AECI Ltd (AFE) Earnings Call Transcript

Okay. Good afternoon, everybody. It's just 12:00, and we're on time. We have got a live stream as well. So please don't hurl too much abuse from us from the front row. So welcome to our year-end results presentation. Special welcome to our bankers, shareholders, investors, auditors, welcome to this presentation. I'm going to be helped by a few of my colleagues as I go through it in a normal form as we did release results on SENS. So we're going to follow that. The full set of accounts is available, and I see some of you have downloaded those already. But Mark will unpack that as we move through. As I'm going to do a little bit of introduction and I think it's quite appropriate that we have our Board here. There are members in the audience. I think the new ones to take note of is obviously you have Fikile De Buck, who is also going to be chairing our Social and Ethics Committee; Godfrey Gomwe is right in front of us. He's also chairing Rem and gave up Audit; and Philisiwe Sibiya. She's now our Audit Committee Chairperson. Obviously, Khotso is expected to be arriving. And then also, a special mention that we have Walter and Steve Dawson, Walter from Brazil and Steve from Australia, who's really, as an international director, going to assist us with strategy as we move more and more into the international arena, especially on the specialty chemicals and manufacturing, but also, most importantly, on Explosives. Also, we have here the others I've mentioned everybody here. I've also -- we've also got a new HR exec, which is Candice, and she's going to be tasked for finding those talented people in order for us to grow. So she's joined us on the 1st of January. So a new addition. And the rest of the team, you would have met before. Just on that is that we have done some reshuffling. And you'll see we talk about realignment of the Chemicals portfolio. So Dean Murray is in charge of that restructuring and realignment. And Dean Mulqueeny, not only is he looking after the Much Asphalt acquisition, he's also in charge of our strategy around Water, okay? So he'll be heading up that, not only from the Process and Chemicals point of view but also, importantly, from a project purpose in terms of Water and, obviously, food security. So those are some of the new tasks that they're taking on. We're utilizing some of our own pictures in the presentation. This is at West Deep -- sorry, South Deep, obviously, ring blasting and one of our young female engineers is in charge of that using DigiShot, which is electronic detonators. And Edwin talks about a sticky product, which is a sticky emulsion, which you actually put up in a hole, which is -- actually gives you good blast, but we'll talk about that a little bit later. Revenue is up 6% to just under ZAR 25 billion. I asked my sales people could they not sell a little bit harder. So I needed a couple of more million there, but we'll -- I'll be working hard on that this year. And of that, 40% of that is outside of South Africa, predominantly on the continent, but also in Europe and U.S.A. and, of course, Indonesia and Australia. The currency is predominantly dollars, all right? So remember, a lot of the contracts in Africa, we do get paid in dollars. And the balance is euro, which is obviously coming from our Schirm operation in Germany. So that's how that is being made up at the moment. Please, welcome, there's lots of seats in front here. The EBITDA is 26% up to ZAR 3.3 billion. Obviously, in that EBITDA number is the adjustment that the number that we got from the sale of Crest, but also a sale of a small parcel of land. Just to put that in context, the ZAR 156 million is also in the trading profit or the operating profit, which is 2% up. In that, we took the SCP impairment. When Mark talks about his presentation, he'll talk about why that impairment arose. And we're also putting there the project cost was in the first 6 months, which was ZAR 156 million. However, we did recoup that in the second half. So you can actually see, as we spoke about, that the restructuring costs would cost us ZAR 150 million. And between the 2 companies that we've done that is we are probably -- well, we will see an annualized ZAR 300 million coming through this year. So that's -- those are delivered. And we're quite confident that we'll