AECI Ltd (AFE) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to AECI's results presentation for the year ended 31 December 2022. It is my honor to welcome you this morning to our presentation. You will see during the presentation, we have our executive team that will take you through our results for the past year. They will be made by interim CE, Mr. Sam Coetzer. I would also like to welcome our esteemed Board members who are attending the presentation, both here on location and also online. We can all attest to the fact that the past year has been challenging on all fronts for all of us. But I think what you will see during the presentation is just the inherent resilience that is within the AECI Group when the executives present and go through their slides. Please note our cautionary statement. This is not different from what we had provided at interim. So you can go through it at your leisure. This is the agenda that we will follow throughout the presentation. And as you can see, we will take questions and answers right at the end. So to kickstart this morning, I would like to hand over to Sam Coetzer to start us with the presentation.

Thank you, [ Zanele ], and welcome to all in the room and also those that are online. As you heard, my name is Sam Coetzer, and we use the term interim CEO. I'm not good at acting. So in the meantime, what the interim role is for me is to, not only focus on the day-to-day operations, but I've already started with the integration process of our new Chief Executive, Holger. So in this process, we have our esteemed chairman with me today, Dr. Mokhele, and him and I have been actively busy making sure that, in the next few months that Holger hits the road running. And that is what we want to do. So secondly, I want to thank this incredible team that we have in AECI, especially my ExCo and so many others that are in the room and further abroad. I'm so fortunate to be surrounded by so many capable people. We -- AECI continues to evolve. It's got a proud history that we've all seen over the 100-odd-so years, and it's still evolving, but it does so with pride, resilience and also the focus to deliver the results that it's intended to do. As well have so many companies today worldwide, we find ourselves amidst a strange operating context. But in those challenges that we find those global challenges, there's a vast array of opportunities. And we, I believe, in this company has the ability to deal with those, and we will talk about some of those today. I personally remain excited that when I joined AECI that it has the DNA but more so the right value proposition for our shareholders to be participating in, and to deal with some of the issues that you see on this slide, I think we're well prepared to do so. 2022, obviously, was a very interesting year. It impacted certain of our jurisdictions negatively, but we should not forget the jurisdictions that had some positive growth, and we'll talk about that as well. Even though our operating context has been quite impactful, the learning of this team, this Board and all of us has been swift, and we're going to continue on with momentum. We're extremely proud of our safety record. And this to me is the true testament of who we are. To be in a company where you know that you take care that people go home after each day's work is the critical value that we all should exist for, and AECI has that, and we're going to talk about that. The 2022 results that was released this morning impacted both on our income statement and so too on our balance sheet. It's never ideal to take a noncash hit due to an impairment in one of our businesses. For this reason, discipline in our corporate development, more so in value protection, must be an impeccable value for us to go forward. However, at the same time, we have seen excellent improvement across the businesses in revenue, EBITDA, HEPS, indicating that the core of this business is in good stead. Most gratifying is that we saw growth in new jurisdictions, and Mark will talk about that a bit later. And this will set us up for the future of this company. I believe that this company is robust, and I'm convinced that the team that we have here with the Board that we have and the new CEO that we will be able to achieve new heights. Very few words can describe how heartwarming this slide is, and I had to pause when the team showed me this because this is a testament of how we do business. The how of doing business, I believe, sits at the core of safety for your people. All companies today worldwide define themselves by who they are, and some will differentiate themselves in the field of ESG. We have made that decision to differentiate AECI from many other companies. We do it guiding ourselves and our businesses according to these principles of environmental, social and governance. I'm very proud to see what we've done in water, our water consumptions, our internal drive from our employees to partake in CSI and volunteer. And most of all, from a governance perspective that we have to go for best practice. Those are the essence. That's how we will differentiate ourselves from so many others on the world stage. I'm not going to spend too much on the last slide, except that when I tell you that our businesses are doing well. I'm going to hand it over to the team, so you can hear from their perspective, why are we doing what we've been doing. Thanks. Aarti?

