Chemicals giant AECI satisfied with profit rise
First-half results are ‘resilient’ despite 7% slide in revenue
Explosives and chemicals company AECI says it delivered a "resilient" overall performance in extremely difficult trading conditions, especially in SA, in the six months to June. Profit from operations soared 19% year on year, while headline earnings per share jumped 32%.
During the first half, SA’s manufacturing sector slowed further and rand strength offset moderate increases in commodity chemicals prices. This weighed on group revenue derived from the mining, water, agriculture, food and industrial chemicals sectors.
"We’re not shooting the lights out, but it’s a really credible performance in terms of the environment," CEO Mark Dytor said on Wednesday. The group said more normal rainfall patterns in Southern Africa had allowed the agricultural products segment to recover, except in the Western Cape, where drought remained a "grave concern".
AECI also said conditions in domestic and international mining had improved, with some commodity price increases stimulating higher mining output. But group revenue fell 7% to R8.5bn, with 34% of total turnover now generated outside SA.
"Actually [it was] a disappointing result in my view, certainly below our expectations," Mish-al Emeran of Electus Fund Managers said on Wednesday.
He said headline earnings per share came in flat, as they included a post-retirement medical aid settlement cost of R11m, down from R136m in 2016. "Normalising for this [non-recurring] settlement cost gives a more accurate reflection of the operating performance," he said.
Emeran said the group’s operating margin was mixed. Good cost controls in the explosives segment had improved margins, despite poor conditions in South African mining. But this was offset by lower margins in speciality chemicals as a result of the slowdown in local manufacturing.
He also said negative top-line growth was a concern, with overall revenues down on a slide in explosives turnover of 11.6% to about R3.7bn, along with a fall of 1.5% in speciality chemicals. Of this, 60% was generated in hard currency outside SA.
Explosives volumes were flat overall. In SA they were boosted 1% by market share gains in the iron ore and uranium mining sectors and better activity in coal mining. But volumes in the rest of Africa were down 2.4% as a result of business being lost in Egypt at the end of 2016, flatter gold mining activity in West Africa after heavy rainfall and generally lower mining production efficiencies.
However, volumes remained robust in Central Africa and the group’s AEL mining services unit was awarded five new contracts in East and West Africa.
Overall explosives volumes in the Asia-Pacific region fell 1.5%, mainly on extreme weather in Australia. But both AECI’s Indonesian and Australian businesses remained profitable. One new contract was secured in Indonesia and one in Australia.