Wrap Text
Condensed consolidated interim financial results and cash dividend declaration for the half-year ended 30 June 2018
AECI Limited
(Incorporated in the Republic of South Africa)
Registration number: 1924/002590/06
Tax reference number: 9000008608
Share code: AFE
ISIN: ZAE000000220
Share code: AFEP
ISIN: ZAE000000238
JSE Bond company code: AECI
(“AECI” or “the Company”)
Condensed consolidated unaudited interim financial results and
cash dividend declaration for the half-year ended 30 June 2018
Revenue
+24% to R10 473m
Profit from operations
+35% to R911m
HEPS
+19% to 458c
EBITDA
+28% to R1 258m
Acquisitions finalised
Improved to Level 3
B-BBEE Contributor
Interim cash dividend
+8% to 149cps
Income statement
2018
First
% half
R millions Note change Unaudited
Revenue 2 24 10 473
Net operating costs (9 562)
Profit from operations 35 911
Share of profit of equity-accounted investees,
net of tax 17
Profit from operations and equity-accounted
investees 33 928
Net finance costs (161)
Interest expense (171)
Interest received 10
Profit before tax 767
Tax expense (263)
Profit for the period 504
Profit for the period attributable to:
— Ordinary shareholders 483
— Preference shareholders 1
— Non-controlling interest 20
504
Headline earnings are derived from:
Profit attributable to ordinary shareholders 483
Impairment of goodwill —
Impairment of property, plant and equipment —
Impairments recognised by equity-accounted
investee —
Loss on disposal of equity-accounted investee —
Surplus on disposal of property, plant and
equipment —
Foreign currency translation differences
reclassified on net investments in foreign
operations —
Tax effects of the above items —
Headline earnings 483
Per ordinary share (cents):
Headline earnings 19 458
Diluted headline earnings 441
Basic earnings 19 458
Diluted basic earnings 441
Ordinary dividends declared 8 149
Ordinary dividends paid 340
Income statement
2017
First 2017
half Year
R millions Unaudited Audited
Revenue 8 478 18 482
Net operating costs (7 801) (16 903)
Profit from operations 677 1 579
Share of profit of equity-accounted investees,
net of tax 20 —
Profit from operations and equity-accounted
investees 697 1 579
Net finance costs (85) (167)
Interest expense (98) (202)
Interest received 13 35
Profit before tax 612 1 412
Tax expense (188) (429)
Profit for the period 424 983
Profit for the period attributable to:
— Ordinary shareholders 407 950
— Preference shareholders 1 3
— Non-controlling interest 16 30
424 983
Headline earnings are derived from:
Profit attributable to ordinary shareholders 407 950
Impairment of goodwill — 3
Impairment of property, plant and equipment — 10
Impairments recognised by equity-accounted investee — 54
Loss on disposal of equity-accounted investee 1 2
Surplus on disposal of property, plant and equipment (1) (8)
Foreign currency translation differences reclassified
on net investments in foreign operations — 18
Tax effects of the above items — (17)
Headline earnings 407 1 012
Per ordinary share (cents):
Headline earnings 386 959
Diluted headline earnings 377 915
Basic earnings 386 900
Diluted basic earnings 377 859
Ordinary dividends declared 138 340
Ordinary dividends paid 300 438
Statement of comprehensive income
2018 2017
First First 2017
half half Year
R millions Unaudited Unaudited Audited
Profit for the period 504 424 983
Other comprehensive income net of tax
Items that may be reclassified subsequently
to profit or loss:
— Foreign currency translation differences 294 (76) (212)
— Effective portion of cash flow hedges 9 1 (4)
Items that may not be reclassified
subsequently to profit or loss:
— Remeasurement of defined-benefit
obligations (15) (6) 11
Total comprehensive income for the period 792 343 778
Total comprehensive income attributable to:
— Ordinary shareholders 761 329 752
— Preference shareholders 1 1 3
— Non-controlling interest 30 13 23
792 343 778
Statement of changes in equity
2018 2017
First First 2017
half half Year
R millions Unaudited Unaudited Audited
Total comprehensive income for the period 792 343 778
Dividends paid (379) (342) (497)
Change in ownership percentage — 11 —
Adjustment on adoption of IFRS 9, net of
deferred tax (42) — —
Share-based payment reserve 2 (14) 29
Non-controlling interest acquired 27 — —
Equity at the beginning of the period 9 356 9 046 9 046
Equity at the end of the period 9 756 9 044 9 356
Made up as follows:
Ordinary share capital 110 110 110
Reserves 1 397 1 197 1 102
— Foreign currency translation reserve 1 167 1 016 883
— Other reserves 4 — (5)
— Share-based payment reserve 226 181 224
Retained earnings 8 073 7 591 8 022
Non-controlling interest 170 140 116
Preference share capital 6 6 6
9 756 9 044 9 356
Reconciliation of weighted average number of shares
2018 2017
First First 2017
half half Year
Millions Unaudited Unaudited Audited
Weighted average number of ordinary shares
at the beginning of the period 131,9 131,9 131,9
Weighted average number of unlisted
ordinary shares held by consolidated EST (10,1) (10,1) (10,1)
Weighted average number of contingently
returnable ordinary shares held by CEDT (4,4) (4,4) (4,4)
Weighted average number of shares held by
consolidated subsidiary (11,9) (11,9) (11,9)
Weighted average number of ordinary shares
for basic earnings per share 105,5 105,5 105,5
Dilutive adjustment for potential ordinary
shares 4,1 2,6 5,0
Weighted average number of ordinary shares
for diluted earnings per share 109,6 108,1 110,5
Statement of financial position
2018 2017 2017
At 30 Jun At 30 Jun At 31 Dec
