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A E C I LIMITED - Summarised audited consolidated financial results and cash dividend declaration for the year ended 31 December 2018

Release Date: 26/02/2019 07:05
Code(s): AFE AFEP AECI01 AECI02 AECI03 AECI04     PDF:  
 
Wrap Text
Summarised audited consolidated financial results and cash dividend declaration for the year ended 31 December 2018

AECI Limited
(Incorporated in the Republic of South Africa) 
Registration number 1924/002590/06
Tax reference number 9000008608
Share code: AFE ISIN: ZAE000000220
Hybrid code: AFEP ISIN: ZAE000000238
Bond company code: AECI
('AECI' or 'the Company' or 'the Group')

Summarised audited consolidated financial results and final cash dividend
declaration for the year ended 31 December 2018

Highlights
* Revenue +26% to R23 314m
* EBITDA +21% to R2 631m
* Highest ever profit from operations: +27% to R1 999m
* Solid HEPS growth: +9% to 1 045c
* Good cash generation from operations continued: R2 029m
* Acquisitions fully integrated into the Group
* Final ordinary cash dividend of 366cps declared (515cps for FY18): +7,6%
* Safety performance (excl. acquisitions) improved further
* Achieved Level 3 B-BBEE Contributor status in the year

Income statement

                                                     %     2018      2017 
R millions                                 Note change  Audited   Audited
Revenue                                       2    +26   23 314    18 482
Net operating costs                                     (21 315)  (16 903) 
Profit from operations                             +27    1 999     1 579
Impairment of equity-accounted investee       3             (78)        -
Share of profit of equity-accounted
investees, net of tax                                         -         -
Profit from operations and equity-
accounted investees                                       1 921     1 579
Net finance costs                                          (365)     (167) 
Interest expense                                           (403)     (202) 
Interest received                                            38        35
Profit before tax                                         1 556     1 412
Tax expense                                                (529)     (429) 
Profit for the year                                       1 027       983
Profit for the year attributable to:
- Ordinary shareholders                                     990       950
- Preference shareholders                                     3         3
- Non-controlling interest                                   34        30
                                                          1 027       983
Headline earnings are derived from: 
Profit attributable to ordinary    
shareholders                                                990       950
Impairment of goodwill                                       31         3
Impairment of property, plant and
equipment                                                     -        10
Loss on disposal of equity-accounted
investee                                                      -         2
Impairment related to equity-accounted
investees                                                    78        54
Loss/(surplus) on disposal of property,
plant and equipment                                           6        (8)
Foreign currency translation differences 
reclassified on net investments in foreign
operations                                                    -        18
Tax effects of the above items                               (2)      (17) 
Headline earnings                                         1 103     1 012
Per ordinary share (cents):
Headline earnings                                   +9    1 045       959
Diluted headline earnings                                 1 012       915
Basic earnings                                      +4      938       900
Diluted basic earnings                                      909       859
Ordinary dividends declared                                 366       340
Ordinary dividends paid                                     489       438

Statement of comprehensive income

                                                             2018      2017 
R millions                                                Audited   Audited
Profit for the year                                         1 027       983
Other comprehensive income net of tax
Items that may be reclassified subsequently 
to profit or loss:
- Foreign currency translation differences                    461      (212)
- Effective portion of cash flow hedges                         5        (4) 
Items that may not be reclassified subsequently 
to profit or loss:
- Remeasurement of defined-benefit and post-
retirement medical aid obligations                            (50)       11
Total comprehensive income for the year                     1 443       778
Total comprehensive income attributable to:
Ordinary shareholders                                       1 389       752
Preference shareholders                                         3         3
Non-controlling interest                                       51        23
                                                            1 443       778

Statement of changes in equity

                                                              2018    2017
R millions                                            Note Audited Audited
Total comprehensive income for the year                       1 443     778
Dividends paid                                                 (571)   (497) 
Change in ownership percentage                                  (19)      - 
Share-based payment reserve                                      35      29
Put option liability for future buy-out of non-
controlling interests                                    5      (29)      -
Non-controlling interest acquired                        7       32       - 
Adjusted equity at the beginning of the year                  9 314   9 046
Equity at the beginning of the year                           9 356   9 046
Adjustment on adoption of IFRS 9, net of deferred
tax                                                      9      (42)      - 
Equity at the end of the year                                10 205   9 356
Made up as follows:
Ordinary share capital                                          110     110
Reserves                                                      1 557   1 102
- Foreign currency translation reserve                        1 327     883
- Other reserves                                         5      (29)     (5)
- Share-based payment reserve                                   259     224
Retained earnings                                             8 376   8 022
Non-controlling interest                                        156     116
Preference share capital                                          6       6 
                                                             10 205   9 356

Reconciliation of weighted average number of shares

                                                              2018     2017
Millions                                                   Audited  Audited
Weighted average number of ordinary shares at the
beginning of the year                                        131,9    131,9
Weighted average number of unlisted ordinary shares held
by consolidated EST                                          (10,1)   (10,1)
Weighted average number of contingently returnable
ordinary shares held by CEDT                                  (4,4)    (4,4)
Weighted average number of shares held by consolidated
subsidiary                                                   (11,9)   (11,9)
Weighted average number of ordinary shares for basic
earnings per share                                           105,5    105,5
Dilutive adjustment for potential ordinary shares              3,4      5,0
Weighted average number of ordinary shares for diluted
earnings per share                                           108,9    110,5

Statement of financial position

                                                           2018       2017
                                                      At 31 Dec  At 31 Dec
R millions                                       Note   Audited    Audited
Assets
Non-current assets                                       11 681      7 365
Property, plant and equipment                             5 768      3 965
Investment property                                         222        216
Intangible assets                                6, 7     1 039        188
Goodwill                                      6, 7, 8     3 410      1 524
Pension fund employer surplus accounts                      341        487
Investments in joint ventures                               258        274
Investments in associates                           3       135        199
Other investments                                           126        117
Deferred tax                                                382        395
Current assets                                           10 594      8 606
Inventories                                               4 081      3 355
Accounts receivable                                       4 650      3 793
Other investments                                           218        155
Loans to joint ventures                                       7          - 
Tax receivable                                               57         97
Cash                                                      1 581      1 206
Total assets                                             22 275     15 971
Equity and liabilities
Equity                                                   10 205      9 356
Ordinary share capital and reserves                      10 043      9 234
Non-controlling interest                                    156        116
Preference share capital                                      6          6
Non-current liabilities                                   6 646      1 614
Deferred tax                                                547         93
Non-current borrowings                              4     5 475      1 100
Contingent consideration                                     10         29
Put option liability                                5        31          - 
Non-current provisions and employee benefits                583        392
Current liabilities                                       5 424      5 001
Accounts payable                                          5 010      4 272
Current borrowings                                          283        530
Loans from joint ventures                                     -        130
Tax payable                                                 131         69
Total equity and liabilities                             22 275     15 971

