Other operations

Decorative coatings

Dulux

AECI's strategic focus is increasingly on the supply of specialty products and services based on chemistry to customers in the mining and manufacturing sectors in Africa and elsewhere, with an emphasis on technical support and application know-how. Its decorative coatings business, trading as Dulux, which targets primarily the retail consumer market, was not well aligned with this strategy.

Effective 1 October 2007, therefore, AECI agreed to sell the Dulux business to ICI plc for a cash consideration of R745 million. The sale included the South African operations as well as the subsidiaries in Botswana, Malawi, Namibia, Swaziland and Zambia. A substantial portion of the cash was received prior to year-end and the transition to the new owners was effected very smoothly.

The sale realised a profit after tax of R394 million, which is included as a non-headline item in the income statement.

Also included in AECI's results for 2007 are nine months of Dulux's operating results, amounting to R44 million in trading profit.

Specialty fibres

SANS Fibres

The polyester light decitex industrial (LDI) and heavy decitex industrial (HDI) businesses of SANS Fibres (SANS), at Bellville in Cape Town, have been under severe pressure for some time owing to several factors:

• over investment in polyester HDI and LDI yarn plants, mainly in the Far East, resulting in surplus capacity and very low prices;
• the significantly lower cost base of manufacturers in the Far East;
• the company’s inability to recover increasing raw material costs, in full, from customers;
• the decision by the company's predominant customer for nylon HDI to exit this business in South Africa; and
• the strength of the rand.

The highly competitive situation in polyester will not change as investment in capacity in the Far East is continuing. It is in this context, and after failing to find a partner or owner which could add value to these components or to SANS's business as a whole, that the decision was taken to close these businesses. The businesses were closed at the end of December 2007, leading to the retrenchment of 770 employees at a cost of R103 million after tax.

The assets were written off, resulting in a non-cash impairment charge of R314 million after tax. In terms of Circular 8/2007 Headline Earnings, issued by the South African Institute of Chartered Accountants, retrenchment costs must be included in headline earnings whereas the impairment charge is excluded.

The nylon LDI and the polyethylene terephthalate (PET) plants continue to operate normally whilst discussions with potential partners or purchasers for these businesses are pursued. The carrying value of the two businesses at Bellville and in the USA, after impairment, is R358 million as at 31 December 2007.

The nylon LDI and the polyethylene terephthalate (PET) polymer businesses were profitable in 2007. SANS was able to take advantage of the strong growth in the local PET market. There was also significant sales growth in several of the company's niche nylon LDI market sectors. The immediate outlook for both businesses remains positive, especially since significant costs have been removed from the organisation as a result of the major restructuring process undertaken in the year.

AECI is engaging actively with several parties interested in purchasing the nylon LDI and PET businesses.