Industrials group AECI is keen to start supplying asphalt to road builders in East Africa and would be "happy to invest" in manufacturing plants there, CEO Mark Dytor said on Wednesday.
AECI wanted to take the recently acquired Much Asphalt, Southern Africa’s largest supplier of hot and cold asphalt products, into new markets in Africa where the group already had a footprint.
"We see in places like Tanzania, Kenya and Zambia, there’s money going into infrastructure. We are there — we have registered entities on the continent that we will start leveraging."
In Kenya, for instance, the authorities plan to construct a 473km four-lane highway between Nairobi and Mombasa.
Dytor said asphalt plants needed to be within 200km of the projects they serviced, and AECI would be "happy to invest" in them, having made similar types of investments in explosives plants. Asphalt plants usually cost between R70m and R100m to construct, he said.
"And of course, you put them near a quarry where our explosives people are involved anyway, so there’s quite a nice strategic fit there."
AECI said on Wednesday its revenues grew by 24% to R10.5bn in the six months ended June, while headline earnings rose 19% to R483m.
That was "a good result", according to Aslam Dalvi, associate portfolio manager at Kagiso Asset Management.
While Much Asphalt and Schirm — the two new acquisitions — had contributed, "the core business delivered a reasonable performance considering the challenging South African environment", as well as the stronger rand and the drought in the Western Cape.
"While the performance of recent acquisitions has so far been out of line with expectations, there remains a large opportunity to extract value from these businesses and we would expect performance to improve meaningfully off this base," Dalvi said.
The outlook for AECI was positive, he said, adding that new investments, improving profitability from acquisitions and "the normalisation of margins" would help boost growth.
However, Dytor said the brewing global trade war is creating uncertainty and many of AECI’s large customers, including in the metals industry, would be affected.
For instance, many of the African mines that AECI exported from were Chinese-owned and were susceptible to China’s trade war with the US.
"So we’re watching it with a lot of interest. Definitely in the long term I think it’s going to have a large effect on some of the larger-end customers."
About 40% of AECI’s earnings come from outside SA. It has regional and international businesses in Africa, Europe and elsewhere.
While AECI was looking at other acquisitions, Dytor said a bigger focus was on reducing debt, since it had net borrowings of R5.4bn.
The group has bridging loans worth more than R4bn from Standard Bank Group. Dytor said AECI had gone to market "to tie that up" and look for longer-term funding.
The group had asked for proposals from banks and other lending institutions in SA and other markets.
Dytor said the group was "cautiously optimistic" about the trading environment "because no one knows what the next six months is going to bring".
The "positive changes" in SA’s political environment had not yet translated into accelerated economic growth "and a step-change in the short term appears unlikely".