Statement of cash flows

                                                             2018     2017
R millions                                           Note Audited  Audited
Cash generated by operations                                2 955    2 350
Dividends received                                             18       55
Interest paid                                                (370)    (202) 
Interest received                                              38       35
Tax paid                                                     (302)    (481) 
Changes in working capital                                   (155)    (358)
Cash outflows relating to defined-benefit and post-
retirement medical aid obligations                            (19)    (101)
Cash outflows relating to non-current provisions
and employee benefits                                        (136)     (77)
Cash available from operating activities                    2 029    1 221
Dividends paid                                               (571)    (497) 
Cash flows from operating activities                        1 458      724
Cash flows from investing activities                       (4 759)    (698) 
Acquisition of subsidiaries, net of cash acquired    6, 7  (3 884)       - 
Loans with joint ventures                                    (137)      55
Other net investment activities                                (4)     (97)
Net capital expenditure                                      (734)    (656) 
Net cash (utilised)/generated before financing
activities                                                 (3 301)      26
Cash flows from financing activities                        3 519     (176) 
Cash paid on buy-out of non-controlling interest              (11)       - 
Settlement of performance shares                              (46)     (44) 
Borrowings raised                                           8 857      250
Borrowings repaid                                          (5 281)    (382) 
Net increase/(decrease) in cash                               218     (150) 
Cash at the beginning of the year                           1 206    1 465
Translation gain/(loss) on cash                               157     (109)
Cash at the end of the year                                 1 581    1 206

Industry segment analysis
Basis of segmentation
The Group's key growth pillars, which are its reportable segments, are 
described below. Businesses in the pillars offer differing products and 
services and are managed separately because they require different 
technology and marketing strategies.

Reportable
segments      Operations

Mining        The businesses in this pillar provide a mine-to-mineral 
Solutions     solution for the mining sector internationally. The offering 
              includes surfactants for explosives manufacture, commercial 
              explosives, initiating systems and blasting services right 
              through the value chain to chemicals for ore beneficiation 
              and tailings treatment.

Water &       ImproChem provides integrated water treatment solutions, 
Process       process chemicals and equipment solutions for a diverse 
              range of applications in Africa. These include, inter alia, 
              public and industrial water, desalination and utilities.

Plant &       Nulandis manufactures and supplies an extensive range of crop 
Animal        protection products, plant nutrients and services for the 
Health        agricultural sector in Africa. Schirm, based in Germany, is 
              a contract manufacturer of agrochemicals and fine chemicals 
              with a European and US footprint. It is the largest provider 
              of external agrochemical formulation services in Europe.
 
Food &        These businesses supply ingredients and commodities to the 
Beverage      dairy, beverage, wine, meat, bakery, health and nutrition 
              industries. The other main activity is the manufacture and 
              distribution of a broad range of juice-based products and 
              drinks, including formulated compounds, fruit concentrate 
              blends and emulsions.

Chemicals     Supply of chemical raw materials and related services for 
              use across a broad spectrum of customers in the manufacturing, 
              infrastructure and general industrial sectors mainly in South 
              Africa and in other Southern African countries.

Property &    Mainly property leasing and management in the office, industrial 
Corporate     and retail sectors, and corporate centre functions including 
              the treasury.

There are varying levels of integration between the segments. This includes 
transfers of raw materials and finished goods, and property management 
services. Inter-segment pricing is determined on terms that are no more and 
no less favourable than transactions with unrelated external parties.

Information relating to reportable segments
Information relating to each reportable segment is set out below. Segmental 
profit from operations is used to measure performance because AECI's 
Executive Committee believes that this information is the most relevant 
in evaluating the results of the respective segments relative to other 
entities that operate in the same industries.

                         Audited Audited Audited Audited Audited Audited
R millions                  2018    2017    2018    2017    2018    2017
                                                              Total 
                             External       Inter-segment    segment 
                             revenue            revenue      revenue
Mining Solutions          10 918   9 643      95      75  11 013   9 718
Water & Process            1 327   1 409      49      45   1 376   1 454
Plant & Animal Health      4 386   2 479      37      64   4 423   2 543
Food & Beverage            1 201   1 190      47       5   1 248   1 195
Chemicals                  5 153   3 445     113     119   5 266   3 564
Property & Corporate         329     316     110      90     439     406
Inter-segment                  -       -    (451)   (398)   (451)   (398)
                          23 314  18 482       -       -  23 314  18 482

                                            Depreciation
                          Profit/(loss)         and
                         from operations    amortisation     Impairments
Mining Solutions           1 274   1 097     337     424       -      10
Water & Process              120     182      45      50       -       - 
Plant & Animal Health        119     133     130      12      31       - 
Food & Beverage               74      64      16      15       -       - 
Chemicals                    559     365     129      71       -       3
Property & Corporate        (147)   (262)     53      25       -       -
                           1 999   1 579     710     597      31      13

                             Operating       Operating         Capital 
                               assets       liabilities      expenditure
Mining Solutions           7 023   6 308   1 946   1 717     410     435
Water & Process            1 183   1 228     255     265      24      21
Plant & Animal Health      4 298   1 664   1 383   1 087     119      64
Food & Beverage              875     819     292     256      29      11
Chemicals                  5 072   2 244   1 039     798     193      42
Property & Corporate         719     778      95     149      72     131
                          19 170  13 041   5 010   4 272     847     704

Operating assets comprise property, plant and equipment, investment property, 
intangible assets, goodwill, inventories and accounts receivable. Operating 
liabilities comprise accounts payable.

Other salient features

                                                              2018     2017
R millions                                           Note  Audited  Audited
Capital expenditure                                            847      704
- expansion                                                    328      288
- replacement                                                  519      416
Capital commitments                                            516      405
- contracted for                                               103      119
- not contracted for                                           413      286
Acquisitions authorised and contracted for             12       91    4 173
Future rentals on leased property, plant and
equipment                                                      932      367
- payable within one year                                      257      116
- payable thereafter                                           675      251
Net borrowings                                               4 177      424
Depreciation                                                   646      574
Amortisation                                                    64       23
Gearing (%)*                                                    41        5
Current assets to current liabilities                          2,0      1,7
Net asset value per ordinary share (cents)                   9 135    8 399
ZAR/Eur closing exchange rate (rand)                           16,45    14,75
ZAR/Eur average exchange rate (rand)                           15,61    15,04
ZAR/US$ closing exchange rate (rand)                         14,37    12,31
ZAR/US$ average exchange rate (rand)                         13,24    13,31
*Borrowings less cash, as a percentage of equity.

Notes
(1) (a)Basis of preparation and accounting policies
The summarised consolidated financial results are prepared in accordance with 
the requirements of the JSE Limited's Listings Requirements ('Listings 
Requirements') for provisional reports and the requirements of the Companies 
Act of South Africa applicable to summarised financial statements. The 
Listings Requirements require provisional reports to be prepared in
accordance with the framework concepts and the measurement and recognition 
requirements of International Financial Reporting Standards ('IFRS'); the 
South African Institute of Chartered Accountants Financial Reporting Guides 
as issued by the Accounting Practices Committee; Financial Pronouncements as 
issued by the Financial Reporting Standards Council; and to also, as a minimum, 
contain the information required by IAS 34 Interim Financial Reporting. The 
accounting policies applied in the preparation of the audited consolidated 
financial statements, from which the summarised consolidated financial results 
were derived, are in terms of IFRS and are consistent with those applied in the 
previous consolidated financial statements except to the extent that these have 
been affected by the adoption of IFRS 15 Revenue from Contracts with Customers 
and IFRS 9 Financial Instruments. The impacts of new standards adopted are 
described in note 9 below.

The preparation of these summarised consolidated financial results for the year 
ended 31 December 2018 was supervised by the Financial Director, Mr KM Kathan 
CA(SA) AMP (Harvard).

