BUILDING TOWARDS OUR VISION 2020 VISION

In the 17 years since listing, AEEI has deservedly earned a reputation for transparency, ethical business practices, good corporate governance, empowerment and transformation.

The financial market has come to accept and has lauded our name change and new branding – a process highly publicised from April 2015 onwards. The striking AEEI brand, still in its infancy, is becoming firmly rooted in the market place and is known to be the brand of a Company that is growing into a business “powerhouse”.

EXTERNAL AFFIRMATION

I am filled with great pride at our most recent achievements and it is a great honour that AEEI was again bestowed the Most Empowered Company and the Most Empowered Management Control Company of the Year by Empowerdex’s Top 100 Empowerment Companies Awards ceremony in October 2016.

We were also ranked 10th in the Financial Mail’s Top 20 JSE listed companies for financial performance in 2016. No other listed or black economic empowered company has ever received all of these prestigious business awards for financial performance and transformation in one year!

“Productivity is never an accident. It is always the result of a commitment to excellence, intelligent planning and focused effort.”

Paul J Meyer

In addition to this, we received the Highest Sustainability Data Transparency Index Score – Financial Services Sector by the Integrated Reporting Assurance and Services for governance and transparency in 2016.

Admittedly, AEEI’s status as an award winning empowerment Company has resulted in an upsurge in the number of corporations, large and small, local and international, who have expressed their interest to become part of our innovative business.

In addition to the awards received, the Company’s steady growth, value creation and high focus on implementing its strategy, unlocked new deal flows and create a more exciting and confidence-building environment for all our executives and staff, who are at the forefront of growing the various business units with the Group.

“Excellence is the gradual result of always striving to do better.”

Pat Riley

EXCELLENCE THROUGH FOCUS

The South African economy experienced a turbulent year with the recent slowdown of the economy as a result of external factors beyond our control. Depressed commodity prices, the drought of 2015/2016 experienced in the agricultural sector resulted in the price of wheat and staple foods skyrocketing. Together with the country’s political environment, local elections and economic volatility, we are unfortunately faced with the reality of contemplating a downgraded economy.

Without being distracted by the above challenges, the board of directors and executive management teams have been focused on the execution of the Vision 2020 Vision strategy.

Some of the Group’s focus areas include but are not limited to:

  • Stimulate economic growth;
  • Grow our business through organic and strategic investments;
  • Improve shareholder returns;
  • Improve shareholder satisfaction and return on investment;
  • Provide and maintain high-quality infrastructures;
  • Train and develop of staff and transformation;
  • Comply with laws and regulations;
  • Develop socially and economically; and
  • Create awareness of our carbon footprint and our environmental impact.

Detailed information regarding our material focus areas can be found in our common vision and objectives.

As a result of the implementation of our strategy, the Group is on a positive trajectory to further improve financial performance year on year, thereby driving sustainable returns for all stakeholders over the long term.

A detailed description of the progress made in terms of Vision 2020 Vision is in our 2016 strategy and Vision 2020 Vision.

WHAT SETS AEEI APART FROM ITS COMPETITORS

I wish to highlight eight of our most significant key areas that set us apart from our competitors:

  • Diversified business portfolio;
  • Hands-on approach in our business development strategy;
  • BEE partner of choice;
  • Solid empowerment credentials and return on investment;
  • Successful financial track record and excellent business reputation;
  • Strong management team and experienced executives leading our business units;
  • Rated as one of the JSE’s most transformed companies; and
  • Vision 2020 Vision strategy, implementation plan with clear, short-, medium- and long-term strategies.

A detailed list of what set us apart can be found in our investment philosophy.

OUR STRATEGY

AEEI is a business built around excellence and everything we do is done by design, rather than speculation or chance. Our values and Vision 2020 Vision strategy determine our actions. Our guiding principles of custodianship means that we integrate social, governance and environmental priorities alongside the financial performance of the Group.

The focused implementation of our Vision 2020 Vision strategy within the Group has already shown its benefits by achieving key performance indicators which include, among others, an increase in revenue, total assets, operating profit as well as increasing operational cash flow and NAV. Refer to the chief financial officer’s report for a detailed outline of our results.

I am nevertheless pleased to announce that we have exceeded our growth targets for the financial year.

Our strategy allowed us to continue to create value for our stakeholders by focusing our energies on four strategic objectives:

  • Growth;
  • Value creation;
  • Employees; and
  • Brand.

Further details are provided in our business model.

To build on this, the Group has been on a focused acquisition trail to give our current investments more scale and scope, while managing and mitigating risks related to global uneasiness by reducing debt, costs and growing revenues. This includes being mindful that our BBBEE credentials and other competitive advantages are constantly improving.

