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Jul 26, 2011

AECI eyes bigger move into Brazil, also keen on Nigeria expansion

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AECI CEO Graham Edwards discusses the company's growth strategy and the competitive business environment. Camera Work: Nicholas Boyd. Editing: Darlene Creamer.
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Acquisitions would play a key role in chemicals and explosives company AECI’s growth strategy, with Brazil and Nigeria key focus areas, CEO Graham Edwards said on Tuesday.

In an interview with Engineering News Online, he said that acquisitions worth about $150-million "may be" in the pipeline in Brazil’s chemical sector in the future. “We have been in Brazil in the past four years, have learnt lessons and are at a point where we believe we can now make a bigger move into Brazil.”

But, Edwards described a move into Brazil as “opportunistic” in nature, as most of the businesses were fully priced, and as such, any strategic move required a business model that would add value.

The company is also focused on expanding into Africa, where Edwards identified significant opportunities to grow and develop the chemical business, particularly in the oil and gas rich nation of Nigeria.

“Nigeria has a growing middle class and a robust economy – there can be opportunities for us to grow by acquisition.”

The JSE-listed group delivered a stronger performance in the first six months of the year, despite volatile trading conditions in both the mining and manufacturing sectors. AECI posted headline earnings of R284-million, an 11% improvement from the corresponding period of 2010, and profit from operations was 13% higher at R546-million.

Assisted by global increases in commodity prices but tempered by the continued strength of the rand, which averaged R6.88/$ in the half-year, revenue from continuing operations increased by 10% to R5.97-billion.

The strength of the rand continued to be a challenge for customers, but AECI said it would continue to be cost effective as it competes against imported products.

“We believe in ramping up plants and getting margins through, the rest of the business can remain stable with underlying growth from the new plants,” Edwards explained.

With regard to mining, CFO Mark Kathan said the company expected growth across all regions, with commodity demand remaining sound in both industrial and investment sectors.

AEL Mining Services MD Tobie Louw indicated that the competitive mining market would remain challenging, but pricing would remain soft, with deep level mining volumes to remain under pressure.

But, despite the continued decline in South African deep level mining, AEL Mining Services experienced strong growth in the surface and massive businesses servicing the platinum, diamonds and chrome mining sectors.

AEL’s revenue was 11% higher than 2010 at R2.54-billion, driven by a 16% escalation in ammonia prices, which also resulted in higher working capital levels. Overall volumes grew by 2.5%, and profit from operations improved by 8% to R200-million.

“The mining services environment has become more competitive and a substantial portion of AEL’s business was subjected to tender processes in the half year,” the company said.

However, AEL said it was able to retain more than 90% of its business and the market share changes did not impact performance for the period.

In the rest of Africa, good growth was delivered by the copper mining sector in Central Africa and diamond mining in Botswana continued to perform creditably, the company said. But, the contribution from gold mining in West and East Africa remained flat.

Meanwhile, the higher demand for shock tube, the building of inventories and fire on a conventional plant has slightly delayed the processes for retrenchment of employees from conventional shock tube manufacturing facilities.

Edwards described growth in South Africa’s manufacturing sector as sluggish, but positive. While the company expected its operational performance in the second half of the year to be [historically] better than

the first quarter, it said results could be affected by the current labour unrest and tightening of market conditions.

Meanwhile, the company entered into a R1.2-billion broad based black economic-empowerment (BBBEE) transaction comprising permanent employees and a community trust that would fund educational and developmental initiatives.

The JSE-listed group, which delivered a stronger performance in the first six months of the year, said on Tuesday the BBBEE transaction would advance its empowerment aim of increasing black participation by a broad spread of South Africans.

The deal, which takes AECI’s BBBEE equity ownership up to 27.4% with regard to the BBBEE Codes of Good Practice, will have a maximum term of ten years and participants will receive a dividend from the first year.


 

Edited by: Mariaan Webb
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