(b) Financial statements preparation and independent audit
These summary consolidated financial statements for the year ended 31 December 
2018 have been audited by Deloitte & Touche, who expressed an unmodified opinion 
thereon. The auditor also expressed an unmodified opinion on the annual 
consolidated financial statements from which these summary consolidated financial 
statements were derived. The auditor's report does not necessarily report on all 
the information contained in this announcement. Shareholders are therefore advised 
that, in order to obtain a full understanding of the nature of the auditor's 
engagement, they should obtain a copy of the auditor's report together with the 
accompanying financial information.

A copy of the auditor's report on the summary consolidated financial statements 
and of the auditor's report on the annual consolidated financial statements are 
available for inspection at the Company's registered office, together with the 
financial statements identified in the respective auditor's reports.

The Company's Directors take full responsibility for the preparation of the 
provisional report and for the financial information having been extracted 
correctly from the underlying financial statements.

The summarised consolidated financial results do not include all of the 
disclosures required for full financial statements and should be read in 
conjunction with the consolidated annual financial statements for the year 
ended 31 December 2018.

(2) Revenue includes foreign and export revenue of R9 207 million (2017: 
R6 236 million).

(3) Impairment of equity-accounted investee
The investment in PT Black Bear Resources Indonesia ('BBRI') was impaired by 
R78 million as the forecast cash flows could not justify the current cost of 
the investment due to the high debt levels in the entity.

The value-in-use was reassessed at 31 December 2018 by discounting the expected 
future cash flows to be generated from the investment over the useful life of the 
underlying plant, using a discount rate of 12,36%. The recoverable amount was 
US$6,6 million (R96 million translated at that date), compared to the carrying 
value of US$12,1 million (R174 million translated at that date), resulting in 
the recognition of an impairment of US$5,5 million (R78 million) at year-end.

The impairment assessment was performed using a discounted cash flow model, 
in accordance with the Group's policy on impairment of non-financial assets. 
The following key assumptions were applied:
* material margin percentages were determined by management, using historical 
  trends, judgement and best estimates derived from information available at 
  the time;
* sales volumes were determined after considering sustainable production 
  capacity and demand observed in the markets in which BBRI operates;
* the discount rate of 12,36% applied in the model was calculated using the 
  Group's weighted average cost of capital, the US risk-free rate and the 
  Indonesian country risk premium;
* the discount period was based on the useful economic life of the underlying 
  plant, determined in terms of the Group's policy on property, plant and 
  equipment;
* the cash flows were projected based on actual operating results and the 
  business plan for a period of five years; and
* a terminal value growth rate of 0,5% was applied. 

(4) Non-current borrowings
Bridging finance loans were utilised initially to finance the business
combinations of Schirm and Much Asphalt and were provided by the Standard
Bank Group as follows:
* a Eur128,4 million (R1 901 million) loan to AECI Mauritius Limited to acquire 
  the shares and shareholder loan claims of Schirm. The loan bore interest at a 
  variable rate linked to 3-month EURIBOR and was repayable by 30 November 2018; 
  and
* a R2 347 million loan to AECI to acquire the shares and loan claims of Much 
  Asphalt and to repay Much Asphalt's existing external borrowings. The loan bore 
  interest at a variable rate linked to 3-month JIBAR and was repayable by 
  2 April 2019.

These loans were settled on 21 November 2018, when the Group issued Domestic 
Medium Term Notes on the JSE and secured term debt to replace the bridging loans.

(5) Non-controlling interest put option liability
The business combination of Much Asphalt included a clause whereby the non-
controlling interest equity holders are able to put 100% of their shareholding 
to the Group on 3 April 2023, the expiry date of the option.

The put option liability is the present value of the fair value of the option 
at exercise date. In arriving at the option value, a weighted average EBITDA for 
the three years preceding the exercise date, less net debt estimated at the exercise 
date, is multiplied by an EBITDA multiple of 7,7. This liability is considered to be 
a level 3 financial liability at fair value through profit or loss. The discount rate 
was estimated based on the Group's weighted average cost of capital adjusted to 
reflect the most affordable funding available to the Group at the reporting date.

R millions                                                             2018
At acquisition date                                                      29
Unwinding of discount                                                     2
Non-controlling interest put option liability                            31

(6) Acquisition of Schirm
AECI Mauritius Limited, a wholly-owned subsidiary of AECI, acquired 100% of the share 
capital in Schirm GmbH and shareholder loan claims from Imperial Chemical Logistics 
GmbH ('ICL'), a wholly-owned subsidiary of Imperial Holdings Limited at the time. The 
effective date of this transaction was 30 January 2018. As part of the acquisition, 
Schirm GmbH acquired the contract manufacturing service business of ICL and a property 
in Wolfenbuttel, Germany (collectively, 'Schirm'). On 17 January 2018, all conditions 
precedent to the transaction had been fulfilled and the transaction became unconditional. 
The financial results of Schirm were consolidated from the effective date in the Group's 
Plant & Animal Health segment, with Schirm operating as a stand-alone business.

The purchase consideration for the transaction was Eur128,4 million (R1 901 million), 
which was paid in cash on the effective date. A further payment of Eur6 million 
(R96 million) was made on 29 June 2018 following a purchase price adjustment, 
bringing the total consideration paid to Eur134,4 million (R1 997 million).

AECI already has well-established businesses in Africa, South East Asia, the USA 
and Australia. Domestic and international growth in the Group's five strategic pillars 
is a key focus. The acquisition of Schirm is in line with the Company's international 
expansion strategy as Schirm is a market leader in the provision of formulation 
services for agrochemicals in Europe; it has long-standing customer relationships 
with its blue-chip customer base; it invested substantially in capital expenditure in 
recent years and it is expected that this investment will enable significant revenue 
growth as well as cost efficiencies. Furthermore, there are potential synergies 
associated with the extension of Schirm's manufacturing expertise to AECI as well as 
expansion and supply chain opportunities for the Group's Plant & Animal Health segment 
as a whole.

The initial accounting for the acquisition had not been provisionally determined at 
the previous reporting date. At the date of finalisation of these results, the market 
valuations and other calculations resulted in adjustments to the initial accounting 
as reflected as follows.

Carrying value of acquiree's net assets at the acquisition date

R millions                                   Original Adjustments  Revised
Property, plant and equipment                     847         155    1 002
Intangible assets                                   -         384      384
Inventory                                         244          20      264
Accounts receivable                               466          10      476
Accounts payable                                 (231)         12     (219) 
Cash and cash equivalents                         127           -      127
Net deferred tax liability                        (13)       (166)    (179)
Net current tax receivable                          3          (9)      (6) 
Non-current provisions                           (154)         (3)    (157)
Net identifiable assets and liabilities
acquired                                        1 289         403    1 692
Goodwill on acquisition                           708        (403)     305
Gross consideration paid                        1 997           -    1 997
Less: cash and cash equivalents                  (127)          -     (127) 
Net consideration paid                          1 870           -    1 870

(7) Acquisition of Much Asphalt
The Group entered into an agreement with Capitalworks Private Equity, MIC Investment 
Holdings Proprietary Limited and the Much Asphalt management team whereby management 
retained approximately 2% of the shares of Much Asphalt and AECI acquired approximately 
98% of the entire issued share capital of Much Asphalt. All conditions precedent to 
the transaction were fulfilled on 3 April 2018 and the transaction took effect on that 
date. The results of Much Asphalt were consolidated in the Chemicals segment's results 
from this date, with Much Asphalt operating as a stand-alone entity.

