JOHANNESBURG (miningweekly.com) – The completion of the bulk surplus property sale of a 2 300 ha Heartland property in Modderfontein to Chinese investment company Shanghai Zendai and a “record performance” from the speciality chemicals cluster were key to the growth of JSE-listed speciality chemicals and explosives group AECI’s profitability, said CEO Mark Dytor during the company’s financial results presentation in Johannesburg on Tuesday.

He added that aggressive cost control and working capital management also yielded results. 

“The platinum mining strikes had a R300-million negative impact on AECI’s profit from operations. However, our results normalised in the last quarter, as the platinum sector recovered,” stated Dytor. 

He noted that the company’s subsidiary AEL Mining Services had another “exceptional performance” in spite of recording a decrease in operating revenues of 2% to R7.2-million from R7.4-million in 2013.

Dytor explained that the negative effects of the platinum mining sector strikes, lower volumes in Indonesia and West Africa, and price pressures adversely affected revenue.

The company’s operating margin ratio declined to 5.1% from 7.7% in 2013.

Further, he said the overall volumes of explosives to mining customers decreased by 4% while initiating systems decreased by 19%.

Profit from operations declined by 35% to R372-million from R572-million in 2013.

“We estimated that about R170-million of the decline was directly attributable to the strikes in the mining sector last year. Additionally, R28-million was spent on completing AEL’s restructuring processes,” noted Dytor.

Nonetheless, he highlighted that the company’s Southern African operations performed “solidly” and explosives volumes improved by 1.2%.

“There was good growth in the iron-ore and coal mining businesses. AEL’s market share increased in the local coal mining sector owing to the volumes gained in a tender process concluded in the last quarter,” said Dytor. 

Further, he pointed out that South Africa’s narrow-reef gold mining industry continued to restructure and certain operations closed as the low gold price compromised profitability further.

“It is pleasing that, notwithstanding these difficult trading conditions, AEL gained market share in this sector in the second six months. Explosives volumes in the rest of Africa slowed in the second half to deliver growth of 1% for the year,” stated Dytor.

He said the company’s strong performance in Central Africa was offset by lower West African volumes, which “over and above” the effects of the declining gold price, saw results impacted by foreign exchange losses owing to de-dollarisation in Ghana for six months, political unrest in Burkina Faso and the Ebola outbreak in parts of the region. 

Additionally, poor thermal coal prices had a significant effect on volumes in Indonesia, with an overall decrease in sales of 26% recorded.

Certain smaller coal miners discontinued their operations, while the activities of AEL’s largest customer were compromised by coal offloading logistics and power constraints.

Thermal coal prices are forecast to remain depressed for the foreseeable future and, accordingly, restructuring is under way to ensure that costs reduce in line with market demand.

Nonetheless, AEL’s strategic position in the region remains strong. 

Dytor pointed out that the establishment of a bulk emulsion plant in Queensland, Australia, last year was an important milestone for AEL in the country.

A five-year supply agreement was signed with mining contractor Thiess in Australia for the supply of explosives and initiating systems.

Further, he emphasised that the group achieved “robust” results in a “very challenging year” characterised by the five-month strike in the platinum mining sector, weak commodity prices and continued low growth in South Africa’s manufacturing sector and the overall economy.

The group’s revenue increased to R16.9-billion in the financial year to December 31, up 6% on the revenue of R15.9-billion recorded in 2013. Thirty-two per cent of AECI’s revenue was generated outside South Africa in the year under review, reflecting the benefits of the group’s strategy to diversify geographically. 

Profit from operations of R1.6-billion was 14% higher than the R1.4-billion recorded in the previous year. 

Headline earnings improved by 7% to R943-million from R885-million in 2013.

Earnings a share increased by 16% year-on-year to 979c from 845c in the previous year.

Headline earnings a share improved by 6% to 842c, from 791c in the previous year.

GOING FORWARD

Dytor cautioned that the outlook for the global economy and commodity prices remained uncertain.

“Growth in the South African economy is expected to remain weak in 2015, as is that in the local manufacturing sector. Electricity supply issues, volatility in the oil price and labour relations in the mining sector remain of concern to us,” he said.

“AECI will need to be nimble and flexible enough to adapt its strategy and business model to any changes in the environment and the needs of its customers.”

Dytor stressed that cost control and working capital management would be priorities for the group this year. 

Nonetheless, he stated that, owing to the group’s strategic positioning, AECI was “well placed” to take advantage of opportunities in its chosen growth areas of mining solutions, agriculture, water solutions and food additives.

“Growth by strategic acquisition will also remain a focus for us. The group will continue to consolidate and diversify its geographical footprint and will build on the progress we have made in Australia and Indonesia.

“AECI will also continue to leverage the benefits of its footprint and know-how in Africa. The benefits of recent strategic capital expenditure programmes will also make a positive contribution to the group’s performance in 2015 and beyond,” he concluded.