Bad debt drags down AECI profit

Johannesburg - A major writedown at AECI contributed to a depressed bottom line for the chemicals group.

The company signed off R163m in its full year to end-December 2009 results. This was to cover debt owed by AECI's distributor in Zambia, which was trading sulphur with miners in the region.

The losses were incurred after demand for the chemical plummeted in the second half of 2009 and AECI was unable to recover losses quickly enough.

"This bad debt was large and has distressed the organisation considerably," said Frank Baker, who heads up AECI's Chemical Services division.

AECI CEO Graham Edward said the firm "should have seen it coming", but has learnt its lesson.

The group reported a 16.1% reduction in headline earning to 346 cents per share. Revenue declined 16.7% to R10.7bn.

AECI supplies chemicals and explosives to the manufaturing and mining industries in South Africa and several locations on the continent. Activity in both sectors was severely hit by the recession.

The group said tentative signs of recovery were evident in the mining sector during the second half. Manufacturing has reached its lowest point, although Baker said a meaningful recovery has not yet materialised.

Chemical services is AECI's biggest division in terms of contribution to bottom line. Revenues declined 23% to R6.5bn as a result of the Zambian write-off, lower sales and exchange rate losses due to the strong rand.

Baker expects the division to fare better in 2010, based on recovery in key sectors and from forecast improved demand for speciality chemicals.

"AECI expects that the ongoing recovery in the mining sector and the cautious turnaround in the manufacturing industry will improve its revenue generation in 2010," said Frost & Sullivan chemicals analyst Laura Peinke.

Frost & Sullivan also said the South African chemicals market is expected to grow around 80% over the next five years, and AECI is well positioned to benefit from this expansion.

- Fin24.com