1 ANGLOVAAL INDUSTRIES LIMITED (“AVI” or “the Group”) (Reg. No. 1944/017201/06) Share Code: AVI ISIN: ZAE000030102 Audited Results for the 12 months ended 30 June 2002 AVI is a South African based company focusing on the consumer products and services industry. Its key competencies are the marketing, processing, manufacturing and distribution of food, cosmetics and packaging. AVI is made up of three segments: (i) Branded Consumer Goods, comprising National Brands Food and Cosmetics and I&J. (ii) Packaging, comprising Consol Glass and Plastics and (iii) Logistics, comprising Vector Logistics. The company is listed in the Food Producers & Processors sector of the JSE Securities Exchange South Africa and has an approximate market capitalisation of R4.6 billion. Highlights: Turnover from continuing operations up 18% to R5,8 billion Operating profit from continuing operations up 44% to R716 million Diluted headline earnings per share up 56% to 156.1 cents Return on equity at 19% Dividend per share declared up 39% to 53.0 cents Implementation of growth strategy positively impacting AVI. Strong operating contributions from all three business segments – with Branded Consumer Goods trading particularly well. Branded Consumer Goods - Operating profit: R398 million (2001: R248 million): I&J delivered excellent results, as the domestic market performed well and higher US$ pricing and favourable exchange rates had a positive impact on exports and foreign operations. Hake demand continued to benefit from shifts to healthier eating and the decline in Northern Hemisphere fishing stocks. I&J acquired an Argentinean seafood company Alpesca, which, achieved a small operating profit in line with expectations. The production facilities have been successfully refurbished, and a new shrimper vessel acquired. 2 National Brand biscuit category growth spurred by strong innovation through new product launches and line extensions. As forecast, National Brands snacks category continued to incur operating losses. The revised operating model has been implemented and is starting to produce tangible improvements. Continued growth from National Brands cosmetics driven by innovation. Packaging - Operating profit: R 289 million (2001: R225 million): Consol operating profit benefited from 6% volume growth and efficiency gains. Productivity records broken and furnace utilisation at an all time high. Consol XPRS doubled growth targets and Speciality Glass substantially improved sales and profit. R250 million investment in two new furnaces at Wadeville and Pretoria, scheduled to be commissioned in early 2003. Logistics - Operating profit: R 35 million (2001: R32 million): I&J’s customer division incorporated as a stand-alone business unit, Vector Logistics, a specialist third party logistics provider. Vector revenues increased by 22%, with volumes increasing by 7% . One off SAP implementation costs of R8 million impacted on operating profit. Angus Band, Group Managing Director, commented: “The fact AVI continued to generate strong growth during this volatile period, is a tribute to thecommittment of its people and the resilience of its leading brands. These strengths, together with our growth strategy gives us confidence that AVI will continue to produce real earnings growth in the new financial year. Sandton 3 September 2002 AVI Angus Band, Group Managing Director Tel: + 27 (0) 11 779 2703 3 Robert Katzen, Group Financial Director Tel: + 27 (0) 11 779 2704 College Hill Tom Allison Tel: + 27 (0) 11 447 3030 4 ANGLOVAAL INDUSTRIES LIMITED (“AVI” or “the Group”) (Reg. No. 1944/017201/06) Share Code AVI ISIN: ZAE000030102 Audited Results for the 12 months ended 30 June 2002 GROUP OVERVIEW The financial year under review has been very successful with headline earnings per share growing by 56% and the implementation of a strategy to drive AVI’s growth post the successful turnaround strategy that was initiated at the time of the Group’s restructuring in 1999. Although it is still early in this new growth phase, the Group experienced positive results with solid growth from innovation, exports and the Alpesca acquisition combining to lift volumes and turnover from continuing operations by 5% and 18% respectively. During the year the collapse of the Rand and steep price escalations in respect of various commodities caused consumer price inflation to increase beyond the Reserve Bank’s target and food inflation to soar. The defensive interest rate increases imposed by the Reserve Bank, instability within the Southern African region resulting from the currency collapse, the problems in Zimbabwe and global turbulence following the tragedy of 11 September 2001 placed extreme pressure on the consumer. Within this environment, domestic trading conditions showed surprising strength with satisfactory levels of demand holding into the new year. Export demand remained strong with total foreign turnover at 21% of Group turnover compared to 15% in 2001. 