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A E C I LIMITED - Voluntary update for the ten months ended 31 October 2024

Release Date: 28/11/2024 10:03
Code(s): AFE AFEP AECI05 AECI06     PDF:  
Wrap Text
Voluntary update for the ten months ended 31 October 2024

AECI LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 1924/002590/06)
Tax reference number: 9000008608
Share code: AFE ISIN: ZAE000000220
Hybrid code: AFEP ISIN: ZAE000000238
Bond company code: AECI
LEI: 3789008641 F1D3D90E85
(AECI or the Company or the Group)

VOLUNTARY UPDATE FOR THE TEN MONTHS ENDED 31 OCTOBER 2024

2024, a year of transition for AECI

Since announcing our case for change and our strategy on 6 November 2023, we have made substantial
progress in executing our strategy, and we have achieved key strategic milestones, which include:
-   the implementation of our new operating model;
-   the establishment of a new executive leadership team that is driving our transformation in line with the
    roll-out of the new operating model;
-   the rolling out of our leadership compact, culture code and desired behaviours designed to foster a high-
    performance culture;
-   progressing portfolio optimisation through the signing of sale agreements for AECI Animal Health and
    AECI Much Asphalt;
-   delivering our 2024 R800 million EBITDA run rate;
-   stabilising the Group's ammonia supply in line with our drive for operational and functional excellence;
-   increasing investment in maintenance of our existing asset base; and
-   delivering on our globalisation strategy by increasing our mining explosives sales volumes in Central
    Africa and Asia Pacific following the fulfilment of new Asia Pacific and Rest of Africa contracts.

The achievement of these key strategic milestones positions us well to continue driving operational
efficiencies, boosting profitability in the short to medium term and laying a solid foundation for sustainable
long-term growth.

Statement from the Group CEO

"This year has been a transformative journey for AECI, marked by significant progress in executing our
strategy and reshaping the organisation to meet evolving market demands. These changes have
strengthened our management structure and team, improved efficiencies, and positioned us well to achieve
our strategic ambitions.

While the Group faced challenges in the Mining segment, including declining domestic volumes and ammonia
prices. Our international contracts in Asia-Pacific have helped mitigate these pressures.

With the value delivery from our strategic initiatives on track and a clear vision for the future, I am
confident in our ability to deliver lasting value and to seize new opportunities."

RESULTS FOR THE 10 MONTHS ENDED 31 OCTOBER 2024

Safety

As of 31 October 2024, the Group's Total Recordable Incident Rate (TRIR) improved to 0.31, down from
0.35 in 31 December 2023. As we advance on our transformation journey, our safety initiatives remain
centered on proactively implementing sustainable improvements that support our Zero Harm strategy.

Group Financial Performance

Revenue for the 10 months to 31 October 2024 (the current period) was down 4% to R29 788 million from
R31 098 million in the prior period (31 October 2023) on the back of lower ammonia prices and reduced
sales volumes.

  R'million
                                                                      YTD             YTD        Change(%)
                                                                 Oct 2024        Oct 2023
  Revenue                                                          29 788          31 098             (4%)
  EBITDA*                                                           2 518           3 072            (18%)
  EBITDA margin                                                        8%             10%            (20%)
  Profit from operations                                            1 531           2 157            (29%)
  Profit from operations margin                                        5%              7%            (29%)
  Normalised measures
  EBITDA (normalised)                                               3 273           3 297             (1%)
  EBITDA margin (normalised)                                          11%             11%                -
  Profit from operations (normalised)                               2 286           2 382             (4%)
  Profit from operations margin (normalised)                           8%              8%                -
 *Earnings before interest, tax, depreciation and amortisation

Normalised measures are used by management to assess underlying performance and exclude one-off,
non-recurring items such as impairments, transformation project costs, and divestment-related expenses.

These measures provide a more consistent view of operational performance and are supplementary to
IFRS measures.

To date, the Group has incurred net once off investment spend of R755 million. The majority was primarily
geared towards the successful achievement of our 2026 ambition and value unlock and comprises:

   -     R409 million transformation project costs;
   -     R110 million in divesture costs;
   -     R204 million investment spend resulting mainly from statutory shutdowns in H1; and
   -     R32 million Schirm turnaround spend in H1.

A reconciliation of normalised measures to the reported measures at 30 October 2024 is provided below:


                                                                                                            
                         Reported                      Adjustment                     Normalised
 EBITDA*                 R2,518m                       R755m                          R3,273m
 Profit from             R1,531m                       R755m                          R2,286m
 Operations
*Earnings before interest, tax, depreciation and amortization

The prior period results are adjusted for R119 million in AECI Schirm turnaround costs and R106 million in
Employee Share Trust (EST) costs.

