AECI
LIMITED
(Incorporated
in the Republic of South
Africa)
(Registration
No. 1924/002590/06)
Share
code: AFE ISIN:
ZAE000000220
Hybrid
code: AFEP ISIN: ZAE000000238
Bond
company code: AECI
LEI:
3789008641F1D3D90E85
(AECI or
the Company or the Group)
UNAUDITED
CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE HALF-YEAR ENDED
30 JUNE 2024
-
Safety
performance: TRIR of 0.28 (30 June
2023: 0.38*)
-
Revenue
down 4% to R17 580 million
-
EBITDA1
down 24%
to R1 390 million
-
Profit
from operations2
down 36%
to R818 million
-
HEPS down
57% to 260 cents
-
EPS down
61% to 233 cents
-
No interim
dividend declared (30 June 2023:
100cps)
* Restated
to account for unrecorded numbers from AECI Schirm
1 Earnings
before interest, taxation, depreciation and amortisation calculated
as profit from operations and equity-accounted investees plus
depreciation, amortisation and impairments.
EBITDA
is unaudited.
2 Earnings
before interest and taxation is defined as profit before interest,
taxation and share of profit of equity-accounted investees, net of
taxation
2024,
a year of transition for AECI
Our stated
ambition as the AECI Group is to double profitability of our core
businesses by 2026 and to attain a global market position in Mining
of #3 by 2030.
In the
first six months of this year, we made strides in investing in the
capabilities required to execute on our strategy and have commenced
delivering on the milestones set. This positions the businesses for
improved operational efficiencies, overall performance and
profitability in the short to medium term, as well as sustainable
growth in the long term.
Pleasingly,
we achieved the following key strategic milestones in the first
half of 2024:
-
New
executive leadership is in place
-
The
restructure of the organisation in line with our new operating
model to the third level below the Executive Committee
-
A
leadership compact, culture code and desired behaviours developed
to foster a high-performance culture
-
The sale
of AECI Animal Health in line with our portfolio optimisation
journey
-
R400m
EBITDA run rate delivered
-
R800m
organic mining and chemicals growth projects defined
-
Enhanced
mining digital platform for high-performance initiating systems and
cutting-edge electronics technology is being launched
-
Increased
investment in maintenance to ensure the prolonged life of our
existing asset base
Our
strategic transition is progressing well. With the focus and
investment we have dedicated in the first half of the year, we
anticipate continued momentum and substantial value realisation in
the second half of the year and the future.
Statement
from the Group CEO
"I am
proud of the results achieved by the Group during the period under
review. Our business is resilient, supported by the strong
underlying fundamentals of a world class team and leading
technology, superior customer service and value-accretive growth
opportunities. The execution of our strategy is progressing as
planned and I am confident that we will deliver on our
promises."
RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE
2024
Our
commitment to sustainability and creating enterprise
value
We aim to
achieve excellence in all aspects of our commitment to
environmental stewardship, our role in society and our approach to
leadership and governance (ESG). During the period under review, we
reduced our potable water consumption by 8%, the water we
discharged to sea or sewer by 15%, and our CO2 footprint by 5%
compared with our performance in H1 2023. While we are pleased with
the constant improvement in our key performance indicators, we are
cognisant of the challenges that lie ahead as we pursue our 2050
Net Zero objective.
Safety
Our goal
of achieving Zero Harm and managing and mitigating risks is
anchored in the principles of accountable leadership, engaged and
empowered employees, risk-based Safety, Health, Environment and
Quality (SHEQ) management and continuous improvement. No fatalities
were recorded in the period under review. The Group's 12-months
rolling total recordable injury rate (TRIR) improved to 0.28 from
0.38 as at 30 June 2023 (restated).
Our 2023 sustainability report noted that the 2022 TRIR measure was
restated due to under-reporting in AECI Schirm. With this measure
being on a 12-months rolling basis, the previously reported figure
of 0.24 was also impacted and was consequently restated.
Segmental
review
The
restructuring of our reporting segments
Until
31 December 2023, our operating
businesses were structured into four key segments: AECI Mining,
AECI Water, AECI Agri Health and AECI Chemicals. In line with our
strategy of optimising our portfolio to create a platform for
growth, we have restructured our reporting segments to AECI Mining,
AECI Chemicals, AECI Managed businesses and AECI Property Services
and Corporate. As required by IFRS8: Operating Segments, the
comparative numbers were restated.
AECI
Mining
During the
period, we invested in four statutory shutdowns, two of the
shutdowns were deferred from the previous year and two were planned
for the period. We used this opportunity to also catch-up on other
maintenance, setting up our operations for delivery in the second
half of the current year and into the future. Our ammonia supply in
South Africa improved
significantly after the commissioning of 60 wagons, resulting from
the memorandum of understanding signed for 120 refurbished wagons.