R millions Note Unaudited Unaudited Audited
Assets
Non-current assets 11 493 7 368 7 365
Property, plant and equipment 5 525 3 925 3 965
Investment property 187 139 216
Intangible assets 177 200 188
Goodwill 3, 4 4 139 1 534 1 524
Pension fund employer surplus
accounts 454 497 487
Investments in associates 204 188 199
Investments in joint ventures 295 296 274
Other investments 122 29 117
Deferred tax 390 560 395
Current assets 9 733 7 754 8 606
Inventories 3 839 3 057 3 355
Accounts receivable 4 235 3 362 3 793
Other investments 164 153 155
Loans to joint ventures 55 — —
Tax receivable 129 117 97
Cash and cash equivalents 1 311 1 065 1 206
Total assets 21 226 15 122 15 971
Equity and liabilities
Equity 9 756 9 044 9 356
Ordinary share capital and
reserves 9 580 8 898 9 234
Non-controlling interest 4 170 140 116
Preference share capital 6 6 6
Non-current liabilities 1 864 2 390 1 614
Deferred tax 183 287 93
Non-current borrowings 1 100 1 601 1 100
Contingent consideration 36 60 29
Non-current provisions and
employee benefits 545 442 392
Current liabilities 9 606 3 688 5 001
Accounts payable 3 805 3 096 4 272
Current borrowings 3, 4, 5 5 620 471 530
Loans from joint ventures 44 67 130
Tax payable 137 54 69
Total equity and liabilities 21 226 15 122 15 971
Statement of cash flows
2018 2017
First First 2017
half half Year
R millions Unaudited Unaudited Audited
Cash generated by operations 1 353 1 102 2 350
Dividends received — 55 55
Interest paid (112) (95) (202)
Interest received 10 13 35
Tax paid (171) (269) (481)
Changes in working capital (789) (822) (358)
Cash outflows relating to defined-
benefit costs (8) (12) (101)
Cash outflows relating to non-
current provisions and employee
benefits (24) (40) (77)
Cash available from/(utilised in)
operating activities 259 (68) 1 221
Dividends paid (379) (342) (497)
Cash flows from operating
activities (120) (410) 724
Cash flows from investing
activities (4 239) (215) (753)
Net investment activities 3, 4 (3 862) 27 (97)
Net capital expenditure (377) (242) (656)
Net cash utilised before financing
activities (4 359) (625) (29)
Cash flows from financing
activities 4 378 272 (121)
Loans with joint ventures (140) (8) 55
Proceeds from disposal of partial
interest in a subsidiary — 11 —
Settlement of performance shares (46) (43) (44)
Borrowings raised 3, 4, 5 5 433 462 250
Borrowings repaid (869) (150) (382)
Net increase/(decrease) in cash 19 (353) (150)
Cash at the beginning of the
period 1 206 1 465 1 465
Translation gain/(loss) on cash 86 (47) (109)
Cash at the end of the period 1 311 1 065 1 206
Industry segment analysis
Basis of segmentation
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.
Reportable Operations
segments
Mining The businesses in this pillar provide a mine-to-mineral
Solutions solution for the mining sector internationally. The
offering includes surfactants for explosives manufacture,
commercial explosives, initiating systems and blasting
services right through the value chain to chemicals for
ore beneficiation and tailings treatment.
Water & ImproChem provides integrated water treatment solutions,
Process 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 & Nulandis manufactures and supplies an extensive range
Animal Health of crop protection products, plant nutrients and
services for the agricultural sector in Africa. 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.
Food & These businesses supply ingredients and commodities to
Beverage 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, infrastructure and general industrial
sectors mainly in South Africa and in other Southern
African countries.
Property & Mainly property leasing and management in the office,
Corporate 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, which were first reported in the Group’s annual financial
statements for the year ended 31 December 2017. The restatements merely affect
the classification between segments and do not change the results recognised
in the prior year.
First
First half
half Restated
Unaudited Unaudited
2018 2017
R millions External revenue
Mining Solutions 4 987 4 544
Water & Process 652 685
Plant & Animal Health 1 859 922
Food & Beverage 529 535
Chemicals 2 286 1 642
Property & Corporate 160 150
Inter-segment — —
10 473 8 478
Profit/(loss) from operations
Mining Solutions 520 477
Water & Process 80 82
Plant & Animal Health 115 29
Food & Beverage 31 25
Chemicals 241 160
Property & Corporate (76) (96)
911 677
Operating Assets
Mining Solutions 6 936 6 423
Water & Process 1 214 1 216
Plant & Animal Health 3 646 1 180
Food & Beverage 715 728
Chemicals 4 937 2 088
Property & Corporate 655 582
18 103 12 217
First
First half
half Restated
Unaudited Unaudited
2018 2017
R millions Inter-segment revenue
Mining Solutions 34 30
Water & Process 26 22
Plant & Animal Health 23 25
Food & Beverage 23 3
Chemicals 53 52
Property & Corporate 51 45
Inter-segment (210) (177)
— —
Depreciation and
amortisation
Mining Solutions 208 216
Water & Process 22 25
Plant & Animal Health 42 6
Food & Beverage 8 8
Chemicals 51 36
Property & Corporate 16 11
347 302
Operating Liabilities
Mining Solutions 1 516 1 466
Water & Process 250 240
Plant & Animal Health 828 415
Food & Beverage 168 160
Chemicals 885 649
Property & Corporate 157 166
3 804 3 096
First
First half
half Restated
Unaudited Unaudited
2018 2017
R millions Total segment revenue
Mining Solutions 5 021 4 574
Water & Process 678 707
Plant & Animal Health 1 882 947
Food & Beverage 552 538
Chemicals 2 339 1 694
Property & Corporate 211 195
Inter-segment (210) (177)