Normalised measures are not a substitute for IFRS-compliant measures and should be used in
conjunction with these metrics for a comprehensive assessment.

Normalised profit from operations was down 4% (R2 286 million) on the prior period (31 October 2023:
R2 382 million) impacted by higher depreciation driven by maintenance capital expenditure which aligns
with our renewed focus on protecting and investing in our asset base.

The Group's normalised profit from operations margin was in line with the prior period at 8%, demonstrating
the resilience of our underlying businesses underpinned by diverse commodities, regions and effective risk
management processes. This performance was delivered in a challenging trading environment marked by
declining commodity prices, high interest rates, high inflation, supply chain disruptions and a slowdown in
the South African macroeconomic environment and the mining industry.

Net working capital of R6 456 million improved from the prior period (31 October 2023: R6 851 million),
translating to a net working capital percentage of 18% in line with prior period.

Net debt decreased to R4 783 million from the prior period (31 October 2023: R5 224 million), translating to
gearing of 38% (31 October 2023: 42%) which falls within our guided range of 20% - 40%.

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. The Group's net
debt to EBITDA, as defined in covenant agreements, was 1.4 times, remaining well within the loan covenant
threshold of 2.5 times.

The Group recorded a positive free cash flow of R82 million (31 October 2023: R1 470 million) after taking
into account softer business performance, timing on working capital outflows to support operational
requirements and strategy execution. While these factors impact short-term cash flow, they are essential to
positioning the business for sustained future performance.

Capex spend for the period was R845 million (31 October 2023: R1 134 million). R601 million was for
maintenance (31 October 2023: R595 million) and R244 million (31 October 2023: R540 million) was for
expansion.

Depreciation and amortisation were ahead of the prior period at R950 million (31 October 2023: R879
million) due to growth capex in AECI Mining Australia and AECI Schirm USA. Profit from operations
includes goodwill impairment of R22 million (31 October 2023: nil).

                                                                                                                
Group impairments and effective tax rate guidance

 Our portfolio optimisation programme has resulted in management having to assess the Net Asset Value
 (NAV) of AECI Animal Health and AECI Much Asphalt in relation to their fair value less costs to sell. This
 has resulted in the recognition on R22 million impairment on AECI Animal Health in H1 and we anticipate
 an impairment on the disposal of AECI Much Asphalt in the region of R600 million.

 Furthermore, an assessment on AECI Schirm operations is ongoing and the Group expects to recognise a
 significant impairment on the business. Both AECI Much Asphalt and AECI Schirm were acquired in 2018
 for a purchase consideration of R2 347 million and R1 997 million, respectively. On consolidation AECI
 recognised goodwill of R1 531 million for AECI Much Asphalt and R305 million for AECI Schirm. As
 previously reported, both businesses experienced sustained long term operational underperformance
 which impacted cash flows, profits and ultimately NAV.

 The anticipated impairments are expected to impact profit as well as the Group's Effective Tax Rate. The rate
 is expected to be significantly higher than the reported 54.5% at 30 June 2024. Management are
 dedicating the necessary resources towards reducing the rate into an acceptable range going forward.

 Segmental performance


                                                  Revenue                    Profit/(loss) from operations
                                           YTD         YTD           %           YTD            YTD         %
  R million                               Oct24      Oct23      Change         Oct24          Oct23    Change
  AECI Mining                            15 725     16 513         (5%)        1 426          1 789     (20%)
  AEI Chemicals                           7 805      8 110         (4%)          692            616       12%
  AECI Property Services and
  Corporate                                 527        505          4%         (578)          (182)     >100%
  AECI Managed Businesses                  6097      6 414         (5%)          (7)           (58)       88%
  Other                                   (366)      (444)          18%          (2)           (8)        75%

Normalised measures
                                                                             Profit/(loss) from operations
                                                                                      (normalised)
                                                                                   YTD        YTD            %
  R million                                                                      Oct24        Oct23     Change
  AECI Mining                                                                  1 641**        1 853     ( 11%)
  AEI Chemicals                                                                   701#          640       10%
  AECI Property Services and
  Corporate                                                                     (80)##        (168)       52%
  AECI Managed Businesses                                                          26"          65       (60%)
  Other                                                                            (2)          (8)       75%