ROBUST PERFORMANCE

Our diversified investment portfolio includes food and fishing, technology, health and biotherapeutics, events and tourism, as well as our strategic investments, which have all shown remarkable growth during the year under review.

This growth in 2016 has set the stage for further potential acquisitions predominantly in the food and fishing and the technology divisions as well as strategic investments, as we continue to build on the strong performance from our existing operations and investments in reaching our future objectives.

Due to our consistent growth rate, the food and fishing and technology divisions are becoming attractively scalable and the likelihood of separate listings are becoming more of an option in the short to medium term, subject to market conditions.

REVIEW OF OUR INVESTMENTS

OPERATIONAL INVESTMENTS

Food and Fishing

Premier Fishing delivered significant growth with revenues increasing by 15% to R401m (2015: R349m) and operating profit increasing to R75m (2015: R68m).

The food and fishing division continues to grow consistently year on year and achieved this success through an efficient, robust and dynamic operating platform, able to adapt to changing global economic environments.

The Board of Premier Fishing and their executive management team have a strong focus on risk mitigation (see food and fishing), while driving their strategy, operations, finances as well as sales and marketing within their division.

The food and fishing division’s revenue is diversified through product and customer location in the USA, Europe and the Far East to mitigate against global risks. For the current year all their product offerings contributed positively despite the turbulent global economic trading conditions.

Their strategies to create further efficiencies within the abalone farm, such as the renewable energy project, which was successfully commissioned in 2015, as well as the reworking of its operational processes, have started to show positive returns.

Because of this, the division generated a significant amount of revenue from exports and the foreign exchange rate variations make this division a stable investment with strong growth potential.

The food and fishing division continues to drive the upliftment of fishing communities by investing in and assisting with finance, administration and infrastructure, as well as commercial, processing and selling activities. As a result of these community-based projects as well as working with the Office of Safety and Quality in Health, the food and fishing division has seen a further increase in its market share in these sectors.

In achieving their Vision 2020 Vision strategy, the food and fishing division continues to build a platform for one of their key focus areas, being the separate listing of this division. This would unlock accelerated growth potential, which should consequently create shareholder value in line with AEEI’s investment philosophy.

Sekunjalo Technology Solutions

The technology division performed well, with revenues remaining steady, with more than satisfactory growth in operating profit of 6% to R35m (2015: R33m). The technology division’s strategy of maintaining quality annuity revenue income through its support divisions and extracting efficiencies in its operations has proven successful.

The key strategic focus for the year ahead and as part of their Vision 2020 Vision strategic plan is to expand their offering nationally and into Africa as well as internationally. The existing products and service offerings have made inroads into Africa this year with contracts awarded in Tanzania and Dubai and further traction achieved in penetrating the Nigerian market.

Within the technology division, the business intelligence and digital marketing companies are engaging with companies to export their development IP and strategic services as the current global economic conditions, especially the rand-dollar exchange rate, makes it an attractive offering to customers abroad.

The technology division is extremely pleased to announce the acquisition of majority shareholdings in Puleng Technologies (Pty) Ltd and Kalula Communications (Pty) Ltd, (trading as Headset Solutions) of 57% and 51% respectively. These acquisitions offer a synergistic fit within the existing IT product basket and will see the technology division at least double its revenue for the year ahead. The acquisition of Puleng Technologies creates a substantial footprint and presence in the Gauteng region, whereas the technology division had traditionally focused its activities in the Western Cape.

The technology division continues to engage further target companies to complement its vision and strategy to enable it to build a platform for listing within the next three to five years.

Health and Biotherapeutics

Wynberg Pharmaceuticals has over the past three years focused on researching and developing products with a core focus on providing the agriculture, food processing and sanitation markets with biological and natural alternatives to harsh chemicals currently utilised in this sector. This investment opportunity was identified due to international markets importing large volumes of South African produce are actively reinforcing regulations, through the Reach Accord, which bans the use of chlorine and similar harmful chemicals. It further speaks to their focus on the food security as a whole.

The products were developed through a joint venture and the transfer of an international patent originally held in the UK with their international partners to South Africa.

During the research and development phase over the last three years, Wynberg focused on testing products in the Western Cape agriculture market and simultaneously created a regulatory platform through the Department of Agriculture, Forestry and Fisheries. This has set up their commercial supply chain through two of South Africa’s largest distributors on a wholesale model and the platform is now set for this business to expand through South Africa and over time service the global market.