10 473 8 478
Impairments
Mining Solutions — —
Water & Process — —
Plant & Animal Health — —
Food & Beverage — —
Chemicals — —
Property & Corporate — —
— —
Capital Expenditure
Mining Solutions 290 164
Water & Process 6 10
Plant & Animal Health 63 30
Food & Beverage 10 5
Chemicals 53 19
Property & Corporate 14 33
436 261
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
2018 2017
First First 2017
half half Year
R millions Unaudited Unaudited Audited
Capital expenditure 436 261 704
— expansion 113 90 288
— replacement 323 171 416
Capital commitments 412 393 405
— contracted for 124 113 119
— not contracted for 288 280 286
Acquisitions authorised and contracted for — — 4 173
Future rentals on property, plant and
equipment leased 456 403 367
— payable within one year 102 105 116
— payable thereafter 354 298 251
Net borrowings1 5 409 1 007 424
Depreciation and amortisation 347 302 597
Gearing (%)2 55 11 5
Current assets to current liabilities 1,0 2,1 1,7
Net asset value per ordinary share (cents) 8 714 8 093 8 399
ZAR/US$ closing exchange rate (rand) 13,72 13,05 12,31
ZAR/US$ average exchange rate (rand) 12,30 12,90 13,31
1 Current and non-current borrowings, less cash.
2 Borrowings less cash, as a percentage of equity.
Notes
(1) (a) Basis of preparation and accounting policies
The condensed consolidated unaudited interim financial results are
prepared in accordance with the framework concepts and the measurement
and recognition requirements of International Financial Reporting
Standards (“IFRS”), the SAICA Financial Reporting Guides as issued by
the Accounting Practices Committee and Financial Pronouncements as
issued by the Financial Reporting Standards Council, and the requirements
of the Companies Act of South Africa, and contain as a minimum the
information required by IAS 34 Interim Financial Reporting. The accounting
policies applied in the preparation of these condensed consolidated unaudited
interim financial results are in terms of IFRS and are consistent with those
applied in the previous consolidated annual financial statements, except as
described below in note 6.
The preparation of these condensed consolidated unaudited interim financial
results for the half-year ended 30 June 2018 was supervised by the Financial
Director, Mr KM Kathan CA(SA) AMP(Harvard). The condensed consolidated
financial results have not been audited or reviewed by the Company’s auditor,
Deloitte & Touche.
(2) Revenue includes foreign and export revenue of R4 139 million
(2017: R2 893 million).
(3) Acquisition of Schirm
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 were
consolidated from the effective date in the Group’s Plant & Animal Health
operating segment. However, Schirm operates as a stand-alone business.
The purchase consideration of the transaction was €128,4 million (R1 901 million),
which was paid in cash on the effective date. A further payment of €6 million
(R96 million) was made on 29 June 2018 following a purchase price adjustment,
bringing the total consideration paid to €134,4 million (R1 997 million).
The initial accounting for the acquisition had not been provisionally determined
at the reporting date. At the date of finalisation of these results, the
necessary market valuations and other calculations had not been finalised.
Carrying value of acquirees’ net assets at the acquisition
date R millions
Property, plant and equipment 847
Inventory 244
Accounts receivable 466
Accounts payable (231)
Cash and cash equivalents 127
Net deferred tax liability (13)
Net current tax receivable 3
Non-current provisions (154)
Net identifiable assets and liabilities acquired 1 289
Goodwill on acquisition 708
Gross consideration paid 1 997
Less: cash and cash equivalents (127)
Net consideration paid 1 870
(4) Much Asphalt
The Group entered into an agreement with Capitalworks Private Equity, MIC
Investment Holdings Proprietary Limited and the management team of Much
Asphalt Proprietary Limited (“Much Asphalt”) whereby management retained
approximately 2% of the shares of Much Asphalt and AECI acquired
approximately 98% of the entire issued share capital of Much Asphalt.
All conditions precedent to the transaction were fulfilled on 3 April 2018.
The results of Much Asphalt were consolidated in the Group’s results from
the effective date in the Group’s Chemicals segment, with Much Asphalt
operating as a stand-alone business.
The purchase consideration of R1 988 million was paid on the effective
date and was subject to further adjustments pending the finalisation of
the effective date accounts. Consequently, an additional amount of
R59 million was paid on 20 June 2018 as a purchase price adjustment,
bringing the total consideration paid to R2 047 million.
The initial accounting for the acquisition had not been provisionally
determined at the reporting date. At the date of finalisation of these
results, the necessary market valuations and other calculations had not
been finalised.
Carrying value of acquirees’ net assets at the acquisition
date R millions
Property, plant and equipment 552
Investment in associates 10
Inventory 132
Accounts receivable 221
Accounts payable (280)
Net deferred tax liability (61)
Net current tax receivable 14
Cash and cash equivalents 33
Borrowings (360)
Non-controlling interest (27)
Net identifiable assets and liabilities acquired 234
Goodwill on acquisition 1 813
Gross consideration paid 2 047
Less: cash and cash equivalents (33)
Net consideration paid 2 014
(5) Current borrowings
Current borrowings includes bridging finance loans related to the business
combinations of Schirm and Much Asphalt, provided by the Standard Bank
Group, as follows:
* €128,4 million (R1 901 million) loan to AECI Mauritius Limited to acquire
the shares and shareholder loan claims of Schirm. The loan bears interest
at a variable rate linked to three-month EURIBOR and is repayable by
30 November 2018; and
* R2 342 million loan to AECI Limited to acquire the shares and loan claims
of Much Asphalt and to repay Much Asphalt’s existing external borrowings.
The loan bears interest at a variable rate linked to three- month JIBAR
and is repayable by 2 April 2019.