be able to pull those this year. And of course, that's also -- you may say, "Well, why did you not look at Chemicals?" It was really the capacity in the group in terms of management capacity and some of the people we were using in terms of consulting work. So that we're embarking in the beginning of this year and is actually already commenced. EPS is 30% up. You are seeing the profit from Crest Chemicals, which we did announce, which is the 50% holding that we held in Crest. And you also see in that little piece of land that we sold for ZAR 74 million, and there was a profit that accrued on that of just over ZAR 60 million. Solid HEPS growth, 10% to ZAR 11.50. Obviously, the IFRS does have an impact on that of about ZAR 0.24. And we continue to generate good cash. Probably, and Edwin will allude to it, a little bit shy than we thought that we wanted, but Edwin assures that they'll pull some back later in this year. Be mindful that we have quite a few plant shuts. So we are taking #11 off this year. And we're also doing the air abatement emissions rectification on those plants to adhere to the 2020 abatement emissions codes and law. So that's exactly why we are building a little bit of stock. But as we come through the year, it will be a lot better. We also declared ZAR 4.14 as a final dividend. And that's -- if you compare year-on-year, that's 11% increase in dividend, which I think our shareholders are very pleased about. Also, the -- one of the best results, and it's always top of mind, is safety. And with the acquisitions, we were able to bring it down to 0.38. And I will give you a slide just showing you how that's made up relative to the acquisitions that we pulled in. CapEx, and I think it's exactly on what I spoke about in terms of the emission abatement, ZAR 100 million was spent last year on that. There's another ZAR 80 million to be spent this year. And of course, that is actually to make sure that in terms of the sustainability goals, that we align with those. And that is actually -- project is well on track. The B-BBEE Level 2 -- and obviously, we've been reassessed now. There -- obviously, some of the codes and some of the areas have changed, and a GCR rating of A+. So probably those in terms of a high-level summary is the results that we obtained. Just on the Crest sale. The holding value is ZAR 196 million, 50%. We received, in a total amount, 2 payments. ZAR 390 million was agreed amount, and then, of course, there was an adjustment in terms of working capital adjustments, which we received in January this year. So we've received ZAR 430 million. And of course, that gives us the profitability on that transaction of ZAR 234 million. Obviously, that is not in HEPS. It is in your EPS. And we did go out -- and that's probably one of the reasons we went after the profit warning almost 10 days ago was around the EPS growth, and it's bringing that into the EPS. And you also saw the effect of the land sale. Obviously, also, you had a negative of your impairment going up there as well. In terms of safety, great result. And in terms of the underlying business, I think we -- all-time low of 0.22, which is actually world-class. That is our normal Chemical and Explosive business. I must also add that our Explosive business had a phenomenal safety year. They were at 0.1. So they had a great year. And relative to them, Edwin will discuss it with us. But what is pleasing, and you'll see the black part in the bar chart, is that this has gone from double the size that we brought it down by 50% year-on-year in terms of those acquisitions. We did talk to you about some of those challenges when we bought that business. The business drivers -- just before going to business drivers, Dr. Khotso Mokhele, our Chairman, welcome. Thank you for joining us. I did put your picture. It was up there, right, for everybody to see. Our nonexecutives will be around at lunch time. So you're most free to engage with them and ask them questions, but welcome. Thank you for coming. On the business drivers -- and usually, when I put in some of the drivers, what is it that affects our business? And one of the big ones is obviously around the exchange rate. Quite -- on average, it did help us through the year. However, on the Chemicals side, we saw -- obviously, you've seen crude come off a little bit. But