5 Financial overview The year was characterised by strong operating contributions from all of the business segments resulting in turnover from continuing operations growing to R5,8 billion. The branded consumer goods segment had a particularly good year, posting turnover growth of 19%, largely driven by higher exports, which benefited from both the currency depreciation and improved international seafood prices. Operating profit from continuing operations improved by 44% to R 716 million with the operating margin at a healthy 12.4% compared to 10.1% in the prior year. The decline in the Rand generally impacted positively on the Group as the Rand proceeds on exports and foreign operations more than offset the impact on imports. There were a number of one-off items associated with the acquisition of the Argentinean based seafood company Alpesca S.A. as well as currency gains resulting from the devaluation of the Argentinean Peso following its de-linking from the US$ during the year. The net effect of these on operating profit is not material. The sale of the loss making ingredients business effective 1 July 2001 lifted the increase in total operating profit to 46%. Net income from investments (after interest paid) increased by 13% to R 85 million, primarily as a result of foreign currency translation gains of R 25 million (2001: R14 million) in respect of the “integrated foreign operations” of I&J. Other foreign currency gains totalling R 66 million relating to the translation of the balance sheets of foreign entities have been taken directly to non-distributable reserves. 6 Headline earnings increased by 38% to R503 million. Headline earnings per share was boosted by the impact of the significant share buy back completed in April 2001, which resulted in a 12% reduction in the weighted average number of shares in issue. As a result, diluted headline earnings per share increased by 56% to 156.1cents Net cash after borrowings was R 729 million at the year end (2001: R586 million). This is after the settlement of Alpesca S.A. liabilities existing on acquisition of R 191 million and significant capital expenditure as the Group continued to reinvest in its fixed asset base. Group capital expenditure of R 332 million was in excess of the depreciation charge of R 268 million. The major capital expenditure projects during the year were the new vessels acquired by I&J and investment in the manufacturing facilities in Alpesca. The percentage of working capital to sales remains within acceptable levels at 12.3%. The strong improvement in Group profitability has resulted in our return on equity increasing to 19%. 7 SEGMENTAL PERFORMANCE Turnover from continuing Operating profit from operations continuing operations 2002 2001 Change 2002 2001 Change Rm Rm % Rm Rm % Branded Consumer Goods 3,875 3,258 19% 398 248 60% Packaging 1,576 1,378 14% 289 225 28% Logistics 328 269 22% 35 32 9% Corporate - - (6) (9) 33% Total 5,779 4,905 18% 716 496 44% BRANDED CONSUMER GOODS This segment had an excellent year with turnover growth of 19% and a 60% increase in operating profit to R 398 million. This represents an operating margin of 10.3% compared to 7.6% in the prior year. NBL food Turnover increased by 6% to R 2,1 billion with operating profit growing by 7% to R 111 million. Excluding snacks, which continued to experience very difficult trading conditions, the growth in turnover was 12% and the improvement in operating profit 12%. Raw material input prices rose sharply following the sudden 8 decline of the Rand and placed margins under some pressure, particularly in respect of tea, coffee and snacks. Improved biscuit volumes and a growth of 37% in sales into Africa were the major contributors to the turnover growth. The biscuit category benefited from a 9% growth in volumes as its innovation drive continued with the launch of a number of new products and line extensions including BN and Provita Multigrain. The strategy of repositioning the Baumann brand to combat cheap imports also proved successful. Management’s continued focus on operating efficiencies contributed to a strong improvement in operating profit in the category. The impact of the Rand’s depreciation was particularly strong in our tea category, where most of the raw materials are imported. Notwithstanding significant price increases in the second half driven by these raw material price increases, the category delivered volume growth of 2%, leading to a 13% increase in turnover which, with a strong manufacturing performance, contributed to an increase in operating profit. The coffee category experienced a mixed trading year with strong growth in premium brewed coffee following its innovative launch in soft packs and an improved performance from Frisco as a result of its re-launch. This was offset by a sharp decline in volumes in affordable brewed coffee due to the pressure on lower income consumers. The deterioration in the Rand and operating inefficiencies eroded margins in the second half of the year, although these had been corrected by the year end. In our half-year review, we reported that the snacks category continued to incur operating losses and that no improvement was forecast for the full year. Turnover for the year ended in line with our forecast, down 15% following a decline