The Company is evaluating longer-term funding options, including listed debt
and institutional banking term debt. The requisite funding will be in place
by the end of the current financial year.
(6) Changes in significant accounting policies
The changes in accounting policies reflected below are also expected to be
reflected in the Group’s consolidated financial statements as at and for the
year ending 31 December 2018.
The Group adopted IFRS 15 Revenue from Contracts with Customers (see note
6(a)) and IFRS 9 Financial Instruments (see note 6(d)) from 1 January
2018. A number of other new standards and amendments to existing standards
became effective from 1 January 2018, but these do not have a material effect
on the Group’s financial statements.
The effect of initially applying these standards is mainly as follows:
* earlier recognition of revenue from consignment stock contracts, where
control of the goods passes to the customer earlier than the risks and
rewards of ownership (see note 6(a));
* changes in the amount of revenue recognised from product sales as a result
of variable considerations that affect the transaction price (see note
6(a)); and
* an increase in impairment losses recognised on financial assets (see
note 6(d)).
(6) (a) IFRS 15 Revenue from Contracts with Customers
The Group has applied IFRS 15 Revenue from Contracts with Customers in the
current year. IFRS 15 replaces the previous revenue recognition guidance,
including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13
Customer Loyalties Programs. IFRS 15 introduces a five-step approach to
revenue recognition. Far more prescriptive guidance has been added to deal
with specific scenarios.
The Group has adopted IFRS 15 using the cumulative effect method (without
practical expedients), at the date of initial application (i.e. 1 January
2018). Accordingly, the information presented for 2017 has not been restated —
i.e. it is presented, as previously reported, under IAS 18, IAS 11 and
related interpretations.
The transition to IFRS 15 for the full 2017 financial year would have
resulted in an increase in revenue of R10 million, an increase in operating
expenses of R12 million and a resulting decrease in profit before tax of
R2 million. The impact on opening retained earnings would have resulted in
a decrease of R1 million, with no impact on non-controlling interest.
Apart from providing more extensive disclosure on the Group’s revenue
transactions, the application of IFRS 15 has not had a significant impact
on the financial position and/or financial performance of the Group as
described above and, accordingly, no adjustment was made to opening
reserves.
The Group’s accounting policies for its revenue streams are disclosed in
notes 6(b) and 6(c).
New significant accounting policies and changes in significant accounting
policies
(6) (b) Revenue recognition
The Group recognises revenue from the following major sources:
* sale of goods in all its operating segments;
* sale of goods and related product application services in its Mining
Solutions, Water & Process and Chemicals operating segments; and
* rental income and related facilities management services in its Property
& Corporate operating segment.
Revenue is measured based on the consideration specified in a contract
with a customer and excludes amounts collected on behalf of third parties.
The Group recognises revenue when it transfers control of a product or
service to a customer. For certain revenue categories, the Group identifies
“sale of goods and services” as “not distinct” and thus combines goods and
services with other promised goods or services until it identifies a
“combined bundle of goods and services” as a single performance obligation.
Sale of goods in all operating segments
For sales of goods to customers, revenue is recognised when control of the
goods has transferred, being when the goods have been delivered to the
customer’s specific location (delivery). Following delivery, the customer
has full discretion over the manner of use or further distribution and price
to sell the goods, has the primary responsibility for and bears the risks of
obsolescence and loss in relation to the goods. A receivable is recognised
by the Group when the goods are delivered to the customer as this represents
the point in time at which the right to consideration becomes unconditional,
since only the passage of time is required before payment is due.
Sale of goods and related product application services in the Mining
Solutions, Water & Process and Chemicals operating segments
The Group provides product application services to customers which are
performed as and when goods are delivered. These relate mainly to:
* blasting services, where explosives are delivered directly to the point
and location of usage and detonated within hours of delivery; and
* dosing of chemicals directly into a customer’s manufacturing or water
treatment process, where the promise to the customer is a specific outcome
to its process regardless of product volumes or service levels required to
achieve that outcome.
The goods and services are delivered simultaneously or near-simultaneously and
result in the product being used by the customer at that point in time. As a
consequence, revenue is recognised when the product and related application
service are delivered and the right to consideration becomes unconditional.
Rental income and related facilities management services in the Property &
Corporate operating segment
IFRS 15 does not apply to revenue from lease contracts within the scope of
IAS 17 Leases. Consequently, the Group continues to recognise revenue in
respect of rentals received from leasing activities on a straight line basis
over the period of the lease where fixed escalation clauses apply, and when
there is a reasonable expectation that recovery of the lease rental is probable.
Where no fixed escalation clauses are applicable to a lease, rental income is
recognised in the period in which it is due by the lessee.
Facilities management services to lessees comprise rail, environmental and
laboratory services, steam generation, effluent treatment, electricity
provision and storage and handling services. Revenue from these services is
recognised as and when the services are provided, since these services are
usage-based and are delivered at a point in time.
Critical accounting judgements and key sources of estimation uncertainty
(6) (c) Revenue recognition
Management has not made any critical judgements in the process of applying
IFRS 15 Revenue from Contracts with Customers that have a significant effect
on the amounts recognised in the Group’s condensed consolidated unaudited
interim financial results. The Group has no key sources of estimation
uncertainty relating to revenue from contracts with customers.