Thank you, Sam, and good morning to everyone, both in the room and online. We really appreciate your presence. It means quite a lot to us and especially support. So I must recognize the Chairman of our Board, Dr. Mokhele, who is with us today and all the other Board members who have dialed in to join us in my first year-end results, which has been absolutely unbelievable. It's such a privilege to be able to present such strong and resilient results that's really reflective of the very diverse set of asset base that we control as well as the prospects going forward. And with that, welcome. I'm so pleased to announce very, very strong revenue growth of 37%, and that's on the back of those high-input prices, but also, again, amongst all the challenges that was presented to us across the business of very, very strong outcome, as Sam had outlined earlier. Also strong EBIT growth of 16%, and our EBIT percentage is flat year-on-year, and that's on the back of the once-off financial losses, which I'll unpack in a bit. That necessitated a trading statement, which we released last week Friday because our earnings per share was lower by more than 20%, and that will be unpacked further in terms of that once-off impacts. Our HEPS have reflected very, very strong growth at 15%, which is, again, reflective of that strong underlying asset base in our business. Now as we continue to mature our capital allocation and our focus on capital allocation within the business, we've decided to split our financial metrics and shine the light on profitability versus the balance sheet items. We guided earlier last year that we would end up with just under ZAR 1.7 billion in organic CapEx spend, we've come in slightly lower than that, and it's just under ZAR 1.6 billion. That's a rounded-up number. And you will be pleased to note that, that is backed up by predominantly growth CapEx. I'll unpack that 61% shortly. Our working capital numbers, this is a very working capital-intensive business, and it is linked to the high commodity prices. Now we also guided that, to the extent that prices remain high and we need to keep our commitments to our customers, that working capital number will be managed. We continue to focus on managing it. You'll see on my focus areas for this year, but it was not expected -- not unexpected at the level that it is at -- right now at the 12-month rolling number. Linked to that is our gearing number, 45%. Not the highest we've ever been but perfectly expected and, I believe, well guided. The Board is pleased to announce that we have declared a final dividend of ZAR 0.580 per share. That is an equivalent of 15% more than last year in the final divi back in the pockets of shareholders. If I move on to those once-off effects, I want to spend some time explaining to you the disclosure and the visibility that we're giving to you on the Schirm business. We've always said that the U.S. is a strong business and continues to meet its expectations. It is growing in both the last year and in the future year's prospects. And we're quite pleased about the investment we made last year in the U.S. business. And you can see the 31% growth in that EBIT number. Very strong and robust business. Clientele is exceptional, and so is the management team. In Germany, during the year, we experienced deteriorating and continual deteriorating financial performance. What we did about that, as we had guided, was we had external help to come assess the situation. And as it was getting further depleted, we guided that we would have to look at the property, plant and equipment on the balance sheet and evaluate with the auditors whether that was reflective of the economic future value-add on that balance sheet numbers associated with the sites. That necessitated some incredibly detailed work that we did and resulted in the PPE impairment that we decided to write off on 2 particular plants off the balance sheet, and that is 1 of the once-off effects. Further, we took the opportunity to assess all the balance sheet items associated with Schirm Germany that we had less confidence in. That included the deferred tax asset, which we do recognzie, and we pulled the trigger on that decision. If we get recognition in tax credits future -- in the future against assessed losses, that would just be upside for us. But we decided to take the conservative detailed approach and took the once-off impairment. At a purchase price acquisition level at the group level, we did further writeoffs, and that's what triggered the Board-level-approved detailed turnaround plan. So if I move into how we're responding to the financial losses that we've taken on Schirm Germany. I'd like to spend some time in sharing with you what we have approved as a Board. Now this turnaround plan is incredibly comprehensive and detailed. But it is not a turnaround plan that is something that is to come in the future. A number of these actions have already been taken, especially the high-priority actions. Some of them relate to revenue -- increased revenue as an example. We have had to spend the second half in 2022 passing on price increases, some of them as high as 60% against contracted clients. And that's where we started that journey. We've completed about 90% of that. We are going into a second round of price increases. And that's because, if you're operating in Germany today, price increases is almost a quarterly exercise with your clients on the back of energy prices and the likes and the prices of -- the increased prices of operating. So that is creating -- we're creating cadence with that, with the team that we're working with. We appointed a restructuring expert who is local, who has worked in the region and has got 27 years of special nursing back to health experience. We've done a number of other moves, but what we'd like to guide you on clearly is that there is a clear profit after tax, so earnings interested in the profit after tax turnaround into positive for Schirm Germany within 20 to 36 months from now. That means -- and that is typical of a business of this size and nature within this region. But that also means that you should not be surprised if we spend in the 2023 year on certain once-off items that are important to shift that ship into a different space. So it will get worse in 2023 before it gets better. And I hope that, that guidance lands well with you, and we can talk about that further in one-on-ones if we need to. On Much, the story is quite simple. It is progressing. It is improving year-on-year, not at the pace that we would like, not at the pace that