in total market volume in the second half and our decision to exit the baler bag business. The depreciation of the Rand and its effect on oil, maize and packaging costs, 9 caused a significant increase in the cost of sales which could not be recovered through price increases and contributed to an operating loss of R 49 million (2001: R 40 million). The management attention and changes implemented during the year are starting to take effect and we are seeing the early signs of a real improvement in performance. Ciro Alliances, the foodservice division, enjoyed an excellent year with turnover growth of 18% and a 108% improvement in operating profit arising from the focus on more profitable product lines and a lower cost structure. NBL cosmetics The cosmetics division continued its strong growth trend with turnover and operating profit increasing by 17% to R 345 million and R37 million respectively despite a significant increase in the cost of imported raw materials. Toiletries, in particular, performed well with continued market share growth in male deodorant and female body sprays. Good results were also achieved in expanding the export market, which now represents 5% of turnover. The Coty licence for sub-Saharan Africa, which was acquired two years ago, contributed to a larger sales base and provided additional benefits through its affiliation to an international market leader in the world of cosmetics. The financial benefits of this arrangement will increase next year as Coty maximises its potential in the fragrance and toiletries categories with the introduction of a new range of products. I&J I&J delivered excellent financial results, primarily due to the combination of higher US$ pricing and favourable movements in exchange rates which together had a positive impact on exports. The Rand/Dollar exchange rate averaged 10 R10.1 for the year compared to R7.6 for 2001. The domestic market also performed well in spite of price increases above CPI. These factors, together with the successful introduction of innovative new products and the impact of the Alpesca acquisition, combined to lift turnover by 45% to R 1,5 billion. Excluding the impact of the Alpesca acquisition, the growth was 30%. Foreign sales now represent 65% of I&J’s turnover. The reduction of the losses incurred in the international fishing operations last year, a substantial increase in the profitability of the abalone farm and operating efficiencies, together with the impact of the higher turnover, combined to lift operating profit by 121% to R 250 million. This represented an operating margin of 16.8% compared to11.0% in 2001. The economic difficulties of the past year in the USA, Europe and the East had no impact on the demand for hake as the trends towards healthier eating continued. The decline in Northern Hemisphere fish stocks and health concerns regarding farmed fish supported demand. However, the economic conditions impacted negatively on the higher priced items in our range such as scallops. In the South African domestic market, the retail sector was resilient despite significant price increases. This was particularly evident in coated products where the Light & Crispy flagship brand performed particularly well, contributing to an increase in market share to 43.9% (2001: 39.7%). I&J’s total frozen fish market share increased marginally to 62.3%. Market shares in retail beef and chicken products improved with chicken, in particular, showing excellent growth. I&J continued to build its brand through increased marketing support and product innovation launching eight new products during the year. Domestic foodservice volumes declined as a result of both supply issues and softening demand following substantially increased prices. As a consequence, 11 domestic consumers, particularly in fast foods, moved to alternative white protein products. The implementation of the acquisition of Alpesca S.A., was a key focus during 2002. This acquisition was motivated by growing demand for I&J products, the continued drive for healthier eating, an increasing global customer base and the reduction of our South African fishing quotas. The potential exists to add significant value to Alpesca’s present catch through the upgrading of its operations, to yield both better margins and product mix for our existing market channels. During the year Alpesca’s management was strengthened and various measures to restructure and refinance the company resulted in a secure, solvent operating unit. The company’s four hake vessels were refurbished and the processing plants comprehensively upgraded. One new replacement shrimp vessel was acquired at a cost of R34 million. The difficult and volatile Argentine socio-economic environment has certainly challenged the management team and caused some delays in the plan to derive full benefit. Notwithstanding these disruptions, Alpesca achieved a small operating profit of R 2 million for the period to June 2002 which was satisfactory given the circumstances and the state of the operations on acquisition. The pelagic fleet recorded a significant improvement in operating profit as a result of higher prices particularly in respect of fishmeal. Fishing conditions for hake in Namibia, together with a number of management problems, resulted in a poor performance from Hangana. While the Australian economy was buoyant during the period, competitive launches of products by retailers curtailed the growth in profitability in Au$ although the Rand profitability of the Simplot joint venture improved by 33%. 