PRESENTATION 26 AND 27 JULY 2011 EXECUTIVE TEAM Graham Edwards - - PowerPoint PPT Presentation

PRESENTATION

FINANCIAL RESULTS FOR THE HALF-YEAR ENDED 30 JUNE 2011

26 AND 27 JULY 2011

EXECUTIVE TEAM

Graham Edwards

Chief Executive

Mark Kathan

Financial Director and CFO

Mark Dytor Edwin Ludick

Chemical Executives

Schalk Venter Tobie Louw

Managing Director, AEL Mining Services

Anthony Diepenbroek

Managing Director, Heartland

1

OVERVIEW

PERFORMANCE HIGHLIGHTS

• Strong focus on safety continues
• HEPS at 265 cents

+11%

• Overall volumes

+2,3%

• EBITDA +16% and operating profit +13%
• Cash dividend of 78cps declared
• Ramp-up of strategic projects progressing well
• B-BBEE transactions announced

3

BUSINESS ENVIRONMENT SLOW VOLUME GROWTH IN MANUFACTURING

4

SA manufacturing volumes Source: StatsSA January ’05 – May ’11

H1’11/H1’10=2,8%

BUSINESS ENVIRONMENT MINING GROWTH STRONG BUT VOLATILE

5

H1’11/H1’10=5,9%

SA mining volumes Source: StatsSA January ’06 – May ’11

BUSINESS ENVIRONMENT CONT.

• Moderate global economic growth

expected but downside risks increasing

• Brent crude up from US$70/bbl to

US$100-120/bbl range

• Other commodities behaving similarly
• Rand strength continues to put

pressure on prices; favours imports

• ver local manufacture
• Industrial unrest concerning

6

PERFORMANCE

SAFETY AND HEALTH PERFORMANCE

Maximum tolerable level 0,2 0,4 0,6 0,8 1 1,2 1,4 2006 2007 2008 2009 2010 2011 TRIR

ALL WORKERS TRIR

8

BENCHMARKED TRIR

9

0.00 0.50 1.00 1.50 2.00 2.50 3.00

Fluor Shell Group Dow Orica Mining Services PPG Global Huntsman Group Sasol Group Orica Chemicals AECI Group Bayer Corporation B Beatty Heery (US Bldg Mgmt & Servs) DuPont Monsanto Balfour Beatty Construction (US) Orica Group Rhodia Ashland Orica Dulux Orica Minova

3,00 2,50 2,00 1,50 1,00 0,50 0,00

200 220 240 260 280 300 320 340

Headline Earnings '11: R255m Specialty Chemicals: R37m Mining Services: R15m Property: R7m Specialty Fibres: R17m Finance costs:

• R4m

Corporate:

• R14m

Tax:

• R35m

Other: R6m Headline Earnings '11: R284m Headline Earnings ’10: R255m

RESULTS 1H11 HEADLINE EARNINGS (Rm)

10

RESULTS 1H11 EBITDA, MARGINS AND VOLUMES

• EBITDA +15,9% to R752m
• Operating margin up slightly to 9,1%
• Volumes +2% overall

– Chemicals volumes +2%

• Manufactured volumes -5%
• Traded volumes +11%

– Explosives volumes +2%

• Foreign sales +14% in rand terms

(24% in US$)

• Competitor activity increased

significantly.

200 300 400 500 600 700 800 '07 '08 '09 '10 '11 Rm

EBITDA - HALF YEAR

11

RESULTS 1H11 HEPS

• HEPS at 265 cps up 11%
• R14m corporate increase
• Tax charge R35m higher
• Interest R4m higher but R32m less

capitalised

• Operating profit up 13%

100 200 300 400 500 600 700 '07 '08 '09 '10 '11 cps

HALF- AND FULL- YEAR HEPS

12

RESULTS 1H11 CONT.

• Capex R229m – incl. R109m for

expansion projects

• NWC to sales at 20,2%
• Borrowings at R2 301m
• Gearing at 49%, down from 54% in

1H10 but up from year-end ’10

• Cash interest cover 7,3x
• All loan covenants met
• Cash interim dividend 78 cps

10 20 30 40 50 60 70 80 500 1 000 1 500 2 000 2 500 3 000 '07 '08 '09 '10 '11 % Rm

AT 30 JUNE

Borrowings Gearing

13

RESULTS 1H11 PROFIT FROM CONTINUING OPERATIONS (Rm)

(150) (100) (50) 50 100 150 200 250 300 350 400

Specialty chemicals Mining services Specialty fibres Property

'10 '11

Corporate

14

SPECIALTY CHEMICALS ENVIRONMENT

• High commodity prices in US$ terms somewhat offset by strong ZAR
• Imports favoured over local manufacture
• Competition from global players intensifying
• Strong growth in food, mining and petrochemical sectors
• Paper industry in South Africa under pressure

15

SPECIALTY CHEMICALS PERFORMANCE

• Revenue

R3 277m +8%

• TP

R386m +10%

• Trading margin (%)

11,8 (’10: 11,5)

