Bruce Whitfield:
Chemicals and explosives group, AECI, seeing its headline earnings per share for the six months till the end of June, boosted by a massive 95 percent.

It is probably more useful to look at the operating performance because that headline number includes a big property disposal, which is a once off, and it was a substantial property sale as well. Schalk Engelbrecht, the chief executive of AECI joins us on the line now. The property sale, Schalk, was actually part of the AECI property business itself, wasn't it?

Schalk Engelbrecht:
Yes Bruce. You are correct to say that it was a once off but of course we have large tracts of land still available, in Modderfontein and in Somerset West, and we have a long-term programme to dispose of those properties to the benefit of our shareholders.

Bruce Whitfield:
I am sure we have spoken about this before; it is almost like Tongaat Hulett turned the Moorland business into a huge operation in its own right. Is this the sort of thing that you are doing with AECI now as well?

Schalk Engelbrecht:
Yes, well we have these excess pieces of land for sale and they are in very very prime positions at Modderfontein and Somerset West, so it is just a natural strategy for us to extract value there for our shareholders.

Bruce Whitfield:
Is it all industrial land attached to existing AECI properties?

Schalk Engelbrecht:
Yes but of course we can rezone that land and as you probably noticed around the Modderfontein area there is a huge residential complex and other commercial activities happening there. We can rezone the land.

Bruce Whitfield:
Are you looking at all to become property developers in your own right?

Schalk Engelbrecht:
No, no.

Bruce Whitfield:
You are looking to rezone the land and flog as an asset like that.

Schalk Engelbrecht:
That is what we do Bruce. We don't get involved in above surface structures. We clean up the land, there is some remediation of some of these because they are old industrial sites and then we sell them on to developers for further development.

Bruce Whitfield:
The first half sale of the property, it was a piece of land at Milnerton?

Schalk Engelbrecht:
Yes, previously there was a chemical manufacturing site there and those operations have ceased now. We are busy with some remediation work there and then it will be developed by a developer.

Bruce Whitfield:
And is that going to be then residential land?

Schalk Engelbrecht:
No, the developer will probably have his own choice of what he will do there but more than likely that will be for industrial purposes.

Bruce Whitfield:
Have you revalued your property portfolio? As an extensive property portfolio, especially with assets like Modderfontein, like Somerset West, it is not an asset to be snuffed.

Schalk Engelbrecht:
No, we have not recently revalued that in our books.

Bruce Whitfield:
Looking at the chemicals and explosives businesses, good strong demand in those sectors as well?

Schalk Engelbrecht:
Yes we have seen good demand in those sectors. I guess the problem for us in the last quarter has not been demand but the margins. Input costs have crept up, some of that is oil driven, and of course with the weaker rand as well, our input costs really escalated.

Bruce Whitfield:
Oil costs as well, especially in the paint business. You do own Dulux, that is quite a big component there.

Schalk Engelbrecht:
Yes, oil is a driver for feedstocks and lots of chemical products. So we find that for transport and for the chemical inputs in our factories.

Bruce Whitfield:
In terms of explosives, lots of promise of infrastructure work in the South African economy and higher commodity prices driving mining production. Are you feeling the benefit of that too?

Schalk Engelbrecht:
Yes, the demand is solid for our explosives business.

Bruce Whitfield:
Define solid, have you got big order books in place?

Schalk Engelbrecht:
They are in line with previous years but on the other hand gold mining has been declining in South Africa but the other activities have certainly made up for that and balanced that.

Bruce Whitfield:
You mention in your results that there is some competition in terms of detonators coming out of China. Is that primarily a South African problem or is it when you look at other parts of Africa, you seem to be holding the Chinese back?

Schalk Engelbrecht:
Well the logistics of course of moving these products around creates a challenge but at the moment it is contained into southern Africa. The Chinese have not penetrated with these kinds of products anywhere else in the world. The barriers to trade for them in these kinds of products are far more difficult in the developed countries in the world.

Bruce Whitfield:
But you are beginning to feel their impact?

Schalk Engelbrecht:
Yes we do because our customers certainly use that as a lever to resist prices from us.

Bruce Whitfield:
With the sale of a property you managed to boost your dividend quite considerably. Your dividend cover is nearly twice as high as it was last year, suggesting that you are sitting on capital; you must have some plans earmarked for that?

Schalk Engelbrecht:
Well we have always had an aggressive expansion programme, particularly in chemical services where we have an acquisition program track record there. We are also spending increased amounts of capital to automate our production processes at Modderfontein and also to spend some money on manufacturing facilities for mining chemicals.

Bruce Whitfield:
Schalk Engelbrecht, thank you very much indeed. He is the chief executive of AECI. It is an interesting story; they are making buckets of money out of selling property and they have got vast tracts of land at Modderfontein and also at Somerset West, very valuable property assets. They're not expecting to match the property sales in the second half that they had in the first.