JSE-listed chemicals company AECI recorded a near 13% drop in its share price on the JSE on July 24 after issuing a trading statement wherein it advised shareholders to expect a 59% to 64% drop in earnings per share (EPS) for the six months ended June 30.

This will result in an expected EPS of between 215c and 246c for the period, compared with EPS of 600c in the first half of the 2023 financial year.

“2024 is a year of transition for AECI. In the past six months, the group has been focused on executing our strategy and safely completing the two statutory shutdowns deferred from the previous year in the mining business. These priorities drive sustainable growth, improved efficiencies and profitability in the long term and came with upfront investment cost. Given the focus and foundation set in the first half of the year, we expect these efforts will start to gain momentum and realise value in the second half of the year and into next year,” the company said.

AECI said the underlying performance of both AECI Mining and AECI Chemicals for the period demonstrated resilience in an environment marked by declining commodity prices, supply chain disruptions and a slowdown in both the South African macroeconomic environment and the mining industry.

One-off events, which contributed to unusually high operating costs and consequently, a deterioration of the group's earnings for the period, are expected to be lower relative to the record performance achieved in the first half of 2023.

“If the group earnings are normalised for the one-off events, the earnings before interest and tax are expected to be stable against [the] prior year with margins holding,” AECI assured shareholders

At AECI Mining, high one-off operational costs were incurred during the period for alternate sourcing of ammonium nitrate solution at higher market prices coupled with expected manufacturing under-recoveries during plant shutdowns.

“These costs will not repeat in the second half of the year and will not be incurred in 2025 as no statutory shutdowns are expected for at least the next three years,” the company said.

Meanwhile, AECI Property Services and Corporate is expected to report a higher loss from operations of between R400-million and R500-million, compared with a reported loss of R42-million in the prior period.

The company attributed these losses to several one-off costs associated with the execution of the corporate strategy, such as the group operating model restructure, merger and acquisition consultancy (mainly comprising deal adviser fees), the turnaround of AECI Schirm Germany, and internal strategy execution of the company’s transformation office (mainly comprising of consulting fees).

“These one-off costs will ease off in second half of the year,” the company assuaged.

AECI also explained that higher nondeductible expenses and foreign withholding taxes from improved dividends received from foreign subsidiaries have resulted in an elevated effective tax rate for the group of between 50% and 60%.

Also, slightly elevated net finance costs are expected owing to one-off interest levied by revenue authorities on a transfer pricing assessment.

Considering these factors, headline earnings per share (HEPS) are expected to decrease by between 54% and 60% compared with the prior period, resulting in HEPS of between 241c and 276c.

“The earnings outlook for full-year 2024 remains positive, supported by an expected stronger second half performance, reduction in one-off costs, continued efficiency improvements and value realisation from the strategy execution efforts,” AECI said.

SALE OF ANIMAL HEALTH BUSINESS
AECI also advised that, on July 9, it had signed a sale and purchase agreement for the sale of its Animal Health business to Nutreco International.

“We anticipate the transaction to close in four to six months. This transaction affords us the opportunity to concentrate our efforts and resources to achieve our ambition to double profitability of the core business (Mining and Chemicals) by 2026 and attain a global market position in mining of number three by 2030,” the company said.

AECI will release its audited half-year financial results on July 31.