• Volumes +1,9%: manufactured -4,9%; traded +10,8%
• Prices +5,8%
• Good cash generation on the back of strong profitability
• Excellent performances from ImproChem, IOP, Lake, Resitec
• Solid performances from the rest
• Merger of Infigro and SAPC
• Current ZAR/US$ exchange rate challenging

16

SPECIALTY CHEMICALS 1H11 PRICE AND VOLUME ANALYSIS

17

2 900 2 950 3 000 3 050 3 100 3 150 3 200 3 250 3 300 Revenue Jun '10 Volume +1.9% Price +5.8% Revenue Jun '11 +7.8%

Rm

Volume +1,9% Price +5,8% Revenue Jun ’11 +7,8% Revenue June ’10

MINING SERVICES ENVIRONMENT

• Global mining – general growth across all regions
• Global infrastructure – developed countries depressed; selected high growth nodes
• Commodity demand remains sound in both industrial and investment sectors
• US$-based earnings diluted by ZAR strength
• Key input costs higher – ammonia and fuel
• Africa more competitive
• Continued volume decline in SA deep level mining

18

MINING SERVICES 1H11 PERFORMANCE

• Revenue

R2 542m +11%

• TP

R200m +8%

• Trading margin (%)

7,9% (’10: 8,1%)

• Year-on-year weighted volume growth of 2,1%; price pressures
• WC at 19,6% (1H10:19,1%)
• Difficult start to the year – SA nitrates plant production constraints
• SA and Indonesian volumes soft; market share changes did not impact 1H11 earnings
• Retrenchment process underway, but running later than expected due to:

– higher shock tube demand – fire on conventional plant – building inventories

19

MINING SERVICES 1H11 PERFORMANCE CONT.

20

50 100 150 200 250 300 350

R 185m: Actual Trading margin : H1-2010 R 141m: Material Margin Growth (R 64m): Fixed Cost Inflation (R 20m): Nitrates Breakdown (R 12m): Operations Costs (R 8m): Exchange Rate (R 21m): Depreciation R 200m: Actual Trading margin : H1-2011

Unplanned shutdown of

• No. 9 nitric acid plant

Increase in ISAP manning in 4Q10 partly

• ffset by savings

in 2Q11

SANS TECHNICAL FIBERS

• Revenue

US$23,9m +33%

• TP

US$3,9m +100%

• Trading margin (%)

16 (’10: 7,5)

• Volumes sold +14%
• Volumes produced +30% – new capacity
• Strong global automotive demand
• Expected margin pressure in 2H11 – raw material price increases
• Long-term portfolio strategy to be reviewed going forward

21

PROPERTY ENVIRONMENT

• Property market still subdued

– Development in prime locations seeing activity – Industrial enquiries remain buoyant

• Longlake development approved

(220ha) – Commencing phased infrastructure spend to meet market demand

• Leasing portfolio still under pressure

– Downward pressure on rentals, increasing vacancies – Reduced tenant retention

22

PROPERTY PERFORMANCE

• 5

10 15 20 25 30 35 40

Trading profit 1H10 R21m Development activities R7m Leasing activities R3m Services R2m Environmental charge R3m Trading profit 1H11 R36m

23

RESULTS 1H11 CORPORATE COSTS

24

(110) (105) (100) (95) (90) (85) (80) (75) (70) (65) (60)

Corporate '11:

• R89m

Legacy Costs: R5m Long-term incentives

• R20m

Captive Insurance:

• R5m

Other: R6m Corporate '11:

• R103m

FOUNDERS’ HILL TAX RULING

• Land held by AECI for many years
• Created F/Hill based on advice
• Tax return disclosed as capital profit
• Ruling

– Acquired to sell from day one, therefore trading stock – Realisation company concept did not apply – Normal tax not capital profit – Interest waived

• AECI appealed to Constitutional Court

25

AECI

3rd parties Transaction in ’94 @ market value

F/HILL HEARTLAND PROPERTIES

’01 % ’02 tax assessments

PROJECTS & STRATEGY

SPECIALTY CHEMICALS PROJECTS UPDATE

• Solid xanthate pellet plant technology proved

– Production rates limited by dryer operation – New dryer designed and fabricated (cost approx. R20m) – Currently being installed and commissioned – All other capital expenditure on this project is complete

• PAM plant

– Process guarantees signed off – Key raw material supply shortages experienced – Production ramp-up as per plan – All capital expenditure complete 27

SPECIALTY CHEMICALS STRATEGIC OBJECTIVES

Southern Africa & Africa

• Optimise current business

– Sales, margins, costs – Cash generation – Organic growth, agencies and bolt-on acquisitions – Sell new project capacities (PAM, xanthates, surfactant)

• Acquire new businesses

– T&C Chemicals ImproChem/SAPC (complete) – Qwemico: Agricultural chemical distribution Plaaskem (complete) – Croxton: Bulk caustic soda business Crest (Competition Commission) – Mine/effluent water technology: ImproChem (rejected) – Cobito remaining 20% Lake (complete)

28

SPECIALTY CHEMICALS STRATEGIC OBJECTIVES CONT.