obviously, that was negated in terms of rand/dollar. But in this environment, extremely difficult to put on prices to customers. And all our Chemical business, if you really look at them, had challenges in maintaining, in this environment, margin. So when I go back to that action list in terms of -- later in the presentation, when I talk about the Chemicals, what I will be talking about is how we're going to rectify that business. And a big action point is how we get the margins right. So I think -- the good thing is we're holding on to revenue. And I'd rather have revenue that we can do something with than actually no revenue. So the revenues are there. It's just how we turn those into more profitable revenues. So rand/dollar. Gold. Everybody, especially in Africa, is having really a good time around gold right now. Yes, deep level gold mining is under pressure. But we are seeing a lot of new projects in Africa, and we've taken full advantage of that. Also, I think when we talk a little bit later, you'll also find that in the gold sector, we had a big Sibanye strike, which would affected volumes in the first half of last year. Okay. PGMs. AngloPlat's put out a good result, and that's really around this basket of products. And they are big customers of ours. So hopefully, they'll be sharing some of those profits with us in the near future. Well, I can dream about that but it's on my to-do list, but I'm not sure that's going to happen. But they are big customers. They are profitable. And the reason why the profitability is that basket of PGMs. We've also seen in Zimbabwe quite an upliftment in volumes in platinum, which we are also involved with and are actually supplying. The cobalt, copper and nickel, mainly in Central Africa, volume's pretty robust still, although we have some big customers. The Glencore announced have that temporary shut, which I expect to go for 24 months. That is affecting the volumes. But generally, volumes in Central Africa is still robust. And coal and iron ore. Definitely, prices in coal coming off. We did see volumes, especially in the South African market in coal, definitely weaken in the year. Why -- and when I get to the slide that I'll talk about in terms of SA mining volumes, you can see year-on-year down. And what we did see in November, December, they fell off quite dramatically. And as we went into load shedding, we saw that in December a lot of mines closed pretty early. So we didn't expect -- or we don't see continuing volume moving through all the way through to new year. Coming back into January, it went -- I think the volume -- obviously, January is always a slower start, but it seems to start to be coming back at the moment. Well, obviously, it affects -- coal wasn't too great in volumes. And of course, we were also affected by some exports in terms of Namibia, in terms of industrial chemicals that were there. But that's on the volume. I did allude to what the -- that Brent Crude is actually softening, but negated by the rand/dollar in the year. So we didn't see a dramatic price decrease in input costs relative to raw materials of specialty chemicals or commodities. What is this? This is our manufacturing volumes, and we put up every year or every 6 months in hope that it may tick up. However, you've seen the state of the South African economy. The unfortunate part of this is a lot of our specialty chemicals and commodity chemicals goes into the sector. So if your manufacturing sector is not growing, your volumes of specialty chemicals also does not grow. So this is going to be a challenge for us. And when I -- it's not that -- I will repeat it. We don't see change this year. And of course, government is trying to create some infrastructure spend, which will probably help us, but also looking at trying to grow this sector, which will create jobs, I think, is struggling. So in our outlook in terms of manufacturing sector, we don't see any real big volume changes in the sector. If -- now I'm going to just -- that's really the -- just setting the tone for the more afternoon. I'm going to ask Mark now to go into those -- and there is graphs in the books in front of you. There's quite a lot of technical stuff in terms of the IFRS. It is the first year that we are reporting this, so you've also got to look at it relative to last year. So Mark, going to you.

