CHIEF EXECUTIVE OFFICER’S REPORT

 

What an extraordinary year it has been. While there have at times been cause for celebration, this year has been marred by extreme challenges. These included repeated lockdowns and the country mired in uncertainty and disruption on a scale that has never been experienced before.

When I forecasted the performance of the Group in my 2020 report, I mentioned that the year ahead would be challenging, and with the effects of the pandemic becoming more apparent daily, that is precisely what has unfolded. It is evident in our financial performance, which is subdued in comparison to the previous year.

This restrained financial position is also reflected in South Africa’s GDP decline of 7%, the worst since World War II. In addition, the country has also seen a surge in unemployment to circa 34,4%. While these factors are at play in the operating environment, our businesses’ shrinking customer and client base also increased. As a result, this necessitated a shift in our operational plans while still supporting our overall Group strategy and the need to adapt and navigate the current environment. We concentrated on stabilising existing businesses, and shoring up their survival techniques, to be ready for the opportunities that will return once the pandemic reaches stabilisation.

Despite everything this past year has thrown at us – the anticipated and the unexpected – we are proud to have been able to continue safeguarding the wellbeing of our employees and their families. Their resilience has contributed to helping our business do more than keep its head above water but has allowed us to swim.

 

GROUP PERFORMANCE APPRAISAL

As the full effects of the pandemic matured, our Group’s revenue declined by 32% to R2.3bn. The expected revenue decline resulted from significant contracts that ended during the financial year, which affected our technology division. Balancing this, our fishing division posted a stellar year with an increase in revenue of 27% to R570m. As a result of the decline in revenue, our EPS decreased from 1.93c to a loss of 26.48c. The Group continues to have a strong balance sheet, despite taking impairments on some investments. Efficient working capital management, streamlining operations and delaying, and delaying capital investments until the economy stabilises have seen the Group maintain high liquidity levels.

 

DIVISIONAL OVERVIEW

FISHING AND BRANDS

Premier Fishing and Brands Ltd (Premier or the Premier Group) had a better year following its 2020 challenging environment, including lockdowns, riots in Hong Kong and scarce squid fish resources – which were down by 45% in that period.

As a result of eased lockdowns in the international markets, marginal improvements were realised in international fish prices. A significant improvement in squid stocks saw revenue for Premier Fishing increasing by 27% and profit after tax by 1%. Pressure on margins and once off expenditure contributed to the lower profit increase relative to the revenue increase. Although still lagging pre-covid levels, this excellent set of results is a major improvement and all the more remarkable considering the COVID-19 pandemic continues to influence global markets.

Sustainability in the fishing sector is of vital importance. Speaking directly to this, the abalone farm expansion is nearing completion after months of lockdown disruption. Based on the current spat growth, Premier expects the abalone farm to produce between 300 and 350 tons of abalone annually upon completion of the expansion (current: 260 tons). The Fishing Rights Allocation Process (FRAP 2021) is underway. Premier’s empowerment credentials and history of productivity in responsibly using their allocated fishing rights make them well-positioned to retain their current FRAP allocations. The fishing and brands division is sound, and we are confident that AEEI will continue to secure maximum value from this investment.

 

TECHNOLOGY

In the face of an adverse trading environment, coupled with the loss and non-renewal of contracts, the gross revenue of AYO Technology Solutions Ltd (AYO) shrunk by 47% to R1.7bn. The ongoing and relentless, unfair treatment of AYO in the media also contributed negatively to this division’s ability to swiftly deliver its strategy. Despite this, AYO acquired Kathea Communications in March 2021, which will see AEEI’s technology division becoming the largest distributor of headset equipment in Africa, positioning AYO to capitalise on the remote working explosion. The pandemic has catapulted the world into the digital age, with millions of people doing business and conducting everyday life online.

Our technology division’s subsidiaries are well placed to respond to this emerging trend of ‘everything online’ and ‘everything remote,’ which has accelerated the globe towards the Fourth Industrial Revolution (4IR). Our expanding footprint covers:

• Remote working – Sizwe Africa IT Group Ltd, Kalula (Pty) Ltd, Puleng (Pty) Ltd, Kathea Communications (Pty) Ltd;

• Remote banking – Payment gateways and financial services through its investment in the fintech fund, Bambelela Capital (Pty) Ltd;

• Remote Learning – Sizwe Africa IT Group Ltd and its eLearning solutions (a first of its kind in South Africa); and

• Remote access – Puleng (Pty) Ltd.