Disaggregation of revenue — unaudited
2018 2017
First First 2017
half half Year
R millions Unaudited Unaudited Audited
Mining Solutions 5 021 4 574 9 718
Sale of goods 4 280 3 882 8 316
Sale of goods and services 741 692 1 402
Water & Process 678 707 1 454
Sale of goods 52 16 36
Sale of goods and services 626 691 1 418
Plant & Animal Health 1 882 947 2 543
Sale of goods 1 882 947 2 543
Food & Beverage 552 538 1 195
Sale of goods 552 538 1 195
Chemicals 2 339 1 694 3 564
Sale of goods 2 311 1 671 3 515
Sale of goods and services 28 23 49
Property & Corporate 149 142 297
Sale of goods 12 17 22
Sale of services 137 125 275
Revenue recognised at a point in time 10 621 8 602 18 771
Property & Corporate 62 53 109
Rental income 62 53 109
Inter-segment (210) (177) (398)
Total segment revenue 10 473 8 478 18 482
(6) (d) IFRS 9 Financial Instruments
The standard sets out requirements for recognising and measuring
financial assets, financial liabilities and some contracts to buy or
sell non-financial items. This standard replaces IAS 39 Financial
Instruments: Recognition and Measurement.
The following table summarises the impact, net of tax, of transition
to IFRS 9 on the opening balance of reserves and retained earnings
as at 1 January 2018.
Impact of adopting IFRS 9 at 1 January 2018 R millions
Recognition of expected credit losses under IFRS 9 56
Related tax (14)
Decrease in retained earnings 42
The adoption of IFRS 9 had no impact on non-controlling interest.
The table and the accompanying notes that follow explain the original
measurement categories under IAS 39 and the new measurement categories
under IFRS 9 for each class of the Group’s financial assets, as at
1 January 2018.
Original New
classification classification
Note under IAS 9 under IFRS 9
Financial assets
Unlisted shares (level 3) (i) Available-for- FVOCI — equity
sale instrument
Forward exchange contracts (ii) Fair value- Fair value-
(level 2) hedging hedging
instrument instrument
Money market investment in Designated Mandatorily
collective investment scheme as at FVTPL at FVTPL
(level 1)
Employer surplus accounts Designated Mandatorily
(level 1) as at FVTPL at FVTPL
Accounts receivables (iii) Loans and Amortised
receivables cost
Cash Loans and Amortised
receivables cost
Loans receivable to other Loans and Amortised
investments receivables cost
Total financial assets
Original New
carrying carrying
amount amount
under under
IAS 39 IFRS 9
Financial assets
Unlisted shares (level 3) 87 87
Forward exchange contracts (level 2) 43 43
Money market investment in collective
investment scheme (level 1) 77 77
Employer surplus accounts (level 1) 78 78
Accounts receivables 3 393 3 337
Cash 1 206 1 206
Loans receivable to other investments 26 26
Total financial assets 4 910 4 854
(i) Included in the unlisted shares is a R65 million investment in Origin
Materials (“Origin”) which is considered to be a level 3 financial asset.
The Group had applied the IAS 39 exemption (paragraph 46c) and carried the
investment at cost in the prior year. These equity securities represent
investments that the Group intends to hold for long-term strategic purposes.
As permitted by IFRS 9, the Group has designated these investments at the
date of initial application as measured at fair value through other
comprehensive income (“FVOCI”). Previously, these assets were designated
as available-for-sale financial assets.
(ii) The Group measures forward exchange contracts at fair value 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. The carrying values of
all other financial assets and liabilities approximate their fair values
based on the nature or maturity period of the financial instrument. There
were no transfers between levels 1, 2 or 3 of the fair value hierarchy
during the half-year ended 30 June 2018.
(iii) Accounts receivable that were classified as loans and receivables
under IAS 39 are now classified at amortised cost. An increase of
R56 million in the allowance for impairment over these receivables was
recognised in opening retained earnings at 1 January 2018 on transition
to IFRS 9. No additional trade receivables were recognised at 1 January
2018 on the adoption of IFRS 15 and, consequently, no additional impairment
was necessary.
Changes in significant accounting policies resulting from the adoption of
IFRS 9 are disclosed in notes 6(e) and 6(f) and have been applied
retrospectively, except as described below:
* The Group has taken an exemption not to restate comparative information
for prior periods with respect to classification and measurement (including
impairment) requirements. Therefore, comparative periods have been restated
only for retrospective application of the cost of hedging approach for forward
points. Differences in the carrying amounts of financial assets and financial
liabilities resulting from the adoption of IFRS 9 are recognised in retained
earnings and reserves as at 1 January 2018. Accordingly, the information
presented for 2017 does not generally reflect the requirements of IFRS 9 but
rather those of IAS 39.
The following assessments have been made on the basis of the facts and
circumstances that existed at the date of initial application:
* the determination of the business model in which a financial asset is held;
* the designation and revocation of previous designations of certain
financial assets and financial liabilities as measured at fair value through
profit or loss (“FVTPL”);
* the designation of certain investments in equity instruments not held
for trading as at FVOCI;
* if an investment in a debt security had low credit risk at the date of
initial application of IFRS 9, then the Group has assumed that the credit
risk on the asset had not increased significantly since its initial recognition;
* changes to hedge accounting policies have been applied prospectively except
for the cost of hedging approach for forward points, which has been applied
retrospectively to hedging relationships that existed on, or were designated
after, 1 January 2017;
* all hedging relationships designated under IAS 39 at 31 December 2017 met the
criteria for hedge accounting under IFRS 9 at 1 January 2018 and, therefore, are
regarded as continuing hedging relationships.
New significant accounting policies and changes in significant accounting policies
(6) (e) Financial instruments
Changes in accounting policies
The adoption of IFRS 9 resulted in the change of classification of certain financial
assets with the only significant impact being that unlisted equity instruments
previously measured at cost are now measured at fair value, with changes in fair
value recognised in other comprehensive income. The other significant change to
the Group’s policies is the measurement of impairment of financial assets,
specifically trade receivables, which is now measured using an expected credit loss
model instead of an incurred loss model. The Group uses a provision matrix to
calculate expected credit losses, with amounts more than 90 days past due
viewed as default events. This change resulted in an increase in the loss allowance
compared to the previous impairment model.