we expected at the acquisition date, but there are a number of external factors that impact that business, and it is well positioned to benefit in the future. Further [Audio Gap] Are those once-off items which have unpacked for you. Our margins remain pretty healthy. The only callout I want to share with you is, as we had guided in the preclose calls, finance costs are increasing. We're all seeing that in all our businesses as we are in the midst of a rate hike cycle. In our case, it is higher capital numbers because of short-term finance as well, and you see that short-term finance number increase. Now our tax rate is also incredibly high. Our effective tax rate reported at 45%, not the highest it's ever been but fairly high if our corporate tax rate is 28%. The delta, ladies and gentlemen, between those was well expected, and the 13% can be attributable to Schirm Germany and those writeoffs associated that I've just explained. So we're perfectly calm about where these numbers come from and what we're going to do about them. Within the segments, as I said earlier, we have a very diverse set of businesses and lots of assets performing at different levels. So we need to look at these portfolios in very different -- with very different lenses and focus on what we do in different actions for different sets of assets. Some of my colleagues will unpack a lot of that today, and I will leave it there. In terms of our balance sheet, it was really tested across the year on the back of those high-input prices. And the inventory levels that continue to be high, we had guided -- they don't come as a surprise because we've guided that inventory levels will continue to be high if the input prices are high. We have not seen a significant spike in the prices, but we've seen a structural shift in the prices remaining at elevated levels, and that's why our inventory levels are incredibly high as well as those elevated levels matched by that short-term debt, which we had anticipated. It's still a robust balance sheet. Now if you cancel our AP and AR out, you'll see that the inventory levels is what's dragging that robustness on the balance sheet down. And that is simply explained, ladies and gentlemen, by Half 2 numbers, not so much a pricing story as it was in Half 1, slide to a certain extent is the volume story, and that's mostly coming from water, in fact. So the prices are just stabilized at a high level. And to the extent that they drop -- that they do not -- they remain elevated, we will continue to see this working capital. But that doesn't mean that we've taken our foot off the pedal in terms of working capital management. You'll see that, that is also another focus area for the coming years. Our gearing at 45%, we had guided that, to the extent that the prices remain high and we continue to buy raw materials to keep our customer commitments up, the gearing will be linked to that, and that is a short-term finance play. We are within our covenant levels, and we are calm about that. We have initiated a debt refinancing program. So to all the bankers in the room, thank you very much for your support in this regard, and we look forward to the refinancing program for 2023. If we cast our eye on capital allocation from an organic growth perspective, I have to be very clear on that. It's not inorganic, the 61% growth spend that we incurred in the year. Firstly, well guided. We understand where we spend our CapEx. Secondly, especially in mining, matched by either increased market share, which we have already gained on the back of that spend, or increased revenue contracts. So I'm very comfortable that, that money will return within the group's margin levels. On Schirm Germany, we explained this in the interest of transparency at Half 1 that this was the payment associated with the warehouse that was bought on the acquisition as an option. And within the U.S., we had 6 lines completely customer backed by long-term contracts as well. So 6 lines of production or 6 units. Two of the 6 have already been commissioned, and we are already enjoying new revenue in January and February from those 2 lines. The other 4 are still in the process of being commissioned, and the reason for the delay is the rain -- the continuous rainfall in Texas. So we also gave guidance that we plan on spending just over ZAR 1 billion in CapEx this year, also, again, prioritized towards growth CapEx. Now this is a structurally different level and a higher shift in our organic growth investments. But that is an indicator for you that we are prioritizing growth within our asset base and making sure that we can optimize our margins in that way. A very strong divi record, and it's quite pleasing to see that we have a progressive ordinary dividend, and we've maintained that this year. If I cast my eye having chatted to a number of external stakeholders, having sought advice and guidance and views from the external market over the last 9 months that I've spent at AECI, for now, these are my priorities. Of course, we look to support our new CEO once he is onboarded. But for now, our focus areas for 2023 as well is hunker down, get the turnaround plan fully implemented and continue to monitor this at Board level. I mentioned the diverse set of assets. What we need to do is get closer to understanding their returns and try to look at what actions can we take to optimize the returns to be accretive to the group. Working capital, that's a no-brainer. I've spent quite a bit of time saying that, that is actually something that is [ BAU ] and needs to be so carefully managed as an inherent feature of this business. And of course, the capital management and capital allocation policy that we are in the throes of contemplating is also important in terms of balance sheet management. We have committed that we will be more transparent, and we will be more focused on guidance. You can see some of that coming through in our bolstering of the Investor Relations function, and you'll continue to see more transparency and guidance and disclosure going forward as we focus on that. And then we are very pleased that the Board -- at the Board level, we are exploring a B-BBEE ownership transaction. And this is on the back of our old transaction coming into expiry. And that is quite exciting in terms of us owning our social license to operate. So with that, ladies and gentlemen, I really look forward to our one-on-one engagements as we go through the roadshows. But until -- and I'm happy to take questions at the end, but until then, I will hand over to my colleague, Mark Kathan.

