Directors’ Report

The Directors have pleasure in submitting their Report together with the Group and Company Annual Financial Statements for the year ended 31 December 2011.

NATURE OF BUSINESS

AECI is an explosives and specialty chemicals company domiciled in South Africa. Group businesses service the mining and manufacturing sectors both locally and internationally. The focus for growth is on Africa, South America and South East Asia. AECI’s businesses are characterised by application know-how and service delivery, they often operate in niche markets, and are supported by leading technology which is developed in-house or is sourced from international partners.

In the last five years, the Group has invested R2 billion in a strategic capital investment programme to enhance its future growth in the mining and manufacturing areas, with particular emphasis on mining chemical and initiating systems.

AEL Mining Services (“AEL”) is a developer, producer and supplier of commercial explosives, initiating systems and blasting services for the mining, quarrying and construction sectors in Africa and further afield, particularly Indonesia. The business has a presence in 23 countries. It is well established across the African continent and, in line with its international strategy, has moved successfully into South East Asia. AEL’s technology and product positions in initiating systems and bulk explosives have enabled it to enter into mutually beneficial channel partnerships with leading regional explosives players in Europe and in Latin America. AEL’s largest site is at Modderfontein, Johannesburg, Gauteng.

In the specialty chemicals cluster, 16 business units supply specialty chemical raw materials and related services for industrial use across a broad spectrum of customers in the manufacturing and mining sectors, mainly in South Africa and in Southern Africa. Sales, distribution, production and laboratory facilities are extensive. The cluster has major sites in Johannesburg and Durban, with a number of smaller operations country-wide.

AECI’s mining chemicals thrust is anchored in Senmin, which operates in Sasolburg in the Free State.

In addition to its core businesses, the Group has a valuable land asset, the release of which is overseen carefully. These property activities are managed by Heartland and this company seeks to optimise the value of the property holdings surplus to AECI’s operational requirements by selling land and by selectively investing in revenue-producing buildings in order to grow an existing portfolio of rental properties.

The land holdings are significant and are located in prime locations near Johannesburg and Cape Town. More than 3 000 hectares of land are available for redevelopment over the longer term for residential, commercial and industrial end uses and for leasing purposes.

SANS Technical Fibers, in the USA, is the Group’s fourth business. It manufactures and markets a range of high performance, specialty nylon industrial yarns for niche market applications in the USA, Asia and Europe.

AECI has a total employee complement of 7 141.

The Company is domiciled in South Africa and is listed on the JSE. At 31 December 2011, its market capitalisation was R9,8 billion.

GROUP RESULTS

The activities and results of the Group are covered in the Chief Executive’s Report, the Chief Financial Officer's Report, the Corporate Governance Report and the Sustainability Report.

GOING CONCERN

The Financial Statements have been prepared using appropriate Accounting Policies, supported by reasonable and prudent judgements and estimates. The Directors are of the opinion that the Group has adequate resources to continue as a going concern in the foreseeable future.

BORROWING POWERS

In terms of its Articles of Association, the Company has unlimited borrowing powers.

ACCOUNTING POLICIES

The Annual Financial Statements have been prepared in compliance with IFRS, the AC 500 Series issued by the Accounting Practices Board (“AC 500”), the JSE Listings Requirements and in accordance with the requirements of the Companies Act, and is consistent with that applied at 31 December 2010.

INDEPENDENT AUDITORS

The independent auditors, KPMG Inc., will be recommended for reappointment at the forthcoming Annual General Meeting. Mr N van Niekerk will be recommended as the individual designated auditor who will undertake the audit of the Company for the financial year ending 31 December 2012. All non-audit services provided by KPMG Inc. are tabled at and approved by the Audit Committee.

SHARE CAPITAL AND SHARE PREMIUM

The issued ordinary share capital of the Company, at 31 December 2011, was 119 135 869 (2010: 119 135 869). Approval was obtained from shareholders on 24 November 2011 to allot and issue 4 678 667 ordinary shares in respect of the KTH transaction. The Company also has in issue 3 000 000 5,5% cumulative preference shares of R2 each.

Details of the share premium and the movements during the year are provided in note 13.

STRATE

The dematerialisation of the Company’s issued shares commenced in July 2001. Shares still in paper form are no longer good for delivery and will require to be dematerialised before participation in any transaction.

Shareholders may direct any enquiries in this regard to the Company’s Transfer Secretaries on telephone number +27 (0) 861 100 950 in South Africa or +44 (0) 870 889 3176 in the United Kingdom.

