Performance
Headline earnings for the first half-year were 247 cents per ordinary share, 131 cents lower than in the first half of 2006.  Earnings in that period were boosted by the gain on disposal of the Company’s Milnerton site which contributed some 200 cents to earnings per share.  No comparable transaction took place in the current period.  An increased dividend of 72 cents per ordinary share has been declared, compared with 64 cents per share in 2006.

Group revenue increased by 16 per cent over the same period last year.  Excluding property activities, the increase was 23 per cent.  Moderately higher demand from the local mining, manufacturing and consumer sectors was augmented by strong growth in international sales.  The operating margin excluding property improved to 7.1 per cent of sales from 6.8 per cent last year, notwithstanding market resistance to the full recovery of increased raw material costs, which kept gross margins under pressure.  The 12 month return on average invested capital (ROIC) for the Group, excluding revaluation of land, reduced to 15 per cent compared to 19 per cent at June 2006.

African Explosives (AEL) achieved a reasonable result despite intense competition in the narrow reef business in South Africa which affected detonator margins and volumes.  Operations elsewhere in Africa again delivered pleasing growth.  The first phase of automated production of initiating systems at Modderfontein is operating at increasing rates and the second phase is on track for completion in the last quarter of 2007.  A third and final phase, at an estimated cost of R300 million, has been approved by the Board with completion expected by the end of 2009. This will position AEL as a leading global supplier of initiating systems.

DetNet, the electronic detonator joint venture with Dyno Nobel Limited, incurred a small loss in the period.

Chemical Services (Chemserve) sustained its impressive growth trend with profit from operations 20 per cent higher than in 2006, supported by an excellent performance from the mining chemicals business.  Operating margins were largely maintained despite high and volatile prices of oil-based raw materials.  The two major projects in the mining chemicals segment of Chemserve’s portfolio, approved by the Board at an aggregate cost of R610 million, have progressed as planned with commissioning scheduled in early 2009.  Further potential acquisitions to complement the investment in Resitec in Brazil are being evaluated.

SANS Fibres (SANS) achieved a major improvement in performance relative to the first half of 2006 as the power outages and other disruptions of that period did not recur.  The quality and productivity improvement programmes established last year delivered significant benefits but these were not sufficient to offset fully the escalation in rand-based costs which resulted in an unsatisfactory operating margin.  Progress has been made in identifying potential strategic partners or owners that could add value to all or part of SANS’s business, and discussions are underway with a number of interested parties.

Dulux recorded a 30 per cent increase in operating profit with higher sales volumes of its premium branded products in South Africa, a favourable product mix and stable margins.  Profits from its other African operations were higher than in 2006.

The property activities, managed by Heartland, recorded profit from operations of R41 million net of R23 million of remediation costs.  Excluding the gain on disposal of the Milnerton site, profit from operations was R38 million in the first half of 2006.  The availability of land ready for release and sale is likely to remain limited in the second half-year.

Financial
Good investment returns on the employer accounts established last year in the AECI Pension Fund boosted profit before tax by R60 million and headline earnings by 39 cents per share.  Higher interest rates, together with an increased level of average borrowings, led to a significant increase in net financing costs.  The absence in the current period of a transaction comparable to the Milnerton property sale raised the effective tax rate from 21 per cent in the first half of 2006 to 32 per cent.

Expansion projects in AEL and Chemserve continued to be the main components of net capital expenditure which, at R275 million, was more than double the depreciation charge for the period.  Group working capital at R1 881 million represented 17 per cent of revenue over the previous 12 months.  At June 2006, excluding the receivable in respect of the Milnerton sale, working capital was R1 624 million, equivalent to 18 per cent of revenue.

The Group’s net borrowings of R1 192 million were R58 million lower than at June 2006.  Cash interest cover was robust at 8 times. Gearing reduced to 31 per cent of shareholders' funds from 38 per cent at June 2006.

At the Annual General Meeting of the Company held on 21 May, shareholders authorised a general repurchase of up to 5 per cent of the ordinary shares in the Company.  No repurchases were undertaken in the period.

Portfolio
As announced on 17 July, AECI has agreed to sell Dulux, the decorative coatings business, to ICI plc for a cash consideration of R745 million.  Subject to regulatory approvals, the transaction is expected to become effective from 1 October 2007 when a gain on disposal of some R500 million will be recognised in the Group accounts. At that time, and depending on progress with potential acquisitions, the Board will consider returning all or part of the sale proceeds to shareholders.

Outlook
Favourable international conditions with firm commodity prices should continue to support the mining and manufacturing sectors in the second half with concomitant benefit to the Group’s major operating businesses.  As stated previously, however, profit after tax from property activities is likely to be substantially below the record level of 2006.

Hence management expects that headline earnings per share in 2007 are likely to be lower than those achieved last year excluding the non-recurring effect of the agreement entered into with the Pension Fund in that period.