Diversified explosives and chemicals group AECI has opted to shell out almost R200m, its record interim dividend, to shareholders for its half-year to end-June, saying it is confident its rebound from Covid-19 will be sustained amid a global commodities boom and a pickup in infrastructure construction in SA.
AECI, which listed on the JSE in 1966 and whose business spans six continents, says it hasn’t yet seen the full benefits of buoyant global commodity prices that saw some mining houses pull out the stops to increase production.
The group is also optimistic activity in this industry could support many of SA’s battered manufacturers, CEO Mark Dytor told Business Day, a market AECI hopes will return to pre-pandemic levels.
The group, valued at R10.5bn on the JSE, has interests ranging from explosives used in the mining industry, to asphalt, water treatment and agriculture, and earns almost 60% of its revenue in SA.
Its headline earnings more than doubled to R559m to end-June, as it bounced back from a tough first half of 2020, when the pandemic cost it about R454m in lost profit from operations.
Group revenue rose 5% to R11.8bn in the first half of the year, with the performance weighed down by a one-off sanitiser order in Europe in the year-earlier period, as well as the effects of a stronger rand on its foreign earnings. A number of mines in central Africa had also remained mothballed for the period, but Dytor said a number were coming back online.
Two years of effort to make the group more efficient, however, was a reason for optimism, Dytor said, adding that staff morale remained high, with the group not moving to cut positions due to the pandemic, and even paying bonuses at the end of 2020.
AECI generates more than half of its revenue in SA, with mining making up 47% of total sales, while chemicals make up about a quarter.
The group upped its interim dividend by 80% to 180c a share, almost a R200m payout, reporting that profit from operations rose 70% to R948m.
The group has cut about 200 — around 3% — of its employees over the past two years, though this was not prompted by Covid-19. Restructuring costs also reduced profit from operations by R92m in the first half of 2020, when Covid-19 cost the group an estimated R1bn in revenue.
SA’s manufacturing sector, which has been in decline for the last five years, was still battling to fully recover, said Dytor. A number of smaller operators in the metals industry, for example, had gone out of business. The group expected the increased activity in the mining industry to support manufacturing, said Dytor, though it also faced issues including pressure on supply chains due to difficulties in shipping.
The outlook for the group’s asphalt business, which is a small contributor to group revenue, has improved significantly, however.
The SA National Roads Agency has awarded some hefty contracts, and AECI said many of its larger customers are indicating increased activity levels in the medium term. Dytor noted this was also being driven by increased activity from municipalities.
On Wednesday, AECI’s shares were up 5.36% to close at R101.31c. The company has a market capitilisation of R11.18bn.
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