FINANCIAL RESULTS For the year ended 31 December 2012 Presentation 26 and 27 February 2013
overview
2 PRESENTATION Outline Welcome Business environment and performance AECI results Performance by segment» Explosives» Specialty chemicals Projects and strategy Outlook and underlying growth
3 PERFORMANCE Highlights Revenue up 11% to R14,9bn EBITDA from operations up 6% to a record R1,8bn Headline earnings excluding effects of all B-BBEE transactions up 1% Profit optimisation of projects underway Best ever safety performance achieved Gearing reduced to 32% Acquisitions of R420m authorised AEL s strategic position in Indonesia enhanced by AN plant acquisition Final cash dividend of 185cps up 2,3% compared to 179cps in 11
business environment and performance
5 BUSINESS ENVIRONMENT AND PERFORMANCE Summary AECI delivered a creditable performance in a difficult trading environment Depressed global growth and industrial action in SA made volume growth difficult Businesses responded with tight cost management and restructuring Strength of the business model, especially in the chemicals cluster, demonstrated in the result Looking forward, market growth prospects linked to global economic growth uncertainties However, AECI has internal profit optimisation plans that will deliver value independent of external growth scenarios AECI also has a healthy pipeline of acquisitions and growth projects
6 REVENUE SPLIT 3% 2% 33% 52% 10% 52% Mining 10% Agriculture 33% Manufacturing 3% Property 2% Fibres
7 BUSINESS ENVIRONMENT SA manufacturing volumes Jan 07 Jan 13 Base: 2005=100 Source: StatsSA Cum y-o-y = 2,0%
8 BUSINESS ENVIRONMENT SA mining volumes Jan 07 Jan 13 Base: 2010=100 Source: StatsSA Index base year changed in October from 2005 to 2010 Cum y-o-y= -3,1%
9 BUSINESS ENVIRONMENT ZAR/US$ exchange rate Opening Jan 12 US$/ZAR=8,15 Closing Dec 12 US$/ZAR=8,49 Average US$/ZAR=8,20 Average US$/ZAR=7,25
10 BUSINESS ENVIRONMENT Ammonia IPP pricing (ZAR/tonne)
11 BUSINESS ENVIRONMENT Effect on performance Open cast mining volumes in Africa (including South Africa) grew strongly Underground mining volumes in SA and Indonesia were negatively impacted by industrial action and other stoppages The weaker ZAR/US$ exchange rate helped the mining and manufacturing sectors but failed to lift volumes Prices remained high due to high US$ commodity prices and the weaker exchange rate The industrial relations environment deteriorated significantly post Marikana and made change management difficult
AECI results
13 SAFETY AND HEALTH Performance ALL WORKERS TRIR 1,2 1,0 Maximum tolerable level 0,8 0,6 0,4 0,2 0,0 08 09 10 11 12
14 ENVIRONMENTAL, B-BBEE AND EE UPDATE Performance and strategy Environmental performance» Formalisation and launch of the Modderfontein Reserve» Green Gauge range of environmental improvement projects identified through resource efficiency assessments» No serious environmental incidents in 12» Included in JSE s Socially Responsible Investment Index for fourth successive year B-BBEE ratings improved significantly and nearly all companies are now Level 5 or Level 4 contributors EE performance continues to improve
15 RESULTS Headline earnings (Rm) 850 800 750 700 650 600 550 500 450 400 350 300 250 200 150 100 Headline earnings 11: R772m Specialty chemicals: R63m Explosives: (R79m) Property: (R65m) Specialty fibres: (R13m) Corporate: R149m CST & EST SBP: (R168m) Finance costs and tax: (R54m) Other: R6m Headline earnings 12: R611m
16 RESULTS EBITDA and volumes EBITDA +6% to R1,8bn EBITDA (Rm) Volumes flat overall Chemicals volumes -2,9%» manufactured -1,4%» traded -4,3% Explosives +5,1% Foreign revenue +17% to R4 527m Market share maintained 2 000 1 600 1 200 800 400 08 09 10 11 12
17 RESULTS Operating margin and volumes Operating margin declined from 9,8% to 9,0% mainly due to deterioration at AEL and Heartland Favourable impact» Reduced corporate costs OPERATING MARGIN (%) 12 10 Outweighed by» Nitrates shortages and supplier force majeure» Negative effect of strikes» Non-cash B-BBEE transactions IFRS costs» Restructuring charges Therefore, underlying performance is better than reported results 8 6 4 2 0 08 09 10 11 12