New accounting policy
Financial assets
Investments
Investments in unlisted equity securities are classified as financial assets at fair
value through other comprehensive income and are measured at fair value with any
gains or losses, including foreign exchange, recognised in other comprehensive
income, along with the associated deferred tax.
When these assets are derecognised, the gain or loss accumulated in other
comprehensive income is reclassified to retained income. Dividends on these
investments are recognised in the income statement as investment income when
they are declared and the Group has a right to receive them.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on
financial assets except for the assets at fair value through other comprehensive
income. The amount of expected credit losses is updated at each reporting date to
reflect changes in credit risk since initial recognition of the respective financial
asset.
The Group recognises lifetime expected credit losses for accounts receivable and
these are estimated using a provision matrix based on the Group’s historical credit
loss experience, adjusted for factors that are specific to the debtors, general economic
conditions and an assessment of both the current and forecast direction of conditions,
including the time value of money where appropriate.
For all other financial assets, the Group recognises lifetime expected credit losses
when there has been a significant increase in credit risk since initial recognition.
If there has been no significant increase in credit risk, the loss allowance is measured
at an amount equal to the 12- month expected credit losses.
The Group determines increases in credit risk by considering any change in the risk of
default occurring since the date of initial recognition. The Group considers that default
has occurred when a financial asset is more than 90 days past due.
Critical accounting judgements and key sources of estimation uncertainty
(6) (f) Financial instruments
The fair value of unlisted investments requires judgement and estimation of the key inputs
into valuation techniques used to determine the fair value.
Determining expected credit losses requires assessments of general economic conditions,
both current and future, and their impacts on the credit risk of financial assets, as well
as using periods that amounts are past due, to indicate levels of credit loss expected.
Credit losses may occur differently to these expectations, both in terms of timing and
amount.
(7) Standards, interpretations and amendments to existing standards not yet effective
IFRS 16 Leases
This standard introduces a single, on-balance sheet lease accounting model for lessees.
A lessee recognises a right-of-use asset representing its right to use the underlying asset
and a lease liability representing its obligation to make lease payments. There are
optional exceptions for short-term leases and leases of low-value items. Lessor accounting
remains similar to current practice– i.e. lessors continue to classify leases as finance or
operating leases. IFRS 16 replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement
contains a Lease, SIC 15 Operating Leases - Incentives and SIC 27 Evaluating the Substance
of Transactions Involving the Legal Form of a Lease. It includes more disclosures for both
lessees and lessors.
The Group will adopt this standard when it becomes effective. Management is collating and
analysing all lessee arrangements across the Group and evaluating the terms and conditions
of these arrangements in order to prepare the relevant calculations and system changes
required to implement the new standard. Management still needs to make a decision on the
transition method to be applied as well as the practical expedients to be used, if elected.
(8) 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 was consistent with those
previously reported. Those transactions were concluded on terms that were 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.
(9) The condensed consolidated unaudited interim financial results do not include all of
the disclosures required for full financial statements and should be read in conjunction
with the consolidated financial statements for the year ended 31 December 2017.
Commentary
The strong performance trend established by the Group’s businesses in the
last three months of 2017 continued into 2018, particularly in the first quarter. This,
together with contributions from the acquisitions of Schirm and Much Asphalt effective
February and April, respectively, enabled AECI to increase its revenue by 24% to R10 473
million (2017: R8 478 million) and profit from operations by 35% to R911 million (2017:
R677 million). Of the total Group revenue, 40% was generated outside South Africa and
mainly in US$.
Headline earnings for the period improved from R407 million in the prior year to R483
million, in line with the 19% growth in HEPS to 458 cents (2017: 386 cents).
This pleasing growth was delivered in an environment that remained challenging. Although
demand and prices in the global resources sector were buoyant overall, the strong
rand exchange rate against major currencies partly offset the benefits of higher chemical
input prices and also had a negative impact on earnings generated outside South Africa.
In addition, conditions in the local economy, including the mining and manufacturing
sectors, remained depressed. The effects of the drought in the Western Cape persisted.
The table below summarises the effects of Schirm and Much Asphalt on the
Group’s results for the period:
Operations 2018
excluding Total
R millions acquisitions Acquisitions reported
Revenue 9 127 1 345 10 473
Profit from operations 764 147 911
Headline earnings 443 40 483
HEPS (cents per share) 420 38 458
Growth (%)
2017 Operations
Total excluding
R millions reported acquisitions Acquisitions Overall
Revenue 8 478 8 16 24
Profit from operations 677 13 22 35
Headline earnings 407 9 10 19
HEPS (cents per share) 386 9 10 19
Profit from operations excluding the acquisitions increased by 13% and headline
earnings improved by 9%. The combined impact of the acquisitions on headline
earnings was accretive and had a 10% positive effect. Schirm’s profit from
operations included a once-off net gain of R32 million.
The Board has declared an interim cash dividend of 149 cents per ordinary share,
an increase of 8% from 2017’s 138 cents per share. A South African dividend
withholding tax of 20% will be applicable to the dividend, resulting in a net
dividend of 119,20 cents per share payable to those shareholders who are not
eligible for exemption or reduction.
Safety
The aspiration of zero harm to employees and contractors remains. The 12-month
rolling Total Recordable Injury Rate (“TRIR”) was 0,47 from 0,39 in June 2017.
This deterioration was due mainly to the high number of Recordable Incidents
at Schirm in Germany. Significant emphasis has been placed on rolling out the
Group’s Zero Harm safety strategy to Schirm and Much Asphalt as part of their
integration into the Group. Both these businesses have committed themselves
unequivocally to upholding AECI’s safety, health and environmental policies
and standards.