The ramp-up to 120 wagons takes place at an agreed 20 wagons per
month expected to be introduced to the supply network. We augmented
the supply of ammonia by road transportation to further build
resilience in our supply chain. To support the long-term
sustainability of our operations we are actively exploring
alternative supply of ammonia, including green ammonia.
The
segment recorded revenue of R9 376 million compared to R10 004
million in H1 2023. This decrease is attributable to lower ammonia
prices and lower sales volumes in the South African market. Profit
from operations was down 12% to R909 million when compared with the
same period in 2023 because of lower revenue, inflationary cost
increases and the R204 million investment spend in the segment.
Operating margins remained in line with the prior year at 10%,
showing the effectiveness of our risk mitigation processes against
the price of ammonia. If normalised for the investment spend, the
mining segment's operating profit shows a flat year-on-year
performance with stable margins.
The R204
million investment spend made during the period under review
included the alternate sourcing of ammonium nitrate solution (ANS)
at higher market prices coupled with expected manufacturing
under-recoveries during the plant shutdowns. Elevated cost for ANS
buy-ins could not be passed through contractually to our
customers.
Our
business continues to grow globally with new contract extensions in
Asia Pacific where bulk explosives
volumes were up 23% and electronics grew by 33% during the period.
We continue to grow in Central
Africa, where robust mining activity is driving growth.
Following the increase in rail wagons, we have ramped up the
Richards Bay storage to rail supply of ammonia. Regarding inland
supply of ammonia, we have initiated road transportation as an
additional means of supply, further securing the supply of the key
raw material.
Sales
volumes of mining chemicals are expected to improve on the back of
an anticipated recovery in mining activity in South Africa.
AECI
Chemicals
The
segment's revenue of R4 363 million (H1 2023: R4 555 million) was
down 4% due to the continued decline in the South African
manufacturing and industrial sectors and over-supply of key
products. A pleasing increase in profits from operations of 9% from
R365 million, restated in H1 2023 to R395 million, is attributable
to stringent cost management and increased operational
efficiencies. The operating margin for the period was 9% (H1 2023:
8%).
AECI
Managed businesses
Revenue in
this segment at R3 731 million was down 2% compared to the prior
period. The segment recorded a loss from operations of R3 million,
an improvement from R87 million loss in H1 2023. The divestment
process is proceeding as planned and we anticipate meeting our
commitments.
AECI
Property Services and Corporate
This
segment recorded a loss of R484 million (H1 2023: R42 million loss)
arising from necessary investment in strategy execution,
including:
-
R255
million in transformation costs
-
R85
million in divestment costs
-
R82
million in severance costs
This
investment spend is essential for the implementation of our
strategy and the delivery of the 2026 EBITDA value
unlock.
Group
major strategic growth projects
Delivering
on our globalisation strategy
-
Continued
organic growth in Australia,
leveraging our current market presence that grew 33%
year-on-year
-
Asia
Pacific Growth, Papa New Guinea targeted growth in the region for
mining explosives. Plant will be commissioned in Q4
2024
-
In
Latin America we are in the early
stages of growth and gaining momentum through market share gains,
exports, and expansion in Brazil,
Chile and Peru
-
Europe
Wolfenbuttel plant in Germany,
repurposed to produce and sell mining chemicals to the
international market
-
A
non-disclosure agreement has been signed with a partner in
South Africa for the potential
long-term supply of green ammonia. The project is expected to be
commissioned in 2027/2028
-
Specialty
chemical assets have been repurposed towards mining chemicals for
exports into the continent
Group
Financial Performance
Revenue
for the Group was down 4% to R17 580 million (H1 2023: R18 404
million).
Basic
earnings per share and headline earnings per share decreased by 61%
and 57% to 233 cents and 260 cents, respectively, following lower
profitability and an elevated effective tax rate.
Profit
from operations decreased from R1 269
million in the prior period to R818 million,
mainly because of:
-
R450
million investment spend for strategy execution
-
R204
million investment spend resulting mainly from statutory
shutdowns
The
Group's profit from operations margin declined to 5% (H1 2023:
7%).
Excluding
the investments spend during the period, the Group delivered flat
year-on-year earnings before interest and tax. This demonstrates
the resilience of our underlying businesses. This performance was
delivered in a challenging trading environment marked by declining
commodity prices, ongoing geopolitical conflicts, high interest
rates, inflation, supply chain disruptions and a slowdown in the
South African macroeconomic environment and the mining
industry.