18 RESULTS HEPS Excluding the IFRS charges of 151cps» HEPS at 697cps down 3%» Return on net assets: 17,1%» Return on invested capital: 13,2%» Economic value added remains positive HEPS (cps) 800 700 600 500 400 300 200 100 0 08 09 10 11 12
Rm 19 RESULTS Cash utilisation Capex: R557m incl. R265m for expansion projects NWC to revenue: 18,0% ( 11: 17,7%) Net borrowings: R1 841m Gearing at 32% vs 50% in 1H12 AT 31 DECEMBER 2 500 2 000 1 500 Target range Borrowings Gearing 70 60 50 40 % Cash interest cover: 8,2x 1 000 30 Final cash dividend: 185cps 500 20 10 0 08 09 10 11 12 0
performance by segment
21 RESULTS Profit from operations (Rm) 950 850 750 650 550 450 350 250 150 50 (50) (150) (250) Specialty chemicals Corporate 11 12 Explosives Specialty fibres Property EST SBP
22 SPECIALTY CHEMICALS Business environment Firm but volatile commodity prices in US$ terms and weaker R/$ supported prices SA manufacturing sector still pedestrian However, stronger growth in food and beverage, agricultural and personal care sectors Platinum mining sector strikes and closures had negative impact (R45m) International competition remains intense
23 SPECIALTY CHEMICALS Performance Revenue R8 397m +11% TP R944m +7% Trading margin (%) 11,2 ( 11: 11,7) Average WC (%) 17 ( 11: 16) Volumes -2,9%» Manufactured -1,4%» Traded -4,3% Prices +14,0% Excellent performances from Akulu, CI, IOP, Lake, Nulandis Solid performance from Senmin in difficult market Restructuring charge of R30m offset by capital profits from Resitec and CSL HO disposals Successful integration of all acquisitions
24 SPECIALTY CHEMICALS Price and volume analysis (Rm) 8 600 8 400 8 200 8 000 7 800 7 600 7 400 7 200 7 000 6 800 Revenue Dec 11 Volumes -2,9% Price +14% Revenue Dec 12 +11,1%
25 EXPLOSIVES Business environment Global mining sector is under pressure, but remains attractive AEL MANUFACTURING SITES Strong mining volume growth in Africa (outside SA) SA mining: surface volumes grew significantly, narrow reef declined Prospects in Africa remain good Indonesian mining also affected by industrial relations issues and weakening thermal coal prices
26 EXPLOSIVES Performance Revenue R6 327m +15% TP R431m -15% Trading margin (%) 6,8 ( 11: 9,3) Average WC (%) 19 ( 11: 17) Disappointing performance in difficult circumstances Ammonia and AN supply chain interruptions (R50m) Mining strikes (R62m) Cost reduction exercise underway
27 EXPLOSIVES Performance 750 700 650 600 550 500 450 400 350 R510m: Actual trading margin Dec 11 R212m: Material margin (R153m): Fixed cost inflation & depreciation (R53m): R57m: Reduction (R61m): Foreign Business expansion costs ISAP / ISCP costs gain in 2011 (R81m): Supply chain and strike events R431m: Actual trading margin Dec 12
28 PROPERTY Performance Revenue R400m -16% TP R34m -66% Trading margin (%) 8,5 ( 11: 20,8) A disappointing result Revenue of R47m from land sales» Westlake industrial use R66m development expenditure» Roads and electrical infrastructure Outlook for industrial end use improving
29 PROPERTY Performance 120 100 80 60 40 20 0 Trading profit 2011: R99m Development activities: (R52m) Leasing activities: (R22m) Services: R2m Environmental charge: R7m Trading profit 2012: R34m
30 SPECIALTY FIBRES Performance Revenue R339m +2% TP R40m -25% Trading margin (%) 11,8 ( 11: 15,9) Acceptable result in difficult market conditions Exports to Europe and Asia under pressure US auto volumes improved in 2H12 Capital investment of US$10m on single-stage process underway STF will be included in chemicals cluster in future
31 CORPORATE (60) Corporate 11: (R227m) Legacy costs: R71m Long-term incentives: R47m Captive insurance: R31m Other: R0m Corporate 12: (R78m) (80) (100) (120) (140) (160) (180) Sustainable level = (170) (200) (220) (240)
32 RESULTS Tax rate (Rm) 360 340 320 300 280 260 240 Tax charge IFRS 2 charge STC Other PBT tax @ 28%
projects and strategy
34 EXPLOSIVES Investments Total R409m Expansion capital spend R163m» SA Xstrata, Sishen R31m» Africa bulk plants for Burkina, Egypt and DRC R63m» International new contracts R14m Sustenance capital R204m» Nitrates statutory maintenance R64m BBRI R42m
