Industrial stalwart AECI has undergone a year of significant transformation, with a mix of bold strategic shifts and financial turbulence. The chemicals and mining solutions company reported a R255m loss for 2024, a stark contrast to its R1.18bn profit in 2023. Investors and analysts are weighing whether the company’s current trajectory is a temporary stumble or a necessary repositioning for future growth.
AECI was established in 1924 through the merger of Nobel Industries’ South African interests and De Beers Consolidated Diamond Mines. Initially focused on supplying explosives and fertilisers to the burgeoning mining sector, the company expanded over the decades into chemicals and various speciality products.
The company has made decisive moves to streamline its portfolio, with divestments in noncore assets such as AECI Animal Health and AECI Much Asphalt; the latter was sold to an Old Mutual Private Equity fund. This decision was driven by an underwhelming return on invested capital of less than 7%, falling short of the group’s cost of capital.
“Selling a business that delivers returns consistently below its cost of capital will improve the margins and returns of the AECI group,” says Aeon Investment Management chief investment officer Asief Mohamed.
By focusing on its core mining and chemicals businesses, AECI aims to double profitability by 2026 and establish itself among the top three global players in mining solutions by 2030. Expansion efforts in Peru and Australia further underscore this strategic shift. Peru’s mining sector is one of the largest in the world, particularly in copper production. With growing infrastructure investment and high demand for minerals critical to energy transition technologies, the market presents strong growth potential. However, political instability and regulatory unpredictability remain challenges.
Australia, on the other hand, is a more stable and established market. The country is home to major mining conglomerates such as BHP and Rio Tinto, which prioritise reliability and efficiency in their supply chains. AECI’s success in this market will depend on its ability to differentiate itself from incumbents such as Orica. Securing long-term supply agreements will be critical to sustaining revenue growth and justifying the investment.
Group CEO Holger Riemensperger said in a recent statement that “2024 was a defining year for AECI. We made bold decisions to reshape our portfolio, enhance efficiencies, and position the business for long-term, sustainable success. While the near-term financial impact was unavoidable, these changes lay the foundation for significant future growth.”
Despite these long-term ambitions, 2024’s financial results reflect the cost of transition. Headline earnings per shareEPS fell by 36%, while a R1.1bn impairment weighed heavily on the bottom line. A significant portion of this impairment stems from AECI Schirm in Germany, which reported a loss of nearly R400m.
“The impairment of AECI Schirm is an indication of poor growth prospects. Management has classified AECI Schirm as discontinued and rightsized. A sale or closure might be the only options,” Mohamed tells the FM. While impairments are often seen as a one-off accounting measure, they raise concerns about AECI’s ability to generate sustainable earnings from its international operations.
Germany’s chemicals sector has been under pressure from high energy costs, weak industrial demand and tightening environmental regulations. The European energy crisis, worsened by geopolitical instability, has further increased input costs, making Schirm’s operations less competitive. Competing against chemicals giants such as BASF, Evonik and Lanxess has also proven difficult for a smaller, higher-cost player such as Schirm. Exiting a business in Germany is complex and costly though, with stringent labour laws and high retrenchment expenses.
AECI’s mining business, which contributes significantly to overall revenue, faced demand-side challenges in 2024, leading to weaker sales. Earnings for companies in the metals and mining industry have declined significantly over the past three years. In 2024 the sector struggled with infrastructure constraints, weak global demand and shifting commodity
AECI’s mining business, which contributes significantly to overall revenue, faced demand-side challenges in 2024, leading to weaker sales
dynamics.
These pressures led to lower production and squeezed margins for mining companies. This has had a ripple effect across the supply chain, dampening demand for explosives, core to AECI’s mining solutions business. However, the chemicals division performed relatively well, providing some resilience to the group’s overall results.
Operationally, the company achieved an earnings before interest, tax, depreciation and amortisation run rate of R800m, with R400m already reflected in financials. The planned efficiencies and cost-cutting measures are expected to bolster future performance.
“We have remained financially disciplined despite headwinds,” acting CFO Ian Kramer said in a recent statement. “Our transformation initiatives are gaining traction, setting AECI on the path to a more profitable future.”
AECI is paying a final dividend of 119c a share. The company’s gearing remains manageable, though the sale of underperforming assets and potential future impairments warrant close monitoring.
The company’s share price increased by 10.3% to R99.80 and seems to reflect positive sentiment from investors. However, speculation about a potential delisting has surfaced, though Mohamed believes this is unlikely in the short term. “AECI is a mining-related and chemicals business. These two remaining core business segments achieve a reasonable return on invested capital of 20%. If AECI can maintain and improve the return on invested capital, the share price might rerate. In this scenario, a delisting is unlikely.”
Looking ahead, management is focused on delivering its 2025 transformation milestones and improving operational efficiencies. While the strategic overhaul is intended to position the company for long-term success, the next 12 to 24 months will be critical in determining whether AECI can navigate its transition without further financial setbacks.
“We are executing our strategy with focus and urgency, ensuring AECI is well positioned for long-term success. The path is clear, and the momentum is building,” said Riemensperger.
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