AECI LimitedAECI Limited
Presentation to Investors and Media
27 and 28 July 2004
SummarySummary Solid performance against background of
strengthening rand, weak local manufacturing sector and decline in gold mining
Improved trading profit from all businesses in portfolio, except specialty fibres
Volumes, in aggregate, increased by 6%
Pressure on selling prices
Excellent results in property
EE transaction announced in AEL
External environmentExternal environment
Dominated by the strengthening rand
R vs US$ - Monthly Average
6.0
6.5
7.0
7.5
8.0
8.5
9.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Months
Ra
nd
s
2003
2004
2003 Avg
2004 Avg
External environmentExternal environment
Favourable commodity prices, lower interest rates and strong retail demand stimulated growth in real GDP
Manufacturing volumes rose on account of domestic demand; export volumes receded
Competition from China and eastern region
Consumer confidence improved
External environmentExternal environment
Global economy gained momentum since mid- 2003, stimulated by growth in China and Asia
Upward trend in crude oil price, supported by growth and geopolitical tensions
High fuel prices and supply/demand imbalances caused fluctuations in certain raw materials
This continued to moderate fortunes of chemical industry
Results for 200Results for 2004 H14 H1 HEPS +5%
Volumes +6%
– Acquisitions and PET
TP margin declined by 0.4 percentage points
– Much influenced by SANS
Revenue +3%
– Domestic revenue +5%
Foreign sales -4% in rand but +16% in dollars
Headline earnings per share: cents
140
150
160
2003 H1 2004 H1
Rand impact on 2004 H1Rand impact on 2004 H1
Well managed on average; Group benefits from lower input costs; contribution margins maintained; deflationary prices
Strong rand has negative impact on Group, particularly export revenues and margins (SANS Fibres) and African businesses (AEL and Dulux)
Import threats increasing, but partly cushioned through value added business proposition
Necessitates continued review of cost base
Solid performanceSolid performance
Maintained earnings in spite of large currency effect, particularly in SANS
0
50
100
150
200
250
300
350
400
'00 '01 '02 '03 '04
EPS in cents
Balance sheetBalance sheet Net borrowings R1 034m,
gearing 41%
Capital expenditure R116m
WC 15%
Cash interest cover improved further to 6.7 times
Tiso transaction effective 1 July 0
200
400
600
800
1000
1200
'00 '01 '02 '03 '04 H1
0
10
20
30
40
50
Borr Gearing
Share priceShare price
Rand per share
0
5
10
15
20
25
30
35
'98 '99 '00 '01 '02 '03 '04Jun
• Graph adjusted for R6 special dividend, November 1999• Declined relative to industrial index
Segmental trading profitSegmental trading profit
-50
0
50
100
150
200
Min Sol Sp Chem Sp Fibres D&P Coat Property Corp
2003 H1 2004 H1
Group EVAGroup EVA®®
(Rm)(Rm)
-300
-250
-200
-150
-100
-50
0
50
'98 '99 '00 '01 '02 '03 '04
Calculated at WACC of 15% for ’98 to ’03 and
14% for ’04
Calculated at WACC of 15% for ’98 to ’03 and
14% for ’04
EVAEVA®®
by business (Rm) by business (Rm)
-150
-125
-100
-75
-50
-25
0
25
50
75
Min Sol Sp Chem Sp Fibres D&P Coat Other
2003 2004 H1
Includes goodwill at cost
Includes goodwill at cost
Mining solutionsMining solutions Revenue R1 045m (+6%); TP R101m (+7%)
Margin 9.7% (9.5%)
Further growth in local platinum partly offset decline in gold mining and currency effects
African markets stable except Zimbabwe
Imports of state-subsidised initiators from China: Response– Aggressive cost reduction options
– Dumping and other regulatory protection being sought
Mining solutionsMining solutions Restructuring: R11m charge recognised in
period and a possible additional R20m expected over next 18 months
EE update
DetNet progress
– Technology development on track
– Joint venture and approvals
– Launch of international product planned for Q4 2004
Specialty chemicalsSpecialty chemicals
Revenue R1 615m (+5%); TP R169m (+3%)
Margin 10.5% (10.7%)
Pressure on rand prices; gross margins maintained
Intensified imported competition
AECI Coatings update and future strategy
Mining chemical cluster; merged Senmin and Pelichem, service package development and growth options
Specialty chemicalsSpecialty chemicals
Continue with exploratory phase for EE opportunities
Operational options; restructuring, plant relocations and/or selective closure
Active working platform for acquisition growth
Specialty fibresSpecialty fibres Revenue R810m (-13%); TP R1m (-98%)
Margin 0.1% (4.8%)
Overriding factor remains currency strength against dollar(R8.02 in H1 2003 compared to R6.65 in H1 2004)
In dollar terms revenue increased by 8% and gross margin by 1%. (Mix effect; larger growth in PET than yarn)
Restructuring on schedule: nylon apparel plant closed end 2003
Employee numbers reduced by 17% year-on-year
New product/market development on schedule
Specialty fibresSpecialty fibres
Break-even at Stoneville compared to R6m loss in H1 2003: improved volumes, prices
Future strategy
Product development to fill LDI plants on track
Improved margin on HDI yarns by moving into more specialised end uses; market short
Further debottlenecking on PET to meet growing local demand
Further cost savings
Specialty fibresSpecialty fibres
Strengthening of rand could put further pressure on profitability at SANS
Invited to visit on 3 September for detailed discussion on actions, strategy, product development and plant tour
Decorative & packaging coatingsDecorative & packaging coatings
Revenue R301m (+3%); TP R12m (+9%)
Margin 4.0% (3.8%)
Seasonal business
Strong performance in South Africa, volume growth
PropertyProperty
Revenue R168m (+100%); TP R37m (+164%)
Healthy demand continues in low interest rate environment and improved business confidence
Good long-term prospects at Modderfontein and Somerset West, depending on demand, remediation and other issues eg. Gautrain
In conclusionIn conclusion
Currency strength had significant impact on results
Portfolio performed well on balance; property activities compensated for reduction in fibres
Several cost control measures introduced and ongoing
EE deal announced for AEL