FINANCIAL HIGHLIGHTS - ShareData Online - … ANNUAL REPORT 05 LOCATIONS ACROSS THE WORLD 2 United...
Transcript of FINANCIAL HIGHLIGHTS - ShareData Online - … ANNUAL REPORT 05 LOCATIONS ACROSS THE WORLD 2 United...
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2005 2004 MovementRm Rm %
Group summary:Market capitalisation 606 430 41
Revenue 989 910 9
– continuing operations 925 829 12– discontinued operations 64 81 (21)
Profit from operations 52 73 (29)
– continuing operations 87 79 10– discontinued operations (35) (6) (483)
Profit before taxation 37 57 (35)
– continuing operations 73 64 14– discontinued operations (36) (7) (414)
Headline earnings 37 41 (10)
– continuing operations 52 45 16– discontinued operations (15) (4) (275)
Total assets 603 598 1Gearing % 40 29 38Net asset value per ordinary share 152 150 1Net asset value per ordinary share (excluding intangibles) 104 95 9
Share performance:(cents per share)Headline earnings 19,0 21,3 (11)Capital distribution – 6,5Capital distribution and/or 6,5 –Capitalisation share award per 100 shares (shares) 2,28 –
Other:Weighted average exchange rate R/USD 6,2 6,9 (10)Closing exchange rate R/USD 6,6 6,3 5
FINANCIAL HIGHLIGHTS
20052004
Total assets
Net interestbearing borrowings
0 100 200 300 400 500 600 700 800 900 1 000
Revenue
FINANCIAL RESULTS FOR CONTINUING OPERATIONS
Profit fromoperations
Headlineearnings
Net profit
0 10 20 30 40 50 60 70 80 90
20052004
R million R million
0 100 200 300 400 500 600 700 800 900 1 000
REVENUE FROM CONTINUING OPERATIONS
2001
2002
2003
2004
2005
R million
0 10 20 30 40 50 60 70 80 90 100
HEADLINE OPERATING PROFIT FROM CONTINUING
OPERATIONS
2001
2002
2003
2004
2005
R million
AGIANNUALREPORT
LOCATIONS ACROSS THE WORLD05
2
United Kingdom
Germany
Mauritius
Southern Africa
SUSTAINABLE GROWTH FORMULA
A STRONGAND
COMMITTEDMANAGEMENT
TEAM
PURSUINGDEFINEDGOALS
THROUGHA FOCUSEDSTRATEGY
> >
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SOUTHERN AFRICA
NAMIBIA
BOTSWANA
MOZAMBIQUE
1 Upington 2 Klerksdorp 3 Cape Town 4 George 5 Port Elizabeth 6 East London 7 Durban 8 Pietermaritzburg9 Richards Bay 10 Bloemfontein 11 Nelspruit 12 Pretoria 13 Rustenburg 14 Newcastle 15 Chamdor16 Vereeniging 17 Roodepoort 18 Denver 19 Springs 20 Alrode 21 Germiston
INDIANOCEAN
ATLANTICOCEAN
Manufacturing, sales and distributionSales and distribution
1
3 4 5
6
78
910
142
1112
1315
16
1718
19
20
21
WHICHEMPLOYS
ORGANIC ANDACQUISITIVE
MEANS
IN TERMSOF A
DEFINITIVEPLAN
TO DELIVERSUSTAINABLE
GROWTH> >
AGIANNUALREPORT
THE GLASS AND ALUMINIUM MARKET05
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PRIMARY
SECONDARY
TERTIARY
Fabrication of glass and aluminium finishedproducts such as shower doors, patio doors,windows and other finished products
GLASS ALUMINIUM
Float plants worldwide manufacture rawglass in a continuous process which isdistributed into the secondary market
Aluminium billet is cast in smelters whichalso produce flat aluminium products whichare distributed into the secondary market
TIER 1TIER 1
Wholesale distribution of customised andunprocessed raw glass
Wholesale distribution of aluminiumextrusions, hardware and components
Manufacture and distribution of value addedglass products such as mirrors, laminates,tempered glass, sealed insulated glass(”SIG”) units and processed glass suppliedinto industries for installation or furtherprocessing
Manufacturing process involving theextrusion of aluminium billet into aluminiumlengths and the application of various finishesincluding powder-coating, anodising, or aunique decorative “Kal-Kote” finish
Local International Retail Fitment Replacement
TIER 3
GLASSAND
ALUMINIUMMARKET
TIER 2TIER 2
Foreign sources
Raw products
Value added products
South African sources
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AGI AND ITS MARKET
UNBENEFICIATEDPRODUCT
Customised processing
Wholesale distribution
VALUE ADDEDPRODUCT
Mirrors
Aluminium extrusions
Aluminium patio doors
Aluminium windows
Tempered safety glass
Laminated safety glass
SIG units
MARKET NEEDS
AGIMARKET
MARKET SOLUTIONS
Framed and framelessshower doors
Decorative finishes onaluminium extrusions
Technical consultancy
Project solutions
SOLUTIONS
Custom and standardisedaluminium systems
Reduction in energy costs
Sound reduction
Protection against theweather
Low maintenanceUnique “Kal-Kote” finish –the look of wood – inaluminium
Hurricane resistant laminates
SIG units and specialisedlaminated glass
SIG units and specialisedlaminated glass
Intruder proof glass
Heat-resistant SIG units withlow emissivity glass
Solar control glass
Patio doors and slidingdoors
Bath tub enclosures
Tempered glass which willnot break into shards
Value added glass interiorpanels
Large expanses of glassretaining their strengthMore natural light
Illusion of spaciousness
Protection from injury
Improved use of confinedspace
Maximum benefit frompleasant climate
Improved comfort levels
Controlling effects of solarradiation
Improved security
AGIPRODUCT
RANGEDRIVERS
AGIANNUALREPORT
EXECUTIVE DIRECTORS05
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ALEX ANTHONY BARRELL (54)
CHIEF EXECUTIVE OFFICER
Years in the industry – 29
Years with AGI – 25
Member of Audit Committee
Member of Remuneration
Committee
Alex Barrell’s entire business career
has been in the glass industry. Alex
has led the Group from modest
beginnings in 1980 at 80 square
metre premises in Johannesburg to
its current global form. Alex is widely
travelled and has countless
associations throughout the glass
and aluminium industries. He is an
incisive strategic thinker and
employs an entrepreneurial
management style.
JEFFREY CHARLES SAVILLE (58)
MANAGING DIRECTOR – GLASS
DIVISION
Years in the industry – 36
Years with AGI – 20
Jeffrey Saville’s entire business
career has been in the South African
glass industry where he has served
as a managing director for more
than 20 years both prior to and
during his time with the Group. His
associations within and experience
of the South African glass market
make him a leading figure in the
industry.
JACKIE MARTINGANO (38)
GROUP FINANCIAL DIRECTOR
BCompt (Hons)
Years in the industry – 16
Years with AGI – 16
Jackie Martingano joined the
Group in 1989 after four years in
commerce. She qualified while
employed by the Group where
she has held successive
management positions in which
she has gained an intimate
knowledge of all Group
operations. She is responsible for
the financial and company
secretarial functions in the Group.
GARNET FRANCIS DESPARD
TWIGG (51)
CHIEF OPERATING OFFICER
BA, LLB
Years associated with AGI – 4
Garnet Twigg, who trained as an
attorney in South Africa, has for the
past 18 years been engaged in
corporate consulting in the UK
focusing on the optimisation of
management effectiveness, first with
Coopers & Lybrand, and more
recently with Statumen. He brings to
the Board a wealth of experience
and expertise and is extensively
involved in change projects
throughout the Group.
MICHAEL JOHN EDWARD
GELDENHUYS (44)
GROUP TREASURY DIRECTOR
BComm (Hons)
Years in the industry – 8
Years with AGI – 8
Michael Geldenhuys’ business
career until he joined the Group in
1997 was in banking where he
achieved a senior management
position and obtained commercial
experience and specialised
knowledge of treasury and risk
management. He is responsible for
the Group’s treasury management.
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NON-EXECUTIVE DIRECTORS
HYMIE REUVIN LEVIN (60)
NON-EXECUTIVE CHAIRMAN
BComm, LLB, LLM,
H.Dip.Co.Law, H.Dip.Tax
Years associated with AGI – 23
Chairman of Audit Committee
Member of Remuneration Committee
Hymie Levin, the Group’s counsel, is a
commercial and tax attorney and a director
of several listed companies. His immense
expertise and wide experience have
contributed significantly to the Group’s
progress in the 23 years during which he
has been associated with it.
CLIVE PAUL KALIL (50)
NON-EXECUTIVE DIRECTOR
Years in the industry – 30
Years associated with AGI – 20
Clive Kalil served as the Managing
Director of the Group’s wholly
owned subsidiary AGI Aluminium
(Pty) Limited since its inception in
1983 before resigning as an
executive director and being
appointed as a non-executive
director. He brings to the Board a
wealth of experience of the
aluminium market, an increasingly
important focus of the Group.
TIMOTHY YORKE WORTHINGTON (76)
NON-EXECUTIVE DIRECTOR
Years in the industry – 46
Years associated with AGI – 19
Timothy Worthington’s entire business
career has been in the South African
glass industry of which he is regarded
as a doyen. Having managed the
Group’s Natal operations for many
years, he now contributes his vast
operational experience and his
expertise.
BRYAN ERIC DANOHER (76)
INDEPENDENT NON-EXECUTIVE
DIRECTOR
Years in the industry – 50
Years associated with AGI – 20
Member of Audit Committee
Chairman of Remuneration
Committee
Bryan Danoher’s entire working
career has been in the international
glass industry, for many years as the
managing director of a glass
manufacturing organisation. His
knowledge and experience of the
industry is extensive and his
contribution highly valued.
AGIANNUALREPORT
GROUP STRUCTURE05
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AGINDUSTRIES
LIMITED
AGI GLASS
Manufacturing Distribution
AGI ALUMINIUM
Finished Goods Systems, Lengthsand Hardware
Doors Systems
Windows Extrusions
Showers Hardware
Kal-Kote
Powder-coating
Die or ToolManufacturing
AGIINTERNATIONAL
UK
Mauritius
Germany
AGI GROUPSERVICES
Finance
Treasury
Credit Control
InformationTechnology
Property Services
Human Resources
AGISOLUTIONS
Project Marketing
TechnicalConsultancy
Custom and StandardisedSystem Design
Tempered Glass
PVB LaminatedSafety Glass
SIG Units
WholesaleDistribution
CustomisedProcessing
Exports
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OPERATIONAL HEADS AND TEAMS
SOUTH AFRICAN OPERATIONS
HEAD OF OPERATIONS
Garnet Twigg
THE TEAM
Mike Geldenhuys
Clive Kalil
Jackie Martingano
Jeff Saville
Evert Swanepoel
INTERNATIONAL OPERATIONS
HEAD OF OPERATIONS
Garnet Twigg
THE TEAM
Darko Grnjak
Peter Hewitt
Patrick Piat
Olivier Rey
John Tenderini
AGI GROUP SERVICES
HEAD OF OPERATIONS
Jackie Martingano
THE TEAM
Linda Baker
Rodney de Bruin
Mike Geldenhuys
Robert Grobbelaar
Ian Martin
AGI GLASS
HEAD OF OPERATIONS
Jeff Saville
THE TEAM
John Featherstone
Janet Lee Sun
Geoff McCann
Bertus van Niekerk
Mark Saville
Roy Schreiber
Quinton Taljaard
AGI ALUMINIUM
HEAD OF OPERATIONS
Clive Kalil
THE TEAM
Theo Aerts
Doug Dunbar
Alinka Griffiths
Stephan Marckx
Kevin Minnaar
Grant Saville
AGI SOLUTIONS AND EXTRUSIONS
HEAD OF OPERATIONS
Evert Swanepoel
THE TEAM
Rollen Mudaly
Ralph Ryan
Anton Swanepoel
Martin Volker
Mark Workman
AGIANNUALREPORT
CHAIRMAN’S REVIEW05
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OVERVIEW
Domestically AGI traded in a buoyant economy where low interest rates drove strong consumer demand. Thiswas evidenced by a weighted average 20% increase in volumes in the year under review. However, a further10% strengthening of the Rand over the year has resulted in an increased number of importers bringing incommodity type products at reduced prices. This, together with high increases in costs of distribution drivenby higher fuel costs, put pressure on operating margins for the year under review.
Internationally the economies in which AGI operates remained flat. The UK, through an improvement in itsrevenue mix and a further 26% reduction in its overheads, produced a record set of results in the current year.Although the German economy contracted for the fifth consecutive year, the operation improved its profitabilitysubstantially by concentrating on high-value markets and by cutting its overhead by a further 44%. In addition,the Denmark operation was closed as a decision was taken to service this market through the German hubthereby simplifying administration and reducing costs.
The executive committee of the Company also took a decision to close the operations in the USA and thisbusiness was sold as a going concern, effective 30 June 2005.
HEADLINE EARNINGS PER SHARE FORCONTINUING OPERATIONS GREW BY 17%
HYMIE LEVINNON-EXECUTIVE CHAIRMAN
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PERFORMANCE
Key focus areas
• Focus on growing the business organically:
o Double digit volume growth was achieved across most product sectors by focusing on customer serviceand offering a quality product to the market.
• Create a competitive business at current exchange rates:
o Overheads in a number of areas have been reduced and there was a strong focus on abating rawmaterial input costs. However, 23% inflation in costs of distribution as well as increased labour costslargely counteracted these benefits.
• Customer strategy:
o Key account management as well as focusing on areas of weakness in delivery of an unparalleled serviceto the customer base was a focus and benefits from these initiatives should be felt in the next financialyear and beyond.
Headline earnings per share for continuing operations increased by 17% to 27 cents from 21 cents.
OUTLOOK
Given AGI’s strategic advantage of being vertically integrated in the secondary market in which it operates and thecontinued growth expected in the retail sector and certain parts of the construction sector, along with thesignificant capital investments made in plant and equipment during the past two years to ensure that sufficientcapacity exists within the Group, AGI is poised for strong organic growth.
AGI is well advanced in a programme designed to ensure improved productivity at a reduced cost. This initiativewill contribute to the Group being competitive with world low-cost producers and should ensure animprovement in operating margins.
The focus in the UK and Germany will be on revenue mix, to ensure improved margins, and on maintaining orreducing the overhead to revenue ratio. This is expected to enhance profitability.
AGI will continue to focus on educating and training people within the organisation. Identification of talentedpeople through the performance measurement programme will aid in building a strong and motivated team tolead the business into the future.
RESIGNATIONS AND APPRECIATION
After a 20 year association with AGI, Clive Kalil has decided to step down as the Managing Director of AGIAluminium (Pty) Limited. He becomes a non-executive director on the AGI Board. We wish him well in hisendeavours and on behalf of the Board I would like to thank him for his loyal service and valuable contributionover the years.
I wish to thank the executive team and the employees of AGI for their dedication and commitment.
To the Group’s customers, suppliers and investors, I extend my appreciation for the support they have givenduring the year.
HYMIE LEVINNon-Executive Chairman
13 September 2005
CHAIRMAN’S REVIEW CONTINUED
OVERVIEW
AGI traded in a buoyant domestic market characterised by continued growth in consumer spending andgrowth in the residential building sector. Low interest and inflation rates and continued strengthening of theRand further drove demand. With this backdrop, AGI increased volumes in the domestic market but pricingpressure on commodity type products saw the revenue percentage rise by less than the percentage increasein volumes. Inflationary cost increases with no corresponding increases in selling prices resulted in the headlineoperating margin for continuing operations falling from 10,2% to 9,5% in the current year.
In the international markets the UK had a record year and Germany performed in line with expectation, bothoperations achieving this through improved gross margins and reducing overheads.
STRATEGIC INITIATIVES
AGI’S STRATEGY is to:
– increase market share both domestically and internationally;
– release trapped margin through increased vertical integration;
– introduce more value added products and services; and
– continuously improve on the low cost manufacturer status so that AGI is competitive globally.
BUOYANT DOMESTIC MARKET FUELS VOLUMEGROWTH OF 20%
ALEX BARRELLCHIEF EXECUTIVE OFFICER
AGIANNUALREPORT
CHIEF EXECUTIVE OFFICER’S REVIEW05
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CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED
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To achieve the strategy the Group has invested in new plant and equipment, in the amount of approximately
R31 million, in order to enhance processing capabilities both domestically and internationally.
In the Glass Division, sophisticated glass processing and cutting equipment was commissioned in the major
hubs which enables them to provide a quality service to the client base with competitive lead times. In
addition, a toughening plant was commissioned in KwaZulu-Natal to service this growing sector of the
market. This investment is expected to open new channels to market and enhance revenues and volumes
into existing channels.
In the Aluminium Division, a powder-coating plant was commissioned during the year, representing
vertical integration in this market. This resulted in improved profitability as margin was ‘trapped’ within the
division. Further vertical integration by the introduction of a second aluminium extrusion press in the first
quarter of the 2006 calendar year should also have the effect of trapping margin, thereby increasing
operating margins.
In order to improve service levels and enhance productivity, the Group has re-engineered operations by
establishing national manufacturing hubs in both the Glass and Aluminium Divisions. The Aluminium
manufacturing hub is expected to be fully operational by June 2006. This is expected to result in improved
profitability as capacity increases and costs reduce due to efficiency and productivity gains. The Glass
manufacturing hub situated in Denver achieved ISO 9001 status at the end of the financial year, attesting to the
focus on improvements in quality in the Group.
STRUCTURE
The AGI Group operates in a matrix structure in three local trading divisions:
– Unbeneficiated and Value Added Glass Division;
– Aluminium Finished Products Division, which includes doors, windows and shower enclosures, and the
Aluminium Extrusion Press including powder-coating and Kal-Kote (“Profal”); and
– The Lengths and Hardware Division (“Sheerline”).
These trading divisions service the wholesale customers. They, in turn, are serviced by two manufacturing
centres producing tempered and laminated glass and aluminium extrusions.
The Solutions Division operates as a cost centre, marshalling bids from across the Group into specified
market categories. Currently, the technical, marketing and project management competence is housed in
the Solutions Division.
OPERATIONAL HIGHLIGHTS
The Glass Division experienced trading conditions made difficult due to Rand strength. Increased raw material
input costs from local suppliers and reduced selling prices, as competitive importers prevented inflationary
increases being passed onto the market, resulted in a reduction in operating margins.
The Aluminium Finished Products Division enjoyed double digit volume growth across its product lines and
stability in its selling prices. Gross margins were slightly impacted by a change in mix but the major impact in
the current year came about as a result of increases in costs of distribution and overtime required to meet the
demand for additional volumes. The manufacturing hubs will alleviate these problems by centralising production
and distribution.
AGIANNUALREPORT
CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED05
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OPERATIONAL HIGHLIGHTS (continued)
Profal and Sheerline enjoyed an excellent year. Profal once again improved productivity and optimised its salesmix to achieve optimal gross margins. Similarly, Sheerline has outperformed expectations in trading conditionsmade difficult by the importation of aluminium extrusions.
Solutions has been successful in striking up a number of key alliances in the industry and has won a numberof prestigious projects domestically and abroad.
The international businesses have been streamlined and re-engineered to suit the economies in which theyoperate. Unprofitable businesses have been discontinued. Organic growth and improvements in margin will besought by improving service levels and concentrating on the high value sectors of the market.