Good morning, everyone. Is this thing on? Yes, welcome team. Yes, I just wanted to give you some context of AECI Mining and who we are. We're a business that is involved in explosives, metallurgical chemicals and emulsifiers that's used in the -- and emulsifiers are used largely in the explosive industry. We have about 3,800 people globally. We are extended across more than 25 geographies, and we also supply products to a much larger geographical spread. And that's who AECI is -- oh, AECI mining is. If we just go into a -- and I want to focus on safety. With that backdrop, operating across so many geographies, AECI's safety record sits -- or the mining safety record is at 0.1. And more specifically, the explosives safety record is at 0.06. And what is very important, we're very proud of that record, but we're also humble about it, and we're not complacent. Now that DNA really sets us up to actually export our expertise globally. And that's a differentiator in our market. You have to be safe to operate at our clients. I would also like to thank our team globally for the fantastic results that we have delivered. It's been a record performance. And what we have seen is that, it's not just a South African business, but it's a business that has had fantastic performances, be it in Australia, be it in Central Africa. We have delivered as we have planned to deliver. Now a few years ago, we went -- we undertook, and that was in 2019, we undertook a realignment project. We looked at our costs. And if we go back to 2019 and we fast-forward now to the 2022 result, from that restructuring process, we've actually delivered and, we've more than adequately delivered in the market from the result that you have seen. Our revenue has grown by 51%. 67% of that revenue is sitting outside South Africa. What that tells us is that -- and most of that revenue of that 67% is in hard currency dollars. So yes, our average rand dollar rate has largely remained the same through from last year to this year, but we do have exposure to the foreign currency on that side. Our growth has come out of great exports out of our mining chemicals business. When we go out of COVID and a much lighter supply chain during the course of the year, we had been able to secure ships and export our mining chemicals outside South Africa. Our revenue is also underpinned by higher ammonia prices, higher crude and nitro prices. I mean, we've seen ammonia on average in rand terms have increased by 116%. And typically, what happens when you have raw materials increase at 116%, your working capital goes up. So our working capital has gone up in line with our global peers, but it has been very tightly managed. So our next step from working capital is actually have discussions or we have started having discussions with some of our customers. We have decided to actually prebuy working capital. So hopefully, in the next half of the year, you would see a much stronger managed working capital, not only just ourselves but together with our customers. Our results, 29% up in EBITDA, 36% up on EBIT. And our EBIT margin at slightly lower 10%, but that is largely due to the increased ammonia prices that we have seen that has diluted that part of our result. If we look at our revenue and we look at the spread of revenue that we've had, our spread is sitting and sitting largely in coal, in platinum, or PGMs, and also in the copper side. Now our coal has been driven by growth in Asia-Pacific, largely in Australia and in Indonesia as well as South Africa and PGMs driven by our mining chemicals business. And what we have seen in copper more specifically in Central Africa and in Botswana. We've really made some good gains in those areas. And I'll unpack the results as I go into various regions. Just on a CapEx investment, we have invested in capital across the world outside South Africa, in Australia, in Botswana. And now we're looking at putting some CapEx down and putting up a bulk emulsion plant in Chile during the course of the year. What's important about CapEx is that -- and exactly what Aarti said is really to focus on value-added CapEx and a lot of this is around organic growth. Typically, when we spread or when we enter new jurisdictions, we enter those with our customers -- on the invitation of our customers. That's why safety is so important to us because our customers see that we can operate safely on their mines, and hence, they bring us in. And that's -- and we're seeing that more and more on a global basis. If I just go into our results, and I'll start off with metallurgical chemicals. They had fantastic results on the back of volume growth. We've seen a 7% increase in volume growth. Our manufacturing assets have been debottlenecked. We've got the efficiencies up. And we've taken all their product that we've made, additional product compared to last year, and we've been able to support our export markets with that. And there's still more to come. So the efficiencies, we are still tweaking those plants to deliver. As I said, great exports into Africa and also into Eastern Europe, especially around our metallurgical chemicals. Emulsifiers had an equally good year, 3.2% up, but that's really grown on the back of our explosives volumes. Shipping has been a constraint, but we've got an efficient supply chain team. They're a global supply chain team that's able to source product and also manage efficiently to get products to our customers. And hence, in some cases, we had to buy prebuy some product and hold it in working capital. Explosives volumes up. Overall volumes up by 4.3%. Unfortunately, our initiating systems, which was impacted by a gold mining strike in the first half of the year, we dropped off at about 2.6%. However, I must say I'm really proud of the results that we've achieved. In South Africa, our explosives volumes to explosives customers was up 9%. And that was largely on us going back, being invited back into the Northern Cape by a major iron ore mining customer, and we deployed on time in that area. Our electronic volumes, that's grown by 30%. And that's really supporting the digital theme that our customers are going down. So in time to come, we are really focusing on electronics, and we're going to see a lot higher growth going forward on that. We've got good market share gains in Australia. We spoke about the HVO project in the first half of the year. We've deployed well, and that project has more than delivered to our expectations. And in future, there are more projects that we have signed up in Australia. Botswana, we've deployed on those mines -- on the copper mines. We've deployed timeously, and we have seen the growth of that. And that is only a 7-month result that you're seeing in those numbers. And then Brazil. That's in America. We entered Latin America. We closed off the Dinacon acquisition a few years back. We were -- COVID impacted us, and now we are starting to get invited in the Brazilian market by major mining customers into tenders, and we've already started supplying product into Peru and into Colombia. If we just look at the outlook of mining, as where I see it going or we see it going, we think that there's going to be some positive development for us in Europe in the mining chemicals side. Central Africa, and our focus is on Latin America on mining chemicals and explosives. Latin America is of interest to us. Hence, we have started a project in Chile. I spoke about that in the first half of the year. The plant is about 90% technically complete. We've secured the land, and we're ready to deploy the plant in that region. We've got strong momentum coming in Asia-Pacific. Oops, I didn't go forward. So we've got strong momentum coming in Asia-Pacific, more specifically in Indonesia and Australia, and it's looking very positive. And there's some great projects in the pipeline, and some of them have already been secured. West Africa, we gained a good project. We haven't seen the annual impact of that project yet. It's with a major global mining -- gold mining customer. So that's fantastic. And Southern Africa, we are back in the Northern Cape, and that -- we'll see the annualized impact of that during the course of this year. CapEx. There's some really interesting CapEx projects. And it's not just around bulk emulsion plants going in and around our detonator technology. It's also around some of the green -- the greener technologies that we are moving through. We have launched our power boost. We've put a lot of R&D into that. So there's some CapEx that's in there. And then around our plants, our operating plants in Modderfontein, there are some greener solutions that we are putting in. And hopefully, we can demonstrate some great value and more specifically in the second half of 2023, and that you'll see coming through, and we'll talk about that at the half year. Commodity price trends. Now what we have seen is that we have seen a bit of a falloff in commodities in recent weeks. But I think, at the end of the day, they'll still remain at a fairly high level going forward, and we hope to benefit on that -- from that and also on some of the newer mining projects that are coming up globally. That's mining story. I'd like to call up Dean to talk about water.