The purchase consideration of R1 988 million was paid on the effective date, and was 
subject to further adjustments pending the finalisation of the effective date accounts. 
Consequently, an additional amount of R59 million was paid on 20 June 2018 as a purchase 
price adjustment, bringing the total consideration paid to R2 047 million.

Much Asphalt is South Africa's leading asphalt producer, servicing a range of customers 
engaged mainly in road construction and maintenance activities. In addition to the 
focus on domestic growth and ongoing expansion outside South Africa in its current 
strategic pillars, AECI's growth strategy also includes expansion into new areas of 
business. The transaction, therefore, was in line with the Group's strategy to diversify 
the markets in which it operates.

The initial accounting for the acquisition had not been provisionally determined at the 
previous reporting date. At the date of finalisation of these results, the market 
valuations and other calculations resulted in adjustments to the initial accounting as 
reflected below:

Carrying value of acquiree's net assets at the acquisition date

R millions                                   Original Adjustments  Revised
Property, plant and equipment                     552         (91)     461
Intangible assets                                   -         488      488
Investment in associates                           10           -       10
Inventory                                         132           -      132
Accounts receivable                               221           2      223
Accounts payable                                 (280)           -    (280) 
Net deferred tax liability                        (61)       (112)    (173) 
Net current tax receivable                         14           -       14
Cash and cash equivalents                          33           -       33
Borrowings                                       (360)          -     (360) 
Non-controlling interest                          (27)         (5)     (32) 
Net identifiable assets and liabilities           
acquired                                          234         282      516
Goodwill on acquisition                         1 813        (282)   1 531
Gross consideration paid                        2 047           -    2 047
Less: cash and cash equivalents                   (33)          -      (33) 
Net consideration paid                          2 014           -    2 014

(8) Goodwill impairment
An impairment was recognised during the year for the Farmers Organisation
Limited ('FOL') business, in Malawi, that is part of the Plant & Animal
Health segment. The cash flow synergies relating to this business unit are no longer 
expected to be realised in full as a result of the penetration of generic products into 
its market, the persistent effects of below average rainfall, lower output from the key 
crops of tobacco and cotton, and a devaluation of the Malawian kwacha against both the 
US$ and the rand. The combination of these factors necessitated an impairment of 
the goodwill.

In December, the Group's goodwill raised on the FOL business was impaired by US$2,6 
million (R37,2 million, of which R5,8 million comprised a reversal of foreign currency 
translation reserve and the remaining R31,4 million was included in net operating costs 
in the income statement). The value-in-use was reassessed at 31 December by discounting 
the expected future cash flows to be generated from this cash generating unit. The 
recoverable amount was US$13,1 million (R188,5 million translated at that date), 
compared to the carrying value of US$15,7 million (R225,7 million translated at that 
date), resulting in the recognition of the impairment.

The impairment assessment was performed using a discounted cash flow model, in 
accordance with the Group's policy on impairment of non-financial assets. The following 
key assumptions were applied:
* material margin percentages were determined by management, using judgement and best 
  estimates derived from information available at the time;
* sales volumes were determined after considering sustainable production capacity and 
  demand observed in the market in which FOL operates;
* the discount rate of 22,2% applied in the model was calculated using the Group's 
  weighted average cost of capital, the Malawian risk-free rate and the Malawian country 
  risk premium;
* the cash flows were projected based on actual operating results and the business plan 
  for a period of five years; and
* a terminal value growth rate of 4,5% was applied and was based on sustainable earnings 
  and a conservative growth model into perpetuity.

(9) Changes in significant accounting policies
The changes in accounting policies reflected below are also reflected in the Group's 
consolidated financial statements as at and for the year ended 31 December 2018.

The Group adopted IFRS 15 Revenue from Contracts with Customers (see note 9(a)) and 
IFRS 9 Financial Instruments (see note 9(c)) from 1 January 2018. The effect of the 
initial application of these standards was mainly as follows:
* earlier recognition of revenue from consignment stock contracts, where control of the 
  goods passes to the customer earlier than the risks and rewards of ownership (see 
  note 9(a));
* changes in the amount of revenue recognised from product sales as a result of variable 
  considerations that affect the transaction price (see note 9(a)); and
* an increase in impairment losses recognised on financial assets (see note 9(c)).

A number of other new standards and amendments to existing standards became effective 
from 1 January 2018 but these did not have a material effect on the Group's financial 
statements.

Changes in significant accounting policies: Revenue Recognition
(a) Adoption of IFRS 15 Revenue from Contracts with Customers
The Group applied IFRS 15 in the current year. IFRS 15 replaced the previous revenue 
recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and 
IFRIC 13 Customer Loyalties Programs. IFRS 15 introduces a five-step approach to 
revenue recognition. Far more prescriptive guidance has been added to deal with 
specific scenarios.

The Group adopted IFRS 15 using the cumulative effect method (without practical 
expedients) at 1 January 2018, the date of initial application. Accordingly, the 
information presented for 2017 has not been restated and is presented, as previously 
reported, under IAS 18, IAS 11 and related interpretations.

Apart from more extensive disclosure on the Group's revenue transactions, the 
application of IFRS 15 has not had a significant impact on the financial position 
and/or financial performance of the Group as described below, and accordingly no 
adjustment was made to opening reserves.

The impact of the transition to IFRS 15 on 1 January 2018 would have resulted in an 
increase in revenue of R10 million, an increase in operating expenses of R12 million 
and a resulting decrease in profit before tax of R2 million. The impact on opening 
retained earnings would have been a decrease of R1 million, with no impact on non-
controlling interest.

The Group's accounting policies for its revenue streams are disclosed in note 9(b).

(b) Revenue recognition
The Group recognises revenue from the following major sources:
* sale of goods in all its operating segments;
* sale of goods and related product application services in its Mining Solutions, 
  Water & Process and Chemicals operating segments; and
* rental income and related facilities management services in its Property & 
  Corporate operating segment.

Revenue is measured based on the consideration specified in a contract with a customer 
and excludes amounts collected on behalf of third parties. The Group recognises revenue 
when it transfers control of a product or service to a customer. For certain revenue 
categories the Group identifies 'sale of goods and services' as 'not distinct' and 
thus combines goods and services with other promised goods or services until it 
identifies a 'combined bundle of goods and services' as a single performance 
obligation.

Sale of goods in all operating segments
For sales of goods to customers, revenue is recognised when control of the goods has 
transferred, being when the goods have been delivered to the customer's specific 
location (delivery). Following delivery, the customer has full discretion over the 
manner of use or further distribution and price to sell the goods, has the primary 
responsibility for the goods and bears the risks of obsolescence and loss in relation 
to the goods. A receivable is recognised by the Group when the goods are delivered 
to the customer as this represents the point in time at which the right to consideration 
becomes unconditional, since only the passage of time is required before payment is due.

Sale of goods and related product application services
The Group provides product application services to customers. These are performed as 
and when goods are delivered and relate mainly to:
* blasting services where explosives are delivered directly to the point and location 
  of usage, and detonated within hours of delivery; and
* dosing of chemicals directly into a customer's manufacturing or water treatment 
  process, where the promise to the customer is a specific outcome to the process 
  regardless of product volumes or service levels required to achieve that outcome.

The goods and services are delivered simultaneously or near-simultaneously and results 
in the product being used by the customer at that point in time. As a consequence, 
revenue is recognised when the product and related application service are delivered 
and the right to consideration becomes unconditional.