35 EXPLOSIVES Initiating systems profit improvement Detonator volumes = 2011 due to lower local demand Machines capable of much higher production rates Quality and first time pass rates greatly improved Machines stable, more uptime achieved via better process and people management systems ISAP DETONATORS (millions) 100 80 60 40 20 0 08 09 10 11 12
36 EXPLOSIVES Initiating systems profit improvement cont. Automatic assemblies significantly higher than 11 ISAP ASSEMBLIES (millions) Powder development on track for completion in June 13 Rest of range to be qualified during 13 Cost savings of R57m achieved in 2012 and a further R70m expected in 2013 Section 189 notices issued 30 25 20 15 10 5 0 Target=31 08 09 10 11 12
37 EXPLOSIVES BBRI US$23m investment for 42,6% equity share in BBRI in three phases In Kalimantan heart of mining activity and close to KPC, AEL s largest customer in the region ANS capacity of 60ktpa backintegrated into major ammonia source adjacent to the plant Construction close to completion and beneficial production expected in 3Q13
38 SPECIALTY CHEMICALS Acquisitions update General Electric s Chemical and Monitoring Solutions business» African footprint with excellent people» specialised equipment for water processing» continued support and technology from a world-class partner» in line with water, oil, gas, energy strategy roll-out Senmin PAM plant» exit of BASF as a partner finalised» allows AECI to compete in all global mining chemical markets with PAM Cellulose Derivatives» Competition Tribunal approval obtained Bolt on acquisition for Lake Foods: Afoodable Brazilian country investment still seen as attractive
39 SPECIALTY CHEMICALS CLUSTER Restructuring 2012 Chemiphos incorporated into Chemical Initiatives and ChemSystems Industrial Urethanes incorporated into Lake Chemicals and Chemfit Duco divisions were sold Resitec sold Lake Chemicals new business formed Jan 13 Lake Foods new business formed Jan 13
40 SPECIALTY CHEMICALS CLUSTER Now 15 businesses in the Cluster Akulu Marchon Lake Chemicals Chemfit Lake Foods Chemical Initiatives Nulandis Chemisphere Technologies Resinkem ChemSystems Senmin Crest Chemicals SANS Technical Fibers ImproChem Specialty Minerals SA Industrial Oleochemical Products
41 SPECIALTY CHEMICALS CLUSTER African specialty chemicals business focused on» Mining chemicals Senmin» Water, oil, gas and energy ImproChem» Agriculture Nulandis» Food additives Lake Foods» Personal and home care Akulu Marchon South African diverse specialty chemicals cluster
outlook and underlying growth
43 GROUP MINING REVENUE Revenue by mineral mined 2012 15% 9% 5% 4% 15% 11% 1% 1% 9% Phosphate Uranium Other 19% 22% 22% Platinum 19% Coal 15% Copper, cobalt, chrome and nickel 15% Gold 9% Quarry, construction and civil 5% Diamond 4% Iron ore 11% Other
44 SPECIALTY CHEMICALS Revenue by market sector 2012 7% 8% 6% 5% 5% 4% 4% 4% 4% 3% 11% 1% 1% 1% 1% 1% Appliances and furniture Construction Steel and metals Engineering and foundry Textiles and leather 6% Various other 18% 21% 21% Mining 18% Agriculture 8% Food and beverage 7% Paper and packaging 6% Chemical industry 5% Detergents 5% Explosives 4% Toiletries, cosmetics and pharmaceuticals 4% Coatings, ink and adhesives 4% Plastics and rubber 3% Automotive 11% Other
45 OUTLOOK AND FOCUS SA manufacturing volumes expected to track GDP growth Property sales for industrial end uses expected in 2013 Strong focus on operational excellence in AEL» cost reduction» return AEL to acceptable profitability» restructuring costs are expected AECI mining volumes in Africa and Indonesia expected to grow on the back of new projects and contracts» SA narrow reef platinum and gold mining expected to remain challenging» significant potential for increased sales and profits from mining chemicals Strong focus on the strategic pillars in chemicals cluster for growth in Africa Acquisition activity expected locally and internationally
46 INVESTORS CALENDAR Graham Edwards retires from the Board 28 February Mark Dytor succeeds him as Chief Executive 1 March AGM 27 May Half-year ends 30 June Interim results released and JHB presentation 24 July CT presentation 25 July
thank you