Depreciation
and amortisation were slightly ahead of the prior period at R550
million (H1 2023: R537 million). A goodwill assessment in the
period resulted in an impairment of R22 million (H1 2023: nil).
There was a property, plant and equipment (PPE) impairment
indicator, leading to a detailed impairment assessment of PPE at
AECI Schirm.
Based on
the results of the impairment assessment, no significant impairment
was triggered for PPE.
Net
finance costs increased to R292 million (H1 2023: R274 million)
after considering an interest of R35 million paid as part of a
transfer pricing audit assessment.
The Tax
expense of R287 million for the period represents an effective tax
rate of 54.5%, up from 36% in H1 2023. The elevated effective tax
rate resulted from higher non-deductible expenses and foreign
withholding taxes from improved dividends received from the foreign
subsidiaries.
Net debt
increased to R5 096 million (31 December
2023: R4 338 million, 30 June
2023: R5 741
million) based on investment in working capital due to seasonality
and strategy execution investment spend during the period. Gearing
for the current period increased to 41% (31
December 2023: 35%, 30 June
2023: 47%) which marginally falls outside our guided range
of 20%-40%. Inventories, trade and other receivables decreased by
R239 million and R506 million, respectively, from 31 December 2023. Trade and other payables
decreased by R1 453 million.
Management
remains committed to reducing debt, applying stringent net working
capital management and driving operational and strategic free cash
flow initiatives to strengthen the balance sheet. On 30 June 2024, the Group's net debt to EBITDA, as
defined in covenant agreements, was 1.6 times, remaining well
within the loan covenant threshold of 2.5 times.
Capex for
the period was R591 million, of which R429 million was for
maintenance, and R162 million was for expansion. AECI Mining
accounted for R407 million of the total spend which included R100
million on new contract wins in Australia.
The Board
and executive management of AECI have applied the dividend policy
and will not declare a dividend at this time due to negative free
cash flow. This decision reflects our focus to prudent capital
management as we look forward to achieving a significantly improved
performance in the latter half of the year.
Net asset
value per share attributable to ordinary shareholders of 11
657 cents remained in line with the
prior year (31 December 2023: 11
137 cents).
2024
Outlook
As a
company headquartered in South
Africa, we are pleased to see that the recent South African
elections concluded with a sense of optimism for economic growth
and stability. The markets responded positively, reflecting an
improved investor confidence and a general positive
sentiment.
The
performance of our underlying businesses remains strong and our
Group performance outlook for the full year 2024 remains positive
supported by:
-
A stronger
second half expected at AECI Mining and AECI Chemicals following
investments made during the first half, market share gains and new
contracts
-
Continued
momentum in the delivery of our strategic initiatives
Our focus
on building a resilient business, leveraging our diverse footprint
and commodity portfolio, for the future as well as the
globalisation of our mining and chemicals businesses will continue
to create value for our stakeholders, positioning us for future
growth and success.
AVAILABILITY
OF THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE
HALF-YEAR ENDED 30 JUNE
2024
The
unaudited consolidated interim financial results for the half-year
ended 30 June 2024 are available
through the JSE cloud link at:
https://senspdf.jse.co.za/documents/2024/JSE/ISSE/AFE/Interim24.pdf
and on the
Company's website at:
https://investor.aeciworld.com/results-reports-presentations.php#results
Any
investment decisions by shareholders and/or investors should be
based on a consideration of the unaudited consolidated interim
financial results as a whole and shareholders and/or investors are
encouraged to review the unaudited consolidated interim financial
results, which is available for viewing on the links set out above,
as this announcement does not provide all the details.
Directors:
KDK
Mokhele (Chairman), H Riemensperger1
(Group
CE), R Gabriels (Group CFO), ST Coetzer2,
SA Dawson3,
FFT De Buck, WH Dissinger1,
P Mishic O'Brien4,
AM Roets, PG Sibiya
1 German
2 Canadian
3 Australian
4 American
VP
Investor Relations: Z Salman
Group
Company Secretary: C Singh
Board
sign-off date: 30 July
2024
Results
released on: 31 July 2024
Equity
Sponsor and Debt Sponsor
Rand Merchant Bank (A division of FirstRand Bank
Limited)
1 Merchant
Place, Cnr Fredman Drive and Rivonia Road, Sandton, 2196
Registered
office
First
floor, AECI Place, 24 The Woodlands, Woodlands Drive, Woodmead,
Sandton
Share
transfer secretaries
Computershare
Investor Services Pty Limited, Rosebank Towers,
15
Biermann Avenue, Rosebank, 2196
And
Computershare Investor Services PLC, PO Box 82, The
Pavilions,
Bridgwater
Road, Bristol BS 99 7NH, England