AECI lifted its interim dividend by 8 percent to 194 cents per share in the six months to June 30 after reporting record headline earnings per share as customer demand reached pre-pandemic levels.
CEO Mark Dytor said in a telephone interview that in spite of the inflationary environment, they were cautiously optimistic about further earnings growth for the second half, with commodity prices still relatively robust in the sectors that the diversified chemicals group operates in.
Revenue was up 31 percent to R15.51 billion boosted by rising commodity prices. Headline earnings per share increased 8 percent to 573 cents. Gearing rose to 44 percent from 27 percent.
Dytor said they had largely been able to offset higher input costs with disciplined pricing.
Working capital levels were elevated due to higher raw material prices. This resulted in higher short-term debt and higher finance costs. Improving working capital to bring more cash back into the group was a focus of management in the second half, Dytor said.
A stronger organic growth focus saw 59 percent of the R748 million capex spent allocated to growth investments. Capex amounted to R365m the year before.
Rising raw material prices resulted in inventory rising to R6.52bn from R4.19bn.
Long-term debt covenants remained well within the target cover range.
He said the long-term strategy remained to pursue further international growth opportunities.
The Covid pandemic and geo-political tensions had resulted in many companies around the world shifting from a previous reliance on imports from the East, to either sourcing from closer markets or establishing their own production facilities, said Dytor.
To support strong demand and growth opportunities in agri-business in the US, a R504m capital expenditure project was in progress to expand the facility in Ennis, Texas, and the construction of two further plants in Benton, Illinois.
Customers had committed to offtake from the new and expanded plants from 2023, which contributed significantly to the growth outlook for the US business. There were also opportunities for the explosives business in the US and Canada, said Dytor.
In Germany, challenging trading conditions were exacerbated by the Russia/Ukraine conflict which had a negative impact on customer demand, especially for crop protection products in the Ukraine.
The conflict had also led to rapidly increasing costs, including energy and labour in Europe, which were not fully recovered from contractual customers. Anticipated volumes from tenders won had also been delayed due to the conflict.
The operating loss of R86m in the German business was offset by the results of the US business, which reported a R36m operating profit.
Management said the growth capital invested and the planned investment in the second half were expected to deliver returns in 2023.
“There are strong pipelines of opportunities across our businesses and we look forward to this conversion,” they said.
At AECI Much Asphalt, the focus was on ensuring that the financial performance aligned to the original investment case. Dytor said there was an encouraging return of contracts in South Africa’s road infrastructure sector.
Dytor, after being with AECI in many roles for 38 years, retires effective July 31, 2023.