Diversified explosives and chemicals group AECI says it is reviewing its operations to design a new growth strategy which it will unveil in November, while it hunkers down to lower its R5.7bn debt pile that is equal to more than half its market value.
Speaking to Business Day on the release of group results for the six months to the end of June, group CEO Holger Riemensperger said rapid growth in the company’s mining segment had required large amounts of working capital in the period.
Additionally, the company acquired high raw material and finished goods stocks in anticipation of potential disruptions in the supply chain, specifically for ammonia.
The expenditure saw AECI report that its net debt had risen by R351m in the period. It said though the net gearing ratio of 47% was within the previously communicated guidance range of 40%-60%, this level was considered high in the prevailing interest rate environment.
The CEO said AECI would work to reduce gearing through a significant reduction of its working capital by reviewing its expenditure and prioritising investment into its core growth segments like mining.
“We will do a review in the second half of the year as we are prioritising reducing our debt levels in an elevated interest rate environment,” Riemensperger said.
“We will ensure that we are investing in the right things, but are also preparing a new strategy which we will present to the market in November. From there you will see that we are definitely planning to grow further in our core businesses, specifically mining,” he said.
Riemensperger added that the third element to reduce gearing was calling for a lower dividend, which is now at 100c from 194c in the prior comparative period.
AECI reported interim net profit growth of 3.8% to R650m, while revenue and core earnings (ebitda) rose close to one-fifth to R18.4bn and R1.8bn respectively, with the core earnings margin remaining 10%.
Headline earnings per share, a common profit measure in SA that excludes certain items, improved by 5% to 603c, and earnings per share by the same margin to 600c.
The sales of AECI Mining, which accounts for more than four-fifths of operating profit, jumped 29% to R10bn, after strong growth in the volumes of bulk explosives and detonators.
Most of the interest came from abroad — particularly from the Australasia region — with business outside SA generating more than two-thirds of revenue. AECI also said last month that in recent times it has grown its market share in SA, Central Africa, East Africa and Asia Pacific.
Notwithstanding the improvements in the mining and water division which reported an 8% rise in revenue, Riemensperger said: “Our major issue is our German operations of Schirm, which is seriously underperforming.”
In March, Business Day reported Schirm suffered a loss as the war in Ukraine hit demand for agrichemicals and pushed up costs. 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.
After approval from the board last year, the Johannesburg-based chemicals company said it had drawn up and implemented a restructuring strategy at its struggling German operations.
In its bid to turn around its loss-making agrochemicals company AECI Schirm Germany, Riemensperger said the group had embarked on the closure of one of its four sites, reporting that there were no interruptions thus far.
“We expect that by the end of the year we would have finished that process of being able to physically close the site,” he said. “There were pricing measures as well as cost-cutting measures to headcount,” which has already occurred as part of the turnaround strategy.
Founded in 1896 to service SA’s gold and diamond mining industries, AECI was listed on the JSE in 1966 and now operates in 22 countries.
Its products and services include chemical raw materials, water treatment solutions, asphalt and bitumen for road construction, and food and beverage ingredients and commodities.
AECI’s share price rose 0.8% to R90.97 on Wednesday.
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