AECI able to stand ground despite headwinds and drought

Chemicals and explosives group AECI saw profits in the year to December 2016 hit by negligible growth in South African manufacturing and drought in the regional agricultural sector.

Revenue crept up 1% to R18.6bn. Operating profit slumped 22% to R1.3bn, as headline earnings per share fell 9% in the period.

The result was also variously affected by the sale of parcels of land in Somerset West in 2015, which had lifted headline earnings per share.

Meanwhile, the derisking of AECI’s defined-benefit obligations for past and current employees had a negative affect in 2015 and 2016.

“We knew we would be down,” CEO Mark Dytor said on Tuesday. He said the property sale had a significant positive affect on the results in 2015.

But profits from core businesses — specialty chemicals and explosives — rose 8.3% and 7.4% respectively, despite impairments of R82m in the period. The group also saw “excellent” cash generation. This soared 52% to R1.9bn as net debt was reduced by R881m to R297m, giving AECI gearing of 3%, Dytor said.

The company’s share price jumped 5.91% to close at R109.46. He was happy with the group’s performance despite the prevailing headwinds.

AECI operates in about 30 African countries. The group had repatriated more than R1bn in dividend proceeds from its subsidiaries on the continent. This was used to settle short-term borrowings in SA.

It had also exited the explosives manufacturing market in Egypt, recognising a R10m impairment.

AECI had also been hit by the crisis in the South African chicken industry. Sales of domestic chicken had been affected by the alleged dumping of cheap foreign chicken products. The government had also passed legislation that reduced the amount of brining allowed in chicken in SA. This had hurt sales of saline by AECI that was used in the brining and flavouring of chicken products.

Aslam Dalvi, associate portfolio manager at Kagiso Asset Management, said on Tuesday that AECI had delivered a good result notwithstanding the difficult operating environment in both chemicals and mining.

“Its speciality chemical segment once again delivered a solid performance … the explosives business delivered a commendable result against a backdrop of declining industry volumes and price pressure.

“The medium-term outlook remains positive with growth likely to be supported by an improving operating environment, new investments and the benefit of strategic growth and cost initiatives introduced over the last two years,” Dalvi said.