Excluding the acquisitions, the Group’s TRIR improved to 0,33.
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 increased by 10% to R5 021 million (2017: R4 574 million), largely due
to good volume growth outside South Africa. Overall volumes grew by 4,2%.
Because 54% of the segment’s total revenue was generated by foreign operations
the strong ZAR/US$ exchange rate, particularly in the first four months of 2018,
curtailed both revenue and profit from operations in rand terms. This
notwithstanding, profit from operations of R520 million was 9% higher than the
R477 million achieved in the first half of 2017. The operating margin was
10,3% (2017: 10,4%).
Explosives
Overall bulk explosives volumes increased by 9,9% whilst those for initiating
systems declined by 12,1%.
In South Africa, bulk explosives volumes were 4,9% lower, impacted by Optimum
Coal mine being placed in business rescue again as well as the loss of business
at a customer in the iron ore mining sector. Reduced sales of initiating
systems were a consequence of shaft closures in the underground platinum and
gold mining sectors. Numerous Section 54 stoppages at customers’ mines also
contributed to the loss of volumes.
In the rest of Africa, explosives volumes grew by 10,6%. Strong global demand
for copper and cobalt drove prices for these commodities and hence mining
activity in the Central African region. The ramp-up of new contracts gained in
Francophone West Africa made a positive contribution. In Ghana, the performance
of the gold mining business was tempered by changes to the in-country mining
plan.
Volumes in the Asia Pacific region increased by 47% compared to the first half
of last year. This improvement was enabled by opportunistic sales in Australia
and the successful deployment of reactive ground technology at a large mine.
The service offering to potential customers in that country has been enhanced
and further additions to the offering will be pursued over the next six months.
Volumes and business operations in Indonesia remained solid in the period.
Mining chemicals
Overall volumes increased by 1,9%. Senmin’s volumes were 3,6% higher on the
back of strong demand for collectors in the Central African region. Exports of
flocculants remained pedestrian due to an international customer having lost
market share.
Commissioning of the R90 million xanthates expansion project, in Sasolburg,
has commenced and it is anticipated that volumes in the second half-year will
be in line with management’s guidance.
Water & Process (ImproChem)
Revenue was R678 million (2017: R707 million), profit from operations was
R80 million (2017: R82 million) and volumes were 15,4% lower. This was due to
softer demand for water treatment chemicals as a consequence of the drought in
the Western Cape. Also, a customer in the oil refining sector experienced an
unplanned extended shutdown. Some exports to other African countries were
delayed to the second half of the year, owing to credit management processes.
The trading margin at 11,8% was slightly higher than the prior year’s
11,6%.
Four desalination plants for customers in the fisheries and food processing
industries in the Western Cape were commissioned successfully and long-term
service and chemical supply agreements are in place to support the
infrastructure.
Business in the rest of Africa remains key to ImproChem’s growth strategy.
Accordingly, discussions are underway with financial institutions to underwrite
some of the risk associated with the public water sector on the continent.
Plant & Animal Health (Nulandis and Schirm)
Revenue increased by 98,8% to R1 882 million (2017: R947 million), profit from
operations improved to R115 million (2017: R29 million) and the trading margin
was 6,1% (2017: 3,1%), primarily as a result of the inclusion of Schirm’s results
for the five months after the acquisition closed.
Although Nulandis’ results continued to be impacted by drought conditions in
the Western Cape, rainfall in the most affected areas in recent months has
improved the outlook for the business.
In respect of Biocult, distributor agreements are being finalised in both the
US and Canada. Investment in expansion is planned, subject to the successful
finalisation of requisite approvals in North America.
Schirm in Germany and the US generates approximately 70% of its revenue in the
first six months of the year, during the European and US planting season. Between
February and June, the business’ performance was curtailed by the delay in starting
up the new synthesis operating facility in Schönebeck, Germany. As a result, the
registration of the new facility in respect of customer products was similarly
delayed and costs incurred were not recovered.
Results were boosted by a once-off net gain of R32 million, mainly foreign exchange,
after the US$ strengthened against the euro in the latter months of the half-year.
Excluding this gain, Schirm was nonetheless accretive for the five months and added
21 cents in HEPS.
Historically, the business’ returns have been marginal in the second half of the
year owing to seasonality.
Food & Beverage (Lake Foods and Southern Canned Products (“SCP”))
Revenue of R552 million was 2,6% higher than 2017’s R538 million. Profit from
operations was R31 million (2017: R25 million), a 24% increase. Overall volumes
were 4% lower, reflecting SCP’s strategy to grow its value-added formulated juice
business and focus less on trading activities. The trading margin was slightly
better at 5,5% (2017: 4,7%) and further improvement continues to be pursued.
Chemicals (Chemfit, Chemical Initiatives, ChemSystems, Industrial
Oleochemical Products, Much Asphalt and SANS Technical Fibers)
Revenue increased by 38,1% to R2 339 million (2017: R1 694 million) and
profit from operations was 50,9% higher at R241 million (2017: R160 million),
inclusive of Much Asphalt from April. The trading margin improved to 10,3%
(2017: 9,4%).
Excluding Much Asphalt, operating businesses in the segment maintained the strong
overall growth trend evident in the last quarter of 2017. Very pleasing were the
higher levels of exports achieved, particularly in sales of sulphuric acid to meet
demand from the mining sector in the Central African region, and a significant
improvement in trading conditions in the poultry farming sector.
Much Asphalt’s performance for the three months since acquisition was below
expectations as state-owned entities and local government delayed infrastructure
contract awards and conditions in the overall construction sector remained
difficult. The execution of projects in the Western Cape, where Much Asphalt has
a solid order book, was delayed by the onset of the rainy season. The business’
results were not accretive to HEPS for the period and had a negative 14 cents
impact.