Okay. Good afternoon, everyone. I'll take you through the analysis of the accounts. And if there are any questions, if you can keep that towards the end. If we look at the profit from operations, we were 2% up, not -- 2% up over ZAR 2 billion of profit. But if we normalize it and we add back the payments that we took at SCP, that number goes to ZAR 2.178 billion, which is 9% up. That 9% supports the headline earnings growth of 10%. And given a tough economic environment, most of our key segments were up during the year. The trading margin of 8.2%, that's slightly down. But bearing in mind that 8.2% was diluted due to the effect of the impairment as well as the restructuring costs that we have taken through the year. When we look at EBITDA, it's a healthy 26% up. But if you take a normalized number, taking out the Crest sale, taking out the impairment, we are 23% up year-on-year. So it's a really robust performance and especially if you're looking at cash and performance of cash in the business, so strong performance at 23%. The EPS, you saw the SENS announcement earlier in the month, 30% up. And as I said, the HEPS number was 10%, up double digits for the year. The tax rate supported some of the HEPS growth. That was 28% versus last year was at 34%. And the primary reason for a strengthening of tax rate or a lower tax rate was really because our dividends from -- we didn't have -- -- while we had the same level of dividends that we repatriated from outside South Africa, in certain taxonomies, it was a little bit less from a rate point of view. And that also drove our tax rate down. And also, our tax rate was lower than last year due to the mix of where we made our income during the year. So different jurisdictions where you had lower tax rates versus tax rates we had in the previous year, which was slightly higher. I'll talk about the dividend. Mark did say that we declared a ZAR 4.14. It was ZAR 5.70 in dividends for the entire year, and that gave us a dividend cover of 2x. Now while we don't have a fixed dividend policy, the Board always looks at dividends from scratch, and they really look at cash availability. And also in a very disciplined way, we do a dividend solvency test, and we look at what the next 18 months to 2 years cash flows would be. And that's how we come at the -- come to dividend. So they're 2x, depending when you look at the share price, but it's probably about a 5.5x yield ratio. So if you look at the dividends over the last 5 years, we've always had an increasing dividend profile over that period of time, and that comes to just north of 10% compound annual growth rate over the last 4 years. So that's a very strong dividend growth rate over that period of time. If we look and we unpack the numbers from profit from operations as to where we are, we -- as I said, we delivered an operating performance of ZAR 2.031 billion. With the impairment of goodwill of ZAR 147 million. That gives us a normalized profit or sustainable profit of ZAR 2.178 billion, and that there is where the ZAR 11.50 of HEPS aligns. If you take out the IFRS 16 impact, we get to a normalized number of about ZAR 2.150 billion and a normalized HEPS of ZAR 11.74. So what does that mean? That's actually a growth percentage of 7.5% on profit, 13.6% increase on EBITDA, and that's ex IFRS 16, and 12.3% on HEPS. If -- what you can see is the -- oops, sorry, that disappeared. We thought it was load shedding. Not quite. Okay. Yes. So if you -- if you look at the IFRS 16 impact on EBITDA, that's ZAR 249 million, and that impact is largely depreciation-driven. But if you balance it out, the net impact of IFRS on TP was ZAR 28 million. If you look at the cash impact, the cash impact of CapEx, we spent a capital amount of ZAR 833 million. Remember, I've always said to you, our target is to try and equate CapEx and depreciation. We did not do that this year because we -- the Board decided and we, as management, decided to spend money on the emissions abatement capital. So year-to-date, we spent ZAR 100 million on that. And there's still -- and Edwin will come back to that later on. We're still going to spend another ZAR 80 million on top of that, and that will regularize us from an emissions point of view. The sustenance CapEx, that's to keep our businesses going, that was ZAR 674 million. And the expansion CapEx, this was largely some equipment that we put in into Australia. The SANS Fibres project was completed that we've had up there, and we also put a blender into Baar-Ebenhausen at Schirm. The net working capital percentage, that was little bit higher than what we would have liked. So that's where we ended up at 17.2%. And it really -- we were really impacted by the last 2 months of the year, where sales did not materialize as well as what we would have expected. And we also had a prepayment of a creditor, where we took some income in but we paid the creditor earlier. And then furthermore, what we don't actually say in this but it is mentioned in the commentary, some of our debtors have actually paid us later in out of terms. So that was disappointing, and we will address those issues with those debtors during the course of the year. So if we don't have the same problem next year. But if you exclude IFRS, our borrowings would be about ZAR 3.5 billion, give or take. Our gearing percentage without IFRS will drop down to 31% from 41%. Now remember, at half year, I did say to you that our gearing ratio will be in the early 30s ex IFRS. So we've actually