Mining lifts AECI into double-digit profit
SA’s sluggish economy hurt the company’s chemicals and food and beverages divisions
AECI, the listed manufacturer of mining explosives and chemicals, has declared a full-year double-digit dividend after delivering strong profits.
Earnings for the year ended December 2019 were boosted by the proceeds of the sale of the Crest Chemicals business and strong performance from its mining operations.
The strong performance of the mining business offset the poor performance in the chemicals and food and beverages divisions, whose operating profits fell 8.4% and 218.9%, respectively. AECI said the mining business, the biggest contributor to the group’s revenue and profits, benefited from the weaker rand. Mining accounted for the majority of AECI’s foreign revenue. That came against the backdrop of growth in revenue from the rest of Africa, especially West Africa.
AECI reported revenue up 6.4% and a 10% jump in HEPS as all its operating segments achieved growth. CEO Mark Dytor spoke to Business Day TV about the numbers.
However, mining in SA experienced lower coal volumes due to bad weather. The gold miners’ strike at Sibanye-Stillwater in 2019 also affected mining volumes in the country. In the year, mining increased revenue 4.8% to R11.5bn, while profit from operations increased 2.4% to R1.3bn. In contrast, AECI’s chemicals business, which supplies raw materials used in manufacturing and infrastructure sectors, continued to struggle due to stagnant manufacturing in SA.
Load-shedding hit SA’s manufacturing sector, which tumbled 5.9% in December 2019 compared to the prior year, according to Stats SA data released on February 11.
In the year, the chemicals business reported a 8.4% decrease in profit from operations to R512m, while revenue was up 5.7% to R5.56bn. AECI CEO Mark Dytor said the company did not expect a significant improvement in conditions in manufacturing in the short term.
“The chemicals business has been disappointing due to the economy. The manufacturing sector in SA is not growing. Actually, it is declining,” Dytor said. He said the company had begun restructuring the chemicals, food and beverages businesses to reduce costs. This would result in the establishment of a shared services centre.
“We will consolidate the back office. That will take out a lot of costs,” Dytor said.
The food and beverages unit supplies ingredients to the dairy, beverage, wine, meat, bakery, health and nutrition industries.
AECI said businesses in SA struggled against depressed GDP growth, power supply constraints, high unemployment and subdued consumer demand. In the year under review, AECI’s headline earnings per share (HEPS) rose 10% to R11.50, with the group raising its total dividend for the year by 11% to 515c per share. Profit for the year rose 29% to R1.3bn.
Meanwhile, Dytor weighed in on SA’s macroeconomic problems and commended the government for taking steps to tackle the country’s electricity supply shortages, restoring the credibility and effectiveness of state-owned enterprises and solving the high unemployment rate.
“We need investment in SA. The country is not investing in manufacturing, which is where you create a lot of jobs,” he said.
AECI shares gained 3.03% to R102 on Tuesday.