OUTLOOK
AGI is confident of its ability to sustain momentum in key areas:
– volume growth should be driven by a buoyant domestic economy and further penetration into key channelsto market;
– productivity improvements, driven by the manufacturing hub, should improve margins and drive volumegrowth in the 2007 year and beyond;
– improvements in the distribution of product should reduce costs and enhance operating margins;
– improved service levels are expected to positively impact volumes and profitability;
– key alliances in the value added market are expected to increase sales and improve mix and gross margins;and
– a culture of cost consciousness and an ethic of continuous improvement in the manufacturingenvironment are expected to yield additional benefits.
APPRECIATION
I wish to extend my thanks to:
– my executive team for their hard work and commitment;
– all employees for their efforts during the year; and
– our customers for their continued support.
ALEX BARRELLChief Executive Officer
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OPERATIONAL AND FINANCIAL REVIEW
AGI’s primary segmental separation is geographic, in response to the diverse economies in which the
Group operates. “South African Operations” covers all business generating South African Rands and
“International Operations” covers all operations generating hard currencies.
SOUTH AFRICAN OPERATIONS
Demand was high in all sectors in which the South African Operations conduct business. As a consequence,
the Group experienced considerable volume growth but margins were under pressure due to strong
competition from importers, who were assisted by the strong Rand. Although the Group also took some
advantage from this by importing and therefore lowering the average input cost, this benefit was counteracted
by the additional labour cost expended to service the surge in volume growth and by the increase in
distribution costs.
As a result of double digit volume growth across most product lines, domestic revenues grew by 12%
and South African Operations’ contribution to total revenue from continuing operations rose to 90%
(2004: 88%).
Coinciding with the secondary segmental separation which divides the AGI Group into value added product
operations and into unbeneficiated product or distribution based operations, South African Operations are
reported under three segments, “unbeneficiated product”, “value added product” and “solutions”.
“Unbeneficiated product” includes all South African wholesale distribution operations, “value added product”
includes all value added manufacture and fabrication of both glass and aluminium products and “solutions”
includes all products and systems manufactured for building and construction projects.
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UNBENEFICIATED GLASS
Structure
The division operates through distribution hubs that trade both stock sheets of glass and custom orders that
are derived from cutting, edge working (polishing and bevelling) and drilling glass. The distribution hubs are
located in Gauteng, Western Cape, Eastern Cape and KwaZulu-Natal and are supported by a national network
of branch outlets.
Operations and performance
During the year under review, distribution operations experienced a volume increase of 7%, in line with market
growth, and revenue growth of 4%. Margins came under pressure from input price increases of 12% that could
not be passed on to the market and from additional imports at competitive rates, encouraged by a 10%
strengthening of the Rand. AGI’s own import programme also affected selling prices, where low value float
glass was imported and sold on in volume to first line buyers, thereby lowering average selling prices.
A substantial capital investment was made into various regional hubs, which included commissioning two
laminated cutting tables, three drilling machines and two edging machines. The full benefit of the additional
capacity this generates was not fully felt in the year but contributed to improved product mix, albeit a higher
depreciation charge. The Group expects to enjoy the full benefits of its investment in the coming year.
Both stock and debtor’s days improved.
Prospects
The economy is expected to continue to grow for the forthcoming year although the wholesale distribution
segment of the glass market is expected to remain competitive. Nevertheless, margins should improve due to
the introduction of a lower cost, more efficient supply chain and to an increase in processing and cutting
capabilities in the regional hubs, which in turn should further improve product mix. In summary we remain
confident of improved performance.
VALUE ADDED GLASS
Structure
The main value added facility is located in Denver, Johannesburg where the Group manufactures tempered
safety glass, sealed insulated glass (“SIG”) units and vinyl laminated glass using an autoclave process. Satellite
glass manufacturing operations are located in the Western Cape, Gauteng and KwaZulu-Natal, each of which
manufactures laminated glass and tempered glass.
Operations and performance
In the Value Added Glass Division volumes grew by 20% while revenue grew by 12%. The factors influencing
this market were similar to the unbeneficiated glass market in that the selling price of commodity type value
added glass products decreased as a result of importer presence in laminated glass, a product which makes up
a large part of the sales mix. Margins were affected by a substantial increase in the cost of distribution as a result
of soaring fuel prices and an increase in depreciation costs due to the commissioning of new equipment.
AGIANNUALREPORT
OPERATIONAL AND FINANCIAL REVIEW CONTINUED05
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Manufacture of tempered glass proceeded according to plan during the year under review. The plants in both
the Western Cape and Gauteng were upgraded with new software to improve both capacity and efficiency, and
a new tempering plant was brought on line during the latter half of the current year in the KwaZulu-Natal
Region. The Group now has capacity to service the increased local demand and improve lead times. The
additional capacity also creates the opportunity to broaden the product mix and, in so doing, improve margins.
The SIG manufacturing facility located in Denver, which manufacturers for custom orders, was fully utilised
during the year.
The autoclave laminating facility operated at full capacity.
Prospects
Increased capacity in toughened glass manufacture should improve service levels and add to volume growth
of the business, as well as improve the product mix and thus increase operating margins.
Organic growth should be fuelled by the pull through of increased demand by the Aluminium Division as the
new national manufacturing hub in Roodekop comes on line. Roodekop will enable the Group to enjoy further
production efficiencies and a greatly improved supply chain.
SIG continues to have a full order book and will continue to take advantage of leads generated by the
Solutions Division.
In the year ahead, enhancement and improvements will be made to the autoclave laminating facility which
should lower wastage levels, improve yield and thus contribute to improved operating margin.
The market for value added glass products is very buoyant and the Group expects a strong performance from
this division in the coming year.
VALUE ADDED ALUMINIUM
Structure
The Aluminium Division is a fabricator of aluminium and glass patio doors, shower doors and windows.
It is supported by:
– an aluminium extrusion operation;
– a hardware operation;
– a coating facility which powder-coats extrusions in a variety of finishes, including wood grain and twenty
other colours;
– a leading edge aluminium door and window design house; and
– an operation that offers systems and products for flush glazing and curtain walling.
OPERATIONAL AND FINANCIAL REVIEW CONTINUED
AGIANNUALREPORT
OPERATIONAL AND FINANCIAL REVIEW CONTINUED05
18
VALUE ADDED ALUMINIUM (continued)
The division operates from outlets in Gauteng, the Western Cape, the Eastern Cape, KwaZulu-Natal,
Mpumalanga, the Free State and Botswana and services the residential, industrial, retail and commercial
sectors of the building industry.
Operations and performance
A buoyant economy and a robust building industry saw the division experience volume growth of 30%
(2004: 20%) and revenue growth of 12% (2004: 3%) across the basket of products. The division focused on
improving customer service and increasing market penetration into core channels to market. Key alliances
were struck in retail and merchant market channels resulting in significantly increased volumes which
necessitated laying in additional labour and distribution infrastructure.
Additional capital was expended on new product development, improving product lines and acquiring plant
and equipment as part of the expansion into the new manufacturing centre at Roodekop. Many of the
benefits of this are expected to come through in the year ahead in the form of more efficient manufacturing
and distribution.
Debtor’s days moved out slightly, along with stock days although stock holding in Rand terms was
substantially higher due to the increased volumes. Payables days reduced slightly as purchases from
creditors with shorter terms became more significant in the mix.
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Prospects
The continued rationalisation of the aluminium operations during the 2006 year into Roodekop as a main
manufacturing centre servicing regional hubs is in line with the Group growth strategy to service each sector in
the markets according to its needs, both in terms of product and supply chain. The Group is confident that
once Roodekop is fully operational, it will define standards for service in the markets it serves.
SOLUTIONS
Structure
This division consists of multi skilled teams who have the technical, sales and sector specific experience to
operate both domestically and internationally in servicing of large construction projects, in both residential
and commercial arenas.
In line with our strategy to focus on channels to market, these teams have created key alliances with
architects, developers and construction and installation companies and have built a reputation for their
ability to de-risk projects, define where costs can be contained and improve design of systems.
The division’s technical capabilities are augmented with product sales from our operating divisions, and in this
way the division is measured in terms of return on investment by the Glass and Aluminium operating divisions.
In order to facilitate the cooperation between Solutions and the operating divisions the Group has formed a
matrix structure with Solutions working across the three operating divisions: unbeneficiated and value added
glass; finished products; and lengths and hardware.
Operations and performance
The division applies the vista curtain walling system to architectural design, develops technical specifications,
project manages the glass and aluminium content of large projects from the operating divisions and supervises
the installation process of AGI products and systems.
The Group experienced significant pull through in all operational divisions, having won a number of important
projects both locally and internationally.
The division also played an important part in the design stage of the new patio door and window systems for
the Aluminium Division along with the design of necessary tooling to fabricate these systems.
OPERATIONAL AND FINANCIAL REVIEW CONTINUED
AGIANNUALREPORT
OPERATIONAL AND FINANCIAL REVIEW CONTINUED05
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INTERNATIONAL OPERATIONS
“International Operations” accounts for all the business generating hard currency earnings and includes both
South African export earnings and earnings of business located outside Southern Africa.
Structure
During the period under review the International Division consisted of trading companies in the USA, UK,
Germany, Denmark and Mauritius and exports out of South Africa to countries throughout the world. Given the
disposal of the USA operations and the winding down of the Denmark operations the operational performance
has been reported on under the headings of continuing and discontinued operations.
Operations and performance
CONTINUING OPERATIONS
UK operations
The UK economy is stable with a mature glass market that enjoys a high proportion of value added products.
The focus in the year under review was to increase volumes, to lift margins and to reduce overheads. In this
regard there was a 26% reduction in overheads, coupled with an improved sales mix, which had a positive
effect on margins and contributed towards exceeding the targeted net profit. Given this platform, the business
is poised for strong organic growth in the next financial year. Should the Rand depreciate during that time, the
Group has a good opportunity to improve profitability even further, as the UK will benefit from increased exports
out of South Africa.
German operations
The German economy remains flat with very little activity taking place in the construction sector. The resultant
effect on the local operation over the past five years has been continued pricing pressure and declining
volumes. In response, the business has cut overheads by 44% by reducing headcount, simplifying
administration and concentrating the sales effort around the Hamburg hub. This has reduced distribution and
staff costs considerably. A greater focus was placed on value added processing and this has resulted in
increased gross margins. The net effect is a significant improvement in profitability for the year under review.
This, coupled with the volumes out of Denmark with little or no overheads structure, should improve both
margins and profitability for the year ahead.
Mauritius
Although Mauritius is a relatively small market, the business has almost doubled its revenue in the year under
review on the back of increased sales in unbeneficiated products. Gross margins remained unchanged and the
business delivered results in line with expectations. This business has acquired some small plant and
equipment to capture some of the local value added glass market, and this should improve product mix and
margins in the year ahead.
21
Exports
Export volumes out of South Africa decreased by 9% on the previous year with a resultant 26% decrease in
revenue. The major factors influencing this were firstly a 10% strengthening of the Rand and secondly an
inability to increase export selling prices in a globally competitive market. This coupled with increased freight
charges and inland transport costs as well as inflationary pressures on most locally made product resulted in
a lower profitability than expected.
The Group continues to supply strategic markets at reduced margins in the expectation that should the
Rand depreciate, this will represent a good growth opportunity for the Group.
DISCONTINUED OPERATIONS
Denmark operations
Due to the slow down in the Scandinavian markets in the past few years, the volume throughput in relation to
the operation overheads does not justify maintaining a local structure and it was agreed that this market could
be adequately serviced out of Germany. It was therefore decided that the business would be wound down. As
a result, the operation has been reflected as a discontinued operation in the current year.
The benefit of the winding down is two fold, that of improving Germany’s profitability and of reducing the
International Division’s overhead to revenue ratio.
USA operations
The USA business focused its sales effort on value added product and grew volumes and margins in this
sector, particularly in the sale of custom hurricane resistant glass. Unbeneficiated products, however, were
extremely competitive and volumes and selling prices reduced as a result. A cost reduction exercise was
successfully completed, resulting in a 40% reduction in the cost base. Despite this, the break even target set
by the Executive Committee was not achieved.
The Executive Committee has concluded that in order to build a sustainable business model in the USA, they
would be required to transform the business into a glass processor, which would require the Group to make a
considerable capital investment in processing equipment, at a time when such investment is better made in
South Africa. As a result, the Group has decided to dispose of the business.
Substantially all of the costs of disposing of the business have been accounted for in the current year.
The results of this business have been disclosed as a discontinued operation in the current year.
OPERATIONAL AND FINANCIAL REVIEW CONTINUED
AGIANNUALREPORT
SIX YEAR FINANCIAL REVIEW05
22
30 June 2005 2004 2003 2002 2001 2000R’000 R’000 R’000 R’000 R’000 R’000
ABRIDGED INCOME STATEMENT
CONTINUING OPERATIONS:
Revenue 924 512 829 438 793 220 698 833 519 823 441 788
Profit from operations 87 282 78 612 72 635 92 080 69 400 53 024
Net finance costs (16 275) (16 695) (21 612) (10 279) (2 291) (2 165)
Share of profits of associates 1 943 2 309 2 251 2 540 3 466 2 276
Taxation (19 923) (22 275) (20 491) (26 995) (20 509) (12 082)
Profit for the year 53 027 41 951 32 783 57 346 50 066 41 053
Headline earnings for the year 53 429 48 139 40 103 64 558 53 889 41 293
ABRIDGED BALANCE SHEET
Non-current assets 224 935 227 177 237 468 262 294 181 853 146 028
Current assets 378 170 371 240 349 910 356 832 252 631 196 819
Total assets 603 105 598 417 587 378 619 126 434 484 342 847
Equity attributable to equity holders of
the parent 296 403 293 437 294 472 312 407 248 348 199 259
Minority interest 4 404 5 109 2 551 1 284 1 754 1 268
Non-current liabilities 103 344 93 122 54 389 54 115 17 214 22 438
Current liabilities 198 954 206 749 235 966 251 320 167 168 119 882
Total equity and liabilities 603 105 598 417 587 378 619 126 434 484 342 847
ABRIDGED CASH FLOW
Changes in working capital (40 313) 1 172 (27 749) (36 127) (33 277) (22 654)
Cash flow from
operating activities 24 159 67 171 (5 079) 32 762 19 535 28 995
Cash flow from
investing activities (41 116) (21 282) (18 508) (88 134) (25 474) (37 538)
Cash flow from financing activities (2 205) 12 737 (2 197) 35 780 (23 724) 59 208
Net (decrease)/increase in cash and
cash equivalents (19 162) 58 626 (25 784) (19 592) (29 663) 50 665
SEGMENTAL REVIEW AND RATIOS
23
30 June 2005 2004 2003 2002 2001 2000R’000 R’000 R’000 R’000 R’000 R’000
GEOGRAPHICALRevenue:– Southern Africa 845 016 744 131 677 495 599 677 426 009 345 634– Europe and the USA – continuing 79 496 85 307 115 725 99 156 93 814 96 154
– discontinued 64 058 80 912 97 602 131 123 20 893 –
988 570 910 350 890 822 829 956 540 716 441 788
Profit/(loss) from operations:– Southern Africa 86 534 84 152 70 417 71 991 54 617 40 734– Europe and the USA – continuing 748 (5 540) 2 218 20 089 14 783 12 290
– discontinued (35 305) (6 438) (15 895) (663) 2 697 –
51 977 72 174 56 740 91 417 72 097 53 024
Number of employees:– Southern Africa 1 684 1 563 1 458 1 367 1 177 1 012– Europe and the USA 56 67 76 79 68 63
1 740 1 630 1 534 1 446 1 245 1 075
BUSINESS SEGMENTSRevenue:External and inter-segment sales:Unbeneficiated glass – continuing 417 137 352 976 363 980 346 330 274 067 226 645
– discontinued 64 058 80 912 97 602 131 123 20 893 –Value added products – Glass 149 806 133 727 165 170 148 631 131 930 102 714Value added products – Aluminium 621 967 555 281 545 769 441 626 264 962 156 779Services – – 10 400 – – 19 800
Gross revenue 1 252 968 1 122 896 1 182 921 1 067 710 691 852 505 938Inter-segment sales eliminated (264 398) (212 546) (292 099) (237 754) (151 136) (64 150)
988 570 910 350 890 822 829 956 540 716 441 788
STATISTICS AND RATIOS
30 June 2005 2004 2003 2002 2001 2000
Share statisticsShares in issue ('000) 195 478 195 478 195 478 195 478 192 553 191 490Weighted average number of ordinaryshares in issue ('000) 194 312 194 178 194 178 195 478 195 062 193 628Basic earnings per ordinary share (cents) 6,8 16,5 10,8 29,7 26,3 21,0Headline earnings per ordinary share (cents) 19,0 21,3 15,6 33,3 28,4 21,1Capital distribution/dividend paid per ordinary share (cents) 6,5* 6,5 5,0 7,5 6,5 5,5 Net asset value per ordinary share (cents) 152 150 151 160 129 104Number of employees 1 740 1 630 1 534 1 446 1 245 1 075
Selected ratiosInterest bearing borrowings to shareholders’ equity 39,8% 29,3% 41,7% 30,8% 11,8% –Return on shareholders’ equity 4,4% 10,9% 7,1% 18,6% 20,7% 20,4%Return on shareholders’ equity (excluding intangibles) 6,5% 17,3% 12,4% 36,5% 39,6% 39,8%Headline earnings return on shareholders’ equity (continuing operations) 18,0% 16,4% 13,6% 20,7% 21,7% 20,7%Return on total assets 2,2% 5,4% 3,6% 9,4% 11,8% 11,9%Revenue per employee (R’000) 568 559 581 574 434 411Total assets per employee (R’000) 347 367 383 428 349 319Operating margin (continuing operations) 9,4% 9,5% 9,2% 13,2% 13,4% 12,0%Current ratio (times) 1,9 1,8 1,5 1,4 1,5 1,6Quick ratio (times) 1,1 1,1 0,9 0,9 0,9 1,1
*Shareholders are entitled to either a capital distribution of 6,5 cents per share or capitalisation share award of 2,28 sharesper 100 shares held, or a combination thereof.
AGIANNUALREPORT
CORPORATE SUSTAINABILITY REPORT05
24
AGI is committed to being a responsible corporate citizen and strives to improve and measure progress made, andto adhere to guidelines set out in the King II report.
Our stakeholders include amongst others customers, shareowners, suppliers and employees.
CUSTOMERS
AGI strives to be supplier of choice to its customer base by offering quality products and expertise at competitive prices andby relentless efforts to improve and be the market leader in service levels.
As competition from importers increases based on price, our goal is to provide the market with innovative new products andtechnical expertise with an unsurpassed level of service.
Key account management was introduced during 2004 with the aim of providing responsive service to customers. Servicelevels and building of strong relationships are integral parts of staff measurement and incentives. A recent survey on servicelevels showed an 85% approval rating from customers, a testament to the success achieved in promoting good service andputting the customer first.
BLACK ECONOMIC EMPOWERMENT (BEE)
AGI is committed to supporting the success of BEE and is in the process of developing a scorecard against which goals willbe set and progress tracked.
The focus areas will be as follows:
Shareholder empowerment
AGI is listed on the JSE Limited (“the JSE”). The Company therefore has little influence over the shareholding in the Company.However, AGI recognises shareholder empowerment as a future challenge.