achieved that. And obviously, we would've overachieved that if we were able to get more cash in from our debtors. And we talk about ZAR 200 million to ZAR 300 million, and that's what we're aiming for. Cash interest cover. The bankers will be pleased to know that's sitting at about 7.8% currently. So if we look at how we've utilized our cash for the year. If we take -- we started the year at ZAR 4.2 billion. We paid interest of ZAR 397 million. Tax paid was just over ZAR 500 million. Our net CapEx is, after disposals, about ZAR 774 million. And working capital, disappointedly, we paid ZAR 538 million. But we will claw back the working capital in the next few months. I think what's important is that we did get proceeds from land sale in Modderfontein and also the sale of Crest. And the difference between the ZAR 390 million and the ZAR 430 million in proceeds that Mark spoke about, that ZAR 40 million we only received during the course of this year was a working capital payment, okay? And just to reemphasize, the gearing was at 31% ex IFRS. On reported IFRS numbers, it would be 36%. Just to show you what our debt profile looks like in the next couple of years. The big payments -- or the big amounts that are due is next year in 2021, there's about ZAR 1.9 billion. And then we phased that out about ZAR 2.7 billion in 2023. Okay. I'm not going to go through these slides. I put these slides in on the impact of IFRS for information purposes. I did spend a bit of time in the first 6 months. Happy to take questions on this later on. But just to point out, as I pointed out, the trading profit impact was ZAR 0.28 (sic) [ ZAR 28 million ]. The HEPS impact was ZAR 0.24. These are negative impacts. And the EBITDA impact was ZAR 249 million. If we look at the balance sheet, the balance sheet was impacted by on a right -- use of assets of about ZAR 592 million. Most of that was sitting in property and some portion sitting in transport contracts and to minority [ thing ] sitting in plants and equipment. Okay. If we -- and if we look at the acquisitions and if you look at our performance ex acquisitions and including the acquisitions, how did the acquisitions perform? The HEPS number for the group was ZAR 11.50. If we strip out the acquisitions, the number would have been ZAR 11.69. So that means that the acquisitions on a HEPS basis was 19% down -- ZAR 0.19 down, sorry. But if we add back the noncash PPA effects, which was ZAR 0.29, you'd find -- and we presented these numbers last year, would've -- on a normalized basis without the PPA, we would've had ZAR 0.10 from our acquisitions. And that was very close to what we performed at last year from the acquisitions. We do understand that our acquisitions have performed below our investment case. And as we go through the segmental reports, we will talk about what we are doing to recover those -- the performances from the acquisitions. The potential -- if we look at it -- I've been asked this question, "Mark, why don't you buy back shares?" And I've always said we are constrained from buying back shares because we have a subsidiary called AECI Treasury Holdings that holds 9.7% of AECI's total shares. And as you know, you can't -- you're limited to buy back shares to 10% for subsidiaries. So what we've done is we've come up with a very smart plan, hard to reorganize this, to get out that -- the treasury shareholding, the AECI Treasury shareholding investment that we have. And what we will be doing over the next few months just before the AGM is to work out -- well, is to actually get these shares out of the system, get them liquidated outside AECI Treasury Holdings, and we may come to you with an approval or a circular, asking -- I said we're just getting authority from the [ JC ] as to which method they prefer us getting out of this. So they've -- what that allows us to do going forward, when cash is available or when it's opportune, it'll give us the right or the opportunity to buy back shares on the market. Okay. If we just look at the performance segment and the performances by segment, what we have is -- and the business executives will take us through this, what you can see from this is that, in all our segments, we had increasing revenue versus last year. I'd just like to focus on -- if we look at the food business, which did have increase in revenue, but the profits from operations was negative, and Mark will take us through that, that was largely due to the impairment of goodwill at SCP. And the reason why we had an impairment -- an impairment is a calculation that you do where you're comparing the carrying value of your asset versus the value in use, okay? And then what you do is you do a DCF model to actually justify that value. What we did was that DCF has got historical margins of the food business in there, okay? And that value, we could not justify the carrying value. So hence, we have -- and there's 2 reasons why we could not justify it. It was -- one was due to the margins that were lower, and you'll see the food business has traditionally got lower margins; and the second part of it was the warehouse that we capitalize in the food business or in the carrying value due to IFRS 16. So we've unrecovered the costs of that warehouse. So later on, Mark will talk about how we're going to improve margins and recover those costs in the warehouse. And that's what drove that ZAR 147 million impairment. So now what I'd like to do is to call Edwin and just take us through the mining pillars results.