Genius Biotherapeutics (Genius)

Genius is a research and development investment that will unlock shareholder value through commercialising its 22 various patents and technology transfers. Certain patents, in particular their personalised immunotherapy vaccine targeting cancer Dendritic Cell Vaccine (DCV), will unlock value by achieving key scientific milestones.

Commercialisation and achievement of specific scientific milestones creates a platform which enables the Genius Group to raise capital for the completion and commercialisation of products. The timing to list Genius is, however, monitored carefully to ensure favourable global market conditions. The Genius Group retains its reserve bank approval for listing abroad, which will eventually unlock shareholder value.

Operationally and scientifically, Genius has made significant progress during the year under review. DCV, a project in collaboration with Groote Schuur Hospital and the University of Cape Town, achieved success with a “proof of concept” achieved under laboratory conditions. The laboratory research resulted in two new patented processes being registered by the University. Currently the team is engaged in patient recruitment and pre-clinical tests as well as developing a logistics plan for the execution of phase 1 human trials at the Groote Schuur Hospital to commence during 2017.

We remain confident that this division will achieve its set milestones over the next three to five years with the implementation of their Vision 2020 Vision strategy.

Events and Tourism

The events and tourism division comprises complementary businesses, with service and product offerings falling within a sector which is positioned to grow in South Africa.

espAfrika produced an overwhelmingly successful 17th Cape Town International Jazz Festival (CTIJF) with positive reviews from the media, corporate clients and “Festinos” alike. Sold out status was regularly achieved in respect of general access tickets as well as in the various lounges and the corporate hospitality suites. As part of espAfrika’s Vision 2020 Vision strategy, they successfully launched their second owned event in July this year with similar events to follow in the next few years. This strategy aims to mimic the commercial success of the CTIJF. The new event – “The Royal Escape Experience” – was held at Sun City and focused on providing an elite getaway experience.

Tripos Travel performed satisfactorily for the year as it adapted to a constantly evolving travel industry. Planned rebranding and diversification of services and products are key cornerstones to the future success of this business going forward. Traditionally a corporate travel services provider, Tripos’ management expanded its focus on inbound and outbound leisure services and in doing so, increasing their revenue significantly.

Magic 828 radio station, launched on 1 October 2015, has seen a reasonable uptake of listenership and keen interest from advertisers in its first year of trading. The strategy in place for the year ahead has been developed and the team is focused on the implementation thereof.

STRATEGIC INVESTMENTS

The Group’s strategic investments for the year under review includes British Telecoms South Africa (Pty) Ltd (BT), Saab Grintek Defence (Pty) Ltd (Saab), Sygnia Ltd (Sygnia) and Pioneer Foods Group Ltd (Pioneer Foods).

AEEI has major net exporters status in its diverse portfolio and this hedging strategy assists with militating against global risks and the fluctuating rand.

BT

BT is performing well and has won significant new contracts. Profitability increased steadily and we expect that BT’s performance will grow consistently going forward. The growth in BT has resulted in AEEI receiving regular dividends. Read more about our investment in BT.

Saab

The restructuring of our shareholding in Saab SA in November last year led to AEEI disposing of its initial 5% equity in Saab SA and acquiring a 25% + 1 equity share in its biggest operating subsidiary, Saab Grintek Defence (SGD). More recently, SGD entered into a Memorandum of Understanding with TATA Power India to manufacture certain products locally to service the Indian market. AEEI is expected to benefit from this initiative in the near future. Read more about our investment in Saab.

Sygnia

Launched in 2003, Sygnia, the financial services asset management company that has turned the industry on its head, experienced a period of tremendous growth and success, rising to become the second largest multi-management company and the largest investment administration company in South Africa. The value of AEEI’s interest in Sygnia increased significantly since its acquisition late in 2015. Read more about Sygnia.

Pioneer Foods

The share value of Pioneer Foods performed well since we made the acquisition in 2012. However, owing to the current drought conditions and market perception of the possible impact thereof, the share was under pressure during the year. We believe this to be a temporary decline and we have seen the share value steadily increasing by year-end. Read more about Pioneer Foods.

In summary, the focus of our strategic investments has mainly been to increase shareholder value and improve our portfolio of investments. The benefits relating to these investments will support the Group in achieving our long-term growth as outlined in our Vision 2020 Vision strategy.

EXCELLENCE THROUGH OUR PEOPLE

The employees at AEEI truly define our Group and we recognise that they have and continue to play a crucial role in growing our various investments and businesses. Our consistent overall standout performance would not have been possible without our executives and employees and their continued focus on operating efficiencies, risk management and better portfolio management, which remain the key drivers of our performance.