Human resource development and employment equity
AGI is committed to create an organisational culture, structures and processes that seek to support the development ofpeople and the optimisation of their potential. The Group aims to transform employee profiles to reflect the diversity ofthe South African demographic profile. In this regard 69% (2004: 69%) of management positions are now occupied bypreviously disadvantaged groups and almost 87% (2004: 87%) of the total staff complement is drawn from historicallydisadvantaged groups.
The Group has budgeted a substantial increase in its employee training spend for the next financial year. Progressive humanresource management ensures that talented individuals, irrespective of background, are identified and developed to their fullpotential and that progression is based on merit. The required support and appropriate education and training is provided tothose from historically disadvantaged backgrounds.
AGI is committed to ensuring that all employees work in an environment that is free from discrimination and harassment.
EMPLOYEE STATISTICS
Total number of employees at the beginning of the year 1 630Add:Recruitments 347Less:Resignations, retirements etc (237)
Total number of employees at the end of the year 1 740
CORPORATE SUSTAINABILITY REPORT CONTINUED
25
SUMMARY OF EMPLOYMENT EQUITY PROGRESS REPORT
SOUTHERN AFRICA2005 % of total 2004 % of total
Workforce as at 30 June: Namibia 33 34Workforce as at 30 June: South Africa 1 651 1 529
Total Southern Africa 1 684 1 563
Racial and gender profileNon-designated group 229 14 192 13White females 153 9 140 9Indian males 60 4 52 3Indian females 15 1 24 2Coloured males 187 11 200 13Coloured females 56 4 50 3African males 896 54 818 54African females 55 3 53 3
Occupational level profileManagement 346 21 386 25Non-management 1 305 79 1 143 75
Management profile by genderFemale 91 26 95 25Male 255 74 291 75
Management profile by raceWhites 160 46 195 51Designated groups 186 54 191 49
Non-management profile by genderFemale 188 14 172 15Male 1 117 86 971 85
Non-management profile by raceWhites 206 16 137 12Designated groups 1 099 84 1 006 88
People with disabilities by occupational levelPeople with disabilities in management 2 2People with disabilities in non-management 2 2
People with disabilities by genderFemale 2 2Male 2 2
Workforce movementResignations 75 81Non-renewal of contracts (determined by workload) 89 49Deaths 15 11Dismissals 43 35Retirements 3 1Retrenchments 12 47Appointments 347 326
AGIANNUALREPORT
CORPORATE SUSTAINABILITY REPORT CONTINUED05
26
Indirect empowerment
While every effort is made to promote BEE by vetting the credentials of the supply chain, the major raw materials supplied intothe Group i.e. glass and aluminium are sourced from the only available source domestically.
Other
An initiative to empower black independents, which is steadily gaining momentum, is the funding of freight containers for blackentrepreneurs and subsequent supply of product and support, in terms of entrepreneurial skills and business acumen. Thesesmall businesses operate in the informal sector mainly from townships around Gauteng and Mpumalanga.
ENVIRONMENTAL
AGI acknowledges it has a role to play in the preservation of the environment and has established an environmental, healthand safety committee to monitor goals and progress. Careful consideration is given to the handling of AGI waste. Safetystandards are strictly adhered to and the health and wellbeing of AGI’s workforce, its customers and the ultimate users ofits products are a commitment of the Group. The Group is in the process of completing environmental impact assessmentsfrom which a measurement system with targets for minimising the use of natural resources will be implemented. Quality isan important strategic focus of AGI. AGI has implemented a programme so that ISO 9001 quality managementaccreditation will be achieved throughout the Group. The Glass Manufacturing Division has been awarded ISO 9001 statusduring the current year.
SOCIAL
Employees
The Group strives to be an employer of choice. The proportion of employees which have been with AGI for longer than fiveyears is 40% (2004: 41%).
Long service employees
Length of service Number of employees % of total employees
Longer than 5 years 426 24Longer than 10 years 237 14Longer than 20 years 38 2
LABOUR AND MANAGEMENT RELATIONS
As a result of diversified operations, AGI observes various unions’ organisational rights. A healthy relationship is maintainedbetween management and the various union members and other employees. Consultations are held on a regular basis asrequired by the Labour Relations Act, Employment Equity and Skills Development Acts. This has resulted in a stableenvironment with no incidents of industrial action being experienced in the past year.
HIV/AIDS
The Group recognises the reality of the HIV/AIDS epidemic in the world and recognises that AIDS does not discriminateagainst culture, race or gender. The Company treats AIDS and HIV-infection as a disability in accordance with our policy onEmployment Equity.
The Group commits itself to providing resources and leadership to implement an HIV/AIDS and STD programme.
HEALTH AND SAFETY
AGI has implemented a Health and Safety Policy to ensure a safe and healthy environment. Eight major sites countrywide havebeen base line audited and graded by IRCA (International Risk Control Africa) legal compliance system. Our mainmanufacturing site in Denver has already been awarded Bronze Status, whilst our other sites have set a target of BronzeStatus initially, with a medium-term target set to achieve Diamond Status across the Group.
VALUE ADDED STATEMENT
27
30 June 2005 2004R’000 % R’000 %
Wealth createdRevenue 988 570 910 350Cost of goods and services net of other income 708 266 629 249
Value added 280 304 281 101Investment revenues 4 807 3 931
285 111 100 285 032 100
Wealth distributedTo employees as salaries, wages and other benefits 202 596 177 107To providers of capital as interest 21 481 21 469To shareholders as capital distribution 12 706 9 774To outside shareholders 1 450 2 736To government as taxation 22 635 22 137
260 868 91 233 223 82
Retained to develop future growthDepreciation and amortisation expense 23 788 29 511Retained earnings after capital distribution 455 22 298
24 243 9 51 809 18
285 111 100 285 032 100
Note: The above amounts exclude the effects of value added taxation.
MONEY EXCHANGES WITH GOVERNMENTTaxationPaid to governments (direct taxes on income) 22 635 22 137Collected on behalf of, and paid over to governments:– Employees’ taxation 28 879 26 096– Regional services council levies 2 629 1 912– Unemployment fund, workmen’s compensation and
skills development levy 4 679 4 889– Withholding taxes 83 229– Net value added taxation (VAT) 28 253 29 413
87 158 84 676
62%
18%
8%
12%
2004
Employees
Providers of capital
Government
Retained to develop future growth
71%
9%
8%
12%
2005
AGIANNUALREPORT
ANNUAL FINANCIAL STATEMENTS30 JUNE 2005 05
28
CONTENTS
29 Corporate governance
35 Remuneration report
38 Directors’ responsibility statement and certificate by the company secretary
39 Report of the independent auditors
40 Directors’ report
44 Income statements
45 Balance sheets
46 Statements of changes in equity
47 Cash flow statements
48 Notes to the cash flow statements
50 Group segmental reports
52 Notes to the annual financial statements
71 Schedule A – Schedule of interests in subsidiary companies
72 Shareholding information
CORPORATE GOVERNANCE
29
APPLICATION OF GOVERNANCE CODES
AGI is a company with securities listed on the JSE. The Company subscribes to the principles established in The Code
of Corporate Practices and Conduct as set out in the King II Report on Corporate Governance in South Africa
(“The King II Report”).
AGI is committed to provide its shareholders and other stakeholders with the assurance that the Group is being managed
ethically and in compliance with best practices. As suggested in the King II Report, items that require consideration have been
grouped together by responsibility area to provide a practical view of these considerations.
BOARD AND DIRECTORS
The Board
The Board is accountable and responsible for the performance of the Group. The Board has appointed various sub-
committees, which help to advance the business of the Board efficiently. Delegating authority to Board committees or
management does not in any way mitigate or dissipate the discharge by the Board of its duties and responsibilities.
AGI has a unitary Board structure with appropriate interaction between executive and non-executive directors. The members
have varied skills, experience and backgrounds. The executive members of the Board are well experienced in the industry in
which AGI operates. The Board has five executive and four non-executive directors. Their names and credentials appear on
pages 6 and 7.
The Board fulfils the following functions:
– gives strategic direction to the Group;
– retains full and effective control over the Group;
– monitors the implementation of Board plans and strategies by management;
– ensures that the Group complies with all relevant laws, regulations and codes of business practice;
– communicates with its shareowners and relevant stakeholders openly and promptly with substance prevailing over form;
– identifies key risks and key performance indicators of the Group and monitors these with particular attention given to
technology and systems;
– considers non-financial aspects relevant to the business of the Group; and
– defines levels of materiality, reserving specific powers to itself and delegating other matters to management.
The Board has unrestricted access to all Group information, records, documents, and property. The information needs of the
Board are well defined and regularly monitored. The Board gives careful consideration, and records the facts and assumptions
on which it relies, to conclude that the Group will continue as a going concern for the ensuing year. The Board is responsible
for the adoption of strategic plans, monitoring of operational performance and management, determination of policy and
processes to ensure the integrity of the Group’s risk management and internal controls, communications policy, and director
selection, orientation and evaluation. The Board balances the need for entrepreneurial performance and conformance with
governance constraints.
Board composition
Despite the balance between executive and non-executive directors erring in the favour of executive directors, the Board
believes that it maintains effective leadership and control of the Group. Procedures for the appointment of directors to
the Board are formal and the rotation of directors staggered in accordance with the provisions of the Company’s articles
of association.
Chairman and Chief Executive Officer
The roles of Chairman and Chief Executive Officer are separate with responsibilities divided between them for matters affectingthe Board and executive management.
The Chairman appraises the performance of the Chief Executive Officer. Non-executive directors play an important role in theevaluation of the Chairman.
Directors
The Board‘s deliberations are free from the domination of any individual director. Executive directors have the appropriateknowledge and experience necessary to effect their governance duties, and are involved in the full-time, day-to-day managementof the Group. Non-executive directors are individuals of high calibre and have skill and experience sufficient to judge issues ofstrategy, performance, resources, transformation, diversity, employment equity, and standards of conduct. They are free frominvolvement in full-time, day-to-day management of the Group.
Independent non-executive directors are free from shareowner representation, have no family, advisory or business ties with theGroup, and have not been employed by the Group in an executive capacity for the preceding three financial years.
The Board is free from the involvement of any ‘shadow director’.
Literature is provided on duties, responsibilities, powers and potential liabilities to all executive and incoming directors.Background checks, including enquiries into possible disqualifications, are done prior to the appointment of new directors.
Board and committee meetings
The Board meets at least twice annually. Both meetings were attended by all executive and non-executive directors. The committees of the Board meet at least four times annually. Additional meetings are arranged as required. Directors andcommittee members are briefed in a timely and complete manner in advance of these meetings, and are supplied with sufficientinformation to enable them to discharge their responsibilities. Meetings are conducted in accordance with a formal agenda,ensuring that all substantive matters are properly addressed.
Board and director evaluation
The remuneration committee is currently responsible for the assessment of directors. The Board has developed a nominationcommittee which identifies key objectives for the effective functioning of the Board for the subsequent year.
Board committees
The Board has established the committees listed below. Responsibilities have been established for these committees, which havebeen approved by the Board.
Audit committee
AGI’s audit committee is mandated by a charter issued by the Board. The Group’s Chief Executive Officer is the only executivemember of the committee which also comprises two non-executive directors. The external and internal auditors have directaccess to the audit committee. The audit committee meets at least twice annually to discuss and review:
– the independence, effectiveness and performance of the external auditors;– the terms, scope and fee for the audit;– key matters in the management letter and that they are being properly addressed;– the adequacy of financial records;– the appropriateness of accounting records;– the adequacy of the internal control procedures; – that the going-concern premise is appropriate; and– annual financial statements, interim reports and any other announcement to be made public.
Three meetings were held in the current year and were attended by all executive and non-executive directors who aremembers, as well as the external auditors and the internal auditor.
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Remuneration committee
The remuneration committee is subject to the direction and control of the Board. The committee comprises two non-executive
directors and the Chief Executive Officer under the chairmanship of Mr B E Danoher, an independent non-executive director.
The purpose of the remuneration committee is to ensure that the Group’s executive directors and senior management are
fairly rewarded for their individual contribution to the Group’s performance. The remuneration committee also addresses
matters of policy relating to terms of employment, thereby ensuring that the Group is able to suitably motivate and retain the
executives required to manage the Group.
The Group follows a policy of benchmarking to senior executive remuneration surveys of similar sized entities, to determine
the specific remuneration packages for executive directors of the Group.
Executive committee (“EXCO”)
The EXCO comprises the Chief Executive Officer and all the executive members of the Board. Its purpose is to discharge the
obligations of the Board on a daily basis. EXCO meets at least bi-monthly. It is responsible for the following functions:
– implementation of strategies and policies of the Group;
– managing the business and affairs of the Group;
– prioritising the allocation of capital and technical and human resources;
– establishing best management practices and functional standards;
– senior management appointments and monitoring the performance of senior management;
– ensuring that regular detailed reports are submitted to the Board in each of the businesses in which the Company
is invested;
– legal matters that could have a significant impact on the Group’s business; and
– risk philosophy, strategy and policies.
EXCO has formed sub-committees to assist in the execution of its duties. EXCO acts in accordance with, and subject to, the
directives and requirements as may be laid down from time to time by the Board.
Dealings and securities
No AGI employees may, directly or indirectly, deal in the Company’s shares on the basis of unpublished price-sensitive
information regarding the business or the affairs of the Group. No director of the Group, and no employee of the Group who
participates in the share incentive scheme, may trade in the Company’s shares during embargo periods determined in a formal
policy by the Board. These embargo periods precede publication of interim and annual financial operating results.
Company secretary
The Group Financial Director fulfils the role of Company secretary. The Company secretary fulfils extensive statutory duties as
well as providing the Board as a whole and directors individually with detailed guidance as to how their responsibilities should
be properly discharged in the best interests of the Group.
RISK MANAGEMENT AND INTERNAL CONTROL
Responsibility
The Board is responsible for the total risk management process, as well as the obligation to assess the effectiveness of
the process. The implementation, monitoring and integration of the process into the Group’s daily activities are
management’s responsibility.
RISK MANAGEMENT AND INTERNAL CONTROL (continued)
The Board has appointed a risk committee which meets monthly and is mandated by a charter issued by the Board. The riskcommittee reviews:
– legal matters that could have a significant impact on the Group’s business; and– risk philosophy, strategy and policies recommended by EXCO.
An effective process for the identification, evaluation and management of risk has been implemented by the Group. Theprocess is ongoing and is consistently reviewed for its effectiveness in establishing unacceptable exposures and initiatingactions to limit exposure to acceptable levels.
The Group’s structure requires that operating division administrative staff report to the Group Financial Director on all financialresponsibilities while reporting to their divisional chief executives on operational matters. Divisional directors, in turn, report tothe EXCO.
AGI has long utilised this dual reporting/evaluation system as part of its risk management procedures to identify internal controllapses and risk exposures in due time through ongoing monthly review procedures including:
– the daily reporting by functional division of key information including sales, margin, funding balances, inventory levels andearly warning reports on interest rate and foreign exchange exposure;
– the reporting on a monthly basis of variances in perpetual inventory shortly after month end; and – the assessment on a monthly basis of each division’s performance based on detailed management accounts and
comprehensive supporting working papers in the form of conventional year-end working paper files.
The division of responsibility between persons responsible for financial reporting and those responsible for operational mattersallows performance measurement, financial control and risk management associated with underlying operations to beaccounted for independently under the responsibility of the Group Financial Director while management of businessoperations rests with operating executives. This internal review system is supplemented by internal audit review.
Due diligence investigations in respect of all acquisitions are performed by a team of senior Group executives under the authorityof the Group Financial Director which team is, on occasion, supplemented by the external auditors. Comprehensive warrantyand indemnity provisions are included in all acquisition agreements to limit exposures not uncovered during such due diligenceinvestigations. Shortcomings which are discovered during such investigation are, if the acquisition in question proceeds,addressed in terms of the Group’s internal control and reporting standards to which acquisitions and new businesses alike areimmediately subjected so that they conform with the Group’s financial reporting and risk management structures.
The risk assessment structures employed by AGI apply uniform standards and efficient forms of communications so thatreporting accuracy, early identification of shortcomings and containment of exposures is achieved.
Exchange risks are managed with the aid of an integrated system which “marks to market” on a daily basis import creditorand export debtor sub-ledgers and optimises the benefit of covering foreign exchange exposures and borrowing atadvantageous foreign rates. Foreign currency exposures are monitored daily and adjusted with reference to the consensusforecast of major financial institutions.
The EXCO reviews risk management and internal control outcomes on a frequent and ongoing basis taking expedient actionto limit exposures when appropriate.
The Group’s risk assessment procedures address human resource risk, physical and operational risks, compliance risks,credit and business continuity risks and risks that affect the Group's economic, social and environmental targets on its triplebottom line. Technology and market risks fall to the responsibility of operating directors reporting to the EXCO.
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CORPORATE GOVERNANCE CONTINUED
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Weaknesses and failings are addressed at Board meetings.
The purpose of the review process is also to positively identify opportunities for the Group.
The risk management review procedure is supplemented by the ad-hoc evaluation of key management information (includingsales, inventory and treasury details) which is available in successive levels of detail commencing with consolidated companiesand extending to line item detail on source documents. The information is available to members of the EXCO on the decisionsupport facility which forms part of the Group’s internationally networked on-line integrated management system.
INTERNAL AUDIT
Internal audit procedures are performed to supplement the Group’s dual reporting/evaluation system in terms of whichadministrative staff report to the Group Financial Director on all financial matters while performing their operational duties underthe responsibility of operations executives, who report to the EXCO. The internal audit review procedures follow standardprogrammes with the object of improving the Group’s risk management and control processes. Executives engaged in internalaudit have direct access to the audit committee.
The Group has an internal audit department which gives further objective and independent assurance that internal controlprocedures laid down by the Board are being adhered to.
SUSTAINABILITY REPORTING
Social responsibilities
AGI’s social responsibility commitment has two objectives:
– the promotion within AGI of the “family” concept in terms of which financial and general welfare support is offered in timesof need; and
– externally, to the community at large, by the contribution to selected and deserving projects in which the aim ofempowering previously disadvantaged groups with knowledge transfer is an objective.
Bursaries are awarded to staff members to assist them to attend educational institution courses relevant to their job function.Information technology courses are offered to all staff members at no cost to themselves.
Concerning environmental safety and health issues, little threat exists of AGI operations having consequences to theenvironment given careful consideration of the handling of AGI waste. Safety standards are strictly adhered to and the healthand wellbeing of AGI’s work force, its customers and the ultimate users of its products are a commitment of the Group.
Transformation responsibilities
AGI acknowledges the importance of its employees and their loyalty and effectiveness to the Group’s ultimate success. AGIacknowledges the limitations which have prevented previously disadvantaged groups from realising their full potential. Theappointment and promotion of suitably qualified members of these groups is, accordingly, a commitment of the Group.
Worker participation through improved communication with worker representatives, particularly in matters of commonconcern, is addressed in an active policy which also encourages self-development, the promotion of equal opportunity andthe elimination of discrimination. Recommendations by AGI’s employees which are for the good of the Group and itsstakeholders are encouraged. In this regard:
– consultative internal committees comprising a cross-section of staff including senior and junior members are establishedat each workplace; and
– to empower these committees key issues are circularised regarding:– discrimination awareness;– the content of the Employment Equity Act;
Transformation responsibilities (continued)
– the role of committee members and their duty to communicate with their colleagues;– summaries of the Employment Equity Act; and– the review of the employment policies, practices and procedures to identify any barriers to employment equity and to
formulate solutions and plans to eliminate any such barriers.
