AECI expects huge earnings drop

Johannesburg - Chemical and explosives manufacturer AECI announced it anticipates an interim drop of between 55% and 70% in headline earnings. However, full-year earnings will only differ slightly from those of the previous year.

CEO Graham Edwards said on Thursday the reason for the interim drop is the group's higher interest payments because of a R2bn capital expenditure programme.

"Our capital expenditure plans have compromised our short-term earnings potential," said Edwards.

The company said in a trading statement it also expects operating profit to be between 40% and 60% lower than that achieved in the half-year to June 2008.

An analyst said: "Because of the interest associated with the capex, the headline earnings and operating profit figures are not realistically down by those amounts."

Edwards said the company had had a poor second half last year, which he attributed in part to the closing of its fibres plant in Bellville, Western Cape.

AECI through its AEL mining arm is the largest producer of explosives in South Africa. It also produces specialised chemicals via Chemical Services (Chemserve). SANS Technical Fibres in Stoneville, US, is now the group's only producer of industrial nylon fibres and polyethylene terephthalate (a polyester-type resin used in making synthetic fibres such as in food and liquid containers).

With regards to its capex, AECI expected its six construction projects to be mechanically complete by the end of this year. The Chemserve projects will also be operational, but the AEL project will only start running in April 2010.

"The outlook for volume growth in 2009 is not promising", said the company.

The same analyst said he felt the company should not be too concerned.

"When your volumes fall away, there is very little you can do - this is more a problem to do with the macro-environment." He was confident AECI would make a comeback by year-end.

On Thursday AECI was trading down 1.55% to 4 560c/share.

- Fin24.com