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Jul 25, 2012

AECI focuses growth on Mozambique, West Africa

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Industrial chemicals and explosives manufacturer AECI was assessing more opportunities for its explosives business AEL Mining Services in Mozambique and West Africa, CEO Graham Edwards said Wednesday.

This formed part of AECI’s growth strategy in the rest of Africa and further afield.

At the company’s six-month results presentation, in Johannesburg, he told Engineering News Online that AEL was aiming to tap into the developing Mozambican coal sector and the growing iron-ore sector in West African countries, including Mauritania, Cameroon and Niger.

“Up until now, our growth has been in gold in West Africa, but now new iron-ore deposits are being developed and coal will become big in East Africa, in Mozambique,” he noted.

AEL Mining Services MD Schalk Venter stated the company was also focusing on its continued growth in South East Asia, as well as expanding its electronic detonators market in Latin America.

Currently, 54% of the group’s revenue was generated from mining, and with the sector declining in South Africa, AECI chemicals executive Mark Dytor said the company would, over the next 18 months, focus on expanding its special chemicals business into Africa where mining activity was soaring.

AECI was also still perusing its Brazilian strategy and had visited more than 20 potential targets for acquisition in that country’s speciality chemicals sector.

Further, South Africa’s still-lagging manufacturing sector and expectations of slow growth ahead, also motivated AECI’s redirected focus to the rest of Africa and South America. Manufacturing accounts for 35% of the group’s revenue.

Meanwhile, despite volatile trading conditions and operational issues in some of its key businesses during the first six months of 2012, AECI’s revenue increased by 17% to R6.95-billion. This was owing to an increase in ammonia and chemical commodity prices in the first quarter, a weaker rand/dollar exchange rate and volume growth of 8.2%, owing to acquisitions made in 2011.

Headline earnings declined by 58% to R120-million, mainly owing to International Financial Reporting Standard charges of R148-million pursuant to the broad-based black economic-empowerment transaction concluded earlier this year. This also resulted in headline earnings per share falling by 59% to 108c a share.

Explosives revenue from AEL was 14% higher at R2.91-billion, as ammonia prices increased by an average of 14% and AEL’s overall volumes improved by 4.2%.

However, profit from operations declined by 8.5% to R183-million, while the operating margin deteriorated to 6.3%, down form 7.9% last year.

AEL’s working capital increased owing to the importation of ammonia and ammonium nitrate at an additional cost of R35-million in response to ammonia supply constraints.

A planned shutdown of No 11 nitric acid plant, at Modderfontein, caused further buy-ins at a cost of R15-million.

In AECI’s specialty chemicals division, revenue increased by 20% to R3.95-billion, also pushed up by volume growth, the weakening of the rand and higher chemical commodity prices. Profit from operations was 6% higher at R411-million and the operating margin was 10.4%.

In the company’s property business, operating profit decreased by 42% to R21-million, as no property sales were finalised in the period.

AECI stated that the property development market remained muted except for specific well-located areas, but Edwards maintained that the prospects for property sales were improving.

OUTLOOK

The company’s outlook for the explosives and mining chemicals sectors remained promising.

Edwards indicated that sales volumes were expected to be stable, despite the global slowdown. Gold, coal, copper and iron-ore mining in the rest of Africa was expected to be robust, while platinum and gold mining in South Africa would continue to decline.

AECI’s focus for the rest of the year would be on improving internal efficiencies, including working capital, and on optimising operating platforms.

“There is significant potential for improvement in operations and internal efficiencies in explosives and specialist chemicals; however, restructuring charges are likely to be incurred,” Edwards warned.

The board declared an interim cash dividend of 78c a share for the period under review.
 

Edited by: Mariaan Webb
Creamer Media Senior Researcher and Deputy Editor Online
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