Good morning to everybody and all of you online and our esteemed Board members as well. We put a title here, strong revenue growth and sales mix impact on margin. And it summarizes everything that I will speak about this morning. It's a psychological thing for us and the team to hit that ZAR 2 billion. We've been kind of stung over by the ZAR 1.5 billion with ups and downs accordingly. But now there's been some growth and some revival. And it's not only in the public water exports. I'm pleased to say it's also in our Industrial segment, and that's now starting to also, through market share gains and through all the hard work that we put in over the years, that's starting to now realize. For the last few report backs, I've been giving negative news on oil and gas. I think it's the first time I can say this is -- we bottomed out last year, and it's good to see that now, through market share gains, both in South Africa as well as on the East Coast, that we are now seeing that to lift, and we expect that now to continue with the projects that are in the pipeline. The other area we spoke about, which I often refer to project purpose or sustainability projects, great to see that's now starting to take off. So this past year, we recognized about 6% of the revenue came from those projects and only because some of them weren't completed or the customer delays, but there's still 2% or 3% that we will see that was actually material for 2022 but will be coming into the '23 year. That's notwithstanding some of the other exciting projects I will talk about on the outlook. I think our biggest concern, and if one [ arms ] call it, lessons learned, and it was hard, but it was how you come out of it. During half year, you can recall, we were behind the half year results, and we had said we expect to see a gain. But -- and we were on the momentum, and I must say truly Quarter 4 really started showing us where we are, and we started the same this year. But we had to take a decision towards Quarter 4 in our mining in Central Africa on our route-to-market and pressures from our major customers that have substantial growth opportunities for us in terms of localization. So we had to then restructure that division and all those costs associated with reestablishing a -- and that actually slowed the results, I would say. Taking that impact, we would have had a gain in EBIT as well for last year. But that's setting up us very well for next year. I think the public water, as we've said, it's been a remarkable story and continues. Every year, we think it will stop, but it doesn't. And so we have a significant share in South Africa, but we continue to convert the continent from basic aluminum chemistry to more scientific and organic and greener chemistries. And that, as we say, there's a couple I won't be able to talk about yet, but we're doing some trials in East Africa as well as West Africa, and that just keeps going. And I think the important thing is, like the mining, it takes quite a lot to work there, and it's quite challenging. So there is the impacts of credit risk, which we are also a little bit cautious of, and so we don't sometimes go in as hard as we should, but I think the opportunities are looking fantastic. So one of the things that we had and we had mentioned at half year was the rate of change of cost increases versus our big contract customers in all sectors, public water, mining and industrial. And traditionally, these larger customers are topped in on a 6-monthly pricing. We have negotiated to try and reduce that. Some have written, but there's some extraordinary items that we've managed to agree that we will have -- add up price adjustments. So that's now why we are a little bit more confident, and I will elaborate on my next slide that we've burned a bit this year, but it's not to say that we're out. We're actually there. And once you have that ZAR 2 billion, you can just now change the quality of earnings, and you can do the numbers, and you can project what kind of a year we're looking for, for water going forward. Our biggest thing was the working capital. And our major customers through that pricing craziness that happened last year, they needed some settlements. So on especially the public water, our major water customer had asked us to give a fixed price from November to May this year with the product, with the raw materials secured. So we had to bring in the product on that, but it also has come in at an improved margin, improved profitability. So we will see that in H1 this year because we had to. They just couldn't take these pricing fluctuations to such an extent. And I think one knows when you start talking pricing in excess of 25, you need treasuries approval, which can take quite a long period if you have to do that. So we secure the thing, but we have an order. So that working capital impact will reduce significantly in H1 and more so through the rest of next year. So I would have loved to have shown the EBITDA growing at the same time as the revenue, but again, I think we're confident that, in 2023, this will not be the case, and we will certainly see the quality of earnings going to what we more guide you to. So what are we thinking about next year? I've spoken about the base of earnings, and we have to improve that quality of earnings. And we are working, and we've structured the team slightly different, especially with our strong focus on commercial, procurement and price implementation. And I think you have to get this structurally different because this will come up and up again. So we've done that. And we think that's going to help this year, certainly 2023. The pipeline of projects, some of them we did delay because we had to fix the base up significantly. So we pushed out some projects, but they're already in there. And it's in all the sectors. I'm pleased to say we're not just talking about a mining sector or a public water right through the spectrum of our business. The water sustainability initiatives. I wish I could make an announcement today, but I'm sure we will soon by half year of one of our major gains that we have in water sustainability in the public water space, where we will now be supplying water to a municipality, and it will grow from there. The big thing about these engineering projects, you've got to get to a level of approval, and we're now part of the game. And that sounding really exciting for myself. I think we've also said we had to continue to reinvent ourselves. We have to continue to bring new products and technology. Glad to say 3 of these technologies have been adopted late last year by the market, and we expect those gains to come into 2023. But more so, they are -- from the pipeline, they are a lot more exciting, cleaner, sustainable projects which the market really seems to be pleased with. So from my side, I believe it was quite a tough year for 2022. But I may have said it before, but this year is going to be a year for Water, and we really think that the growth is going to come and come up nicely. Thanks very much.