Rental income and related facilities management services
IFRS 15 does not apply to revenue from lease contracts within the scope of IAS 17 Leases. 
Consequently, the Group continues to recognise revenue in respect of rentals received 
from leasing activities on a straight line basis over the period of the lease, where 
fixed escalation clauses apply, and when there is a reasonable expectation that recovery 
of the lease rental is probable. Where no fixed escalation clauses are applicable to a 
lease, rental income is recognised in the period in which it is due by the lessee.

Facilities management services to lessees comprise rail, environmental and laboratory 
services, steam generation, effluent treatment, electricity provision, and storage and 
handling services. Revenue from these services is recognised as and when the services 
are provided, since these services are usage-based and are delivered at a point in time.

Disaggregation of revenue by nature

R millions                                                     2018    2017
Mining Solutions                                             11 013   9 718
Sale of goods                                                 9 449   8 316
Sale of goods and related product application services        1 564   1 402
Water & Process                                               1 376   1 454
Sale of goods                                                    79      36
Sale of goods and related product application services        1 297   1 418
Plant & Animal Health                                         4 423   2 543
Sale of goods                                                 4 423   2 543
Food & Beverage                                               1 248   1 195
Sale of goods                                                 1 248   1 195
Chemicals                                                     5 266   3 564
Sale of goods                                                 5 215   3 515
Sale of goods and related product application services           51      49
Property & Corporate                                            311     297
Sale of goods                                                    15      22
Sale of services                                                296     275
Revenue recognised at a point in time                        23 637  18 771
Property & Corporate                                            128     109
Rental income                                                   128     109
Inter-segment                                                  (451)   (398) 
Total segment revenue                                        23 314  18 482


Changes in significant accounting policies: Financial Instruments
(c) Adoption of IFRS 9 Financial Instruments
The standard sets out requirements for recognising and measuring financial assets, 
financial liabilities and some contracts to buy or sell non-financial items. This 
standard replaces IAS 39 Financial Instruments: Recognition and Measurement.

The adoption of IFRS 9 resulted in the change of classification of certain financial 
assets with the only significant impact being that unlisted equity instruments 
previously measured at cost are now measured at fair value, with changes in fair 
value recognised in other comprehensive income.

The other significant change to the Group's policies with the adoption of IFRS 9 
is the measurement of impairment of financial assets, specifically trade receivables, 
which is now measured using an expected credit loss model instead of an incurred loss 
model. The Group uses a provision matrix to calculate expected credit losses, with 
amounts more than 90 days past due viewed as a default event. This change resulted 
in an increase in the loss allowance compared to the previous impairment model.

The table that follows summarises the impact, net of tax, of transition to
IFRS 9 on the opening balance of reserves and retained earnings at 1 January 2018.

Impact of adopting IFRS 9 at 1 January 2018

R millions
Recognition of expected credit losses under IFRS 9                       56
Related tax impact                                                      (14) 
Decrease in retained earnings                                            42

The adoption of IFRS 9 had no impact on non-controlling interest.

The table that follows, and the accompanying notes below, explain the original 
measurement categories under IAS 39 and the new measurement categories under 
IFRS 9 for each class of the Group's financial assets, at 1 January 2018.

                                               Original 
                                         classification      New classification
R millions                   Note          under IAS 39            under IFRS 9

Financial assets
Unlisted shares (level 3)     (i)    Available-for-sale          FVOCI - equity
                                                                     instrument
Forward exchange 
contracts (level 2)          (ii)    Fair value-hedging      Fair value-hedging
                                             instrument              instrument

Money market investment                Designated as at          Mandatorily at
in collective investment                          FVTPL                   FVTPL
scheme (level 1)

Employer surplus accounts              Designated as at          Mandatorily at
(level 1)                                         FVTPL                   FVTPL

Accounts receivable         (iii)             Loans and          Amortised cost
                                            receivables 

Cash                                          Loans and          Amortised cost
                                            receivables 

Loans receivable to other                     Loans and          Amortised cost
investments                                 receivables 

Total financial assets

                                                     Original             New 
                                                     Carrying        Carrying
                                                       Amount          Amount
                                                        under           under 
                                                       IAS 39          IFRS 9           
R millions
Financial assets
Unlisted shares (level 3)                                  87              87
Forward exchange contracts (level 2)                       43              43
Money market investment in collective
investment scheme (level 1)                                77              77
Employer surplus accounts (level 1)                        78              78
Accounts receivable                                     3 393           3 337
Cash                                                    1 206           1 206
Loans receivable to other investments                      26              26
Total financial assets                                  4 910           4 854

(i) Included in the unlisted shares is a R65 million investment in Origin Materials 
('Origin') which is considered to be a level 3 financial asset. The Group had applied 
the IAS 39 exemption (paragraph 46c) and carried the investment at cost in the prior 
year. These equity securities represent investments that the Group intends to hold 
for long-term strategic purposes. As permitted by IFRS 9, the Group has designated 
these investments at the date of initial application as measured at fair value through 
other comprehensive income ('FVOCI'). Previously, these assets were designated as 
available-for-sale financial assets.

(ii) The Group measures forward exchange contracts at fair value using inputs as 
described in level 2 of the fair value hierarchy. The fair values for forward exchange 
contracts are based on quotes from brokers. Similar contracts are traded in an active 
market and the quotes reflect the actual transactions on similar instruments. The 
carrying values of all other financial assets and liabilities approximate their fair 
values based on the nature or maturity period of the financial instrument. There were 
no transfers between levels 1, 2 or 3 of the fair value hierarchy during the year 
ended 31 December 2018.

(iii) Accounts receivable that were classified as loans and receivables under
IAS 39 are now classified at amortised cost. An increase of R56 million in
the allowance for impairment over these receivables was recognised in opening retained 
earnings at 1 January 2018 on transition to IFRS 9. No additional trade receivables 
were recognised at 1 January 2018 on the adoption of IFRS 15, and consequently no 
additional impairment was necessary.

Changes in significant accounting policies resulting from the adoption of IFRS 9 are 
disclosed in note 9(d) and have been applied retrospectively, except as described below:
* the Group has taken an exemption to not restate comparative information for prior 
periods with respect to classification and measurement (including impairment) 
requirements. Therefore, comparative periods have been restated only for retrospective 
application of the cost of hedging approach for forward points. Differences in the 
carrying amounts of financial assets and financial liabilities resulting from the 
adoption of IFRS 9 are recognised in retained earnings and reserves, as at 1 January 
2018. Accordingly, the information presented for 2017 does not generally reflect the 
requirements of IFRS 9 but rather those of IAS 39.

The following assessments have been made on the basis of the facts and circumstances 
that existed at the date of initial application:
* the determination of the business model in which a financial asset is held;
* the designation and revocation of previous designations of certain financial assets 
  and financial liabilities as measured at fair value through profit or loss ('FVTPL');
* the designation of certain investments in equity instruments not held for trading at 
  FVOCI;
* if an investment in a debt security had low credit risk at the date of initial 
  application of IFRS 9, then the Group assumed that the credit risk on the asset had 
  not increased significantly since its initial recognition;
* changes to hedge accounting policies have been applied prospectively, except for the 
  cost of hedging approach for forward points which has been applied retrospectively 
  to hedging relationships that existed on, or were designated after, 1 January 2017; 
  and
* all hedging relationships designated under IAS 39 at 31 December 2017 met the criteria 
  for hedge accounting under IFRS 9 at 1 January 2018 and, therefore, are regarded as 
  continuing hedging relationships.

