Chemicals and mining explosives group AECI has warned investors to brace for lower earnings when it presents its half-year results at the end of July, sending the company’s shares crashing more than 10%.
The group on Wednesday said headline earnings per share (HEPS) are expected to be 54%-60% lower to end-June compared with the 603c recorded in the prior period, citing declining commodity prices, supply chain disruptions, a slowdown in the mining industry and one-off events that contributed to unusually high operating costs.
AECI, valued at R11.2bn on the JSE, said it had been focused on executing its strategy and safely completing two statutory shutdowns deferred from the previous year in the mining business.
Additionally, AECI Property Services and Corporate was expected to report that the R42m loss in the previous period would widen to R400m-R500m.
The group cited the sharp increase in one-time expenses related to carrying out the corporate strategy, including the restructuring of the group operating model; mergers & acquisitions consultancy, primarily consisting of deal adviser fees; and costs associated with the AECI Schirm Germany turnaround.
“These one-off costs will ease off in the second half of the year,” said the company.
AECI mining incurred significant one-time operational costs for alternative sourcing of ammonium nitrate solution at higher market prices, coupled with expected manufacturing under-recoveries during plant shutdowns.
It said that because there were not any anticipated statutory shutdowns for at least the next three years, these expenses would not recur in the second half of the year or 2025.
The explosives manufacturer maintained that while its initiatives came with an initial investment cost, they would ultimately promote long-term sustainable growth, increased efficiencies, and profitability.
AECI was upbeat on the future, saying that given the focus and foundation set in the first half of the year, it expected these efforts to start to gain momentum and realise value in the second half of the year and into next year.
It said its restructuring, coupled with the impetus created by the imminent sale of its Animal Health business to Nutreco International, would put it in good standing for a recovery.
“We anticipate the transaction to close in four to six months,” said the group. “This transaction affords us the opportunity to concentrate our efforts and resources to achieve our ambition to double the profitability of the core mining and chemicals businesses by 2026 and attain a global market position in mining of number 3 by 2030.”
The group said its earnings outlook for full-year 2024 was positive, backed by an expected stronger second-half performance, reduction in one-off costs, continued efficiency improvements and value realisation.
The Johannesburg-based group said it had also taken a hit from an elevated effective tax rate for the group of 50%-60%. It cautioned that slightly elevated net finance costs were expected due to one-off interest levied by the SA Revenue Service on transfer pricing assessment.
AECI shares plunged 11.28% in intraday trade on Wednesday to R94, having slipped 3% since the start of the year.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.