Findings of these reviews and their solutions are communicated annually to the Department of Labour in reports whichaddress work force profiles in terms of occupational levels and categories by race and gender, work force movement by raceand gender in various occupational levels, skills development action by occupational category and by race and gender, andinclude a qualitative assessment regarding workforce awareness of the consultative internal committees and a quantitativeassessment regarding employment policies and practices.
Self development and the promotion of equal opportunity are advanced by AGI in a formal training programme in respect ofwhich a skills development officer is registered with the Chemical Industries Educational and Training Authority. Ongoingimplementation of this programme is overseen by in-house consultative committees.
Code of ethics
AGI’s philosophy of striving for and maintaining the highest standards dictates that all its employees must adhere to thehighest ethical standards and behave in an honest way and with high integrity in all their dealings both within and without theGroup. Suitable programmes, modified where necessary, ensure an honourable culture.
ACCOUNTING AND AUDIT
External auditors are responsible for the provision of an independent assessment of internal financial control and reporting onwhether financial statements are fairly presented and in conformity with SA GAAP. The external auditors offer reasonable, butnot absolute, assurance on the accuracy of financial disclosure. Consultation occurs between the external auditors and theaudit committee regarding the efficiency of the audit process.
Responsibility for the adequacy of the accounting records, the effectiveness of risk management and the Group’s internalcontrol structures, the appropriateness of accounting policies and the consistency of estimates is acknowledged by the Boardas is their responsibility for the preparation of the annual financial statements, adherence to applicable accounting standardsand the presentation of information that fairly presents the state of affairs and the results of the Group.
RELATIONS WITH SHARE OWNERS
AGI has a constructive dialogue with institutional investors at all times observing statutory, regulatory and other directivesregarding the dissemination of information by the Group and its directors and officers.
The Board acknowledges its responsibility to communicate a balanced and understandable assessment of the Group’sposition to its stakeholders covering both financial and non-financial information and addressing material matters of significantinterest and concern to shareholders.
IMPLEMENTATION OF GOVERNANCE CODES
The Board, its committees, individual directors, officers of the Group and senior management acknowledge their responsibilityto ensure that the principles set out in the King II Code are observed.
AGIANNUALREPORT
CORPORATE GOVERNANCE CONTINUED05
34
REMUNERATION REPORT
35
INTRODUCTION
This report on remuneration and related matters covers issues that are of concern to the Board as a whole in addition to thosewhich are dealt with by the remuneration committee.
REMUNERATION POLICIES
The remuneration committee approved and operated a framework of policies within which the remuneration of each directorhas been established. The framework is implemented in accordance with the principles of good corporate governance andthe requirements of the King II Code.
The remuneration strategy seeks to ensure that executive directors and members of executive management are rewarded fortheir contribution to AGI’s operating and financial performance, taking account of industry, market and country benchmarks.It is a basic objective of the remuneration framework that executive directors and senior management should receiveremuneration appropriate to their scale of responsibility and performance.
The remuneration strategy seeks to facilitate attraction and retention of key talents. This is accomplished through ensuring abalance across various reward domains, providing for an appropriate mix of fixed pay, bonus and long-term incentives. Duringthe year under review, appropriate focus was placed on the “total employment offering”. This ensures that in addition to anappropriate market position regarding director and executive management pay, steps are in place in respect of careermanagement.
The attraction, motivation and retention of individuals of the necessary calibre is key to the ongoing creation of competitiveadvantage within AGI. In the application of its frameworks, the remuneration committee has considered the necessity of beingcompetitive from a reward perspective in an increasingly globalised environment, while having regard to the loss of key skillsfrom South Africa to developed economies.
The remuneration committee endeavours to base pay at median levels by comparison with relevant comparative companies,to avoid paying more than is prudent for the purpose of maintaining good management.
SUMMARY OF EXECUTIVE DIRECTORS’ REMUNERATION
The remuneration packages of executive directors comprise annual salary, an annual bonus plan, participation in share optionplans, retirement funding contributions, health insurance and motor vehicle benefits. These are described below:
Executive directors’ salaries
In setting annual salary levels for the financial year to 30 June 2005 and in reviewing these for the coming financial year, arange of survey data was considered to assist the remuneration committee in its deliberations. The benchmarkingmethodology is to source and subscribe to reputable, multi-industry surveys to ensure broad cross-comparability.
Executive and non-executive directors’ salaries are set individually, based on individual contribution, overall value added andwith reference to appropriate market relativities.
At present, all executive directors are paid exclusively in South African Rands.
Executive directors’ bonuses
In addition to basic salary, each executive director is entitled to participate in the annual incentive bonus scheme. Under thisscheme they might be awarded up to approximately 50% of annual basic salary if Group, divisional and personal performanceobjectives agreed by the Board were significantly exceeded.
As a consequence of a combination of AGI’s performance and individual contribution, bonuses for executive directors werepaid out in December 2004 to the amount of R1 783 000 (as reflected on the next page) for contribution during the financialyear ending 30 June 2004.
AGIANNUALREPORT
REMUNERATION REPORT CONTINUED05
36
Retirement funding
AGI made contributions for executive directors to the AGI Provident Fund. The rate of contribution for the AGI Provident Fund,a defined contribution scheme, is 10% of retirement funding income. This percentage also covers a contribution for personallife insurance.
Other benefits
Executive directors are provided with benefits, as reflected below, which are included in their total remuneration package.
SUMMARY OF EMOLUMENTS PAID
The executive directors’ emoluments for the year ended 30 June 2005, in total were as follows:1Performance Retirement
Salary incentive Benefits funding TotalR’000 R’000 R’000 R’000 R’000
Barrell, A A 2 200 515 221 261 3 197Geldenhuys, M J E 749 193 260 80 1 282Kalil, C P 1 235 253 190 132 1 810Martingano, J 995 226 155 114 1 490Saville, J C 921 241 174 98 1 434Twigg, G F D 1 7072 355 132 189 2 383
7 807 1 783 1 132 874 11 5961 Performance incentive paid to directors in respect of performance for 12 months ended 30 June 2004 paid in December 2004.2 Included in salary is R52 479 in respect of backpay from the previous financial year.
– Salary does not include a 13th cheque.– Retirement funding includes provident fund payments.– Directors did not receive remuneration, fees, commission or profit sharing other than as disclosed.– Expenses incurred on behalf of the Company were refunded to directors.
The executive directors’ benefits for the year ended 30 June 2005, as stated, comprise the following:
Car allowance/ Medicaluse of company vehicle aid Total
R’000 R’000 R’000
Barrell, A A 171 50 221Geldenhuys, M J E 216 44 260Kalil, C P 128 62 190Martingano, J 105 50 155Saville, J C 120 54 174 Twigg, G F D 89 43 132
829 303 1 132
The executive directors’ emoluments for the year ended 30 June 2004, in total were as follows:
Performance RetirementSalary incentive Benefits funding TotalR’000 R’000 R’000 R’000 R’000
Barrell, A A 2 053 200 189 218 2 660Geldenhuys, M J E 693 85 241 76 1 095Kalil, C P 1 129 257 274 135 1 795Martingano, J 969 145 180 104 1 398Saville, J C 743 61 157 83 1 044Twigg, G F D 1 513 – 167 160 1 840
7 100 748 1 208 776 9 832
REMUNERATION REPORT CONTINUED
37
The executive directors’ benefits for the year ended 30 June 2004, as stated, comprise the following:
Car allowance/ Medicaluse of company vehicle aid Total
R’000 R’000 R’000
Barrell, A A 143 46 189Geldenhuys, M J E 201 40 241Kalil, C P 228 46 274Martingano, J 128 52 180Saville, J C 120 37 157Twigg, G F D 133 34 167
953 255 1 208
Non-executive directors’ emoluments for the year were:
2005 2004Directors’ fees R’000 R’000
Danoher, B D 70 70Levin, H R 100 100Worthington, T Y 77 72
247 242
SHARE OPTION SCHEME
Details of the option scheme for the benefit of executive directors at 30 June 2005, were as follows:
Vesting Subscription NumberDate of grant date price R of shares
2 March 2004 2 March 2005 1,90 862 5002 March 2006 1,90 1 237 5002 March 2007 1,90 1 237 5002 March 2008 1,90 1 237 500
4 575 000
Allocation to directors:
Subscription price R1,90Vesting period of option (years) 4Date of grant 2 March 2004
Barrell, A A –Geldenhuys, M J E 800 000Martingano, J 1 125 000Saville, J C –Twigg, G F D 2 650 000
4 575 000
Options exercised:
Number of shares Subscription price Exercise price Gain on exercise
Martingano, J 100 000 1,43 3,05 162 000375 000 1,90 3,05 431 250
Total 475 000 593 250
CERTIFICATE BY THE COMPANY SECRETARY
The directors of the Group are responsible for the maintenance of adequate accounting records and for the preparation ofannual financial statements that fairly present the state of affairs of the Company and the Group. The annual financialstatements have been prepared by management in accordance with South African Statements of Generally AcceptedAccounting Practice (“GAAP”) and are based on appropriate accounting policies which have been consistently applied. TheGroup's independent auditors, Deloitte & Touche, have audited the financial statements and their unqualified report appearson page 39.
The directors are also responsible for the Group's systems of internal control, which are designed to provide reasonable, butnot absolute, assurance as to the integrity and reliability of the annual financial statements and to adequately safeguard, verifyand maintain accountability of its assets, and to prevent and detect material misstatement and loss. Nothing has come to theattention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systemshas occurred during the year under review.
The annual financial statements have been prepared on a going concern basis and nothing has come to the attention of thedirectors to indicate that the Group will not remain a going concern for the foreseeable future.
The annual financial statements and reports appearing on pages 40 to 72 together with disclosures relating to directors’emoluments set out on pages 35 to 37, were approved by the Board of directors on 13 September 2005 and are signedon its behalf.
A A BARRELL J MARTINGANOChief Executive Officer Group Financial Director
13 September 2005
AGIANNUALREPORT
DIRECTORS’ RESPONSIBILITY STATEMENT05
38
I hereby certify that, to the best of my knowledge, for the year ended 30 June 2005 the Company has lodged, with theRegistrar of Companies, all such returns as are required of a public company in terms of the Companies Act 1973, asamended, and that all returns are true, correct and up to date.
J MARTINGANOCompany Secretary
13 September 2005
REPORT OF THE INDEPENDENT AUDITORS
39
TO THE MEMBERS OF AG INDUSTRIES LIMITED
We have audited the annual financial statements of the Company and the Group set out on pages 40 to 72, and pages 35to 37 for the year ended 30 June 2005. These financial statements are the responsibility of the Company's directors. Our responsibility is to express an opinion on these financial statements based on our audit.
SCOPE
We conducted our audit in accordance with statements of South African Auditing Standards. Those standards require thatwe plan and perform the audit to obtain reasonable assurance that the annual financial statements are free of materialmisstatement. An audit includes:
– examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements;
– assessing the accounting principles used and significant estimates made by management; and
– evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
AUDIT OPINION
In our opinion, the financial statements fairly present, in all material respects, the financial position of the Company andthe Group, at 30 June 2005, and the results of their operations and cash flows for the year then ended in accordancewith South African Statements of Generally Accepted Accounting Practice, and in the manner required by the CompaniesAct in South Africa.
DELOITTE & TOUCHERegistered Accountants and AuditorsChartered Accountants (SA)
Woodmead13 September 2005
AGIANNUALREPORT
DIRECTORS’ REPORT05
40
The directors have pleasure in submitting their report on the activities of the Company and the Group for the year ended 30 June 2005.
INCORPORATION AND HISTORY
AGI was founded in 1980 and operated successfully as a private company for some nineteen years. The Company listed onthe JSE on 14 July 1999, raising capital in the amount of R50,5 million.
BUSINESS AND OPERATIONS
The Group is a fabricator of value added glass and aluminium products. These performance products, as well asunbeneficiated glass, are distributed to a worldwide customer base through its operations located throughout South Africa,Namibia, Botswana, the United Kingdom, Germany and Mauritius.
FINANCIAL RESULTS
The financial results of the Company and of the Group are set out on pages 44 to 72 of this report. Profit after minority interestfor the year amounted to R13 million (2004: R32 million) and translated to headline earnings per ordinary share of 19,0 cents(2004: 21,3 cents).
The Group financial statements are presented in South African Rands, as the Rand represents the largest single currency inwhich the transactions of the Group are concluded.
Rates
Currency conversion guide – the approximate Rand cost per unit at 30 June 2005 was:
2005 2004
US Dollar– closing rate 6,64 6,26– average rate 6,18 6,90Sterling 12,00 11,32Euro 8,03 7,61Danish Kroner 0,92 0,97Swiss Franc 5,22 5,03Botswana Pula 1,19 1,29
CAPITAL DISTRIBUTION/CAPITALISATION SHARE AWARD
Ordinary
A capital distribution out of share premium of R12 706 069 (2004: R9 773 899) was proposed and paid to shareholders ofthe Company registered as such on 11 October 2004.
The Board has a policy of paying one distribution at the end of each financial year while maintaining a distribution cover ofapproximately four to five times. Due to the fall in the earnings in the current year as a result of the discontinued operations,which the Board believes is not indicative of the Group’s potential, they have decided to revise this policy for the current yearand maintain the distribution consistent with the prior year, resulting in a distribution cover of approximately one time.
The Board has resolved to distribute to ordinary shareholders a portion of the share premium account in lieu of a dividend toordinary shareholders (“the distribution”). The distribution will be paid in terms of a general authority for the Board to makesuch payments as approved by shareholders at the Company’s annual general meeting on Tuesday, 30 November 2004. The distribution will amount to 6,5 cents per ordinary share (2004: capital distribution of 6,5 cents per ordinary share).Shareholders are entitled and will be given the opportunity to decline the distribution and may elect to receive an award ofnew capitalisation shares in respect of all or part of their shareholding (“the capitalisation award”). Shareholders will be entitledto 2,28 new ordinary shares for every 100 shares held.
DIRECTORS’ REPORT CONTINUED
41
The following salient dates apply to the distribution award:
Last date to trade “cum” the distribution and/or capitalisation award Friday, 7 October 2005Trading commences “ex” the distribution and/or capitalisation award Monday, 10 October 2005Record date Friday, 14 October 2005Date of payment Monday, 17 October 2005
Share certificates may not be dematerialised or rematerialised between Monday, 10 October 2005 and Friday, 14 October2005, both days inclusive.
SHARE CAPITAL
Details of the authorised and issued ordinary share capital of the Company and the Group appear in note 15 to the annualfinancial statements. No changes have taken place in the Company's share capital during the year:
1. Authorised share capital
The authorised share capital of the Company comprises 300 000 000 ordinary shares of 0,5 cent each.
2. Issued share capital
The issued share capital of the Company comprises 195 477 974 (2004: 195 477 974) shares of 0,5 cent each.
3. Unissued share capital
Subject to the restrictions imposed by the Companies Act, 1973, the unissued shares of the Company are under thecontrol of the directors until the forthcoming annual general meeting. At the forthcoming annual general meetingshareholders will be requested to again authorise the placing of unissued shares of the Company under the control of thedirectors. It should be noted that the directors may not issue ordinary shares, in any one financial year, for cash orotherwise, if the issue exceeds 10% of the Company’s issued ordinary share capital.
RENEWAL OF AUTHORITY FOR THE REPURCHASE OF SHARES
The conditions relating to the repurchase by the Company of its own shares are governed by the Company’s articles ofassociation which provide, inter alia, that this authority shall not extend beyond the date of the forthcoming annual generalmeeting, unless such authority is renewed by shareholders in general meeting. At the forthcoming annual general meetingshareholders will accordingly be requested to renew this authority until the next annual general meeting to be held inNovember 2006.
SHARE INCENTIVE SCHEME
The Africa Glass Industries Share Incentive Trust (“the Trust”) was established for the purpose of the Africa Glass IndustriesLimited Share Incentive Scheme (“the scheme”) and is composed of a minimum of two trustees. Messrs A A Barrell and C H Boulle were appointed as trustees on incorporation of the Trust. In terms of the scheme, the aggregate number of ordinaryshares which may be made available for purposes of the scheme shall not exceed 7,5% of the Company’s issued ordinaryshare capital.
The scheme is a combination scheme in terms of which, at the discretion of the Board, duly authorised, ordinary sharesmay be offered for immediate or deferred sale to specified employees of the Group or share incentive options granted tosuch employees.
The price payable by participants for scheme securities will be the middle market price at which the shares are traded on theJSE on the trading day immediately preceding the date upon which the Board resolves to sell ordinary shares in terms of thescheme, or to grant an option in terms of the scheme.
Scheme securities acquired by a participant in the scheme will be released to the participant in four annual tranchescommencing on the first anniversary of an offer/acceptance date and will expire after five years.
The directors and staff of the Group have been allocated shares which are based on incentive based performance criteria.The Group has loaned funds to the Trust.
AGIANNUALREPORT
DIRECTORS’ REPORT CONTINUED05
42
SHARE INCENTIVE SCHEME (continued)
The following movements in shares have taken place during the year under review:
Number of shares Average price R
Options outstanding at the beginning of the year 9 597 000 1,93Options cancelled (2 115 000) 1,91Options exercised (695 000) 1,79
Options outstanding at the end of the year 6 787 000 1,95
Expiry date Number of shares Average strike price R
2006 3 617 000 1,992007 1 585 000 1,902008 1 585 000 1,90
6 787 000 1,95
PREFERENCE SHARE CAPITAL AND PREMIUM
The authorised preference share capital of the Company comprises 30 authorised cumulative, redeemable preference sharesof R1 each and 300 000 cumulative preference shares of 1 cent each. No preference shares are currently in issue.
DIRECTORATE AND ADMINISTRATION
The names of the directors appear on pages 6 and 7 and the Company secretary as well as the business and postaladdresses appear on page 73 of this report.
In terms of the articles of association of the Company, A A Barrell, J Martingano and G F D Twigg retire at the forthcomingannual general meeting and, being eligible, stand for re-election.
As at 30 June 2005, the direct and indirect, beneficial and non-beneficial interest of the directors in the fully paid issued sharecapital of the Company was 33 780 393 shares (2004: 35 925 368) held as follows:
Beneficial Non-beneficial
Direct Indirect Direct Indirect
2005 2004 2005 2004 2005 2004 2005 2004
Executive directors
A A Barrell – – 18 488 020 18 488 020 604 810 1 299 810 1 206 128 1 206 128
M J E Geldenhuys 477 354 752 354 – – – – 4 600 4 600
J Martingano 321 900 446 900 – – – – – –
J C Saville 7 000 000 7 318 175 – – – – 37 300 7 300
G F D Twigg – – – – – – – –
Non-executive directors
B E Danoher 50 000 50 000 – – – – – –
C K Kalil – – 3 121 234 3 721 034 – – 20 100 82 100
H R Levin 752 000 752 000 – – – – – –
T Y Worthington 13 440 13 440 1 683 507 1 783 507 – – – –
The transfer secretaries are Computershare Investor Services 2004 (Proprietary) Limited. Details of their business and postal addresses
appear on page 73 of this report.
DIRECTORS’ REPORT CONTINUED
43
INVESTMENT IN SUBSIDIARY AND ASSOCIATED COMPANIES
1. Disposals
During the year under review, Gulfstar Industries Inc. was liquidated and AGI USA/Fabrication Inc. was disposed of,effective 30 June 2005 for a consideration of USD 700 000.These businesses represented the Group’s operations in theUSA. KAB Allglass Scandinavia A/S ceased trading on 30 June 2005. The results of these operations have beendisclosed as discontinued operations.