The Group's accounting policies for financial assets are disclosed in note 9(d).

(d) Financial assets
Investments
Investments in unlisted equity securities are classified as financial assets at fair value 
through other comprehensive income. They are measured at fair value with any gains or 
losses, including foreign exchange, recognised in other comprehensive income, together 
with the associated deferred tax.

When these assets are derecognised, the gain or loss accumulated in other comprehensive 
income is reclassified to retained income. Dividends on these investments are recognised 
in the income statement as investment income when they are declared and the Group has a 
right to receive them.

Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on financial assets 
except for the assets at fair value through other comprehensive income. The amount of 
expected credit losses is updated at each reporting date to reflect changes in credit 
risk since initial recognition of the respective financial asset.

The Group recognises lifetime expected credit losses for accounts receivable and these 
are estimated using a provision matrix based on the Group's historical credit loss 
experience, adjusted for factors that are specific to the debtors, general economic 
conditions and an assessment of both the current and forecast direction of conditions, 
including the time value of money where appropriate.

For all other financial assets, the Group recognises lifetime expected credit losses 
when there has been a significant increase in credit risk since initial recognition. 
If there has been no significant increase in credit risk, the loss allowance is 
measured at an amount equal to the 12-month expected credit losses.

The Group determines increases in credit risk by considering any change in the risk of 
default occurring since the date of initial recognition. The Group considers that default 
has occurred when a financial asset is more than 90 days past due.

(10) Standards, interpretations and amendments to existing standards not yet effective

IFRS 16 Leases
This standard introduces a single, on-balance sheet lease accounting model for lessees. 
A lessee recognises a right-of-use asset representing its right to use the underlying 
asset and a lease liability representing its obligation to make lease payments. There 
are optional exceptions for short-term leases and leases for which the underlying asset 
is of low value. Lessor accounting remains similar to current practice (i.e. lessors 
continue to classify leases as finance or operating leases). IFRS 16 replaces IAS 17 
Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC 15 Operating 
Leases - Incentives and SIC 27 Evaluating the Substance of Transactions Involving
the Legal Form of a Lease. It includes more disclosures for both lessees and lessors.

Management is collating and analysing all lessee arrangements across the Group and 
evaluating the terms and conditions of these arrangements in order to prepare the 
relevant calculations and system changes required to implement the new standard.

(11) The Group entered into various sale and purchase transactions with related parties 
in the Group in the ordinary course of business, the nature of which was consistent with 
those previously reported. Those transactions were concluded on terms that were no more 
and no less favourable than transactions with unrelated external parties. All transactions 
and balances with these related parties have been eliminated appropriately in the 
consolidated results.

(12) The Group, through its subsidiary, AECI Latam Produtos Quimicos Ltd ('AECI Latam'), 
acquired an explosives business in Lorena, Brazil from Dinacon, for a cash consideration 
of US$6,3 million. This acquisition was made through a judicial recovery auction process 
in mid-September 2018. It entitles the Group to 100% ownership of an explosives 
manufacturing plant, distribution and storage facilities and the requisite explosives 
operating licences. The transaction has not yet taken effect but is expected to be 
finalised by the end of the first quarter of 2019. The acquisition provides
an opportunity for entry into the explosives market in Brazil and the rest of
Latin America, in line with the Group's intent to continue expanding the geographic 
footprint of its Mining Solutions strategic growth pillar. In the past, Dinacon has 
supplied explosives mainly to the Brazilian civil and construction industry. Its 
business in the local mining sector, which accounts for the world's third largest 
output by value, has been limited. Brazil has more than 8 000 mines so there is a 
sizeable opportunity for growth, particularly in terms of leveraging AEL's significant 
experience in open pit and underground mining; its African, Australian and Indonesian 
footprint; and its long-standing relationships with international mining companies.
At the reporting date, the conditions precedent to make the transaction unconditional 
had not been fulfilled. The initial accounting for the business combination has thus 
not been completed and, accordingly, it was not possible for IFRS 3 Business Combinations 
disclosures to be made.

Commentary
Financial performance
AECI achieved year-on-year revenue growth of 26% to R23 314 million (2017: R18 482 million) 
owing to strong performances by the Mining Solutions and Chemicals segments, and an 
improvement in Food & Beverage. The acquisitions finalised in 2018, namely Schirm and Much 
Asphalt, contributed 17% of the increase. Of the total Group revenue, 40% was generated 
outside South Africa (34% in 2017) and mainly in US$ and Euro.

The table below summarises the effects of Schirm and Much Asphalt on the
Group's results:

                               Operations                     2018     2017 
                                excluding                    Total    Total
R millions                   acquisitions   Acquisitions  reported reported
Revenue                            20 174          3 140    23 314   18 482
Profit from operations              1 868            131     1 999    1 579
Headline earnings                   1 157            (54)    1 103    1 012
HEPS (cents/share)                  10,96          (0,51)    10,45     9,59

                                                     Growth %
                                         Operations 
                                          excluding
R millions                             acquisitions  Acquisitions Overall
Revenue                                         9,1          17,0    26,1
Profit from operations                         18,3           8,3    26,6
Headline earnings                              14,3          (5,3)    9,0
HEPS (cents/share)                             14,3          (5,3)    9,0

Profit from operations of R1 999 million was the Group's highest ever and a
27% improvement on the R1 579 million recorded in the prior corresponding period. 
Profit from operations included impairments totalling R109 million in the Mining 
Solutions and Plant & Animal Health operating segments. Headline earnings per share 
('HEPS') was 1 045 cents, 9% up year-on-year, after accounting for the 57 cents per 
share HEPS impact of the purchase price allocation for Schirm and Much Asphalt. 
Headline earnings were R1 103 million (2017: R1 012 million).

Higher prices and demand for most commodities drove output in the global mining sector. 
This benefited AECI's businesses servicing this industry across an extensive geographic 
footprint. The weaker ZAR/US$ exchange rate in the second six months and a recovery in 
chemical input prices also had an impact. These price increases were supported by the 
oil price which, on average, was higher year-on-year.

Extreme weather conditions, had an adverse effect on performance. Other challenges were 
South Africa's subdued economic environment, delays in road infrastructure expenditure 
and the continued contraction of South Africa's deep level mining industry.

The Board has declared a final gross cash dividend of 366 cents per ordinary share, an 
increase of 7,6% from 2017's 340 cents per share, bringing the total dividend for the 
2018 financial year to 515 cents, 7,74% higher than the prior year's 478 cents. A South 
African dividend withholding tax of 20% will be applicable to the final dividend, 
resulting in a net dividend of 292,8 cents per share payable to those shareholders who 
are not eligible for tax exemption or reduction.

Safety
The greatest disappointment in the year was the tragic death, in November, of Morne 
Langeveldt. Mr Langeveldt, a Driver Assistant, and the Driver were delivering product 
to Much Asphalt's site in Contermanskloof, in the Western Cape, on behalf of a supplier. 
During the delivery process Mr Langeveldt was caught in the path of the rear wheels of 
the tanker and he sustained fatal injuries. The Board extends its deepest sympathies to 
his family, friends and colleagues.

The 12-month rolling Total Recordable Incident Rate ('TRIR') was 0,58. This deterioration 
from 0,39 in December 2017 was due mainly to the high number of Recordable Incidents at 
Schirm. Significant emphasis has been placed on addressing this, including the roll-out 
of the Group's Zero Harm safety strategy. Both Schirm and Much Asphalt are committed to 
upholding AECI's safety, health and environmental policies and standards.

