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AECI annual results. Commodity prices starting to come back

‘Our main focus during lockdown was to conserve cash’: CEO Mark Dytor.

SIMON BROWN: I’m chatting now with Mark Dytor. He’s the AECI CEO. Results to December 2020. Cash actually looking fairly good, just over R3 billion. Heps was down 23% at R8.80, but a final dividend of R4.70. 

I want to touch on that dividend but first, Mark, I appreciate your early morning. AECI over the last couple of years has really been diversifying. There was some cost impact in the early years of it, but that now seems to be coming through. You’re operating in 22 countries around the world. A lot of JSE companies or CEOs get criticised for big deals that go wrong. You’ve done it, rather, in the slow and steady [way] and almost built it up gently to get to a point where AECI is now really a global operator.

MARK DYTOR: Good morning to you and your listeners, and thanks for the opportunity. Yes, …… [inaudible] historically been diversified, not just in different market and sectors, but also in different geographies. And it’s starting to come in and now 42% of revenue comes from outside of South Africa. We are still moving to try and move that to 50%. And that gives us, in times like Covid, when different sectors go down, that gives us that robustness to be able to still continue to produce results despite the pandemic, and pay people.

SIMON BROWN: And you’re making a comment in your results that your mining and chemicals, in particular, were really impacted as much as R3.41 of Heps, which is pretty much what you’re down. In other words, if we could remove Covid – we can’t – but if we could remove the Covid process from it, it would have been a satisfactory year. This really has been a year that has been hit, as with everybody else, but really Covid took the wind out of your sails.

MARK DYTOR: Yes. It’s been challenging for everybody. I think, especially that first half, where South Africa went into that hard shut down and a lot of South Africa, especially the manufacturing sector, just stopped. Fortunately, we had some sectors that were esteemed as essential and that was really around water, agriculture and coal mining. Basically, everything else stopped. So trying times. I think leadership in most of the companies right now have never been tested in the way we’ve been tested in 2020. We’ve had to come up, get your business continuity plans going, obviously come up with innovations of doing things a little bit differently, working from home. And fortunately 90% of our workforce came back pretty quickly during Covid. And of course, we had to motivate them to come back, but also ensure their safety at work, which has been pretty challenging.

SIMON BROWN: In your area, some of your staff can work from home, but obviously the majority actually need to be physically on-site. 

Are you seeing activity levels returning to normal? It’s almost 11 months since the lockdown started – are you seeing normality return in terms of demand from your customers? 

MARK DYTOR: Yes. I think we’ve seen quite a bit of demand coming back in the mining area, and we’ve seen commodity prices – gold, especially copper, nickel in central Africa – those mines are starting to come back. Locally, on the PGMs and gold, those prices have really given them a boost, and we saw some of the results coming out this week from those sectors. And I think that bodes well, because …… additional areas opened those shafts. They said they were going to close and reopen again. So we are seeing those coming back. So definitely the mining sector globally. Australia had been really untouched through the pandemic, so that’s been quite good for us. So we’ve seen that.

Our concern as the manufacturing sector, the manufacturing sector was struggling before Covid, if we are really honest with ourselves. We could see the unemployment was there before. That has come back. If we look, …… in mining and also manufacturing, but not to the level that it was prior to Covid. 

But definitely ……. I’m looking at …… now as well, we’ve seen demand for our products again. There’s been lots of destocking in the markets, and we’ve now seen customers bringing their stocks up again. So it’s looking a lot more positive, but I’m still very cautious.

SIMON BROWN: That’s my sense. I mentioned that dividend up front, and wanted to come back to it – an R4.70 dividend, up 13.5%. I suppose the phrase there shows confidence, although probably to what you just said it shows cautious confidence rather than gung-ho confidence.

MARK DYTOR: That’s right. And I think during Covid one of the major priorities of the management team and the board was really to conserve cash, make sure that we are collecting cash, reduce Capex where we could. And obviously, we also had to destock. So we generated quite a lot of cash, which has ……. And then I think what we’re saying to the market is we are confident that we continue to generate cash, and it’s looking a lot better. And that’s why we’ve been able to pay the dividends that we have. So we’ve rewarded our shareholders.

SIMON BROWN: Mark Dytor, the CEO at AECI, I appreciate your early morning. 

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