2. Acquisitions
A further 7,5% was acquired in West Cape Safety Glass (Proprietary) Limited for a consideration of R2 590 970 and afurther 15,1% was acquired in Africa Glass Namibia (Proprietary) Limited for a consideration of R1 227 934.
The details in respect of the Company's interests in its subsidiary companies are set out in schedule A on page 71 of theannual financial statements.
The aggregate profits and losses after taxation of the subsidiaries attributable to the Company are as follows:
– profits R51 973 043 (2004: R48 389 860)– losses R39 253 005 (2004: R12 453 290)
Details of the associated companies are set out in note 10 to the annual financial statements.
SPECIAL RESOLUTIONS
The following special resolutions were passed during the year under review:
– AG Industries Limited:
– General authority to acquire own shares.
– Other special resolutions passed during the year relate to the change of name of other subsidiaries, and are not consideredmaterial to this report.
POST BALANCE SHEET EVENTS
During August 2005, the Group acquired part of the economic business entity of Coral Glass (Proprietary) Limited, being theframed mirror business, for a consideration of R3 500 000.
The directors are not aware of any material events not otherwise dealt with in the annual report that would affect the operationsof the Group significantly.
BORROWING POWERS
There are no limitations on the directors' borrowing powers in terms of the articles of association of the Company orits subsidiaries.
COMPOSITION OF GROUP COMMITTEES
The composition of the Board and the Group audit, remuneration and other sub-committees are reflected in the sectiondealing with corporate governance.
AGIANNUALREPORT
INCOME STATEMENTSFOR THE YEAR ENDED 30 JUNE 200505
44
COMPANY GROUP
Restated2005 2004 2005 2004
R’000 R’000 Notes R’000 R’000
CONTINUING OPERATIONS:– – Revenue 924 512 829 438
48 035 12 819 Other operating income 12 210 22 616Changes in inventories of finished goods and
– – work in progress 2 918 21 822– – Raw materials and consumables used (507 590) (485 790)– – Employee benefits expense (195 125) (168 396)
(1 140) (1 040) Depreciation, amortisation and impairment expense 3 (22 988) (25 077)– – Foreign exchange gains/(losses) 3 010 (1 511)
(75) (122) Other operating expenses (129 665) (114 490)
46 820 11 657 Profit from operations 3 87 282 78 6121 180 1 Investment revenues 4 802 3 912
(824) – Finance costs 4 (21 077) (20 607)– – Share of profit of associates 10 1 943 2 309
47 176 11 658 Profit before taxation 72 950 64 226(87) 62 Taxation 5 (19 923) (22 275)
47 089 11 720 Profit from continuing operations for the year 53 027 41 951
DISCONTINUED OPERATIONS:– – Loss from discontinued operations for the year 6 (38 416) (7 143)
47 089 11 720 Profit for the year 14 611 34 808
Attributable to:47 089 11 720 Equity holders of the parent company 13 161 32 072
– – Minority interest 1 450 2 736
47 089 11 720 Profit for the year 14 611 34 808
Basic earnings per ordinary share (cents) 7 6,8 16,5Diluted basic earnings per share (cents) 7 6,5 16,1
Headline earnings per ordinary share (cents) 7 19,0 21,3Diluted headline earnings per ordinary share (cents) 7 18,3 20,8
Capital distributionCapital distribution per ordinary share (cents) 7 6,5 5,0Capital distribution cover (times) 7 1,0 3,3
*Capital distribution/capitalisation share awarddeclared in respect of financial year
Capital distribution per ordinary share (cents) – 6,5Capital distribution per ordinary share (cents), and/or 6,5 –Capitalisation share award per 100 ordinary shares (shares) 2,28 –Capital distribution (times) 1,0 2,5
*Refer directors’ report
BALANCE SHEETS30 JUNE 2005
45
COMPANY GROUP
Restated2005 2004 2005 2004
R’000 R’000 Notes R’000 R’000
ASSETSNon-current assets
– – Property, plant and equipment 8 103 235 88 424– – Goodwill 8 86 905 99 340
7 147 8 287 Other intangible assets 8 7 184 8 997143 098 106 826 Investment in subsidiaries 9 – –
3 126 3 126 Investment in associates 10 12 317 11 715359 364 Other unlisted investments 11 359 2 382
– – Long-term receivable 12 5 894 3 158– 13 Deferred taxation assets 13 9 041 13 161
153 730 118 616 224 935 227 177
Current assets– – Inventories 14 151 505 148 587– 63 Trade and other receivables 20 203 692 182 298
25 654 26 218 Amounts owed by subsidiaries – –168 228 Taxation 6 091 12 779
8 107 15 Cash and cash equivalents 23 16 882 27 576
33 929 26 524 378 170 371 240
187 659 145 140 Total assets 603 105 598 417
EQUITY AND LIABILITIESCapital and reserves
86 296 99 002 Ordinary share capital and premium 15 85 081 96 295(1 019) (1 295) Non-distributable reserves 2 072 2 905
92 353 45 264 Retained earnings 209 250 194 237
177 630 142 971 Equity attributable to equity holders of the parent 296 403 293 437– – Minority interest 4 404 5 109
177 630 142 971 Total equity 300 807 298 546
Non-current liabilities– – Shareholder’s loan 16 4 252 3 944– – Deferred income 485 –– – Long-term lease accrual 21 205 18 586– – Deferred taxation liabilities 13 11 713 10 855– – Borrowings due after one year 17 32 456 34 055
Obligations under finance lease agreements – – due after one year 18 33 233 25 682
– – 103 344 93 122
Current liabilities8 079 – Trade and other payables 21 128 722 141 9501 809 1 301 Amounts owed to subsidiaries – –
28 12 Shareholders for dividend 28 12113 113 Amounts due to vendors within one year 19 176 176
– – Borrowings due within one year 17 9 223 8 027Obligations under finance lease agreements
– – due within one year 18 15 756 12 615– – Taxation 4 980 14 491– 743 Bank borrowings 22 40 069 29 478
10 029 2 169 198 954 206 749
10 029 2 169 Total liabilities 302 298 299 871
187 659 145 140 Total equity and liabilities 603 105 598 417
AGIANNUALREPORT
STATEMENTS OF CHANGES IN EQUITYFOR THE YEAR ENDED 30 JUNE 200505
46
Fair valueForeign Non-distri- movement Attributable
currency butable on available to equitytranslation/ reserves for sale holders of
Share Share redemption relating to financial Retained the parent Minority Totalcapital premium reserve associates instruments earnings company interest equityR’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000
GROUP
Balance at 30 June 2003 978 107 798 4 307 7 517 – 163 026 283 626 2 551 286 177
– as previously stated 978 107 798 4 307 7 517 – 173 872 294 472 2 551 297 023 – prior year adjustment
– AC 105: Leases – – – – – (10 846) (10 846) – (10 846)
Treasury shares (6) (2 766) – – – – (2 772) – (2 772)Fair value adjustment – – – – 233 – 233 – 233Consolidation of share incentive trust – – – – – 211 211 – 211Share of profits of associates – – – 1 072 – (1 072) – – –Profit for the year – – – – – 32 072 32 072 2 736 34 808
– as previously stated – – – – – 34 422 34 422 2 736 37 158 – prior year adjustment
– AC 105: Leases – – – – – (2 350) (2 350) – (2 350)
Net exchange rate adjustment – – (10 224) – – – (10 224) – (10 224)Dividend paid – – – – – – – (178) (178)Capital distribution – (9 774) – – – – (9 774) – (9 774)Capital distribution on treasury shares – 65 – – – – 65 – 65
Restated balance at 30 June 2004 972 95 323 (5 917) 8 589 233 194 237 293 437 5 109 298 546
Treasury shares disposed of 3 1 405 – – – – 1 408 – 1 408Fair value adjustment – – – – 317 – 317 – 317Available for sale assets realised – – – – (470) 470 – – –Share of profits of associates – – – 602 – (602) – – –Profit for the year – – – – – 13 161 13 161 1 450 14 611 Net exchange rate adjustment – – 702 – – – 702 – 702 Exchange rate adjustment realised on disposal of subsidiary – – (1 984) – – 1 984 – – –Dividend paid – – – – – – – (779) (779)Minority interest acquired – – – – – – – (1 376) (1 376)Capital distribution – (12 706) – – – – (12 706) – (12 706)Capital distribution on treasury shares – 84 – – – – 84 – 84
Balance at 30 June 2005 975 84 106 (7 199) 9 191 80 209 250 296 403 4 404 300 807
COMPANY
Balance at 30 June 2003 978 107 798 (959) – – 33 544 141 361 – 141 361
Fair value adjustment – – – – 80 – 80 – 80 Profit for the year – – – – – 11 720 11 720 – 11 720 Net exchange rate adjustment – – (416) – – – (416) – (416)Capital distribution – (9 774) – – – – (9 774) – (9 774)
Balance at 30 June 2004 978 98 024 (1 375) – 80 45 264 142 971 – 142 971
Profit for the year – – – – – 47 089 47 089 – 47 089Net exchange rate adjustment – – 276 – – – 276 – 276 Capital distribution – (12 706) – – – – (12 706) – (12 706)
Balance at 30 June 2005 978 85 318 (1 099) – 80 92 353 177 630 – 177 630
CASH FLOW STATEMENTSFOR THE YEAR ENDED 30 JUNE 2005
47
COMPANY GROUP
2005 2004 2005 2004R’000 R’000 Notes R’000 R’000
57 516 (14 035) CASH FLOW FROM OPERATING ACTIVITIES: A 24 159 67 171
CASH FLOW FROM INVESTING ACTIVITIES:(35 996) 26 019 (Increase)/decrease in loans to subsidiaries – –
– – Acquisition of additional interest in subsidiaries D (3 819) –– – Dividend received from associate 780 5855 36 Decrease in other unlisted investments 2 260 36– – Additions to property, plant and equipment E (41 999) (25 381)– – Proceeds on disposal of property, plant and equipment F 1 662 3 478
(35 991) 26 055 Net cash (outflow)/inflow from investing activities (41 116) (21 282)
CASH FLOW FROM FINANCING ACTIVITIES:(12 690) (9 769) Capital distribution/dividend to shareholders G (12 606) (9 704)
– – Decrease in shareholder’s loan (191) (1 240)– – Treasury shares disposed of 1 408 –– – (Decrease)/increase in borrowings due after one year (1 598) 24 680
Increase/(decrease) in obligations under finance lease – – agreements due after one year 7 550 (3 670)
Decrease in amounts due to vendors– (352) within one year – (352)– – Increase in borrowings due within one year 875 861
Increase in obligations under finance lease– – agreements due within one year 3 136 2 340– – Dividend to minority shareholders (779) (178)
(12 690) (10 121) Net cash (outflow)/ inflow from financing activities (2 205) 12 737
8 835 1 899 Net (decrease)/ increase in cash and cash equivalents (19 162) 58 626(728) (2 627) Cash and cash equivalents at beginning of the year (1 902) (60 969)
– – Cash and cash equivalents disposed of H (2 604) –Foreign exchange loss on translation of foreign
– – subsidiaries 445 817– – Foreign currency translation reserve on cash 36 (376)
CASH AND CASH EQUIVALENTS AT END OF 8 107 (728) THE YEAR I (23 187) (1 902)
AGIANNUALREPORT
NOTES TO THE CASH FLOW STATEMENTSFOR THE YEAR ENDED 30 JUNE 200505
48
COMPANY GROUP
2005 2004 2005 2004R’000 R’000 R’000 R’000
A. CASH FLOWS FROM OPERATING ACTIVITIES:
47 176 11 658 Profit before taxation 37 246 56 945Adjusted for:
– – Net loss on disposal of property, plant, and equipment 191 194– – AC 105 rental adjustment 2 626 3 311– – Loss on disposal of subsidiary 6 065 –
1 140 1 040 Depreciation and amortisation expense 23 788 29 511Impairment of property, plant, equipment and
– – intangible assets 16 347 –(1 180) (1) Investment revenues (4 807) (3 931)
824 – Finance costs 21 481 21 469– – Share of profits of associates (1 943) (2 309)
47 960 12 697 Profit from operations before working capital changes 100 994 105 190
– – Increase in inventories (8 460) (20 171)63 (8) (Increase)/decrease in trade and other receivables (24 805) (16 944)
1 072 (26 593) Decrease/(increase) in amounts owed to/(by) subsidiaries – –8 079 – (Decrease)/increase in trade and other payables (7 048) 38 287
57 174 (13 904) 60 681 106 362
1 180 1 Investment revenues 4 807 3 931(824) – Finance costs (21 481) (21 469)(14) (132) Taxation paid (note B) (19 537) (21 653)
– – Secondary taxation on companies paid (note C) (311) –
57 516 (14 035) 24 159 67 171
B. TAXATION PAID:(228) (64) Amount unpaid/(overpaid) at beginning of the year 1 712 2 408
Amount charged to the income statement 74 (32) (excluding deferred taxation) 16 671 21 085
– – Foreign currency translation adjustment 43 (128)168 228 Amount overpaid/(unpaid) at the end of the year 1 111 (1 712)
14 132 19 537 21 653
C. SECONDARY TAXATION ON COMPANIES PAID:– – Amount charged to the income statement 311 –
– – 311 –
NOTES TO THE CASH FLOW STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2005
49
COMPANY GROUP
2005 2004 2005 2004R’000 R’000 R’000 R’000
D. ACQUISITION OF ADDITIONAL INTEREST IN SUBSIDIARIES:
– – Outside shareholders’ interest acquired 1 376 –– – Goodwill 2 443 –
– – Net assets acquired 3 819 –
E. ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT:– – Plant and machinery 30 833 10 402– – Office furniture and equipment 4 464 5 443 – – Motor vehicles 5 701 8 194– – Leasehold improvements 1 001 1 342
– – 41 999 25 381
F. PROCEEDS ON DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT:
– – Net book value of property, plant and equipment disposed of 1 853 3 672– – Net loss on disposal of property, plant and equipment (191) (194)
– – 1 662 3 478
G. CAPITAL DISTRIBUTION/DIVIDEND TO SHAREHOLDERS:12 7 Amount unpaid at the beginning of the year 12 7
12 706 9 774 Capital distribution against share premium 12 622 9 709(28) (12) Amounts unpaid at the end of the year (28) (12)
12 690 9 769 12 606 9 704
H. DISPOSAL OF SUBSIDIARY:– – Property, plant, equipment and intangible assets (2 886) –– – Inventories (6 131) –– – Trade and other receivables (7 026) –– – Trade and other payables 7 535 –
– – (8 508) –
– – Purchase price due included in accounts receivable 4 647 –– – Cash and cash equivalents disposed of (2 604) –– – Loss on disposal of subsidiary 6 065 –– – Foreign currency translation adjustment 400 –
– – Cash effect of disposal – –
I. CASH AND CASH EQUIVALENTS:8 107 15 Bank balances and cash 16 882 27 576
– (743) Bank borrowings (40 069) (29 478)
8 107 (728) (23 187) (1 902)
AGIANNUALREPORT
GROUP SEGMENTAL REPORTSFOR THE YEAR ENDED 30 JUNE 200505
50
The segment information set out below is based on the requirements of AC 115: Segment Reporting. For management purposes the Groupis split into two geographical segments – Southern Africa and International (consisting of mainly Europe). These segments represent thebasis on which all management and performance measurement decisions are taken and are the basis on which the Group reports itsprimary segment information.
GEOGRAPHICAL
2005
CONTINUING OPERATIONS DISCONTINUED OPERATIONS
Eliminations/ Eliminations/
headline Total Europe headline Total
Southern earnings continuing and the earnings discontinued Total
Africa Europe adjustment operations USA adjustment operations Group
R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000
Revenue
External sales 845 016 79 496 – 924 512 64 058 – 64 058 988 570
Inter-segment sales 227 161 37 237 (264 398) – – – – –
Total revenue 1 072 177 116 733 (264 398) 924 512 64 058 – 64 058 988 570
Result
Profit/(loss) from operations 86 986 772 (476) 87 282 (11 999) (23 306) (35 305) 51 977
Investment income 4 802 5 4 807
Finance costs (21 077) (404) (21 481)
Share of profit of
associates 1 943 – 1 943
Profit/(loss) before taxation 72 950 (35 704) 37 246
Other information
Capital additions 43 769 634 – 44 403 39 – 39 44 442
Depreciation, amortisation
and impairment expense 22 577 411 – 22 988 17 147 – 17 147 40 135
2004
Revenue
External sales 744 131 85 307 – 829 438 80 912 – 80 912 910 350
Inter-segment sales 173 665 38 881 (212 546) – – – – –
Total revenue 917 796 124 188 (212 546) 829 438 80 912 – 80 912 910 350
Result
Profit/(loss) from operations 88 851 (4 020) (6 219) 78 612 (3 325) (3 113) (6 438) 72 174
Investment income 3 912 19 3 931
Finance costs (20 607) (862) (21 469)
Share of profit of associates 2 309 – 2 309
Profit/(loss) before taxation 64 226 (7 281) 56 945
Other information
Capital additions 23 796 191 – 23 987 1 394 – 1 394 25 381
Depreciation, amortisation
and impairment expense 23 391 1 686 – 25 077 4 434 – 4 434 29 511
GROUP SEGMENTAL REPORTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2005
51
BALANCE SHEET
Net assets/ Net assets/Assets Liabilities (liabilities) Assets Liabilities (liabilities)
2005 2005 2005 2004 2004 2004R’000 R’000 R’000 R’000 R’000 R’000
CONTINUING OPERATIONS:Southern Africa 488 363 (93 251) 395 112 439 499 (133 947) 305 552Europe 75 557 (39 849) 35 708 71 017 (17 997) 53 020Investment in associates 12 317 – 12 317 11 715 – 11 715Unallocated corporate assets/(liabilities) 25 923 (168 569) (142 646) 40 885 (124 832) (83 947)
602 160 (301 669) 300 491 563 116 (276 776) 286 340
DISCONTINUED OPERATIONS:Europe and the USA 945 (629) 316 35 301 (23 095) 12 206
603 105 (302 298) 300 807 598 417 (299 871) 298 546
The average number of employees for the year in each of the Group’s principal divisions was as follows:
GROUP
2005 2004
Southern Africa 1 684 1 563Europe and the USA 56 67
1 740 1 630
BUSINESS SEGMENT
CONTINUING DISCONTINUEDOPERATIONS OPERATIONS
2005 2004 2005 2004R’000 R’000 R’000 R’000
RevenueExternal and inter-segment sales:Unbeneficiated products 417 137 352 976 64 058 80 912Value added products – Glass 149 806 133 727 – –Value added products – Aluminium 621 967 555 281 – –
1 188 910 1 041 984 64 058 80 912Inter-segment sales eliminated (264 398) (212 546) – –
Total revenue 924 512 829 438 64 058 80 912
Carrying amount of segment assetsUnbeneficiated products 148 332 136 649 945 35 301Value added products – Glass 123 336 118 529 – –Value added products – Aluminium 270 921 236 155 – –Services 50 530 64 012 – –Unallocated corporate assets 9 041 7 771 – –
602 160 563 116 945 35 301
Additions to property, plant, equipment, goodwill and other intangible assetsUnbeneficiated products 2 450 1 700 39 1 394Value added products – Glass 21 495 3 704 – –Value added products – Aluminium 16 436 12 443 – –Services 4 022 6 140 – –
44 403 23 987 39 1 394
AGIANNUALREPORT
NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 200505
52
1. PRESENTATION OF FINANCIAL STATEMENTS
The financial statements are presented in Rands, since that is the currency in which the majority of the Group’stransactions are denominated, and cover the 12 month period ended 30 June 2005.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The annual financial statements are prepared in accordance with South African Statements of GAAP. The principalaccounting policies adopted are set out below. The accounting policies remain unchanged from the previous year, exceptfor the adoption of the new accounting statement AC 140: Business Combinations.