**Normalised measure - adjusted for R204 million investment spend and R11 million transformation project
costs (31 October 2023: EST cost R64 million)
#Normalised   measure - adjusted for R9 million transformation project costs, (31 October 2023: EST
cost R24 million)
Normalised measure - adjusted for R498 million transformation project and divesture costs, (31 October
2023: EST cost R14 million)
"Normalised measure - adjusted for AECI Schirm turnaround costs of R32 million and R1 million
transformation project costs (31 October 2023: Turnaround cost R119 million and EST cost R4 million)

AECI Mining

While there was a notable decline in ammonia prices in the first half of 2024, the market has shown signs
of recovery in the fourth quarter, with prices rebounding due to supply constraints and other market
dynamics.

The addition of new Transnet rail wagons has greatly improved our Richards Bay's storage-to-rail ammonia
supply to our Modderfontein site, enhancing supply security and boosting operational efficiency.

Revenue in the Mining segment for the 10 months ended 31 October 2024 was 5% lower compared to
the prior period. This decline reflects a combination of factors including lower ammonia prices and lower
sales volumes in the South African market following a drop in mining production volumes in gold, platinum
group metals (PGMs) and iron ore due to operational and supply chain challenges and global
macroeconomic uncertainties.

Profit from operations for the period, adjusted for the investment spend, was 11 % lower than the prior period
due to a slower than anticipated recovery in South Africa. Despite the challenging operating conditions,
normalised profit from operations margins at 10% were slightly lower than the prior period (31 October 2023:
11%).

Our business continues to grow globally, with new contracts in Asia Pacific, where bulk explosives volumes
were up 24% and electronics grew by 44%. We also continue growing in Central Africa, where robust mining
activity drives growth.

AECI Chemicals

The segment's revenue for the period declined by 4% due to persistent challenges in the South African
manufacturing and industrial sectors, coupled with an oversupply of key products, which exerted pressure
on pricing and demand. Despite these headwinds, we delivered a substantial increase (10%) in profit from
operations, driven by disciplined cost management and enhanced operational efficiencies. This disciplined
approach contributed to an improved operating margin of 9% (31 October 2023: 8%), underscoring the
effectiveness of our strategy to enhance profitability even amid revenue constraints.

AECI Managed businesses

Revenue was down 5% compared to the prior period. The segment recorded a normalised profit from
operations of R26 million, down from R65 million as at 31 October 2023.

During the period, we made solid progress in our divestment strategy by signing sale agreements for AECI
Much Asphalt and AECI Animal Health, two of the six targeted divestments. This is a crucial step in our
commitment to streamline the portfolio and focus on our core business. The subdued mergers and
acquisitions environment experienced this year has impacted our divestment process. We, however, remain
committed to a disciplined approach, prioritising long-term value creation as we navigate the divestment
process in these conditions.

AECI Property Services and Corporate

This segment recorded a normalised loss from operations of R80 million (31 October 2023: R168 million
loss) after accounting for income on sale of property.

Conclusion

In conclusion, we anticipate that the business's underlying performance (normalised), for the full year, will
be in line with the prior year, underscoring our organisational strength. With a clear focus on executing our
strategy and transforming the Group, we are advancing operational efficiencies and setting the stage for
sustainable growth. We remain fully committed to achieving our strategic goals, creating long-term
shareholder value, and building a solid foundation for future success.

2024 Capital Markets Day

The Group will host a Capital Markets Day today, 28 November 2024 starting at 1 0H00 (SAST). We will
give a comprehensive update on the execution of our strategic priorities and goals. The Capital Markets
Day presentation is available on the Company website: https://investor.aeciworld.com/results-reports-
presentations.php

Disclaimers

Normalised measures are used by management to assess the underlying sustainable performance of the
Group and do not replace the measures determined in accordance with IFRS as an indicator of the Group's
performance, but rather should be used in conjunction with the most directly comparable IFRS measures.

The financial information on which this trading update is based has yet to be reviewed or reported on by the
Group's external auditors.

This update contains forward-looking statements. These statements are based on current estimates and
projections of the Executive Team, the Board of Directors and currently available information.

Forward-looking statements do not guarantee the future developments and results outlined therein. They
depend on several factors, involve various risks and uncertainties, and are based on assumptions that may
not prove to be accurate.

28 November 2024

Equity Sponsor
Rand Merchant Bank (a division of FirstRand Bank Limited)

Debt Sponsor
Questco Proprietary Limited
                                                                                                                 





                                                            

Date: 28-11-2024 10:03:00
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