Property & Corporate
The revenue streams of the Group’s remaining property activities comprise
mainly the leasing of buildings at Modderfontein (Gauteng) and Umbogintwini
(KwaZulu-Natal), and the provision of utilities and services at the multi-user
Umbogintwini Industrial Complex. Revenue from these activities increased by 8,2%
to R211 million (2017: R195 million) and profit from operations was 31% higher
at R55 million (2017: R42 million).
Corporate costs were well controlled, resulting in a 5% year-on-year decrease.
The net operating expense of the segment was R76 million (2017: R96 million).
Cash utilisation
The cash outflow in respect of the acquisitions, both of which closed and were
settled during the period, amounted to R3,9 billion (R1,9 billion for Schirm and
R2,0 billion for Much Asphalt). Short-term borrowings increased to R5,6 billion
primarily as a consequence of this.
Fixed capital expenditure was R436 million (2017: R261 million), with R113 million
being for expansion. Key capital projects included Senmin’s xanthates expansion;
the statutory shutdown of the boiler at AEL’s Nitrates facility, Modderfontein;
mobile manufacturing unit replacements for AEL; air emission abatement projects at
AEL Nitrates; and investments in support of business expansion in Francophone Africa.
The significant cash outflow relating to working capital was disappointing. Main
contributors were extensions of customers’ credit terms and the acquisitions.
Trade working capital was at 20,8% of revenue (2017: 18,5%).
Cash interest cover was robust at 15,5 times (2017: 14,6 times) and net cash
interest paid was R102 million (2017: R82 million). The primary difference between
the latter and net finance costs of R161 million reflected in the income statement
related to an interest cost accrual at the end of the period.
Acquisitions: integration, funding and purchase price allocation
Teams across all of the Group’s disciplines have been active in closing
the acquisitions and integrating them into AECI in terms of systems, culture, and
policies and standards. This complex process has required the sustained input of
all parties concerned and is expected to be largely completed by the end of the
current financial year. Although synergies with existing businesses were not the
overriding drivers for the transactions, opportunities have been identified in this
regard and are being pursued.
Currently, both acquisitions are being funded through bridging finance from the
Standard Bank Group. A process to raise term finance from banks and, potentially,
from debt capital markets is in place and will be finalised before year-end.
The Purchase Price Allocation (“PPA”) process underway for both acquisitions is
also expected to be completed by year-end. Any non-cash adjustments resulting from
the PPA process will be applied retrospectively to the effective dates of the
transactions.
Outlook
From a global perspective, the outlook is positive overall although recent
shifts in world trade relations have created a level of uncertainty. Nonetheless,
demand for commodities is still robust.
In South Africa, the positive changes in the political environment at the end of
2017 have not yet translated into accelerated economic growth and a step-change
in the short term appears unlikely.
The expansion and maintenance of infrastructure is fundamental to South Africa’s
economic growth. It is of concern that the timing of contract awards in this sector
remains unclear, although there have been some recent indications that investment
could accelerate in the foreseeable future.
The terms of the Mining Charter are still under discussion and investment for future
growth in this sector should accelerate when the matter has been finalised to the
satisfaction of all stakeholders. The sustainability of the local underground gold
and platinum mining sectors remains of concern.
The rand strengthened significantly against the US$ at the end of 2017 and into 2018
and, although there was some weakening in the last months of the half-year, a level
of volatility in the exchange rate persists. The oil price has remained stable and
has driven higher chemical input prices. The Group’s ability to benefit from this
price trend will depend on the foreign exchange rate going forward.
Rainfall in the Western Cape has been encouraging in the early part of season. Good
rains in the coming months, as well as normal weather patterns country-wide and in
other SADC countries, will have a strong influence on the agricultural sector’s
prospects.
Focus
To maintain the growth trend achieved in the first six months of 2018, the Company’s
focus to year-end will be on cash generation and the diligent management of this
cash, with a claw-back in trade working capital being a priority; finalising the
integration of its acquisitions and extracting the value expected from them; and
capitalising on opportunities for synergies within and across its businesses.
Any forecast information included in this announcement has not been reviewed and
reported on by the Company’s auditor.
Changes to the Board
Philisiwe Sibiya and Jonathan Molapo were appointed to the Board as Non-executive
Directors with effect from 27 February 2018 and 1 June 2018, respectively. The Board
looks forward to their contribution to the affairs of the Company.
Khotso Mokhele
Chairman
Mark Dytor
Chief Executive
Woodmead, Sandton
25 July 2018
Directors: KDK Mokhele (Chairman), GW Dempster, MA Dytor (Chief Executive), Z Fuphe,
G Gomwe*, KM Kathan (Executive), J Molapo, AJ Morgan, R Ramashia, PG Sibiya.
* Zimbabwean
Group Company Secretary: EN Rapoo
Notice to shareholders
Declaration of interim ordinary cash dividend no. 169
Notice is hereby given that on Tuesday, 24 July 2018, the Directors of AECI declared
a gross interim cash dividend of 149 cents per share, in respect of the six month
period ended 30 June 2018. The dividend is payable on Monday, 3 September 2018 to
holders of ordinary shares recorded in the register of the Company at the close of
business on the record date, being Friday, 31 August 2018.
The last day to trade “cum” dividend will be Tuesday, 28 August 2018 and shares
will commence trading “ex” dividend as from the commencement of business on
Wednesday, 29 August 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 119,20 cents per share 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, 28 August 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, 28 August 2018.
Share certificates may not be dematerialised or rematerialised from
Wednesday, 29 August 2018 to Friday, 31 August 2018, both days inclusive.
By order of the Board
EN Rapoo
Group Company Secretary
Woodmead, Sandton
25 July 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
Date: 25/07/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