The effects of the change in accounting policy are as follows:
AC 140: Business Combinations has been adopted for business combinations entered after 31 March 2004. Theprincipal impact of the new statement is the recognition of all identifiable assets, liabilities and contingent liabilities at thedate of acquisition. Goodwill was previously recognised at cost less accumulated amortisation. Goodwill was amortisedon a straight line basis over its estimated useful life, up to a maximum of 20 years.
Goodwill is now carried at cost less accumulated impairment losses and is no longer amortised. Impairment reviews aredone annually, or more frequently if there is an indication that goodwill might be impaired. This had no impact on thecomparatives.
If the Group had continued to amortise goodwill, it would have recorded an amortisation expense in the income statement of R6 010 203 for the year. The Group incurred an expense of R15 478 822 as a result of the impairment of goodwill in thediscontinued operations.
In the current year the Group adopted the revised interpretation of AC 105: Leases, in line with circular 7/2005 issued bySAICA on 2 August 2005. The effects of the adoption of the revised interpretation of the accounting policy is as follows:
AC 105: Leases require payments under an operating lease with a fixed escalation to be recognised as an expenseon a straight line basis over the lease term unless another systematic basis is more representative of the time patternof the benefit arising from the use of the leased asset. Previously the Group recognised the operating lease expensein the same period in which it was incurred. The Group changed this policy and now recognises lease rentals with afixed escalation on a straight line basis over the term of the lease. The financial statements have been restated toreflect the change.
The financial impact of the adoption of the revised interpretation of AC 105 is summarised as follows:
COMPANY GROUP
2005 2004 2005 2004R’000 R’000 R’000 R’000
Profit for the year before adoption of revised 47 089 11 720 interpretation of AC 105 15 024 34 422
Restatement:– – Additional charge to the income statement (2 626) (3 311)– – Deferred tax thereon 763 961
47 089 11 720 Profit for the year 13 161 32 072
45 264 33 544 Opening retained earnings as previously stated 207 433 173 872Restatement:
– – Additional charge to the income statement (18 586) (15 276)– – Deferred tax thereon 5 390 4 430
45 264 33 544 Restated opening retained income 194 237 163 026
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2005
53
2.1 Basis of consolidation
The Group annual financial statements incorporate the financial statements of the Company, its subsidiaries and
the share incentive trust. The operating results of the subsidiaries are included from the effective dates of
acquisition or up to the effective dates of disposal as appropriate and, where necessary, adjustments are made to
the financial statements of subsidiaries to bring accounting policies used in line with those used by other members
of the Group.
On acquisition, the assets and liabilities of the relevant subsidiaries are measured at their fair values at the date of
acquisition. All significant inter-company transactions and balances are eliminated. On the acquisition of
subsidiaries, goodwill is treated in terms of the Group's accounting policy for goodwill as explained in note 2.4.
2.2 Associated companies
Associated companies are those companies in which the Group holds an interest and over which it has the ability
to exercise significant influence and which are neither subsidiaries nor joint ventures.
Associated companies are accounted for by the equity method in the Group annual financial statements from the
date they become investees.
Equity accounted income, which is included in the respective carrying values of the investments, represents the
Group's proportionate share of the associates' retained earnings after accounting for dividends payable by
those associates.
The post-acquisition share of retained earnings of associates is included in the consolidated income statement and
transferred to a non-distributable reserve.
Provision is made when there has been an impairment in the carrying value of an interest in an associate. Where
the equity method results in the Group's proportion of an associate's losses being greater than or equal to the
carrying value of the associate, the associate is carried at nil or at a nominal amount. Where associated companies
have a year end other than 30 June 2005, the latest available management accounts have been used.
2.3 Property, plant and equipment
Property, plant and equipment are stated at historical cost to the Group, less accumulated depreciation.
Depreciation is provided for on the straight line method at various annual rates designed to reduce costs or book
values to estimated residual values over the anticipated useful lives of the assets. Depreciation is provided on the
various classes of assets at the following rates:
%
Leasehold improvements 5
Computer hardware and software 33,3–100
Office furniture and equipment 10
Plant and machinery 15
Motor vehicles 20
2.4 Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in
the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary at the date of acquisition.
Goodwill is recognised as an asset at cost and is subsequently measured at cost less any accumulated
impairment losses.
AGIANNUALREPORT
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 200505
54
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.4 Goodwill (continued)
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected
to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently where there is an indication that the unit may be impaired. If the
recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of
the unit pro-rata on the basis of the carrying amount of each unit in the asset. The recoverable amounts of the
Group’s cash-generating units are determined by using a discounted price earnings ratio of the Group’s most
comparable peers listed on the JSE multiplied by that unit’s sustainable profit after taxation. The Group’s most
comparable peers’ price earnings ratios have been discounted by 15% based on a SWOT analysis performed on
the Group at the time of the analysis. An impairment loss recognised for goodwill is not reversed in a
subsequent period.
Goodwill arising on the acquisition of an associate is included within the carrying amount of the associate.
Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet.
On disposal of a subsidiary or associate, the attributable amount of unamortised and unimpaired goodwill is
included in the determination of the profit or loss on disposal.
2.5 Intangible assets
Know-how payments are carried at historical cost less accumulated amortisation. The asset is amortised on a
systematic basis following an assessment of the foreseeable life of the asset, subject to a maximum of 20 years.
The restraints of trade are carried at historical cost, less accumulated amortisation. The restraints of trade are
amortised over a period calculated on the difference between the age of the recipient of the restraint payment and
a retirement age of 65 years, this being considered the pattern in which the asset’s economic benefits are
consumed by the Group. These restraints are valued on an annual basis, and where, in the opinion of the directors,
an impairment has arisen, appropriate provision is made.
2.6 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is
based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet date.
Deferred taxation is accounted for using the balance sheet liability method in respect of temporary differences
between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis
used in the computation of taxable income. In principle, deferred tax liabilities are recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profit will
be available against which deductible temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the
liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items
credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2005
55
2.7 Leased assets
Assets leased in terms of agreements which are considered to be finance leases are capitalised at their fair value
at the date of acquisition. The corresponding liability to the lessor, net of finance changes, is included in the balance
sheet as a finance lease obligation. Capitalised leased assets are depreciated on the straight line basis at various
annual rates considered appropriate to reduce book values to estimated residual values over the anticipated useful
lives of the assets. Lease payments are allocated between finance costs and capital repayments using the effective
interest rate method. Lease finance costs are charged to operating profit as they become due.
All other leases are classified as operating leases. Rentals payable are charged to operating profit on a straight line
basis over the term of the relevant lease.
2.8 Inventories
Raw materials, consumables, work in progress and finished goods are valued at the lower of cost and net realisable
value. Cost is determined on the following bases:
– raw materials and consumables are valued at invoice cost on the first-in, first-out basis, and
– work in progress and finished goods are valued at raw material cost and, where appropriate, labour and a
proportion of manufacturing overhead expenses are included.
Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be
incurred in marketing, selling and distribution.
2.9 Financial instruments
Financial assets
The Group’s principal financial assets are bank balances and cash and trade receivables.
Trade receivables are stated at fair value.
Long-term investments, where the Group is not in a position to exercise significant influence or joint control, are
stated at fair value.
Available for sale financial instruments are stated at fair value with the fair value movements accounted for directly
in equity.
Bank balances and related party receivables are carried at nominal value which approximates fair value.
Financial liabilities
Significant financial liabilities include finance lease obligations, interest-bearing bank loans and overdrafts and trade
and other payables.
Long-term loans are initially recognised at fair value and are subsequently measured at amortised cost using the
effective interest rate method.
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance
charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added
to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Trade and other payables are stated at fair value.
Equity instruments
Equity instruments are recorded at the proceeds received, net of direct issue costs.
AGIANNUALREPORT
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 200505
56
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.10 Translation of foreign currencies
Transactions in currencies other than Rand are initially recorded at the rates of exchange ruling on the dates of thetransactions. Assets and liabilities have been translated into South African currency at the spot rate of exchange rulingat the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreigncurrencies are translated at the rates prevailing at the date when fair value was determined. Profits and losses on thetranslation of foreign currencies are dealt with in the income statements in the year in which they arise except forexchange differences arising on non-monetary assets and liabilities where the change in fair value is recognised directlyto equity. In order to hedge its exposure to foreign exchange risks, the Group enters into forward exchange contracts.
On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange ratesruling on the balance sheet date. Income and expense items are translated at the average exchange rates for theperiod. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translationreserve. Such translation differences are recognised as income or as expenses in the period in which the operationis disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilitiesof the foreign entity and are translated at the closing spot rate.
2.11 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which areassets that necessarily take a substantial period of time to get ready for their intended use, are added to the costof those assets, until such time as the assets are substantially ready for their intended use or sale. All otherborrowing costs are recognised in the income statement in the year in which they are incurred.
2.12 Retirement benefits
Current contributions to the provident fund and pension funds, which are defined contribution plans, are based oncurrent service and current salary and are recognised in the income statement in the year in which they areincurred.
2.13 Revenue
Revenue represents the net invoiced value of goods delivered in respect of trading operations, excluding valueadded taxation, and is recorded at the date goods are delivered to customers and title has passed. Consolidatedrevenue excludes sales to Group companies.
2.14 Impairment (excluding goodwill)
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets todetermine whether there is any indication that those assets may be impaired. If any such indication exists, therecoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of theasset is reduced to its recoverable amount. Impairment losses are recognised as an expense in the period in whichthey arise.
Where an impairment loss subsequently reverses, with the exception of goodwill, the carrying amount of the assetis increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does notexceed the carrying amount that would have been determined had no impairment loss been recognised for theasset in prior periods.
2.15 Government grants
Government grants are recognised in the income statement over the periods necessary to match them with therelated costs.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2005
57
COMPANY GROUPCONTINUING DISCONTINUED OPERATIONS OPERATIONS
2005 2004 2005 2004 2005 2004R’000 R’000 R’000 R’000 R’000 R’000
3. PROFIT FROM OPERATIONS
Profit from operations is stated after taking the following into account:
IncomeProfit on disposal of property, plant and
– – equipment 513 303 – 9– – Fair value adjustments – long-term loan – 7 277 – –
780 585 Dividend received from associate – – – –Income from subsidiaries:
1 166 – – Interest – – – –48 029 12 804 – Dividend – – – –
49 195 12 804 – – – –
ExpensesAuditors’ remuneration:
– – – Fees 1 786 1 614 152 160– – – (Over)/under-provision in prior year (3) (23) 7 –– – – Other services 493 404 – 17
– – 2 276 1 995 159 177
– – Depreciation 21 603 17 964 997 1 321– – Amortisation of goodwill – 6 026 – 3 113
1 140 1 040 Amortisation of intangible assets 1 188 1 087 – –
1 140 1 040 22 791 25 077 997 4 434
– – Impairment of goodwill 197 – 15 479 –– – Impairment of property, plant and equipment – – 53 –– – Impairment of intangible assets – – 618 –
– – 197 – 16 150 –
Loss on disposal of property, plant and– – equipment 704 506 – –– – Operating lease payments 26 227 22 886 4 262 5 515– – AC 105 rental adjustment 2 626 3 311 – –
Professional fees:– – – Legal 183 398 1 864 673– – – Consultancy 1 241 1 929 210 915– – Research and development costs 41 419 – –
AGIANNUALREPORT
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 200505
58
COMPANY GROUPCONTINUING DISCONTINUED OPERATIONS OPERATIONS
2005 2004 2005 2004 2005 2004R’000 R’000 R’000 R’000 R’000 R’000
4. FINANCE COSTS
– – Long-term borrowings 9 603 4 710 404 355824 – Bank borrowings 11 367 15 786 – –
– – Inter-group borrowings – (499) – 499– – Other 305 610 – 8
824 – 21 275 20 607 404 862– – Finance costs capitalised (198) – – –
824 – Net finance costs 21 077 20 607 404 862
5. TAXATION
South African normal taxation:74 – – Current year 15 790 19 742 (985) –
– (32) – Prior year under/(over)-provision 59 (31) – –Foreign taxation:
– – – Current year 1 734 1 100 – –– – – Prior year under-provision 73 274 – –
Deferred taxation:13 (30) – Current year 1 431 632 3 697 (62)
– – – Prior year over-provision (36) (94) – (76)– – Secondary taxation on companies 311 – – –– – Share of taxation attributable to associates 561 652 – –
87 (62) Total taxation 19 923 22 275 2 712 (138)
Taxation for jurisdictions other than South Africa is calculated at the rates prevailing in the respective jurisdictions.
Taxation rate reconciliation:47 176 11 658 Profit/(loss) before taxation 72 950 64 226 (35 704) (7 281)
2005 2004 2005 2004% % R’000 % R’000 %
0,2% (0,5%) Current and deferred taxation 22 635 60,8% 22 137 38,9%Reduction in charge due to:
29,5% 32,9% – Capital profits 164 0,4% 1 581 2,8%– – – Change in tax rate 316 0,8% – –– 0,3% – Prior year over-provision of taxation – – 161 0,3%
– Income not subject to South African – – taxation 1 529 4,1% 841 1,5%
29,7% 32,7% 24 644 66,1% 24 720 43,5%
Increase in charge due to:– Deferred taxation assets not raised in
– – current year (6 164) (16,5%) (4 282) (7,6%)– – – Prior year under-provision of taxation (8) (0,0%) – –
(0,7%) (2,7%) – Disallowable expenses (7 360) (19,8%) (3 354) (5,9%)– – – Secondary taxation on companies (311) (0,8%) – –
29,0% 30,0% South African normal taxation rate 10 801 29,0% 17 084 30,0%
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2005
59
6. LOSS FROM DISCONTINUED OPERATIONS FOR THE YEAR
The executive committee of the Company (“EXCO”) had set a target that the USA business should be profitable on asustainable basis by April 2005, which target was not achieved. To achieve a sustainable business model would haverequired considerable additional capital investment in order to grow the market in custom products. Given Rand strengthand more attractive growth opportunities in the domestic market a decision was taken to dispose of the business.Substantially all costs relating to this disposal have been accounted for in the current year.
Denmark has been wound down and the revenue relating to this business will be serviced through the German business.
The loss from discontinued operations for the year is analysed as follows:
GROUP
2005 2004R’000 R’000
Loss from USA operations for the year 13 116 2 900Loss from Demark operations for the year 442 2 253Loss on disposal of USA subsidiary 6 065 –Goodwill amortised – 1 990Impairment of goodwill and investment in subsidiaries 16 408 –Costs associated with discontinued operations 2 385 –
38 416 7 143
The results of the USA and Denmark operations for the year are as follows:
Revenue 64 058 80 912Other operating income 5 577 12 466Raw materials and consumables used (54 834) (69 286)Employee benefits expense (7 471) (8 711)Depreciation, amortisation and impairment expense (1 668) (1 322)Other operating expenses (16 109) (18 507)
Loss from operations (10 447) (4 448)Investment revenues 5 19Finance costs (404) (862)
Loss before taxation (10 846) (5 291)Taxation (2 712) 138
Loss for the year (13 558) (5 153)
During the year the discontinued operations utilised R5 336 373 (2004: R980 102) of the Group’s net operating cashflows, generated R55 560 (2004: utilised R913 379) in respect of investing activities and generated R6 753 292 (2004:utilised R2 713 319) in respect of financing activities.
The carrying amounts of the assets and liabilities of AGI USA/Fabrication Inc. at the date of disposal are disclosed innote H to the cash flow statement.
AGIANNUALREPORT
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 200505
60
GROUP
2005 2004R’000 R’000
7. EARNINGS AND CAPITAL DISTRIBUTION PER ORDINARY SHARE
The calculation of the basic and headline earnings per share is based on the following data:EarningsEarnings for the purpose of basic earnings per ordinary share 13 160 666 32 072 194
– as previously stated 13 160 666 34 422 617– prior year adjustment – (2 350 423)
Adjustments– Loss on sale of property, plant and equipment after taxation 135 978 135 508
Loss on sale of property, plant and equipment before taxation 191 518 193 582Taxation (55 540) (58 074)
– Goodwill amortised – 9 138 605– Impairment of property, plant, equipment and intangible assets after taxation 16 419 235 –
Impairment of property, plant, equipment and intangible assets before taxation 16 347 427 –Taxation (15 313) –Impairment of intangible assets in associates 87 121 –
– Loss on disposal of subsidiary 6 065 838 –– Impairment of investments and loans 1 088 195 –
Earnings for the purpose of headline earnings per ordinary share 36 869 912 41 346 307
Capital distributionCapital distribution paid 12 706 069 9 773 899Less: capital distribution on treasury shares (84 488) (64 991)
Net capital distribution 12 621 581 9 708 908
Weighted average number of ordinary sharesNumber of ordinary shares in issue at the year end 195 477 974 195 477 974Treasury shares (1 165 776) (1 299 810)
Weighted average number of ordinary shares for the purposes of calculating basic and headline earnings per share 194 312 198 194 178 164
Diluted earnings per shareThe potential dilution in headline earnings per ordinary share arising from the possible exercise of 6 787 000 (2004: 9 597 000) share options, the effect of which would be insignificant, is calculated as follows:
Weighted average number of shares 194 312 198 194 178 164Weighted average number of shares under option 7 375 776 4 965 493
Adjusted weighted average number of ordinary shares for diluted earnings per share 201 687 974 199 143 657
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2005
61
GROUP
2005 2004R’000 R’000
7. EARNINGS AND CAPITAL DISTRIBUTION PER ORDINARY SHARE (continued)
Headline earnings per ordinary share (cents) 19,0 21,3
– as previously stated 19,0 22,5– prior year adjustment – (1,2)
Diluted headline earnings per ordinary share (cents) 18,3 20,8
– as previously stated 18,3 21,9– prior year adjustment – (1,1)
Percentage dilution 3,8% 2,4%
– as previously stated 3,8% 2,7%– prior year adjustment – (0,3%)
8. PROPERTY, PLANT, EQUIPMENT, GOODWILL AND OTHER INTANGIBLE ASSETS
AccumulatedCarrying value/ depreciation/ Net book
cost impairment valueR’000 R’000 R’000
GROUP 2005Office furniture and equipment 28 509 16 166 12 343Motor vehicles 25 255 13 023 12 232Leasehold improvements 8 774 2 817 5 957Plant and machinery 116 419 43 716 72 703
Property, plant and equipment 178 957 75 722 103 235
Goodwill 86 905 – 86 905
Restraint of trade 12 829 5 645 7 184
Other intangible assets 12 829 5 645 7 184
Total property, plant, equipment, goodwill and other intangible assets 278 691 81 367 197 324
COMPANY 2005Restraint of trade 11 610 4 463 7 147
Other intangible assets 11 610 4 463 7 147
AGIANNUALREPORT
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 200505
62
8. PROPERTY, PLANT, EQUIPMENT, GOODWILL AND OTHER INTANGIBLE ASSETS (continued)
Group reconciliation of net book value (R’000)
Accumulated Net foreign
Accumulated Disposal depreciation Depreciation currency
Net book Additions Disposals depreciation of subsidiary on disposal Impairment and translation Net book
value 2004 at cost at cost on disposals at cost of subsidiary of assets Transfers amortisation adjustment value 2005
Office furniture and equipment 13 620 4 464 (2 715) 2 639 (1 977) 1 364 – – (5 085) 33 12 343
Motor vehicles 12 712 5 701 (3 282) 2 692 (5 984) 4 881 – (75) (4 473) 60 12 232
Leasehold improvements 5 638 1 001 (107) 37 (96) 22 – – (549) 11 5 957
Plant and machinery 56 454 30 833 (8 420) 7 303 (2 902) 1 806 (53) 75 (12 493) 100 72 703
Property, plant and equipment 88 424 41 999 (14 524) 12 671 (10 959) 8 073 (53) – (22 600) 204 103 235
Goodwill 99 340 2 443 – – – – (15 676) – – 798 86 905
Restraint of trade 8 372 – (410) 410 – – – – (1 188) – 7 184
Know-how payments 625 – (130) 130 (672) 672 (618) – – (7) –
Other intangible assets 8 997 – (540) 540 (672) 672 (618) – (1 188) (7) 7 184
Total property, plant, equipment,
goodwill and other intangible
assets 196 761 44 442 (15 064) 13 211 (11 631) 8 745 (16 347) – (23 788) 995 197 324
Certain property, plant and equipment is encumbered as disclosed in Note 18.