12 PACKAGING The Consol team produced another year of sustained growth and improved operating performance despite a volatile trading environment, impacted by price increases in key raw material and energy costs. Turnover grew by 14% to R 1,6 billion supporting a 28% improvement in operating income to R 289 million. The operating margin was 18.3% compared with 16.3% in 2001. Glass volume grew by 6% due to a combination of organic growth, innovation, superior service and quality. This would have been higher but for the cyclical decline in demand for returnable beer containers. The wine category showed strong growth led by exports and market share gains. Consol XPRS, the channel for the supply of smaller volume glass and speciality containers, achieved growth of nearly double its targets. The new XPRS facility in Stellenbosch was completed during the year and XPRS commenced operating in Gauteng during the second half of the year. Consol Speciality Glass operated at full capacity during the year and further improved its sales and profit. The successful re-launch of the tableware range retail packs was completed and these have been well received by consumers. Substantial progress was made in the speciality wine category both organically and in respect of import replacement. Further capacity expansion at this facility has been approved and will come on stream early in 2003 at a cost of R30 million. The glass division continued to improve operational performance across a broad range of key benchmarks. Core productivity records were broken and furnace utilisation was at an all-time high despite increases in the number of colour and job changes. 13 The R220 million investment in the construction of the new W3 furnace at the Wadeville glass facility approved during the year is on schedule for commissioning in early 2003, increasing the division’s overall glass container capacity by 12%. The plastic packaging division experienced another difficult year characterised by rising raw material prices, low market prices and increased competitor activity. Turnover decreased by 5% with operating profit significantly below expectation and the prior year. Essential restructuring and management changes in the plastics divisions were implemented without compromising overall market performance and these changes are starting to impact with the result that we expect a lift in performance in 2003. LOGISTICS I&J’s customer division was incorporated as a stand-alone business on 1 July 2002. The new company, Vector Logistics, is a specialist third party logistics provider and is positioned to take advantage of the opportunities presented within the Southern African food supply chain industry. Vector has the same effective shareholders as I&J. Revenue increased by 22% arising mainly from a 7% volume increase and an average selling price increase of 12%. The introduction of the new Multi- Temperature Contract Distribution (MTCD) business also increased turnover. The main contributor to both volume and value growth was poultry through increased demand and a reduction in national stock shortages. 14 The adverse impact of the weak exchange rate on certain costs and the expensing of R 8 million in non-recurring SAP system implementation costs, restricted the increase in operating profits to 9%. Without the system costs, the improvement would have been 33%. The focus on improving efficiencies and an ongoing cost reduction drive helped lift performance. The MTCD business was launched in the second quarter. The business model is to offer a one-stop distribution service of frozen, chilled and ambient products to the food service industry. The operation has not yet reached full capacity although the response of the target customer base has been very positive. The SAP implementation commenced in May 2002 and is due to be completed nationally by end September 2002. The system represents an investment in excess of R30 million and replaces the remaining legacy systems in the areas of sales, distribution and materials management. The MTCD operation and seven branches of the traditional business were live by year end with no significant problems PROSPECTS The fact that AVI has continued to generate strong growth during this volatile period is a tribute to the commitment of its people and the resilience of its brands. These strengths, together with our growth strategy, give us confidence that AVI will continue to produce real earnings growth in the new financial year. DIVIDEND A final ordinary dividend 53 cents per share for the year ended 30 June 2002 has today been declared payable to holders of ordinary shares. This represents a dividend cover of 3 times calculated on headline earnings.