Excluding the acquisitions, the Group's TRIR improved to 0,32.

The TRIR measures the number of incidents per 200 000 hours worked. Segmental performance
Mining Solutions
This segment comprises explosives (AEL Intelligent Blasting ('AEL')) and mining chemicals 
(Experse and Senmin).

Revenue increased by 13% to R11 013 million (2017: R9 718 million) primarily as a result 
of growth in demand for explosives in the rest of Africa and the higher ammonia price. 
Revenue from foreign operations accounted for 56% of the segment's total revenue. The 
weaker ZAR/US$ exchange rate in the second half of the year boosted the results in rand 
terms and profit from operations improved by 16% to R1 274 million (2017: R1 097 million). 
The operating margin also improved to 11,6%, from 11,3% in the prior year.

Explosives
Excellent results were achieved, driven by a strong performance from the mining industries 
in the Democratic Republic of Congo, Australia and Francophone West Africa. Overall bulk 
explosives volumes were 5% higher whilst those for initiating systems declined by 10%.

In South Africa, bulk explosives volumes were 7% lower. The effects of Optimum Coal mine 
again being placed in business rescue and the loss of a contract in the iron ore mining 
sector, in the last quarter of 2017, continued to be felt. Reduced sales of initiating 
systems were a consequence of the ongoing contraction of the underground narrow reef 
platinum and gold mining sectors. Shaft closures, industrial action and Section 54 
safety-related stoppages at customers' mines also contributed to the volume decline.

Bulk explosives volumes in the rest of Africa were 11% higher as commodity price trends 
supported activity in the copper and cobalt mining sectors, in particular. Strong growth 
was achieved in Francophone West Africa, on the back of new contracts secured in 2017 at 
gold mining customers. The diamond industry in Botswana also improved.

Volumes in the Asia Pacific region increased by 48%, with opportunistic sales as well as 
the deployment of an enhanced product and service offering in Australia. In Indonesia, the 
transition to a new Explosives Licensee partner was completed successfully. The investment 
in the joint venture, PT Black Bear Resources Indonesia ('BBRI') was impaired by R78 million 
as the forecast cash flows could not justify the current cost of the investment due to the 
high debt levels in the entity. BBRI's in-country manufacturing capacity nonetheless remains 
a strategic advantage, because the volume of imports of ammonium nitrate into Indonesia 
continue to be regulated. A capital replacement programme at the customer's site is underway 
in Indonesia to service contracts that have been rolled over. In Australia, a capital expansion 
programme is in progress to service market demand.

In the last quarter of the year AECI Latam acquired an explosives business in Brazil, through 
a judicial recovery auction process, for a cash consideration of US$6,3 million. The transaction 
has not yet taken effect but is expected to be finalised by the end of the first quarter of 2019. 
It includes an explosives manufacturing plant, distribution and storage facilities and the 
requisite explosives operating licences and is an opportunity for the Explosives business to 
expand its already extensive footprint.

Mining Chemicals
Volumes were 2,5% higher overall. Demand for both collectors and flocculants increased in South 
Africa as a result of increased activity in the platinum mining sector year-on-year. While there 
were good sales to the Central African region's copper mining sector, overall exports were lower 
than in the prior year.

Delays in commissioning and ramp-up of Senmin's xanthates plant expansion in Sasolburg were 
experienced initially, but output from the facility is now in line with market requirements.

The demand for surfactants used in explosives manufacture also increased, both locally and 
internationally.

Water & Process (ImproChem)
The year was extremely challenging for this segment. Revenue declined by 5% to R1 376 million 
(2017: R1 454 million) and profit from operations by 34% to R120 million (2017: R182 million). 
The trading margin was 8,7%, from 12,5% in 2017. Volumes decreased by 18%.

The performance in the local water treatment chemicals market was negatively affected by the 
loss of two major customers and lower demand owing to persistent drought effects. Diminished 
water flow rates result in lower turbidity and hence lower dosages of purification chemicals. 
The Chemical Processing and Engineering Solutions performed strongly, with four desalination 
plants installed in the Western Cape and service contracts for these secured.

Export sales were affected in line with AECI's credit risk management processes and a doubtful 
debt provision of R30 million was raised.

Plant & Animal Health (Nulandis and Schirm)
The segment's volumes revenue grew by 74% to R4 423 million following the inclusion of Schirm, 
the acquisition based in Germany that was finalised on 30 January 2018. Disappointingly, however, 
profit from operations was 11% lower at R119 million (2017: R133 million) and the operating margin 
was 2,7% (2017: 5,2%).

Nulandis continued to be adversely affected by generally depressed trading conditions in South 
Africa's agricultural sector, where output remained curtailed by the effects of severe drought 
conditions and erratic rainfall patterns in recent years. The same drought effects also persisted 
in Malawi, where Farmers Organisation is based. Shifts in the market to generic products added to 
the challenge in that country. A R31 million impairment of the Farmers Organisation goodwill was 
taken at year-end.

Schirm's performance was below expectations owing to the delayed start-up of the new synthesis 
plant at Schonebeck and the time to secure additional qualified operating personnel. As a result, 
the registration of the new facility in respect of customer products was similarly delayed and 
operating costs incurred for that plant were not recovered. Furthermore, drought conditions were 
also experienced in Northern and Central Europe in the 2018 summer season and resulted in lower 
demand for agrochemicals.

Historically, Schirm's returns have been marginal in the second half of the year owing to 
seasonality. The businesses in both Germany and the US generate approximately 70% of their 
revenue in the first six months of the year, during the European and US planting season, and 
management remains confident that the shortfall in performance in 2018 will be made up in 2019.

Schirm's results benefited from a once-off net R41 million foreign exchange gain. This was 
offset by non-cash amortisation of identifiable assets of R73 million, recognised through the 
purchase price allocation ('PPA'). The ongoing annual amortisation will be R35 million from 2019 
onwards. Excluding the PPA effects, the business' results were HEPS accretive.

Food & Beverage (Lake Foods and Southern Canned Products)
Overall volumes increased by 2,8%, revenue by 4,4% to R1 248 million and profit from operations 
by 16% to R74 million. The trading margin maintained the improvement trend noted in the first 
half of the year and increased to 5,9% from 5,4% in 2017. Further gains in this regard will 
remain a focus as will business expansion through exports to other African countries.

Chemicals
A very pleasing result was delivered by this segment, notwithstanding the stagnation of South 
Africa's manufacturing sector. Revenue of R5 266 million (2017: R3 564 million) was up 48% 
year-on-year, profit from operations improved by 53% to R559 million (2017: R365 million) and 
the operating margin was 10,6%, from 10,2% in 2017.

Excluding Much Asphalt, volumes increased by 8,6%. The main drivers were high volumes of molten 
sulphur traded locally, exports of sulphuric acid to the Central African region and improved 
conditions in the poultry sector.

All the underlying businesses in the segment generated high levels of cash. Excluding Much 
Asphalt, profitability was more than 15% higher year-on-year.