Good afternoon, everyone, and welcome to our results presentation, to our Board members and to our Chairman and all of those on the webinar. It's a privilege for me to talk about the Agri Health business. I think we've had 3 splendid years in a row, which I'm very grateful for. So well done to Quintin and his team. They put a lot of hard effort in, and I think the results are there. So what I'll do is I'll just take you through some of the strong highlights, which are quite exciting. Revenue up by 19% to ZAR 4.9 billion. That's a record year. So we never hit these targets before. Also encouragingly enough is the EBIT up by 20% to ZAR 306 million and of course, EBITDA up 19% to ZAR 335 million. And really, of course, the result is due to the sustained higher commodity prices. We've seen it in all of our businesses. But more importantly as well is that there's been very strong demand for agrichemicals in South Africa. We know that the agricultural sector has been strong and performing very well. Of course, that's also on the back of the favorable climatic conditions. I think we've all seen the rains that we've had over the past few years. And of course, these have attributed to strong growth and confidence in the sector of the market. And then, of course, I always talk about our in-house formulated products, and of course, these are our more profitable products and also our export sales. And our business in Malawi has also done relatively well under the circumstances. We've seen good growth in that region as well. We've always had the strong strategy of in-house formulated products, which we have now really been executing on, and you can see those sales have grown from 35% to 37% of our revenue, which is very important. And these are obviously products that are more greener products and are really effective in providing a holistic solution to the farmers. I think the other important thing is, is in 2020 and 2021, we increased our capacity of our synthesis plant out in [indiscernible], and we've seen the benefit of that as well. That plant hopefully will be sold out fairly shortly as well. And of course, the expansion of our Biocult facility down in Cape Town, that was a little bit delayed because of rains that we had back in 2021, but that expansion is now largely complete, and we're ready to supply that product to the market as well. One of the challenges, again, was the working capital, which all of our businesses experienced in the past year as well. So that's up by -- from 15% to 17%. And that's really on the additional inventory that we've been stocking as well. But fortunately, which is the important thing, is our debt collection in this business was very, very good as well. We've got to make sure we get paid. And of course, that good, solid cash generation of just over ZAR 300 million. So the outlook for, obviously, the agri business, I think we continue to focus on the margins. And as we grow our in-house products, we should see that effect coming through. You heard Aarti speak a bit earlier about Schirm. So again, there's strong focus. We made some strong decisions in terms of the turnaround plan as well. And I'm sure we'll see the impact of that. I can tell you the U.S. business is quite exciting with all the capital expenditure there as well. I talk to [ Chad ] a lot because we have a lot of projects that we're working with the U.S. with our agri business because we want to expand our product offering from our South African business into the U.S., and it will make sense in the future to produce those products in the U.S. rather than produce them in South Africa. And even on our specialty chemical side, we're working with some nice high-performance additives, which are used in the road construction market. And these, again, can be produced for us in the U.S. market because the services from South Africa is quite a challenge. So volume growth, looking at South Africa, again, if you look at our distribution model, we are probably still the largest -- we have probably the largest distribution chain for agrichemicals in South Africa, and we plan to expand that again more as well as, as I said, working on the in-house products. And of course, largely, we know that the demand for food is growing. Food security has become a big issue, not only in South Africa but globally, and we'll make sure that we are on the forefront of being able to supply to our agricultural market. Right. And then on to the Chemicals business. The Chemicals business, as you will recall, is the 3 business's specialties, industrial chemicals, food and beverage. SANS Fiber is our operation in the U.S. and of course, our Much Asphalt operation as well. Again, revenue, we've all seen the benefit of revenue up by 32% to ZAR 8.52 billion. EBIT a bit under pressure, as you can see, down 4% to ZAR 562 million. And I think that's really largely due to obviously pricing the high commodity prices, which I'll unpack now as well. The one big contributor or the one big challenging business for us last year was our industrial chemicals business. And also, we had quite a few supply constraints as well on our LABSA, which is our main raw material for our sulfonic acid for the detergent market as well and, of course, the muted road infrastructure spending in South Africa, which we're hoping to see a turnaround this year. And of course, the margin was influenced significantly by these raw material prices. I mean, we saw sulfur prices going from $80 a tonne to $580 a tonne, and I'll explain that impact on the next slide as well. Of course, working capital also slightly up in this business, but you've got to have stock to sell it. And again, I think, particularly in our specialty business, we saw the benefits of that. And as you can see, we all know that these businesses are very good cash generators for the group as well, which is quite important. And we continued to deliver cash last year as well. So I thought I'll just give you a little bit of insight on the various businesses because there is a lot in the chemical portfolio, Specialty Chemicals performance we said was a pleasing performance in revenue and EBIT, but I think it was more than pleasing. I think the revenue was up 37% and the EBIT up 48%. And really, where this growth came through was on our oleochemicals business, our personal care and home care, and we even export some of these ingredients up into East Africa as well. And of course, the coatings and the construction business did very well for us as well. This is a nice combination of high value-added products where we own a lot of the IP. They are traded products as well as products that we manufacture as well. Industrial Chemicals. There was a good side of that as well where we grew the traded product portfolio, which is nicely. We trade a lot of products out of our China office as well, which has grown significantly in 2022. But the real challenge in the business was the high sulfur prices. As I said to you, those prices rocket up. So we had some very expensive stocks sitting about midyear. All of that stock now is out of the system. We benefited now with the taper down on the sulfur prices. Fortunately, we've been able to hang on to our contract formulas, which we have in place with our customers. So what we really saw in this business was we held on to rand margin but not on to the percentage margin. I think that was a bit of a challenge, and that's been delayed over. So we should see the benefit in Quarter 1 as that rolls through. Our food and beverage business, again, demand for food in ISAP, revenue up by 15%, and again, strong growth in our food ingredients. Most of these products come out of Europe and China. And of course, our beverage business, which is up by 11% as well. Perhaps you would have recalled in the half year last year, we put in some new clarifying equipment out of Italy at our beverage plant. We spent about ZAR 30 million there. That was all successfully commissioned on time at the end of October. And really what this product does is it really assists us with sourcing cheaper juice to put through the plant from a color perspective as well. And it derisks the supply chain because what we've noticed particularly in the beverage industry, our supply chain from Argentina now, it used to take 30 days to get to South Africa. It's not taking 90. It's going by the Suez and down there. So these have huge impacts on the business, but I believe there's a very good value proposition for the beverage business going forward to clarify the juice as well. Right, on to SANS fibers across to North Carolina. And again, if we have a look at that business, the polyester market was strong for the first half of last year, and we saw the benefits of that here. Our EBITDA did taper off in the second half of the year. And that was really based on the fact that a lot of the big apparel companies were quite overstocked, and they've been working that stock out of their systems now. So we saw that softening in the second half of the year. Also, the nylon products, there was less demand for nylon last year as well. But there's a couple of good, exciting projects that we're working on at the moment with sustainable raw material inputs, and I'm hoping -- well, those should come off there by the second half of this year. And then, of course, the high labor costs in the U.S., as we all know. There's no unemployment in the U.S. And we had some real staff labor challenges, which impacted the wastage, but I think a large -- this has largely been sorted out now. I think the government grants have come to an end in the U.S. So people, I think, have realized now they have to actually go to work to earn a living. So we're quite optimistic with the outlook for our farmers' business for the coming year. So just a quick outlook for you. I mean, capital release, of course, we know that, and we are really focused on our working capital reduction now because we're starting to see an easing of quite a lot of products in the market. We are very cautious to make sure we don't get caught with the expensive stock because that's quite a key element in terms of trading. And of course, the cash generation, which is a key focus, and it should again -- well, the focus will be on that for this year as well. Again, we continue to look for new agencies with South Africa. AECI is still a very sought-after company to represent some big global manufacturers, and we picked up a wonderful agency in the food industry recently taken a while, one of the biggest starch producers in the world and will start to represent them. And then, of course, retention of our business at our existing customers, what we did last do very well, I think, in the chemicals businesses is we grew our product portfolio offering to our existing customers, and we're going to make sure we hang on to that this year, and we grow from that base going forward. And of course, as I said to you, the beverage plant has got to deliver up this year, which will have a solid impact on the food business. So overall, I think we're ready for 2023. And I wish my team the very best and thank them for all their efforts. And Sam, I'll hand over to you now. Thank you very much.