Although there are ample positive opportunities for this division’s outlook, AYO has not escaped the aftermath of the pandemic. As cash-strapped clients delay purchases, AYO expects a subdued demand for its products and services in the short to medium term. At the same time, they are preserving cash for the sustainability of their businesses. However, AYO remains committed to achieving its vision of being the leading empowered digital and technology service provider for business partners across the African continent. AYO has a strong balance sheet, competent, highly skilled employees, and a committed leadership team to deliver its mission.

AYO also continues to commit to keeping the channels of participatory communication open with South Africa’s Public Investment Corporation (PIC), who invested in AYO.

 

EVENTS AND TOURISM

The events and tourism division has been badly impacted by the fallout from local and international COVID-19 restrictions. The ban on business and leisure travel and the prohibition of large gatherings hampered this division’s ability to generate income. Consequently, espAfrika (Pty) Ltd (espAfrika), the producers of the world-renowned Cape Town International Jazz Festival (CTIJF) – “Africa’s Grandest Gathering” – were unable to stage the event during the current financial year.

It is anticipated that with prevailing government regulations in place, ‘Africa’s Grandest Gathering’ may only occur in 2022.

Due to these conditions, most of espAfrika’s staff complement were retrenched in the current financial year to streamline costs.

The travel business, Tripos Travel (Pty) Ltd (Tripos), also felt the severe impact of successive national lockdowns and the imposed local and international travel restrictions. The business has been right-sized to cater to a reduction in activity, thereby curbing operating losses. The first two months of the new financial year, as lockdown eased and with South Africa taken off the “red list” of countries, have already shown an increase in travel enquiries and sales. Revenue is expected to increase during the upcoming ‘holiday season,’ provided that no further lockdowns occur.

The Group’s radio station investment, Magic 828 (Pty) Ltd (Magic), embarked on a restructuring exercise, resulting in a significant reduction of losses and funding requirements. In addition, broadcast simulcasting with LM radio in Gauteng increased its audience while simultaneously reducing operating costs. However, revenue did not improve as we had envisaged, due to many corporates holding back on their marketing spend. Nevertheless, we believe that the management team’s renewed focus on direct national sales will yield positive results in the year ahead.

 

HEALTH AND BEAUTY

The health and beauty division has also proved to be relatively durable, notwithstanding the reduction in consumer spending and consumer numbers curtailed due to the COVID-19 trading conditions. Revenue was 2.1% up from the previous year. However, a delay in price increases for its products and sales disruption due to the July riots resulted in Orleans Cosmetics (Pty) Ltd posting an operating loss for the year.

At the time of writing this report, the first month of trading in the 2022 financial year has been very encouraging. We are confident that the exclusive distribution agreements that were successfully renewed in December 2020 with Gatineau, RVB, Sothys and Nuxe will retain value and will be realised as the pandemic wanes, and the economy improves.

Despite achieving organic growth, our agriculture products subsidiary, AfriNat (Pty) Ltd (AfriNat), had a challenging year. Various factors influenced their performance, including adverse climate conditions, which pushed significant sales into the new financial year. Further, a tough export market and a stronger exchange rate put pressure on farmers’ cashflows, which has had a direct negative impact on input costs for the season. There have also been price delays on AfriNat’s products due to farmers only being willing to secure business at old prices. As a result, revenue was reduced by 3.6%, however, the Company made a marginal profit for the year.

Nonetheless, the outlook for the new financial year is promising. Trial work will continue to broaden our reach into the other major export fruit classes. AfriNat will also be pursuing untapped regions and markets, such as the (north) Northern Province, Gauteng and KwaZulu Natal, and have already started negotiations with marketing agencies for these regions. Another market the Company is growing into is the food processing and preservation pack houses.

AfriNat is a business of the future, as it works with organic and sustainable products that is good for the environment. It is a fledgling business with immense growth potential.

 

RESEARCH AND DEVELOPMENT

There was not much progress on the dendritic cell vaccine project, mainly due to the second and third waves of the COVID-19 pandemic, which prevented work from being done at Groote Schuur Hospital. Now that the risk has been reduced (level 1 at the time of this report), the project has resumed. Genius has registered and maintained generation 3 dendritic cell maturation intellectual property rights in nine regions, including the USA, South America, China, and Europe, effective until 2038. These rights increase the value proposition and moves Genius closer to its goal of developing a cancer vaccine.