Much Asphalt's performance was below expectations. State-owned entities and local government 
delayed road infrastructure contract awards and conditions in the sector as a whole remained 
difficult. It is estimated that the asphalt market contracted by 35% in 2018. The execution of 
projects in the Western Cape, where Much Asphalt has a strong order book, was delayed by the 
onset of the rainy season but activity resumed thereafter. Much Asphalt's results were also 
impacted by non-cash amortisation of identifiable assets of R11 million recognised through the 
PPA. The ongoing annual amortisation will be R12 million from 2019 onwards. The business' 
results were not accretive to HEPS for the year.

Property & Corporate
The revenue streams of the Group's remaining property activities comprise mainly the leasing 
of buildings at Modderfontein (Gauteng) and Umbogintwini (KwaZulu-Natal), and the provision of 
utilities and services at the multi-user Umbogintwini Industrial Complex. Revenue from these 
activities increased by 8% to R424 million (2017: R392 million) and profit from operations 
was 13% higher at R107 million (2017: R95 million).

Corporate costs were R254 million (2017: R357 million). The 2017 result included R105 million 
for transaction costs associated with the acquisitions concluded in that year.

Cash utilisation
Cash of R2 029 million (2017: R1 221 million) was generated by the Group's operating activities. 
This performance was enabled by improved profitability and good overall working capital control 
in the second half of the year. Most of the R845 million increase in working capital related 
to the acquisitions. The net cash outflow in working capital was R155 million and related mainly
to the continued growth of the Explosives business outside South Africa.

R328 million of the R847 million invested in fixed assets (2017: R704 million), was for expansion 
projects and the balance of R519 million was replacement capital expenditure. Key expansion 
projects included Senmin's new xanthates pellet plant in Sasolburg, SANS Technical Fibers' 
single stage polyester fibre plant in North Carolina, USA, and asset deployments in the rest of 
Africa to maintain and expand the Explosives footprint. Replacement capital included the statutory 
shutdown of the boiler at Modderfontein undertaken in the year, as well as equipment for nitrogen 
oxide abatement, also at Modderfontein, for site compliance with the air emissions licence.

Cash interest cover was 8,2 times. The decrease from the 2017 cover of 13 times was due to the 
higher net interest charge of R365 million (2017: R167 million). The acquisitions of Schirm and 
Much Asphalt were funded through bridge finance initially. This arrangement was replaced late in 
2018 when R4,4 billion was raised through term debt and debt capital funds at favourable interest 
rates. It is anticipated that the borrowings will be repaid over five years to 2023.

US$20 million, net of withholding taxes, was repatriated from the Group's foreign 
subsidiaries.

Strategic realignment of AEL and ImproChem
AEL and ImproChem have initiated business realignment projects, assisted by external consultants.

AEL is reviewing its product and service offering, and the structures that support these, mainly 
for the South African narrow reef mining market which has been declining over several years. 
Narrow reef mining is the key market for initiating systems, where a 12% decline in volumes was 
recorded in 2018 alone. The closure of another two shafts has been announced by an AEL customer.

AEL's realignment will ensure that it remains a sustainable, responsible and shareholder value-
creating local supplier to the South African mining industry while continuing to position itself 
for growth in the rest of its expanding footprint.

ImproChem is reviewing its go-to market model to enhance its capabilities and improve service 
delivery.

Section 189 processes at both AEL and ImproChem commenced in January 2019. Costs associated with 
realignment will be incurred in the first half of 2019 and it is anticipated that these costs will 
be offset by savings in the second six months of the year.

Focus
AECI delivered pleasing results in 2018, notwithstanding some challenges.

The priority in the coming year will be ensuring that the Group's recent acquisitions deliver 
financial performances in line with expectations and that the newly-acquired asset in Brazil is 
integrated into Mining Solutions as quickly as possible once the transaction has been finalised. 
Successful execution of realignment projects in AEL and ImproChem will also be key. Cash management 
remains important.

Outlook
From an international perspective, the uncertainty created by shifts in world trade relations 
persists as does that relating to final Brexit agreements. Rainfall patterns and the effects of 
climate change impacts will continue to have a strong influence on the agricultural sector globally.

AECI continues to expand its product and services offering in the rest of Africa, in line with 
strategy. Conditions in several countries where the Group operates were conducive to maximising 
the opportunities for growth that demand for commodities presented in 2018, notwithstanding 
challenges such as socio-political unrest and a shortage of access to hard currencies in others. 
Demand levels have been sustained into 2019 and this bodes well for the Group, its customers and 
in the countries of operation.

In South Africa policy certainty and the future stability of state-owned enterprises, including 
electricity supply, has improved. This, together with the positive changes in the political 
environment at the end of 2017, should favour an acceleration in economic growth and investment 
in the coming year.

The expansion and maintenance of infrastructure is fundamental to South Africa's long-term 
economic growth and it is of concern that the timing of contract awards in this sector remains 
unclear. There are some indications that activity could accelerate in the second half of the year.

It is pleasing that the terms of the Mining Charter were finalised in 2018. The Group is well 
placed to continue adding value to its customers as they enhance their compliance in this 
important area.

The Board and management have reconfirmed AECI's strategy and value proposition going forward.

Khotso Mokhele                  Mark Dytor 
Chairman                        Chief Executive 

Woodmead, Sandton
26 February 2019

Directors: KDK Mokhele (Chairman), GW Dempster, MA Dytor (Chief Executive), Z Fuphe, G Gomwe*, 
KM Kathan (Executive), J Molapo, AJ Morgan, R Ramashia, PG Sibiya.
*Zimbabwean

Group Company Secretary: EN Rapoo

Notice to shareholders
Declaration of final ordinary cash dividend no. 170
Notice is hereby given that, on Monday, 25 February 2019, the Directors of AECI declared a 
gross final cash dividend of 366 cents per share, in respect of the financial year ended 
31 December 2018. The dividend is payable on Monday, 8 April 2019 to holders of ordinary shares 
recorded in the register of the Company at the close of business on the record date, being 
Friday, 5 April 2019.

The last day to trade 'cum' dividend will be Tuesday, 2 April 2019 and shares will commence 
trading 'ex' dividend as from the commencement of business on Wednesday, 3 April 2019.

A South African dividend withholding tax of 20% will be applicable to all shareholders who 
are not either exempt or entitled to a reduction of the withholding tax rate in terms of a 
relevant Double Taxation Agreement, resulting in a net dividend of 292,8 cents per share 
payable to those shareholders who are not eligible for exemption or reduction. Application 
forms for exemption or reduction may be obtained from the Transfer Secretaries and must be 
returned to them on or before Tuesday, 2 April 2019.

The issued share capital at the declaration date is 121 829 083 listed ordinary shares, 
10 117 951 unlisted redeemable convertible B ordinary shares and 3 000 000 listed 
cumulative preference shares. The dividend has been declared from the income reserves of 
the Company.

Any change of address or dividend instruction must be received on or before Tuesday, 
2 April 2019.

Share certificates may not be dematerialised or rematerialised from Wednesday, 3 April 2019 
to Friday, 5 April 2019, both days inclusive. 

By order of the Board

EN Rapoo
Group Company secretary
Woodmead, Sandton
26 February 2019

Transfer secretaries
Computershare Investor Services Proprietary Limited Rosebank Towers, 15 Biermann Avenue, 
Rosebank, 2196 and Computershare Investor Services PLC
PO Box 82, The Pavilions, Bridgwater Road, Bristol BS 99 7NH, England

Registered Office
First floor, AECI Place, 24 The Woodlands, Woodlands Drive, Woodmead, Sandton, 2196

Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
1 Merchant Place, Cnr Fredman Drive and Rivonia Road, Sandton, 2196
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