Thank you, Dean. Next week, we'll be celebrating not just us, the world and AECI International Women's Day. And the reason why I want to use that -- talk about that is I want to use an analogy. I think all of you must have watched this weekend's cricket game between the 2 female teams, Australia and South Africa. And the reason why I want to mention that is that like we were caught off guard with the Schirm and maybe had an LBW, we still have a fabulous few wickets ahead of us. And that is what this team is about. So we still have the ability to differentiate us on so many fields. We have the ability with this team to grow. We understand how we now fit in different jurisdictions. So I'm very excited that, even though I'm -- be the interim CEO to hand over to Holger very soon, and we're focusing on that. Once Holger arrives here, I'm sure you all find him as complete for this position as the rest of the team has been. So thank you for listening to us, and we're going to go into some questions and answers. If there aren't any, we'll see you at lunch around the table. Thank you for joining.

Thank you, team. Thank you very much. We'll take questions now. So we'll take on the floor and then online as well. So we'll start on the floor.

Steph Erasmus from Anchor Capital. Just on showing turnaround costs for 2023 and then also the tax rate, could you maybe just give us a little bit of guidance on that?

Yes. The once-off costs will relate to -- well, the reason I don't want to give you detailed guidance even though we have that detail in is because a number of those costs are subject to negotiation. And so I don't want to have to share that out in the market from a negotiation perspective. But in effect, it will definitely -- well, to help the tax rates as effective tax rates go. And we'll just have to keep you appraised as and when these costs are incurred. You will see some of them at half year, and we'll do our are very, very best to be able to be as transparent as possible within making sure that their turnaround plan remains as successful as possible. When we have conversations with the turnaround management team, the guidance to them is whatever is the most commercially feasible thing to get the job done within ethical and legal bounds but whatever is most commercially -- there's no egos here. There's no drama. We just want the most commercially feasible outcome. So I hope that helps you with guidance.

It does. So -- just can I assume that all of those turnaround costs would be allowed for tax deduction?

I'd like to push for that. I'm not sure of the detailed intricacies of them because they are different categories of turnaround costs. In the main, I'd like to say yes, but I mean, I can always come back to you on whether there are material numbers that will affect the effective tax rate. Will we have material numbers the way we have right now? I'm not sure if the once-off costs will do that like we've seen in the 13% in 2022 because it will be spread out as well.

And then just a question on depreciation and replacement CapEx. How do you think about the replacement CapEx relative to depreciation? You've got ZAR 600 million in replacement CapEx but your depreciation is [ 9 5 6 ]?

Yes. In broad strokes -- and Mark can help me out here, in broad strokes, what we've traditionally done is we've looked to match the depreciation and keep it as stable as possible. You will see that we have spent a lot more. Some of it due to the COVID constraints and some -- and therefore, catch up in '21. But actually, the rand value has increased a lot more, and that will follow, obviously, in the depreciation profile going forward. What we're trying to do is guide you in terms of what that CapEx number is so that the translation does not surprise you. Mark, do you want to add to that on maintenance?

Steph, you have to strip out the North American CapEx that we're putting to Schirm because that was a value-add CapEx. So that was close to ZAR 500 million. Strip that out, you're going to come quite close to your depreciation number. Okay?

And that's like in between replacement and [indiscernible]

So we are going to spend money on value-added CapEx as that's going to take us above depreciation.

That's a -- okay, I understand. And then just lastly, maybe for Dean on the Water side, those margins, I mean, top line growing nicely. Can you maybe just unpack -- I mean, is it the government work that's coming on and with pricing pressure, how is it -- how does the negotiation work? And I mean, are we going to see -- my concern is just that we see top line growing and margin not keeping up? I mean, is that something to be cognizant of? Or do you think?

I'm glad that question has been asked before. So yes -- no, the once-off negative impacts in terms of the margin erosion for 2022 were not a norm in that it was the cost shift and cost balance and the catch-up. So costs were running 3 to 6 months ahead of selling price implementation, hence why the margins had got eroded. But if we look at -- and I think I've guided our target ambition is always to get the EBIT margin in the direction heading to north of the 10. And we certainly see that happening this year coming back, not to what our full ambitions because there's a recovery period. But one thing I can also add is that, in our sustainability leg of our growth strategy, those margins are higher than our envisage trading profit ratios. So that will also, without any additional selling admin or technical costs, will add [indiscernible] and if I even talk about the quality of earnings in the public sector, you know with these tender businesses, we have places and pricing where we were going. We will not sacrifice the win. This was -- the impact last year was in maintain contracts that we have. And you do know in a major one, we are sitting with all the market share as we speak.

Thank you. We can take a second one before we go online.

