improvements, cost reductions and
new product offerings
Will be the most advanced facility of its kind in the world,
and release large portions of land for alternative use
specialty product and service solutions
Mining solutions
Imports of state-subsidised initiators from China continued
to have limited volume impact but contributed to priceadjustment resistance
Contained through a range of actions
ITAC revoked decision to investigate dumping of
Chinese shocktube
Commission adopted highly technical approach
Sasol classification
surrogate country
AEL will approach High Court to review Commission’s
decision
specialty product and service solutions
Mining solutions
DetNet progress
Product being sold in US, Australia and Chile; slowly gaining
confidence of the international market
JV operating well, and has not been affected significantly by
the sale of Dyno Nobel
Production being ramped up in accordance with global
demand and regional assembly is under consideration
specialty product and service solutions
Specialty chemicals
Revenue R3 826m (+14%); TP R412m (+6%)
margin 10.8% (11.5%)
maintained high trading margin trend, to validate robust
specialty chemical model
TP improved by 10% if restructuring charge of R15m
excluded; manufactured products margin improved but
margin of traded goods declined due to mix effects
Varied performances in portfolio with buoyant demand
from suppliers to local markets outpacing that from exportdependent sectors
specialty product and service solutions
Specialty chemicals
Excellent results from polyurethanes business; supplier to
white goods industry
AECI Coatings performance improved significantly;
alternative broad supplier technology alliance strategy
implemented; gained market share in growing automotive
coatings sector
Other; closed aluminium chemicals and LAB (small, nonviable) and vacated and sold Isithebe site (manufacturing
consolidation)
R130m expansion capital spent: Chevron water plant,
mining depressant plant, SMSA expansion and resins
specialty product and service solutions
CSL trading profit margin (%)
12
11
10
9
8
7
6
5
94
95
96
97
98
specialty product and service solutions
99
00
01
02
03
04
05
Specialty chemicals
Growth strategies
Acquisitions: R207m spent including Chemiphos and bolton Mineag, JLM, Orlik and Noble Industries.
Results as expected
Leochem (petroleum jelly) effective Mar ’06
New initiative: Brazil country strategy; agreement reached
to acquire 60% shareholding in oleo-chemical business for
R40m cash, subject to minority shareholder signature
Further, more substantial, specialty business being sought
as acquisition target and platform for product introductions
specialty product and service solutions
Specialty fibres
Revenue R1 619m (+2%); TP R32m (+R29m)
Contribution margin increased as dollar prices were adjusted to
cushion fluctuating raw material prices
Volumes declined by 5% due to weak polyester LDI sales, but
outlook for ’06 much better
US JV improved further and produced profit of $1.5m; good
volume growth
Continued solid demand for PET; debottlenecking on track to
supply future growth
specialty product and service solutions
Specialty fibres
Recovery plan
Original plan on track but influenced by persistent strong rand,
slow commercialisation of new products
Product development plan achieved and first order for airbag
yarn received
H2 2005 affected by productivity and efficiencies not up to
standard, lower margin exports in mix and quality issue
Asia Pacific will overtake US and EU as largest export market in
2006
specialty product and service solutions
Specialty fibres
Profit and exchange rate
12.0
120
100
11.0
R/$
PBIT
80
10.0
9.0
40
20
8.0
0
7.0
-20
6.0
-40
1H'02
2H'02
1H'03
specialty product and service solutions
2H'03
1H'04
2H'04
1H'05
2H'05
R/$
Rm
60
Decorative coatings
Revenue R648m (+6%); TP R59m (+16%)
margin 9.1% (8.4%)
best margin in recent history and continue to improve with
focus on branded sector
Exceptional performance in SA with volume and revenue
growth, in contrast to unfavourable market conditions
(Zimbabwe) and disappointing results from Botswana
and Namibia
New products and packaging launched; growing presence in
specialty stores and builders outlets
specialty product and service solutions
Property
Revenue R607m (+30%); TP R185m (+35%)
Includes R28m provision for environmental remediation
Healthy demand continued in all areas for commercial,
residential and retail sectors
Outstanding net cash flow of R270m
1 300ha of the original 3 700ha excess land available has
been sold (including 190ha in 2005)
specialty product and service solutions
Property
Gautrain issues, such as route, recognition of planned major
roads and width of rail reserve not yet finalised
Remediation at Milnerton started after last industrial activities
ceased
Depleted pipeline of land available for sale may curtail
contribution in 2006
specialty product and service solutions
Outlook
Positive outlook for domestic economy to continue
High commodity prices stimulate mining investments
Group to benefit from acquisition and investment activities
Less land available for sale in 2006
Strong currency hurts and slows SANS’ recovery
specialty product and service solutions