Genius is assessing and evaluating many technologies that may assist in detecting and managing COVID-19, from diagnostics tests to antibody solutions going forward. These include rapid tests developed locally and monoclonal antibodies that can be used as prophylaxis and treatments. However, these projects are still being evaluated from a feasibility perspective.

 

STRATEGIC INVESTMENTS

We disposed of our investment in SAAB Grintek Defence (Pty) Ltd in November 2020 for R150m because SAAB exercised a call option on our shares. This was a profitable investment, and the funds received further bolstered our cash reserves. As indicated in various SENS announcements, and despite media reports to the contrary, we continue to hold shares in British Telecommunications Services South Africa (Pty) Ltd (BTSA), as well as Sygnia Ltd. Both add to the diversity of our investment portfolio and yield good returns through regular annual dividend flows.

 

2022 – DIGGING DEEP…AGAIN

If I had a crystal ball, this report would have painted a rosier picture, and I would be able to assure you of a bumper year in 2022. But I do not, so I cannot guarantee that 2022 will be the year we all want it to be. With some confidence, I can, however, say that AEEI and our underlying investments remain resolute in our determination to succeed…again and again for many years to come.

This will require us all to dig deep and continue to play to our core strengths. Despite the slow re-opening of markets, progressive uptake of vaccinations and the development of workable solutions to enact a more inclusive society – the world over and while we can predict certain financial modelling outputs, the pandemic aftershock is far from over.

For that reason, and notwithstanding my unbounding enthusiasm for our businesses and its potential, I am cognisant of the continued uncertainty the future holds for all of us. I am therefore cautious in my outlook and approach. AEEI will remain focused on strategic cost-savings and operational efficiencies in the year ahead, as it did in 2021, and it may also require the disposal of non-performing assets. This will assist in safeguarding the underlying value the Group has built over many years and which we cannot allow to be eroded. Although the future is uncertain, we are prepared for it and take advantage of opportunities as they present themselves.

AEEI has also once again stayed its decision to transition to a passive investment holding company, electing to remain hands-on as required and needed.

The health of our balance sheet aside, we are also committed to the wellbeing of our people, as we recognise that without their contributions, we would not be in the position that we are currently in.

 

GRATITUDE AND APPRECIATION

Eric Hoffer, the author and moral and social philosopher, once said: “The hardest arithmetic to master is that which enables us to count our blessings.” Yet, at this time, I have found that counting my blessings has become easier – many of them have to do with this incredible business and the people who make it work.

If any cloud can have a silver lining, then the pandemic has reaffirmed for me just how important our human relationships are. I started this same paragraph in last year’s report with this sentiment, and the appreciation I feel for everyone in our organisation, our shareholders, partners, suppliers, and more has not waned. If anything, it has grown.

Being the CEO of any company in ‘normal’ times is not always a walk in the park. However, there’s another dimension added when leading a business during a challenging period such as this. I am thus filled with admiration for how everyone has once more risen to the occasion and helped steer AEEI through the mire of COVID-19.

There is something to be said for being in the same boat and all pulling in the same direction, as we have done and continue to do. I have seen it bring out the best in people at AEEI this past 18 months.

To work remotely or not, that was the question this year. First, a series of devastating lockdowns saw many of us working from our homes. Then restrictions were lifted, and we returned to the office, followed by needing to work from home once again. This could have negatively impacted our business, but fortunately, it was the opposite. Notwithstanding the enormous stresses these disruptions have had on everyone’s lives and wellbeing, I have noted a more profound regard and camaraderie among our teams now – yet another blessing – who also continue to deliver their best to AEEI. My sincere thanks to each of you for all that you do. A detailed report on the impact of COVID-19 can be found on pages 7 to 9.

I am, as always, deeply respectful of our Board of Directors, who continue to guide us on this journey and thank them for their insight and counsel.

To end, another quote that resonates is by John F Kennedy: “As we express our gratitude, we must never forget that the highest appreciation is not to utter words, but to live by them.” 

Therefore, this is my pledge to you, that beyond my heartfelt words of thanks and counting each of the blessings above and more besides, I will act with purpose, tempered by kindness, accept the wisdom offered, rise to the challenge, and celebrate each small win, and lead this Company so that together we can continue to create and share value and worth in the years to come.

Thank you.