Diversified explosive and chemicals group AECI says lower ammonia prices and sales volumes in the SA market, with a drop in domestic mining production, caused a double-digit drop in earnings for the 10 months to end-October.
Despite the challenging operating environment, AECI remains confident that it can achieve its strategic objective of doubling the profitability of its core business by 2026 through its planned restructuring and concurrent divestitures.
Group revenue fell 4% to R29.7bn, AECI said on Thursday, while earnings before interest, tax, depreciation and amortisation (ebitda) slipped 18% to R2.5bn amid a slower-than-expected recovery in SA.
AECI Mining, its largest segment, experienced a notable fall in ammonia prices in the first half of 2024 with lower volumes in gold, platinum group metals (PGMs) and iron ore due to operational and supply chain challenges and global macroeconomic uncertainties. This resulted in an 11% lower profit from operations.
The firm said the market was showing signs of recovery in the fourth quarter, with prices rebounding due to supply constraints and other market dynamics. It was upbeat about prospects as its Richards Bay storage-to-rail ammonia supply to its Modderfontein site had been upgraded with the addition of new Transnet rail wagons, increasing operational efficiency and supply security.
New contracts
AECI reported winning new contracts in some areas in which it operates.
“Our business continues to grow globally, with new contracts in Asia Pacific, where bulk explosives volumes were up 24% and electronics grew by 44%,” said the group. “We also continue growing in Central Africa, where robust mining activity drives growth.”
Ongoing difficulties in the SA manufacturing and industrial sectors as well as an excess of essential products put pressure on demand and pricing for revenue at its chemicals division.
Despite the challenges, the division reported a 10% rise in operating profit thanks to improved operational efficiencies and strict cost control. An enhanced operating margin of 9% from 8% last year was also achieved, “underscoring the effectiveness of our strategy to enhance profitability even amid revenue constraints”, it said.
The JSE-listed group said it was making progress in carrying out its strategy, which includes optimising its portfolio, putting its new operating model into place, assembling a new executive leadership team that is spearheading its transformation and fulfilling its globalisation plan by boosting mining explosives sales volumes in Asia Pacific and Central Africa.
“This year has been a transformative journey for AECI, marked by significant progress in executing our strategy and reshaping the organisation to meet evolving market demands,” said CEO Holger Riemensperger.
Asia Pacific
While the group faced challenges in the mining segment, including declining domestic volumes and ammonia prices, “our international contracts in Asia Pacific have helped mitigate these pressures”.
After the appointments of Rochelle Gabriels as its new CFO in October and Riemensperger as group CEO in February last year, the AECI board announced in November that it would undergo an 18-month restructuring that would see a return to the group’s core mining and chemical businesses.
Until December 2023, AECI’s operating businesses were structured into four key segments: mining, water, agri health and chemicals.
Earlier this month AECI entered into a share purchase agreement with a consortium including Old Mutual Private Equity to dispose of 100% of its shareholding in its subsidiary Much Asphalt for an estimated consideration of R1.1bn.
The signing of a sale and purchase agreement for the sale of Animal Health to Nutreco International was announced in July.
AECI said its management remained dedicated to strengthening the balance sheet through debt reduction, strict net working capital management and strategic and operational free cash flow initiatives.
AECI’s share price was down 0.9% to R92.24 on Thursday, having slipped about 15% since the start of the year.
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