Company reconciliation of net book value (R’000)
Accumulated Net foreign
Accumulated Disposal depreciation Depreciation currency
Net book Additions Disposals depreciation of subsidiary on disposal Impairment and translation Net book
value 2004 at cost at cost on disposals at cost of subsidiary of assets Transfers amortisation adjustment value 2005
Restraint of trade 8 287 – (410) 410 – – – – (1 140) – 7 147
Know-how payments – – (130) 130 – – – – – – –
Other intangible assets 8 287 – (540) 540 – – – – (1 140) – 7 147
GROUP
2005 2004R’000 R’000
Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating unit(“CGU”) that is expected to benefit from that business combination. The net carrying amount of goodwillafter impairment has been allocated as follows:Unbeneficiated and value added products – Glass 22 898 20 652Value added products – Aluminium 40 776 40 776Services 3 446 3 446Europe 19 785 34 466
86 905 99 340
Goodwill of R15 478 822 (2004: nil), intangible assets of R618 270 (2004: nil) and plant and equipment of R52 690 (2004: nil) were impaired in the Hard Currency CGUas a result of the discontinued operations in the USA and Denmark. Goodwill of R196 784 (2004: nil) was impaired in the Glass CGU as a result of the expiry of adistribution agreement in the current year.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2005
63
COMPANY GROUP
2005 2004 2005 2004R’000 R’000 R’000 R’000
9. INVESTMENT IN SUBSIDIARIES
81 096 81 096 Shares at cost – –62 002 25 730 Amounts owed by subsidiaries – –
143 098 106 826 – –
Further details of subsidiaries are set out in Schedule A on page 71.
10. INVESTMENT IN ASSOCIATES
3 126 3 126 Cost of investment in associates 3 126 3 126– – Share of associates’ retained earnings at end of the year 9 191 8 589
– – Share of associates’ retained earnings at beginning of the year 8 589 7 517– – Share of profits of associates 1 943 2 309– – Taxation – current (561) (652)– – Dividend received from associate (780) (585)
3 126 3 126 12 317 11 715
3 126 3 126 Directors’ valuation 12 317 11 715
Percentage holding/ Issued Financial
voting power capital year end Nature of business
Associated companies comprise:Northern Hardware and Glass Flat and auto glass(Proprietary) Limited 40% 10 000 28 February fabrication and distribution
All Glass Holdings Flat and auto glass(Proprietary) Limited 45% 100 30 June installation and distribution
All associated companies are incorporated in the Republic of South Africa.
COMPANY GROUP
2005 2004 2005 2004R’000 R’000 R’000 R’000
11. OTHER UNLISTED INVESTMENTS
359 359 Weimershoek No. 81 (Proprietary) Limited 359 359– 5 Plate Glass and Shatterprufe Industries (Proprietary) Limited – 5– – Old Mutual Frontier Fund – 2 018
359 364 359 2 382
359 364 Directors’ valuation 359 2 382
The other unlisted investments have been classified as available for sale. Any adjustments to fair value are taken to equity.
AGIANNUALREPORT
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 200505
64
COMPANY GROUP
2005 2004 2005 2004R’000 R’000 R’000 R’000
12. LONG-TERM RECEIVABLE
– – Industrial Leases (Proprietary) Limited 3 158 3 158– – Receivable due from disposal of subsidiary 4 647 –
– – 7 805 3 158
Less: receivable within one year included in trade and – – other receivables (1 911) –
– – Receivable after one year 5 894 3 158
Certain leasehold improvements of a subsidiary were sold toIndustrial Leases (Proprietary) Limited. The proceeds will berepaid through the foregoing of rentals on propertiesoccupied by subsidiaries of the Group for the period March2012 through October 2012.
The receivable due from the disposal of subsidiary relates tothe disposal of AGI USA/Fabrication Inc. on 30 June 2005for a consideration of US$ 700 000. US$ 150 000 is due 30 days after signature of the final agreement with thebalance payable in equal quarterly instalments over the next 48 months. The loan is unsecured.
13. DEFERRED TAXATION
– 13 Deferred taxation assets 9 041 13 161– – Deferred taxation liabilities (11 713) (10 855)
– 13 Net position (2 672) 2 306
13 (17) Balance at beginning of the year 2 306 3 786
13 (17) – As previously reported 2 306 (644)– – – Prior year adjustment – AC 105: Leases – 4 430
Movements consisting of:(13) 30 Temporary differences (4 377) 1 072
– – Tax losses utilised (13) –– – Foreign currency translation movement 114 (1 079)– – Deferred tax assets not raised in current year (702) (1 473)
– 13 Balance at end of the year (2 672) 2 306
The deferred taxation assets/(liabilities) arose as follows:– – Plant and machinery (9 006) (4 983)– – Leased assets (970) (639)– – Deemed recoupment on expiry of financial leases 297 281– 13 Provisions 2 414 63– – Prepayments and retentions (360) (118)– – Tax losses 4 953 7 702
– 13 (2 672) 2 306
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2005
65
COMPANY GROUP
2005 2004 2005 2004R’000 R’000 R’000 R’000
14. INVENTORIES
Inventories consist of:– – – Raw materials and consumables 17 581 14 689– – – Work in progress 12 686 14 002– – – Finished goods 121 238 119 896
– – 151 505 148 587
15. ORDINARY SHARE CAPITAL AND PREMIUM
Authorised ordinary share capital1 500 1 500 300 000 000 ordinary shares of 0,5 cent each 1 500 1 500
Issued ordinary share capital195 477 974 (2004: 195 477 974) ordinary shares of
978 978 0,5 cent each 978 978– – 604 810 (2004: 1 299 810) treasury shares of 0,5 cent each (3) (6)
978 978 Ordinary share capital 975 972
Issued ordinary share premium111 335 111 335 Share premium on ordinary shares issued 111 335 111 335
(3 537) (3 537) Share issue expenses written off against share premium (3 537) (3 537)604 810 (2004: 1 299 810) treasury shares at a premium
– – of R2,25 (2004: R2,13) per share (1 361) (2 766)Capital distribution of 6,5 cents (2004: 6,5 cents) per
(22 480) (9 774) ordinary share (22 480) (9 774)– – Capital distribution on treasury shares reversed 149 65
85 318 98 024 Ordinary share premium 84 106 95 323
86 296 99 002 85 081 96 295
16. SHAREHOLDER’S LOAN
Shareholder’s loan which is unsecured, bears interest at 6,5% (2004: 6,5%) per annum and has no fixed terms
– – of repayment 4 252 3 944
– – 4 252 3 944
AGIANNUALREPORT
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 200505
66
COMPANY GROUP
2005 2004 2005 2004R’000 R’000 R’000 R’000
17. BORROWINGS
– – Bank term loans – unsecured 9 802 11 033– – Other loans – unsecured 31 877 31 049
– – 41 679 42 082
The borrowings are repayable as follows:– – On demand or within one year 9 223 8 027– – In the second year 2 248 3 577– – In the third to fifth years inclusive 30 208 30 478
– – 41 679 42 082
– – Less: amounts due for settlement within one year (9 223) (8 027)
– – Amount due for settlement after one year 32 456 34 055
The average interest rates paid were as follows:– – Bank term loans 8,6% 9,6%– – Other loans 5,2% 5,5%
With the exception of the loan in Africa Glass SA Holdings (Proprietary) Limited, which bears interest at a fixed rate of 5% perannum, all interest rates are linked to the prime overdraft rate of the country where the loan originated. The carrying value ofthe loan in Africa Glass SA Holdings (Proprietary) Limited will be written up to its nominal value over the period of the loan byannual charges to interest paid.
Analysis of borrowings by currency:
2005 2004R’000 R’000
GroupBank term loans – denominated in Rands 4 267 6 340
– denominated in USD 5 535 4 693Other loans – denominated in Rands 31 877 31 049
Total 41 679 42 082
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2005
67
18. OBLIGATIONS UNDER FINANCE LEASE AGREEMENTS
Amounts payable under instalment sale and finance lease agreements:
Present value ofMinimum lease minimum lease
payments payments2005 2004 2005 2004
R’000 R’000 R’000 R’000
GROUPWithin one year 19 189 15 746 15 756 12 615In the second to fifth years inclusive 36 600 28 758 33 233 25 682
55 789 44 504 48 989 38 297Less: future finance charges (6 800) (6 207) – –
Present value of lease obligations 48 989 38 297 48 989 38 297Less: amounts due for settlement within one year (15 756) (12 615) (15 756) (12 615)
Amounts due for settlement after one year 33 233 25 682 33 233 25 682
Analysis of borrowings by currency:
2005 2004R’000 R’000
GROUPBorrowings – denominated in Rands 48 699 38 097
– denominated in Euro 31 58– denominated in Danish Kroner 94 142– denominated in Botswana Pula 165 –
48 989 38 297
It is the Group’s policy to purchase certain of its property, plant and equipment under instalment sale or finance leaseagreements. The average agreement term is three to five years. These agreements bear interest, which is linked to theprime lending rate, at an average effective borrowing rate of 9,5% (2004: 9,75%). All agreements are on the fixedrepayment basis. The fair value of the Group’s obligations approximates their carrying amount.
The Group’s obligations under these agreements are secured by the lessor’s charge over the assets.
The assets, under instalment sale and finance lease agreements, have the following book values at year end:
2005 2004R’000 R’000
GROUPPlant and machinery 38 187 26 419Office furniture and equipment 549 4 045Motor vehicles 10 804 10 377
Total 49 540 40 841
AGIANNUALREPORT
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 200505
68
COMPANY GROUP
2005 2004 2005 2004R’000 R’000 R’000 R’000
19. AMOUNTS DUE TO VENDORS
113 113 The Clearway Group vendors* 113 113Anso Aluminium East London (Proprietary) Limited
– – (“Anso”) vendors 63 63
113 113 176 176(113) (113) Less: amounts due within one year (176) (176)
– – Amounts due for settlement after one year – –
The amount due to the vendors of the Clearway Grouparose in terms of an agreement to acquire the equity interestin this Group with effect from 1 July 1999. The amount isinterest free and unsecured. The amounts due to vendors ofAnso arose in terms of an agreement to acquire 51% of theequity interest in this company with effect from 1 April 2001.The amount is interest free and unsecured. The balancesoutstanding to vendors relate to withholdings as a result ofdebtors reversion in terms of the sale agreements. Theseamounts will be paid over to vendors as soon as thedebtors are recovered.
*The Clearway Group includes Clearway Sliding Doors(Proprietary) Limited, Clearway Aluminium Durban(Proprietary) Limited, Distinctive Systems (Proprietary)Limited and Profal (Proprietary) Limited.
20. TRADE AND OTHER RECEIVABLES
– – Trade receivables 166 745 155 145– 63 Prepayments 1 727 1 717– – Other receivables 35 220 25 436
– 63 203 692 182 298
21. TRADE AND OTHER PAYABLES
– – Trade payables 78 283 102 726– – Employee costs and benefits 5 214 5 499
8 079 – Other payables 45 225 33 725
8 079 – 128 722 141 950
22. BANK BORROWINGS
The banking facilities granted to the Group are unsecured. There are cross guarantees between Group companies andthe Group has undertaken not to encumber assets without the prior written consent of its various bankers.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2005
69
23. OTHER FINANCIAL ASSETS
Trade and other receivables comprise amounts receivable for the sale of goods, loan amounts due from employeesand other sundry receivables. The average credit period taken on sale of goods is 50 days (2004: 55 days), calculatedby the period in days which sales, equivalent to trade receivables currently outstanding, were generated in the prior andpreceding months. An allowance has been made for estimated irrecoverable amounts from the sale of goods.
Cash and cash equivalents comprise cash and short-term deposits held by the Group’s treasury division.
Credit risk is primarily attributable to trade receivables. The amounts presented in the balance sheet are net ofallowances for doubtful receivables, estimated by the Group’s management based on prior experience and the currenteconomic environment. The Group has no significant concentration of credit risk, with exposure spread over a largenumber of counter parties and customers. The carrying amount of the above approximates their fair value.
Liquidity risk is managed by monitoring forecasted cash flows and ensuring that adequate unutilised borrowing facilitiesare maintained.
24. OTHER FINANCIAL LIABILITIES
Trade and other payables comprise amounts outstanding for trade purchases and ongoing costs. The average creditperiod taken for trade purchases is 38 days (2004: 62 days), calculated by the period in days over which purchases,equivalent to trade payables currently outstanding, were made in the prior and preceding months. The carrying amountof the above approximates their fair value.
25. CONTINGENT LIABILITIES
GROUP
Subsidiary companies have issued bond customs rebate store guarantees in the amount of R290 000 (2004: R290 000).Certain subsidiary companies have issued contract and performance guarantees in the amount of R677 119(2004: R752 025). Outstanding letters of credit amounted to R698 662 (2004: R653 041). A subsidiary company hasissued a guarantee in favour of First National Bank on behalf of Allglass Holdings (Proprietary) Limited (“Allglass”) in theamount of R697 500 (2004: R697 500) for banking facilities accorded to Allglass.
COMPANY
The Company has provided surety for the bank overdrafts of its subsidiaries. The net overdraft position of the subsidiariesat year end amounts to R35 195 091 (2004: R23 007 437). The Company has issued a guarantee in favour of BillitonAluminium Limited in the amount of R10 000 000 (2004: R10 000 000). The amount payable to Billiton at year end, whichhas been included in current liabilities, is R6 286 818 (2004: R5 318 092).
26. PENSION AND PROVIDENT FUNDS
The South African subsidiaries have defined contribution pension and provident funds in terms of which retirementbenefits are determined by reference to contributions to the funds. These funds are governed by the Pension Funds Actof 1956.
The employees of the Group's subsidiary in Germany are members of a state-managed retirement benefit schemeoperated by the German government. The subsidiary is required to contribute a specific percentage of its payroll cost tothe retirement benefit scheme to fund the benefits. The only obligation of the subsidiary with respect to the retirementscheme is to make the specified contributions.
The employees of the Group's subsidiary in the UK are not members of a provident fund.
Total contributions to the pension and provident funds for the year amounted to R12 724 701 (2004: R11 158 743).
AGIANNUALREPORT
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 200505
70
COMPANY GROUP
2005 2004 2005 2004R’000 R’000 R’000 R’000
27. COMMITMENTS
Property operating lease commitments contracted for but not provided in the financial statements:
– – Due within one year 23 099 24 801– – Due in the second to fifth year inclusive 90 319 98 336– – Due thereafter 24 970 40 129
– – 138 388 163 266
Other operating lease commitments contracted for but not provided in the financial statements:
– – Due within one year 1 510 2 392– – Due in the second to fifth year inclusive 1 991 4 629
– – 3 501 7 021
Capital expenditure committed or authorised but not provided in the financial statements:
– – Capital assets 53 524 40 757
– – 53 524 40 757
The operating lease commitments will be funded out of cash flows generated from operating activities. Material capitalcommitments will be funded through instalment sale or finance lease agreements.
28. RELATED PARTY TRANSACTIONS
Trading transactions
There were no trading transactions between related parties other than transactions between Group companies whichhave been eliminated on consolidation. All related party transactions took place at arm‘s length.
Non-trading transactions
The Africa Glass Namibia (Proprietary) Limited (“Namibia”) premises is owned by Focus C.C. (“Focus”). Mrs Van Niekerk,a director of Namibia, is a member of Focus. Rentals paid for the property for the year amounted to N$349 128 (2004:N$298 927).
The Allglass Gauteng (Proprietary) Limited (“Allglass Gauteng”) premises is owned by Mr W Freimond, a director ofAllglass Gauteng. Rentals paid for the property for the year amounted to R233 887 (2004: R209 000).
All property rental transactions took place at arm’s length.
An amount of R46 000 (2004: R556 310) is owed by the Group to Mrs D L Barrell. The loan is unsecured, bears interestat 8,5% (2004: 9,5%) per annum (2% below the prime overdraft rate) and is by intent short-term in nature.