DIVIDENDS TO ORDINARY AND PREFERENCE SHAREHOLDERS

A final cash dividend of 179 cents per share was declared on 20 February 2012 and is payable on 16 April 2012.

Details of the dividends declared and paid on the Company’s ordinary and preference shares during the 2011 financial year are set out in note 25.

DIRECTORATE AND SECRETARY

Details of the Directorate and Secretary of the Company, as at the date of this Report, are shown in the Non-Executive Directors, Executive Committee and the Senior Managers sections.

DIRECTORS’ AND COMPANY SECRETARY’S INTERESTS IN SHARES

In terms of the Company’s Articles of Association Ms LL Mda, Mr AJ Morgan and Adv R Ramashia retire by rotation at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election.

CHANGES TO THE BOARD

• Ms LL Mda was appointed as an Independent Non-Executive Director on 1 April 2011.
• Ms EN Rapoo was appointed as Company Secretary on 1 June 2011.

At 31 December 2011, the Directors and their associates (as defined in terms of the JSE Listings Requirements) had direct and indirect beneficial interests in the share capital of the Company as set out in the table below. On 5 March 2012, Mr S Engelbrecht sold 40 000 shares in which he had a direct beneficial interest. In addition to the above, certain Directors have been allocated share options as detailed in note 31.

MAJOR SHAREHOLDERS

Details of the interests of shareholders who are directly or indirectly beneficially interested in 3% or more of the Company’s share capital are included in the Shareholder Analysis.

SUBSIDIARIES AND JOINT VENTURES

Details of each trading subsidiary and joint venture are set out in notes 36 and 35.

The aggregate net profits and losses, after tax, of subsidiaries and joint ventures attributable to the Company for 2011 were as follows:

Profits: R882 million (2010: R661 million).
Losses: R130 million (2010: R130 million).

SPECIAL RESOLUTIONS

The Company passed the following Special Resolutions at the Annual General Meeting held on 31 May 2011:

1. to approve the fees and remuneration payable by the Company to its Directors;
2. to grant the Directors a general authority to repurchase the Company’s issued shares; and
3. to grant the Directors the authority to cause the Company to provide financial assistance to any company or other legal entity which is related or inter-related to the Company.

MATERIAL CHANGES

There have been no material changes in the financial or trading position of the Company and its subsidiaries since 31 December 2011.

MAJOR CAPITAL EXPENDITURE

The Group made total additions to its property, plant and equipment, investment property and intangible assets of R475 million (2010: R633 million) in the past financial year.

LITIGATION STATEMENT

The Directors are not aware of any litigation or arbitration proceedings, including proceedings that are pending or threatened, that may have or had in the recent past, being at least the previous 12 months, a material effect on the Company’s financial position.

COMPLIANCE

During 2011, the DWA issued a new Water Use Licence for the Group’s operations at the Modderfontein site. This site had been operating for some years under a draft Water Use Licence. The new licence was issued with stringent conditions which came into immediate effect upon issue. The site is not able to meet all of these conditions in the short term in line with the provisions of the licence. Negotiations continue with the DWA in a spirit of cooperation in a bid to resolve this situation in a mutually satisfactory manner, while efforts to bring the site into compliance are progressed.

DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors whose names appear in the Non-Executive Directors and the Executive Committee sections of this Integrated Report collectively and individually accept full responsibility for the accuracy of the information given and certify that, to the best of their knowledge and belief, there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this statement contains all information required by law and the JSE Listings Requirements.

The Directors acknowledge that their responsibility includes:

• designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of these Financial Statements that are free from material misstatement, whether due to fraud or error;
• selecting and applying appropriate Accounting Policies; and
• making accounting estimates that are reasonable in the circumstances.

The Directors’ responsibility also includes maintaining adequate accounting records and an effective system of risk management.

INTERESTS OF DIRECTORS AND OFFICERS

During 2011, no contracts were entered into in which Directors or Prescribed Officers of the Company had an interest and which significantly affected the business of the Group. The Directors and Prescribed Officers had no interests in any third party or company responsible for managing any of the business activities of the Group.

REMUNERATION AND EMPLOYEE INCENTIVE PARTICIPATION SCHEMES

Full details regarding Directors’ and Prescribed Officers’ remuneration and the Group’s long-term incentive schemes are disclosed in note 31 to the Annual Financial Statements.