• Expand appropriate businesses into Africa

– Senmin mining chemicals – Chemicals cluster (Nigeria study)

• Markets of interest

– Mining chemicals – Water, energy, oil, gas – Food additives – Agriculture – Green chemistry

• International expansion: Brazil being evaluated

29

MINING SERVICES CAPITAL PROJECTS

• Total major capital project spend

R65m (1H10: R96m)

• Sustenance capital

R73m

• ISAP

Final estimate remains R695m R54m (or 8%) spend remains

• Indonesia

All five plants running

• Africa continent infrastructure capital

Deployed and in full use

• Environmental compliance capital spend

R100m for ’11 and ’12

30

MINING SERVICES ISAP

All key technology design issues to enable full ramp-up resolved

• Plant 1 – Tubing Plant: run at above-required design output rates; signed off
• Plant 2 – Detonator Plant:

‒ June record 8,2m detonators; 10m/month by year-end; 12m in 1H12 ‒ Reaching high levels of timing accuracy and reliability – introduced new products ‒ Conversion and material costs reducing continually

• Plant 3 Auto-Assembly Plant:

– Targeted output = 5m per month; currently 2m+; consistent increase – High product quality and performance achieved

• Targeted R10m/month ISAP-related saving moved to 2H11; remain confident

31

MINING SERVICES OUTLOOK

• Selected markets expected to do well
• Competitive environment to remain challenging; pricing to remain soft
• Counter with continued drive on value, volume and unit cost improvements
• SA deep level mining volumes to remain under pressure
• Ending a period of high capital deployment; focus on asset returns
• Increased sustenance capital spend focus at Modderfontein nitrates for 3 years
• Focus on:

– Africa commodity growth – SE Asian coal and other growth – Latam shock tube and underground partnerships

32

CORPORATE ISSUES

B-BBEE KAGISO TISO HOLDINGS (KTH) TRANSACTION

• 25,1% holding of the KTH consortium in AEL swapped for 4,18% in AECI
• “Tiso Community Development Trust” retained as a shareholder in AECI
• Value of the transaction is about R397m
• Earliest exit date for KTH is 31 December 2015
• Classified as a “small related party” transaction
• Subject to positive fairness opinion from Independent Expert

34

NEW B-BBEE TRANSACTION PROPOSED EST AND CST

• Transaction size about R1,2bn; 11,5% post issuance of equity share capital
• Employee and community trust components
• Maximum 10 year term
• Employee component through AECI Employee Share Trust (“EST”), consolidated
• Community trust component through AECI Community Education and Development

Trust (“CST”), not consolidated

• Indicative economic cost, based on estimated IFRS2 charge, about R348m or 28,2% of

transaction size

35

Proposed B-BBEE transaction: 11,5%; R1,2bn

Other AECI shareholders Employee Share Trust Community Share Trust

88,5% 8,0% R858m 3,5% R375m

B-BBEE SCORECARD EFFECTS

• Effective B-BBEE equity ownership: 27,4% in terms of DTI codes

– KTH 6,2% – EST/CST 21,2%

• EST/CST transaction subject to shareholder approval

36

B-BBEE TIMING AND FOR FORMALITIES

• KTH transaction

– Independent Expert fairness opinion sought immediate – Opinion submitted to JSE end Aug. – Transaction unconditional, implemented early Sept.

• EST/CST
• Detailed terms announcement, shareholder circular

end Sept.

• Shareholder meeting

end Oct.

• Followed by issue of shares

Nov.

37

OUTLOOK

AECI 1H11 REVENUE SPLIT

39

Mining 53% Agri 5% Manufact. 36% Property 3% Fibres 3%

1H11 Revenue R5,96bn

SPECIALTY CHEMICALS REVENUE BY MARKET SECTOR

40

Mining 23% Agriculture 10% Food & beverage 9% Chemical industry 7% Paper & packaging 6% Oil & refining 6% Coatings, ink & adhesives 5% Detergents 5% Automotive 5% Other 24% Toiletries, cosmetics, pharmaceuticals 5% Explosives 5% Plastics & rubber 4% Construction 2% Appliances & furniture 2% Engineering & foundry 1% Textiles & leather 1% Steel & metals 1% Various other 3%

1H111 Revenue R3,3bn

MARKETS 1H11 MINING SALES SPLIT

41

Platinum 28% Coal 17% Gold 14% Copper, cobalt, chrome, nickel 14% Quarry, construction, civil 8% Diamonds 6% Iron ore 2% Phosphate 1% Uranium 1% Other 9% Other 13%

1H11 Revenue R3,3bn

OUTLOOK

• Expecting growth in mining volumes to continue throughout Africa
• Manufacturing sector in South Africa: growth still sluggish but positive
• H2 operational performance historically better than H1
• This is likely to be dampened by:

– Current labour unrest – Tightening market conditions

• But helped by the positive effect of:

– Continued ramp-up of new plants – Acquisition of Qwemico, Cobito and Croxton taking effect – Seasonal effects

42

INVESTORS’ CALENDAR

• Investors’ visit to Heartland, Modderfontein

October

• General meeting of shareholders (B-BBEE)

± end October

• Financial year-end

31 December

• Results release and presentation

February 2012

43

THANK YOU