Throughout the year, the Group invested heavily in training and developing employees. I strongly believe that the Group’s mentorship and training programmes are gaining traction, and we have received positive feedback from all levels within the Group.

We are particularly strong in AEEI’s ownership profile, with black ownership at 79%, of which 33% are women, and the majority of its economic benefits are enjoyed by a broad base of stakeholders.

The Group has a solid management team with clear deliverables and a strong focus on developing managers’ and employees’ perspectives through diversity.

Enterprise development also forms an important part of the Group’s philosophy. Each executive in the Group has to devote a certain amount of time every week to develop SMMEs. We currently have programmes of support in the food and fishing and technology divisions, including assisting with funding, administration and bookkeeping.

“Successful organisations understand the importance of implementation, not just strategy, and, moreover, recognise the crucial role of their people in this process.”

Jeffrey Pfeiffer

LOOKING TO THE FUTURE

The Group will continue its strategic focus to grow the value of its operational investments and improve the value-add to its strategic investments. The AEEI Group has built a strong and solid platform for further organic growth and has positioned itself well to increase its investments through further acquisitions within all the divisions.

Management remains focused on the implementation of Vision 2020 Vision strategic plan which is well on track to achieve its targets.

The Group is well positioned to take advantage of opportunities that are both available to maintain its current organic growth trend as well as further acquisition opportunities.

The Group is currently in a strong cash-generating position as a result of excellent earnings during the 2016 financial year-end and debt levels are currently low with a single-digit percentage.

The food and fishing division hopes to achieve a smooth and well received public listing in the short to medium term. This will enable this division to grow and expand at an exponential rate.

The technology division also has a clear strategic vision and continues to engage additional target companies to complement its vision and strategy to build a platform for listing the division within the next three to five years.

The events and tourism team successfully completed its first new event – “The Royal Escape Experience” – which was held at Sun City at the end of July 2016. The event was a great success and all patrons had portrayed positive feedback. As previously mentioned, this new event is in line with espAfrika’s strategy to minimise its dependency on the CTIJF. espAfrika is expected to launch another new annual event during the 2017 – 2018 financial years to bring the total of company-owned annual events to three and they are on track to achieve their Vision 2020 Vision goals.

In the travel business, the plan is to increase the percentage of their inbound and outbound leisure travel which will aid in increasing their margins. The business now has an efficient base and stable business model with available capacity which can now be leveraged off to grow profitability.

The Magic 828 radio station has the opportunity to be profitable by 2018 year-end after breaking even in 2017 as listenership increases steadily and this will assist in the growth of revenue.

One of the key strategic objectives for the AEEI Group is to create sustainable value for all our stakeholders and to integrate sustainable development in our strategy, management and reporting with the objective of also reducing the negative impact on the environment.

When developing our Vision 2020 Vision, we took into consideration the macro- and microeconomic risks and trends that may have an impact on our businesses due to the nature of our operational investments and adapted it for current changes.

The Board, executive management teams and I endeavour to meet each and every goal as set out in our Vision 2020 Vision strategy. This is monitored on a regular basis and various measures have been put in place to ensure that our strategic goals are implemented.

Through the Company’s achievement of economic growth and its emphasis on improving the society in which we operate, it remains one of a few companies to have consistently topped the rankings in its operational sectors over the last few years.

We are one of the top black economic empowerment companies in South Africa due to the Company’s strong ethos and sustainable business model that attempts to narrow the inequality gap in our society and uses the talent to build a model South African company for the future. The Company has retained its Level 1 BBBEE credentials year on year.

AEEI is a “PARTNER OF CHOICE” to our clients, partners and future investors and associates. We look forward to further growing our business into greater Africa and internationally.

We have also diversified our strategic investments while unlocking innovative solutions and adding value to our product portfolio and service offerings, taking a long-term view on opportunities opposed to being too reactive in the short term.

SINCERE APPRECIATION

Firstly, I wish to extend a special thank you and sincere appreciation to the board of directors led by our chairman, Professor Vukile Charles Mehana. I would also like to thank the executive management team, employees, strategic partners and associates for their passion, loyalty, dedication and their efforts while they continue contributing to the success of AEEI.

This is an exciting growth phase for AEEI and I look forward to sharing the next set of financial results with you. Our diversified operational and investment portfolio, expanding footprint, pooled experience, knowledge, skills and continued growth will be used to improve and to ensure a sustainable business for years to come. I look forward to this continued trajectory of growth in AEEI based on our Vision 2020 Vision.

Khalid Abdulla

Chief executive officer

For further information on determining our material matters refer to our common vision and objectives. For further information on delivering our strategy through our business units refer to creating value and responsible investments.