AECI: Rand may hit 2010 volumes

AECI expects the stronger rand currency to offset 2010 volume growth it anticipate will be boosted by a tentative recovery in the mining and manufacturing sector.

AECI, which sells products to the mining and manufacturing sector, posted a 16% decline to 346 cents in the year to end-December hit further by restructuring costs, strong rand and bad debt write-off on sulphur sales.

AECI has been struggling as key customers in the mining sector cut capital expenditure and manufacturing customers rein in spending due to slower consumer demand.

“The slow turnaround in manufacturing and continued recovery in the mining sector should assist in improving volumes in 2010,” the company said.

“However, a strong local currency could pressurise margins and dampen the recovery in volumes.” The rand gained about 30% against the dollar last year, putting pressure on exporters such as miners and manufactures. The government is concerned about the currency’s strength on the manufacturing sector, the second biggest contributor to GDP.

Factory output swung strongly into positive territory in the year to December, snapping 14 months of annual contraction in the latest indication manufacturers are recovering after last year’s economic downturn.

AECI, which slashed its final dividend by 56% to 62 cents per share, said plans that include focusing on sale opportunities outside South Africa and curtailing business risk would help it deliver better earnings.

The group said revenue fell 16,7% to 10,7 billion rand ($1,40 billion) with its core chemical unit’s revenue declining by 23% to 6,5 billion rand.

The company’s mining services unit delivered a flat revenue of 4,1 billion rand as the stronger rand and lower ammonia prices offset cost-driven price increases.