South African Chemicals Giant AECI Unveils Impressive Q3 Gains Amid Safety Focus and Bold Strategy

  • AECI Limited reports strong financial performance in the nine months ending September 2023, with revenue and EBIT growth.
  • Safety remains a top priority with a focus on mitigating potential impacts during a period of significant change.
  • AECI outlines new strategic priorities for sustainable growth and discusses the challenges and successes of its various segments.

AECI Limited, a leading South African chemicals solutions company, has released a voluntary update on its performance for the nine months ending on September 30, 2023. The report highlights the company’s safety efforts, financial performance, and strategic outlook.

Safety First

One of the critical aspects emphasized in AECI’s update is its commitment to safety. The Total Recordable Incident Rate (TRIR) for the Group at the end of September 2023 was 0.23, slightly higher than the previous year-end figure of 0.15. However, the company is pleased to report that no major safety incidents occurred during this period. This focus on safety is crucial as the company undergoes significant changes, and it aligns with their ongoing “Zero Harm” strategy.

Financial Performance

AECI’s financial performance for the nine months to September 2023 paints a positive picture for the company. Both revenue and EBIT (Earnings Before Interest and Taxes) showed significant improvements compared to the same period in the previous year.

Below is a summary of the financial performance for various segments of the company:

SegmentRevenue (R million)EBIT (R million)Change in EBIT
AECI Mining14,8961,61930%
AECI Water1,542170-2%
AECI Agri Health3,100114-23%
AECI Chemicals4,167281-18%
AECI Schirm2,045-27%
AECI Much Asphalt1,89483-7%
AECI Group27,6541,89510%

AECI Mining led the way with a remarkable 30% increase in EBIT, driven by higher sales volumes of mining explosives in several regions. Meanwhile, AECI Water and AECI Agri Health saw slight decreases in EBIT due to margin challenges, though it’s expected to improve in the coming months. AECI Chemicals faced a more substantial drop in performance due to lower volumes and pricing, attributed to a general economic downturn in South Africa.

The Group’s overall EBITDA and EBIT margins remained consistent with the previous year, at 10% and 7%, respectively.

Financial Position

AECI reported a 3% decrease in net working capital spend, which totalled R7,143 million as of September 2023. The decrease was due to an offset by an increase in creditors, while debtors and inventory experienced marginal increases.

However, the net finance costs showed a notable increase of 92%, reaching R425 million, mainly due to debt related to AECI Schirm, the higher working capital level, and rising interest rates.

The net gearing ratio improved to 45% as of September 2023, down from 47% in June 2023. The decrease was attributed to enhanced working capital management and capital expenditure containment.

The company’s net debt marginally decreased to R5,608 million in September 2023 from R5,741 million reported in June 2023.

Capital Expenditure and Refinancing Efforts

AECI invested R1,017 million in capital expenditure (capex) during the current period, a 4% decrease from the same period in the previous year. The reduction in capex was mainly due to the completion of the organic growth projects linked to AECI Schirm USA’s expansion.

A significant portion of the capex in AECI Mining was allocated to various projects, including solar farms and a Mobile Manufacturing Units replacement program. The emulsion plant destined for the Lihir project has been shipped from South Africa to Papua New Guinea, with operations expected to commence in the first half of 2024.

As part of its efforts to refinance long-term debt, AECI conducted a successful debt capital market auction in September 2023. Additionally, a loan market syndication is ongoing and expected to conclude in November 2023, with both components referencing the AECI Sustainability Linked Financing Framework.

AECI Schirm: Turning the Tide

AECI Schirm reported positive results in its revenue, which increased due to sales volume growth in both AECI Schirm USA and Germany. The EBIT loss in AECI Schirm Germany included turnaround project costs, including retrenchment costs and consulting fees. However, the comprehensive turnaround project approved by the Board is progressing as planned, with all milestones achieved.

Nevertheless, the business environment in the region has become even more strained, with high energy costs and decreased demand for chemicals. This has led to a downward outlook for AECI Schirm Germany, and a short-term recovery seems unlikely.

AECI Much Asphalt: Overcoming Challenges

AECI Much Asphalt reported increased revenue due to higher sales volumes, but its EBIT was negatively impacted by cost recovery delays. Inclement weather, including extensive rains, and a taxi strike affected the company’s performance during the period. Furthermore, the withdrawal of SANRAL’s new preferential procurement policy could affect the number of tenders awarded, thereby influencing the business’s future performance outlook.

Looking Ahead: New Strategic Priorities

AECI Limited has announced that it will host a Capital Markets Day on November 6, 2023, to share its new strategic priorities and long-term goals for sustainable growth. The event, led by Group Chief Executive (GCE) Holger Riemensperger, will provide insight into the company’s vision for the future and the initiatives that will drive earnings growth.

Critical Skills Visa Application Update

The company is actively supporting GCE Holger Riemensperger in his application for a critical skills visa, for which he is eligible. The necessary SAQA accreditation of his qualifications has been received, and the critical skills visa application will be submitted to the Department of Home Affairs as soon as his professional registration is complete. Once granted, this visa will allow Holger to work in South Africa for five years, further aligning his role with the company’s operations in the region.

Outlook for the Medium Term

In the medium term, AECI anticipates unlocking value through the implementation of its new strategy. This strategy focuses on introducing initiatives and programs aimed at driving earnings growth through a returns-focused, streamlined, and resilient portfolio.

It’s important to note that the information presented in this update has not been audited, reviewed, or reported on by the Group’s external auditor, and it should not be considered a forecast.

Forward-Looking Statements

The update contains forward-looking statements, based on current estimates, projections, and available information. These statements come with risks and uncertainties, as they rely on various factors and assumptions that may not prove to be entirely accurate.

In conclusion, AECI Limited’s nine-month update showcases a company committed to safety, delivering strong financial performance, and actively working on its strategic goals for the future. As it continues to navigate changes and challenges, AECI remains a prominent player in South Africa’s chemicals and solutions industry.

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