Explosives and chemicals group AECI has reported operating losses in its Schirm business in Germany for the year to December as the war in Ukraine hit demand for agrichemicals and pushed up costs, causing it to write down the value of that business by R445m.
The war in Ukraine has led to a plunge in demand from farmers. In contrast, sanctions against Russia, which supplies a large chunk of the global supply of ammonium nitrate used as a fertiliser or explosive base, have affected the pricing and availability of raw materials.
In its year-end results for 2022, AECI said on Wednesday Schirm recorded an operating loss of R228m which triggered a right-of-use asset and a property, plant and equipment impairment of R445m.
Profit attributable to the AECI group fell to R927m from R1.1bn in the previous comparative year on account of the operating loss and impairment.
Additionally, the poor performance of Schirm affected the Agri Health platform, which saw revenue up by 17% but reported an earnings before interest and tax loss of R297m, up from R179m in the prior year. Earnings per share were also down 22% to 878c.
AECI said though the one-off costs were expected to affect 2023 earnings, a board-approved comprehensive turnaround project was expected to deliver commercial recovery. “The board expects a positive earnings contribution within 20 to 36 months,” it said.
Increased demand and high commodity prices boosted its revenue by nearly a quarter for the year to end-December, with its mining segment achieving a record performance bolstered by strong market share gains and export growth in mining chemicals.
Headline earnings per share (Heps) were up 15% to 1,287c, while revenue rose 37% to R35.6bn and cash generated from operations increased 17% to R3.8bn. The board declared a gross final cash dividend of 580c per share for the year to end-December.
“This pleasing performance reflects the significantly improved sales in AECI Mining, AECI Water and AECI Agri Health on the back of increased demand,” interim CEO Sam Coetzer said.
After announcing his imminent departure from the group last year, CEO Mark Dytor opted to hasten his retirement to take effect at the end of January rather than at the end of July as initially planned. From April, former group COO and now incoming CEO Holger Riemensperger is expected to replace Dytor, who spent nearly a decade at the helm.
To ensure a smooth transition, AECI appointed independent nonexecutive director Coetzer as interim CEO from February to run the show until April, when Riemensperger is expected to take over.
Operating within four distinct segments, AECI reported that its mining business, which generates about 67% of revenue outside SA, reached a record 51% revenue jump for the year, supported by strong market share gains, export growth in mining chemicals and increased chemical commodity prices.
This performance comes as mining houses ramp up production to take advantage of booming prices. According to the latest data from the Minerals Council SA, the country’s mineral production achieved a record high of R1.18-trillion in 2022, up from the R1.1-trillion record set in 2021.
“High commodity price trends are expected to continue in the short term,” said Coetzer. “This, together with continued new and existing customer activity, is expected to drive performance across geographies.”
AECI’s mining business provides a mine-to-mineral solution to the international mining sector, including commercial explosives. It is thus sensitive to demand dynamics in the commodity markets. But it is also a critical player in the manufacturing space through its chemicals business.
AECI, valued at R10.3bn on the JSE, said increased demand and high commodity prices had similarly boosted revenue in its chemicals segment by 32%, which saw “good cash” delivered by the segment. Increased sales to existing public and industrial sector customers pushed AECI Water’s revenue higher by 31% with water sustainability projects contributing significantly.
Yet elevated working capital, caused by supply chain challenges, high raw material prices and the group’s bid to secure higher inventory levels, resulted in net debt for the group nearly doubling from R2.760m to R5.345m.
However, the group was upbeat about the outlook for the business, saying it would continue its expansion of profitable product and service offerings across the segments while focusing on margin improvement and working capital management initiatives to release cash generation.
“The growth in capital invested during the year has already contributed to new revenue, which is expected to accelerate in 2023,” AECI said.
The share price closed 3.65% higher at R96.65 on Wednesday.
Updated: March 1 2023
This story has been updated with new information.
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