[indiscernible]. There's a force majeure on ammonia in the country at the moment. Are you receiving consistent supply? And how are you managing -- are you managing the ammonia supply into your business at the moment?

Okay, I'll stand up for this one. It's a tough question. So we are getting ammonia from our biggest supplier. You must remember the force majeure relates to a TFR issue. And for now, we are getting [ billets ] in. However, not enough. So what we will have to do is to supplement the shortfall with imported ammonia. Okay.

I mean, do you have the rail capacity to import ammonia and get it to your plants? How does that work?

Yes. I believe that there will be rail capacity in at the time when we need it. And we're also looking at possible road infrastructure that we have that we are collaborating with our supply of ammonia.

And then maybe, Mark, another question, which is maybe more on the positive side, I see you talking about market share gains in the Explosives business. Is somebody dropping the ball?

Yes, I think there's a bit of both. I think some of our competitors have dropped the ball, where we were able to step in at very short notice. My executive for Southern Africa is here. She went up to the Northern Cape to go and sort that out for us. And there's some market share gains. We're not shy about it. In Australia, we have been able to gain some good market share. And unfortunately, I did say in the commentary that we did lose some market share in West in Francophone. We had -- but those issues have been sorted out. So we look positively ahead in Francophone going forward.

Okay. Okay. Thank you, Mark. We have an online question for Dean Mulqueeny. Are you able to share the costs of the route to market restructuring in AECI Water?

Should I use Mark K.'s turn? Do you want me to answer that?

Yes.

So just to guide, without it, we would have been between 3% and 7% higher profits this year.

Okay. We've got another one for Mark K. What is this targeted working capital to sales from current levels of 19%? Could you provide guidance on expected contribution from capital projects in the year ahead? In the Mining sector, what is the annualized impact of new volumes won in 2022 and into 2023? So it's 3 questions in 1.

Yes, let's just go through the -- from the capital project. So we have given guidance on capital projects around a 22% IRR. So the value that we gained out of those capital projects have all met that, okay? So I have not split the volumes between how profitable the new volumes were and what we've lost, et cetera. So if I can tell you, we are getting full return for all the capital that we've put down, be it in Australia, Ghana, Botswana, and we hope to get that when we enter Latin America. What was the next question that I haven't answered?

[indiscernible].

No, I've answered that, 22% IRR. I've answered that.

So I think you've answered everything.

And just on the working capital, I think that was the last one. So the working capital is a target. We ended on -- in mining, we ended on 18%. We hope to be about -- and my FD is here. I hope to be about 16% by next year and going down. It's -- we are -- and I must stress this. We are in uncertain times around supply chain. Dean was here from -- would represent global supply chain. They've moved away from just in time. It's now just in case. So we have to stock up. If we want to remain relevant from a customer centricity in the market, we have to keep some stock in place for customers, and that's what we have seen, especially in the second half of the year. Okay.

Okay. We can take on the floor as well if there's any more questions. There's one.

[indiscernible]. Just an easy question about 60%, 65% of total revenues from the Southern Africa Customs Union, any indication what percentage of that segment or total revenues from South Africa alone?

Good question. I did see that in the financials -- sorry, so because it's all mining, if you look at the group -- well, you'd answered that because most of -- the majority of it is mining. I think if you strip out Zimbabwe, Namibia and Botswana out of that, you can reduce that by another ZAR 1 billion.

Anything else in the room? There's one more in line. Cheryl our Company Secretary will read it out.

There's 2 questions from the webinar. First question on [indiscernible] Capital. Can you please expand on the guidance for Schirm Germany? Aarti provided "It will get worse before it gets better." And the question is against what number is this referenced, operating cost of 2022, including or excluding impairments?

Cheryl, I would love to give you exactly the -- to-the-cent guidance, but unfortunately, as I said to -- as I explained earlier, the costs would -- can be in a range, okay? And I actually have got scenarios that are so detailed that range between matching last year's EBIT loss and improving against it as well for 2023. It's a matter of us staying close to each other in terms of -- which I'm sure we'll do, Cheryl, in terms of sharing with you the once-off costs and the progress that we have against this implementation plan. I can't disclose exactly what that range would look like, but I've got scenarios for both sides of last year's performance. The time line is 20 months to 36 months for positive earnings contribution to the group. That means after-tax earnings. So I think those are the important points that we can share.

Thank you, Aarti. We then have a second question, and this is from Paul Whitburn from Rozendal. His question is, how does the Board intend to unlock value at AECI? Would you consider a breakup of the company, selling AEL to Orica or a peer? Using Orica's long-term rating of 8x EV/EBITDA, you could achieve ZAR 140 per share value, assuming all debt goes with AEL. AECI will then have a South African business generating between ZAR 1 billion to ZAR 1.4 billion EBITDA and debt-free trading at 4x EBITDA or ZAR 50 per share. The gap from the current share price to ZAR 190 per share is vast. I hope the Board has realized that the group will not acquire its way into creating value for shareholders. Thank you.

So if you want to -- I think it's more a comment, I suppose, and as an Executive Director on the Board, I'd just like to say for as many beautiful scenarios like that, I can match that with hundreds of other desktop scenarios of that nature. I think our focus is to be -- to put our heads down, create focus in the environment, perform our duties in accordance with the regulations that we are subject to but also in accordance with what makes commercial sense. Unlocking value to me means maximizing the profits and the value creation for shareholders. And that means the kind of portfolio analysis that we've been already in the throes of in very, very short order.

Thank you, Aarti. Any more questions in the room? All right. I think that closes us off on a very good note. Thank you, everyone. We've got lunch, is served outside, please help yourselves before you get into your journey. Travel safely. Thank you, everyone, for coming.