AECI targets chemicals acquisitions

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Johannesburg - AECI Ltd., a South African manufacturer of explosives and chemicals, is seeking acquisitions in the chemical industry to fuel growth rates faster than that of the domestic economy.

“The only way to grow above South Africa’s gross domestic product is through acquisitions,” chief executive - designate Mark Dytor said in a phone interview from company headquarters in Johannesburg today.

“We are targeting four acquisitions this year.”

South Africa’s economy slowed to 2.5 percent last year from 3.5 percent in 2011 after rising unemployment and an outbreak of labor unrest hampered growth.

In January, the Reserve Bank cut its forecast for economic growth this year to 2.6 percent from 2.9 percent.

AECI will target chemicals companies with earnings before interest, taxes, depreciation and amortization of 25 million rand ($2.8 million) to 150 million rand, Dytor said.

He expects to pay four times to eight times Ebitda for each company.

The segment is “very diversified,” he added, covering industries such as mining, agriculture and food and beverages.

Deals could be financed from existing funds.

AECI’s profit attributable to ordinary shareholders declined 19 percent to 630 million rand ($71.5 million) in 2012 after labor strikes in the mining, agricultural and transport sectors cost more than 100 million rand in earnings, the company said in a statement today.

Sales increased 11 percent to 14.9 billion rand, with just over half coming from chemicals.

The 2013 performance “will be better” than last year, Dytor said.

“2012 is the year where we worked the hardest for the littlest results.”

Healthy Recovery

AECI shares climbed as much as 5 percent, the biggest intraday jump since November.

The stock traded 3.9 percent higher at 93.02 rand by 2:46 p.m. in Johannesburg, extending this year’s gains to 17 percent.

“We will see a healthy recovery for the company as South African platinum output is expected to rise,” David Lerche, an analyst at Avior Research, said in a phone interview.

“Fewer strikes in the mining industry will help boost volumes at both AECI’s explosives and chemical divisions.”

Lerche expects earnings to be “significantly higher in 2013 as the company recovers off a low base” then slowing to “more normal levels in 2014 and 2015.”

Dytor, 50, joined AECI almost 30 years ago as a sales representative in the chemical services unit.

He will replace Graham Edwards, who is retiring, as CEO as of March 1.

Cost Reductions

AECI is planning to make cost reductions to achieve a 10 percent trading margin in the explosives segment this year, compared with 6.8 percent of sales in 2012, Dytor said.

“We are upbeat about Africa, with sales to countries including Zambia, Burkina Faso, Ghana and Zimbabwe with three to four big contracts for the next two years.”

Improved earnings for 2013, excluding acquisitions, will be partly led by growth in the manufacturing industry and a better performance from the group’s property division, which expects an increase in projects coming to fruition, Dytor said.

“The biggest disappointment in 2012 was property,” he added.

Sales were hampered by delays and absence of clearances for infrastructure and utilities, cutting earnings from that segment by 66 percent.

AECI has a 46 percent weight in the 3-member FTSE/JSE Africa Chemical index, according to data compiled by Bloomberg.

The gauge has risen 9.5 percent this year. - Bloomberg News


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