AECI to distribute GE water treatment (excerpt): Mark Dytor - chairman, Improchem
ALEC HOGG: Dave, I've been doing a bit of work today on AECI. You will remember them. Actually going back into the memory banks, Ted Smale – remember when he was chief executive there? Many years ago.
DAVID SHAPIRO: Look, its always been a very interesting and well-regarded company.
ALEC HOGG: It was always sleepy, but they aren’t sleepy any more.
DAVID SHAPIRO: I hope not.
ALEC HOGG: What they did today was very, very interesting. It's a transaction with General Electric. We know that’s Jack Welch’s old company, one of the major industrial groups in the world. And GE was selling its water purification and treatment products in the African continent on its own. Now it's tying up with AECI, and the reason it's doing that, David, is because AECI has got an incredible network, a distribution network into the continent, better than probably anybody else in the country. Why? Because it's been selling explosives to miners over many years. So now they are kind of clicking, putting other products through this distribution network. It could be a big-bill factor.
Anyway, I asked Mark Dytor, who’s an executive director of AECI, and the man in charge of specialty chemicals, just to tell us a little more about this long-established network that was founded by the explosives operation AEL.
MARK DYTOR: We’ve got a fantastic footprint through our AEL business in Africa and a logistics chain. Obviously we understand in terms of the financials, in terms of their VAT, and we’ve had a lot of learning curves through those businesses, So we know exactly how to set up businesses in the regions and we can use them as the back office. We have stores there, we have factories, we have people, we have finance, we have competent people in those regions already. So we really want to leverage off that and moving our specialty chemicals people into Africa.
ALEC HOGG: Mark, just to close off with, roughly what percentage of AECI’s earnings, or even sales, are generated outside of South Africa on the African continent? Is it small?
MARK DYTOR: I haven’t got that right in front of me now but I guess of the group it’s obviously getting to that 20%, 25%.
ALEC HOGG: Those are serious numbers, David Shapiro – 20% to 25% of their products sold into Africa, and they’ve got this network that they're going to be pushing more through.
DAVID SHAPIRO: That’s the point I'm making in LA. … I hadn’t thought of it before, but that’s one of them. So it's much better. We know AECI, it's been around for 100 years, so it's a company with good corporate governance in South Africa, a solid stock exchange. Why try and get into Africa direct? Rather do it through something like this – 20-25% is meaningful, and that will probably grow.
ALEC HOGG: And it's stock that hasn’t really done much. In the last year it's done just about nothing.
Peter Major is with Cadiz. He’ll talk to us a little later about mining but, Pete, given that AECI has got this explosives business and it would have been following miners to every corner of the continent, I guess, it makes sense to use the distribution network, doesn’t it?
PETER MAJOR: Ja, it does, because it's one thing they can count on. But these guys have been promising something new for about 30 years, from my memory, and they got involved in a big, big project up in Botswana – a salt pan project – I'm trying to think what it was producing, phosphate or something, spending a billion and some rand back then, and then they had to write it off for almost nothing.
And then they got a big involvement in these new electronic blasting caps that were going to synchronise blasting and throw all your ore in one area so you don’t have to shovel it so much. And that was going to be their saviour. Then the property – when you hold property, if you use it right, you can make a lot. So if they do that distribution network maybe they can find a way of really generating a new growth, a new division out of that. But it's kind of an average stock in my view, Alec. It never really can consistently outperform the index.
ALEC HOGG: Maybe it's going to change. With a guy like Fani Titi running it, or the chairman now, they’ve got a fairly aggressive young team. Just interesting that you talk about the property – 2 300 hectares round the Modderfontein factory. David, as a farmer I can tell you 2 300 hectares, that’s a lot of land.
DAVID SHAPIRO: In fact, they can turn it into a game farm. It's huge. I've been there. I've gone through it. It's a very beautiful area. You don’t even know you are in Joburg.
ALEC HOGG: That is probably not accounted for in the book. But Peter, your point is well made. This is a company that has promised much. Maybe at last they are going to start delivery.
PETER MAJOR: Ja, they’ve got an asset value under their… property. There’s a good underpin.
ALEC HOGG: Mmm, you're not buying the story. Dave, are you buying it?
DAVID SHAPIRO: I actually own some of it, and I've been a bit disappointed in it. But Alec, it's also to do with mining. It hasn’t quite reached the levels that they expected, and also they’ve got the fertiliser side as well. But they’ve got all the ingredients that should propel them and, as Pete says, we haven't quite seen it yet.
ALEC HOGG: Well, the property side is starting to kick in. They made R36m in the first six months of this year, so they are coming from a zero base there. The GE deal – certainly Mark said to me this is the beginning of it. Imagine if they can get many more GE products and sell those into Africa. That’s a new line of business for them. I don’t know. I'm a little more positive than my two friends here, but I guess in a year’s time we’ll turn around and say, well, Peter was right – again.
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And the term ‘golden years’ banned.