SCHEDULE A: SCHEDULE OF INTERESTS IN SUBSIDIARY COMPANIES30 JUNE 2005
71
Details of direct and indirect holdings in Issued Percentage Percentage Indebted- Indebted-subsidiaries are as follows: capital holding holding Shares Shares ness ness
2005 2005 2004 2005 2004 2005 2004% % R R R R
Africa Glass Export (Pty) Limited 200 100 100 760 162 760 162 – –Africa Glass Group Services (Pty) Limited 100 100 100 100 100 5 000 000 5 000 000Africa Glass International Holdings Inc. (B.V.I. 259 888) US$10 000 100 100 58 154 550 58 154 550 3 738 157 2 065 800Africa Glass Manufacturing (Pty) Limited 100 100 100 * * * *Africa Glass Mirrors (Pty) Limited 20 000 100 100 950 000 950 000 – –Africa Glass Namibia (Pty) Limited (Namibia 95/478) N$604 85,6 70,5 * * * *Africa Glass Property Services (Pty) Limited 100 100 100 1 100 100 1 100 100 – –Africa Glass SA Holdings (Pty) Limited 19 100 100 19 790 961 19 790 961 48 959 988 14 359 989Africa Glass Treasury (Pty) Limited 1 100 100 1 1 – –AG International Trading Inc. (Mauritius 45694) US$2 100 100 * * * *AGI Aluminium & Glass Industries (Pty) Limited 300 100 100 300 300 3 813 3 813AGI Aluminium and Glass International (Pty) Limited 1 000 100 100 * * * *AGI Aluminium (Pty) Limited 100 100 100 * * * * AGI Glass (Pty) Limited 1 000 100 100 * * * *AGI Solutions (Pty) Limited 1 100 100 * * * *AGI USA/Distribution Incorporated(USA 20-1087949) US$100 100 100 * * * *Allglass Gauteng (Pty) Limited 133 100 100 133 133 4 295 329 4 295 329Aluminium Glass Industries (Mauritius)Limited (Mauritius 44839) MUR3 300 000 50 50 * * * *Anso Aluminium (Pty) Limited 100 51 51 * * * *Barbet Holding SA (Luxembourg 20859) US$1 040 980 100 100 * * * *Clearway Aluminium Durban (Pty) Limited 100 100 100 * * * *Clearway Holdings (Pty) Limited 100 100 100 60 100 60 100 – –Clearway Sliding Doors (Pty) Limited 320 100 100 * * * *Dabchick Holdings Limited(B.V.I. 18285) US$100 100 100 * * * *Distinctive Systems (Pty) Limited 300 100 100 * * * *Francolin Properties (Pty) Limited 1 100 100 * * * *Harrier Limited (B.V.I. 42169) US$2 100 100 * * * *Home Advantage West Incorporated(USA 65-0634512) US$100 100 100 * * * *IT For Africa (Pty) Limited 1 100 100 280 000 280 000 4 999 4 999KAB Allglass GmbH (Germany 40972) EURO25 565 100 100 * * * *KAB Allglass Scandanavia A/S(Denmark 26079241) DKK500 000 100 100 * * * *Kal Projects (Pty) Limited 100 100 100 * * * *Lanner Limited (B.V.I. 13862) US$2 100 100 * * * *Lawi A.G. (Switzerland CH–1703012382–0) CHF50 000 100 100 * * * *Monoglass Inc. (USA 13/3623532) US$2 100 100 * * * *Oriole Services Inc. (B.V.I. 17562) US$2 100 100 * * * *Pelican International Inc. (B.V.I. 31266) US$2 100 100 5 5 – –Profal (Pty) Limited 100 100 100 * * * *Raider Glass Works (Pty) Limited 100 100 100 * * * *Safe Glass (Pty) Limited 1000 100 100 * * * *Sheerline Aluminium (Botswana) (Pty) Limited(Botswana 2001/2498) Pula 100 100 100 * * * *Sheerline Aluminium Systems (Pty) Limited 2 000 100 100 * * * *Squareware Systems (Pty) Limited 1 100 100 * * * *The Aluminium Connection (Pty) Limited 100 100 100 * * * *Uniglass Limited (United Kingdom 2413276) GBP475 000 100 100 * * * *Vistalam Glass (Pty) Limited 100 100 100 * * * *West Cape Safety Glass (Pty) Limited 1 000 72,5 65 * * * *
Total 81 096 412 81 096 412 62 002 286 25 729 930
Notes *Denotes indirectly held subsidiaries. Issued share capital is denominated in Rands unless otherwise stated
AGIANNUALREPORT
SHAREHOLDING INFORMATIONAS AT 30 JUNE 200505
72
ANALYSIS OF SHAREHOLDERSAs at 30 June 2005, an analysis of the share register showed the following:
Number of Percentage of Number of shares Percentage ofSize of shareholding shareholders shareholders held shares issued
0 – 50 000 860 89,3% 6 023 897 3,1%50 001 – 100 000 28 2,9% 1 986 579 1,0%
100 001 – 500 000 33 3,4% 7 792 277 4,0%500 001 – 1 000 000 12 1,3% 8 810 398 4,5%
1 000 001 – 5 000 000 21 2,2% 44 513 322 22,8%5 000 001 – 10 000 000 6 0,6% 51 135 377 26,2%
Over 10 000 000 3 0,3% 75 216 124 38,4%
963 100,0% 195 477 974 100,0%
Category of shareholdingIndividuals 756 78,5% 26 234 868 13,4%Companies 50 5,2% 87 288 588 44,7%Nominee companies 3 0,3% 74 190 0,0%Investment companies 154 16,0% 81 880 328 41,9%
963 100,0% 195 477 974 100,0%
SHAREHOLDER SPREADPublic shareholders 922 95,7% 93 488 601 47,8%Non-public shareholders 41 4,3% 101 989 373 52,2%
– Directors, trustees and associates 40 4,2% 63 043 758 32,3%– Persons interested, directly or indirectly,
in 10% or more 1 0,1% 38 945 615 19,9%
963 100,0% 195 477 974 100,0%
Note: Included in public shareholders are two nominee companies which, although counted as single shareholders, are believed to represent the interests ofseveral shareholders.
MAJOR SHAREHOLDERSShareholders holding in excess of 5% of the issued share capital of the Company:Darter International Incorporated 38 945 615 19,9%Alibar Investments (Proprietary) Limited 23 757 415 12,2%SA Mutual Life 18 294 544 9,4%Nedbank Investment Bank Limited 14 472 224 7,4%Rand Merchant Bank Limited 14 180 249 7,3%Sanlam Limited 10 861 112 5,6%
AGI SHARE PRICE PERFORMANCE CENTS
150
170
190
210
230
250
270
290
310
330
350
Jun 04 Jul 04 Aug 04 Sept 04 Oct 04 Nov 04 Dec 04 Jan 05 Feb 05 Mar 05 Apr 05 May 05 Jun 05
GENERAL INFORMATION
73
SHAREHOLDERS’ DIARY
Financial year end 30 JuneLast date to trade for capital distribution and/or capitalisation award 7 October 2005Capital distribution payment 17 October 2005Annual general meeting 30 November 2005
REPORTS AND PROFIT STATEMENTS
Interim report for 6 months ended 31 December 2005 Published March 2006Annual report for year ended 30 June 2006 Published October 2006
ADMINISTRATION
AG Industries Limited
Incorporated in the Republic of South AfricaRegistration number 1980/004051/06Share code: AGIISIN: ZAE000039467
Company secretary
J Martingano
Registered office
corner Kruger Street and Mimetes RoadDenver Extension 11Johannesburg, 2094Telephone (011) 607-4500Fax (011) 616-4519
Postal address
PO Box 40443Cleveland, 2022South Africa
Internet address
www.ag-industries.com
Investor relations
Transfer secretaries
Computershare Investor Services 2004 (Proprietary) Limited70 Marshall StreetJohannesburg, 2001
PO Box 61051Marshalltown, 2107Telephone (011) 370-5000Fax (011) 370-5487
Sponsor
Sasfin Bank Limited (Corporate Finance Division)Sasfin Place, North Block13-15 Scott StreetWaverley, 2090Telephone (011) 809 7500Fax (011) 887 2489
Auditors
Deloitte & Touche20 Woodlands DriveWoodmeadSandton, 2146Telephone (011) 806-5000
Principal bankers
The Standard Bank of South Africa LimitedStandard Corporate and Merchant Bank3 Simmonds Street,Johannesburg, 2001
AGIANNUALREPORT
NOTICE OF ANNUAL GENERAL MEETING05
74
Notice is hereby given that the annual general meeting of the shareholders of AG Industries Limited (“the Group” or “theCompany”) will be held in the boardroom, Corner Kruger Street and Mimetes Road, Denver Extension 11, Johannesburg at10h00 on Wednesday, 30 November 2005 for the following purposes:
As ordinary resolutions:
1. To receive and adopt the annual financial statements for the year ended 30 June 2005.
2.1 To approve the re-election of the retiring directors (referred to in 2.2).
2.2 To re-elect A A Barrell, J Martingano and G F D Twigg as directors, who retire in accordance with the provisions of theCompany’s articles of association. (Please refer to pages 6 and 7 of the annual report for a brief CV of each directorstanding for re-election.)
3. To re-elect the auditors, Deloitte & Touche, for the ensuing year and to authorise the directors to determine theauditors' remuneration.
4. To approve the remuneration of the directors for their services as such.
5. To consider and, if deemed fit, to pass with or without modification the following ordinary resolutions:
5.1 Ordinary Resolution Number 1
“Resolved that, the unissued authorised shares in the capital of the Company be and they are hereby placed underthe control of the directors of the Company as an unconditional general authority in terms of section 221(2) of theCompanies Act (Act 61 of 1973), as amended (“the Act”), with the power to allot and issue all or any portion of suchshares at their discretion, subject to sections 221(3) and 221(1) of the Act and the Listings Requirements of the JSELimited (“the JSE”).”
5.2 Ordinary Resolution Number 2
“Resolved that, subject to the passing of ordinary resolution number 1 and in terms of the requirements of the JSE,the directors be given the general authority to issue ordinary shares of 0,5 cent each for cash, of a class already inissue, as and when they see fit, subject to the following limitations:
5.2.1 that this authority shall not extend beyond fifteen months from the date of this general meeting;
5.2.2 that issues in the aggregate in any one financial year will not exceed 10% (ten percent) of the Company’sissued share capital;
5.2.3 that, in determining the price at which an issue of shares will be made in terms of this authority, themaximum discount at which securities will be issued shall be 10% (ten percent) of the weighted averagetraded price of the shares over the 30 days prior to the date on which the price of the issue is determinedor agreed by the directors; and
5.2.4 any such issue will only be made to public shareholders as defined in the Listings Requirements of the JSE.”
In terms of the Listings Requirements of the JSE, the approval of a 75% (seventy five percent) majority of the votes castby shareholders present or represented by proxy at this meeting is required for ordinary resolution 5.2 to becomeeffective.
5.3 Ordinary Resolution Number 3
To consider and, if deemed fit, to pass with or without modification the following ordinary resolution:
“Resolved that, subject to the prior approval by the JSE and in terms of Section 90 of the Act, the directors of theCompany shall be entitled to pay by way of a pro rata reduction of share capital or share premium, in lieu of adividend, an amount equal to the amount which the directors of the Company would have declared and paid out ofprofits in respect of the Company’s interim and final dividends for the financial year ending 30 June 2006, subject tothe following conditions:
• that this authority shall not extend beyond the next annual general meeting or fifteen months from the date of thisannual general meeting, whichever date is the earlier; and
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• that any payments may not exceed 20% (twenty percent) of the Company’s issued share capital, includingreserves but excluding minority interest, and revaluations of assets and intangible assets that are not supportedby a valuation by an independent professional expert acceptable to the JSE prepared within the last six months,in any one financial year, measured as at the beginning of such financial year.”
At the time of such payment an announcement will be published in accordance with Schedule 24 of the JSE ListingsRequirements and in addition it will contain the relevant information required in terms of the JSE ListingsRequirements. Pursuant to and in terms of the JSE Listings Requirements, the Board hereby state that:
(a) The intention of the directors of the Company is, if fiscally efficient for the Company to do so, to utilise the generalauthority by way of a pro rata reduction of share capital or share premium, in lieu of a dividend, an amount equalto the amount which the directors of the Company would have declared and paid out of profits in respect of theCompany’s interim and final dividends for the financial year ending 30 June 2006.
(b) The Board has considered the impact of a payment of up to 20% (twenty percent) of the Company’s issued sharecapital, being the maximum permissible under a general authority in terms of the JSE Listings Requirements.
6. Special Resolution Number 1
To consider and, if deemed fit, to pass, with or without modification the following special resolution:
“Resolved that the directors be and are hereby authorised to approve and implement the acquisition by the Company (ora subsidiary of the Company) of shares issued by the Company by way of a general authority, which shall only be validuntil the Company’s next annual general meeting, unless it is then renewed, provided it shall not extend beyond fifteenmonths from the date of passing the special resolution, whichever period is the shorter, in terms of the Companies Act,and the rules and requirements of the JSE which provide, inter alia, that the Company may only make a generalrepurchase of its shares subject to:
• the repurchase being implemented through the order book operated by the JSE trading system, without any priorunderstanding or arrangement between the Company and the counter party;
• the Company being authorised thereto by its articles of association;
• repurchases not being made at a price greater than 10% (ten percent) of the weighted average of the market valueof the shares for the five business days immediately preceding the date on which the transaction was effected;
• the announcement being published as soon as the Company has repurchased ordinary shares constituting, on acumulative basis, 3% (three percent) of the initial number of ordinary shares and for each 3% (three percent) inaggregate of the initial ordinary shares repurchased thereafter, containing full details of such repurchases;
• repurchases not exceeding 20% (twenty percent) in aggregate of the Company’s issued ordinary share capital in anyone financial year;
• the Company remaining in compliance with paragraphs 3.37 to 3.41 of the JSE Listings Requirements concerningshareholder spread after such repurchase;
• the Company and/or its subsidiaries not repurchasing securities during a prohibited period as defined in paragraph3.67 of the JSE Listings Requirements; and
• the Company only appointing one agent to effect any repurchases on its behalf.”
The reasons for and the effect of this special resolution are to grant the Company a general approval in terms of theCompanies Act, 1973 (Act 61 of 1973), as amended, for the acquisition by the Company of its own shares, which generalapproval shall be valid until the earlier of the next annual general meeting of the Company or its variation or revocation ofsuch general authority by special resolution by any subsequent general meeting of the Company provided that thegeneral authority shall not extend beyond fifteen months from the date of this general meeting. The directors do notpropose to act under the authority if granted, but believe it prudent to provide for a general authority until the next annualgeneral meeting of the Company. Any acquisition will be made by means of an acquisition through the Company’ssponsor, as agent for and on behalf of the Company through the JSE Trading System.
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Pursuant to and in terms of the JSE Listings Requirements, the Board further states that:
The directors, having considered the effects of the repurchase of the maximum number of ordinary shares and the prorata reduction of share capital or share premium, in lieu of a dividend, in terms of the aforegoing ordinary resolutionnumber 3 and special resolution number 1, are of the opinion that for the period of twelve months after the date of thenotice of the annual general meeting:
• the Company and the Group will be able, in the ordinary course of business, to pay its debts;
• the consolidated assets of the Company and the Group, fairly valued in accordance with generally acceptedaccounting practice, will exceed the consolidated liabilities of the Company;
• the Company and the Group’s ordinary share capital, reserves and working capital will be adequate for ordinarybusiness purposes; and
• the Company’s sponsor will confirm the adequacy of the Company’s working capital, in terms of schedule 25 of theJSE Listings Requirements in writing to the JSE, for the purpose of undertaking the repurchase of shares and thereduction of share capital.
The following additional information, some of which may appear elsewhere in the annual report of which this notice formspart, is provided in terms of the JSE Listings Requirements for purposes of the ordinary resolution number 3 and specialresolution number 1:
• directors and management – pages 6 and 7;
• major beneficial shareholders - page 72;
• directors’ interests in ordinary shares – page 42;
• share capital of the Company – page 65;
• material changes – page 43.
Directors’ responsibility statement
The directors, whose names are given on pages 6 and 7 of the annual financial statements, collectively and individuallyaccept full responsibility for the accuracy of the information given and certify that to their best of their knowledge andbelief there are no facts that have been omitted which would make any statement false or misleading, and that allreasonable enquiries to ascertain such facts have been made and that the annual financial statements contain allinformation required in terms of the JSE Listings Requirements.
Litigation statement
The directors are not aware of any legal or arbitration proceedings active, pending or threatened against or being broughtby the Company, which may have a material effect on the Group’s financial position or which have had a material effectduring the twelve months preceding the date of this notice of annual general meeting.
7. To attend to such other business as may be raised at the meeting.
A member who is entitled to attend and vote at the annual general meeting is entitled to appoint one or more proxies toattend, speak and vote in his/her stead. The person so appointed need not be a member of the Company. A proxy formis enclosed for use at this annual general meeting. Proxy forms are only to be completed by those shareholders who holdshares in certificated form or who are recorded in the sub-register in dematerialised electronic form in own name. Proxyforms must be forwarded to reach AG Industries Limited’s registered office, Corner Kruger Street and Mimetes Road,Denver Extension 11, Johannesburg, not later than 10h00 on Monday, 28 November 2005. All other beneficialshareholders who have dematerialised their shares through a Central Securities Depository Participant (“CSDP”) or brokermust provide the relevant CSDP or broker with their voting instruction in terms of the custody agreement entered intobetween themselves as the beneficial owner and the relevant CSDP or broker as the case may be.
By order of the Board
J MartinganoCompany Secretary
13 September 2005
FORM OF PROXY
AG INDUSTRIES LIMITEDISIN: ZAE000039467ALPHA Code: AGI
For use by ordinary shareholders (“ordinary shareholders”), who have not dematerialised their shares or who havedematerialised their shares with own name registration, of AG Industries Limited (“the Company”) for the annual generalmeeting of the Company to be held on Wednesday, 30 November 2005 at 10h00 (“the annual general meeting”) at the cornerof Kruger Street and Mimetes Road, Denver, Extension 11, Johannesburg.
I/We
(Name/s in block letters)
of
(Address)
being the registered holder/s of ordinary shares in the Company, appoint (see note 1):
1. or failing him/her
2. or failing him/her
3. the chairman of the annual general meeting
as my/our proxy to act for me/us and on my/our behalf at the annual general meeting and at any adjournment thereof whichwill be held for the purpose of considering and, if deemed fit, passing, with or without modification, the resolutions to beproposed thereat and to vote for and/or against the resolutions and/or abstain from voting in respect of the ordinary sharesregistered in my/our name/s, in accordance with the following instructions:
Agenda Item *Vote for *Vote against *Abstain
Ordinary resolutions
1. Adoption of annual financial statements
2.1 Approval of re-election of the retiring directors
2.2 Re-election of directors:
2.2.1 A A Barrell
2.2.2 J Martingano
2.2.3 G F D Twigg
3. Re-election and remuneration of auditors
4. Remuneration of directors
5.1 Placing shares under the control of directors in terms of section221 of the Act
5.2 Authority to directors to allot and issue shares for cash
5.3 Authority to directors until the next annual general meeting to reduce the share premium account
Special resolution
6. General authority to repurchase shares
Signed at on 2005
Signature
Assisted by me (where applicable)
*See note 2 on the reverse side of this form.
A member who is entitled to attend and vote at the annual general meeting is entitled to appoint one or more proxies to attend,speak and vote in his/her stead. The person so appointed need not be a member of the Company.Note: For instructions on the completion of this form, please see the notes on the reverse side of this form.
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NOTES TO FORM OF PROXY05
1. A member who is entitled to attend and vote at the annual general meeting is entitled to appoint one or more proxies toattend, speak and vote in his/her stead. The person so appointed need not be a member of the Company. Proxy formsare only to be completed by those shareholders who hold shares in certificated form or who are recorded in the sub-register in electronic form in own name. Proxy forms must be forwarded to reach AG Industries Limited's registeredoffice, Corner Kruger Street and Mimetes Road, Denver Extension 11, Johannesburg, not later than 10h00 on Monday,28 November 2005. All other beneficial shareholders who have dematerialised their shares through a Central SecuritiesDepository Participant (“CSDP”) or broker must provide the relevant CSDP or broker with their voting instruction in termsof the custody agreement entered into between the beneficial owner and the CSDP or broker as the case may be.
2. The person whose name stands first in the form of proxy and who is present at the annual general meeting will be entitledto act as proxy to the exclusion of those whose names follow.
3. A proxy may vote on a show of hands and on a poll. An ordinary shareholder’s instructions to the proxy must be indicatedby the insertion of the relevant number of votes exercisable by that ordinary shareholder in the appropriate box/esprovided. Failure to comply with the above will be deemed to authorise the chairman of the annual general meeting, if heis the authorised proxy, to vote in favour of the resolutions at the annual general meeting, or any other proxy to vote orto abstain from voting at the annual general meeting as he deems fit in respect of the shareholder’s votes exercisablethereat. Any alteration made to this form of proxy must be initialled.
4. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the annualgeneral meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof shouldsuch shareholder wish to do so.
5. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity mustbe attached to this form.
6. This form of proxy must be signed by all joint shareholders.
7. Proxy forms must be lodged at the registered office of the Company or posted to Mrs J Martingano, Company Secretary,AG Industries Limited, PO Box 40443, Cleveland, 2022, to be received not later than 48 hours before the time fixed forthe annual general meeting (excluding Saturdays, Sundays and public holidays).