Good afternoon, everybody. I just want to make sure that I've got it in the right. There it is. Before I start with the Mining Solutions presentation, I just want to use this opportunity to congratulate the team that's in the Mining Solutions for achieving in the first place the best-ever safety performance in our business specifically. And safety is always top of mind for us. The other thing is that while we were achieving this safety performance, we were busy with a major alignment process. And when you do this alignment process is people's focus sometimes are not on the job. But the management of the business really did a fantastic job to keep us all focused in the business and also have a bottom line performance. So I think it's well done from that team, and I want to just recognize them. The -- this graph is just showing you the diversity of our portfolio with regards to product diversity, what we mine. We always speak about product diversity and geographical diversity. So product diversity, we've -- you can see for yourself, we are really looking good at the moment. And we're continuously working on our geographical diversity. And that is one of our drives in the business at the moment is to look at geographical diversity. If you look at the overall performance of the Mining Solutions, and I'll speak about Explosives and Chemicals later on its own, there was good improvement on the revenue. And we had the benefit of a stronger -- a weaker rand with stronger dollar, but we -- it was offset against, again, ammonia price that affects a lower ammonia price. And I'll show you the ammonia graph later that affects our turnover. So that, again, was a decline in our turnover. The growth really in our African continent, we've really seen strong growth and, again, in West Africa. I've presented those projects in the past year or so ago, and they're really showing good improvement, all those projects that we've put in. On the Mining Chemicals side, we've really improved, and I'll show it later, and that's on the back of better utilization of our facility. Our growth outside of South Africa, we're sitting on 59% outside of South Africa. Last time I reported here, I think it was 56%. So we've seen further growth outside of South Africa. Our profit from operations was really good, considering we've spent ZAR 104 million in the first half on our project align. We've recovered that in the second half. Our commitment to ZAR 200 million remains for 2020. And the Get Healthy phase where we had to spend money to fix the business, we've gone past that now. And we're now in the phase of Getting Stronger (sic) [ Get Strong ] and Gaining Business (sic) [ Get Business ]. Mark and Mark both spoke about the CapEx. Just to reiterate that we're busy with the emission abatement process, which we spent ZAR 100 million on. And it was really a strategic decision well supported by our Board to -- in line with our values of our organization to try and get our abatement sorted, even though we had extension until 2025, in some cases, so we decided we'll do it all in 2020. The one disappointment for us as a team was our working capital. So it was a difficult balance because we're going into shutdowns. So you have to try and keep stock to make sure that you don't let down your customer, which we decided to do. So unfortunately, that does cost you some working capital. And then the slowdown, as Mark has mentioned, in the second part of the last quarter didn't help us and especially on the -- in December of the power problem. I think some of our mines just decided to shut earlier, and it really affected us. In the areas in Africa, we still see social and political challenges. We've had some terrible incidents in Burkina Faso, for example. But we're working together with the mines to make sure that our people are safe as far as possible, but it remains a challenge to operate in these conditions. This is just the ammonia graph. You'll see the average price for this year versus last year has come down. So it means that you have a lower turnover. Just a reminder that 40% of our ammonium nitrate is ammonia. So the ammonia has a 40% effect on it. So if you look at, that's about a 6% reduction, which, I guess, is in the region of about a 2% effect on turnover of the Explosive business. If you look at the Explosives on its own, as mentioned, we've had a fantastic performance in our safety, which is always very important to us in our business. We had excellent improvement in our underlying profit, and we -- as I said, considering we spent ZAR 104 million in the first half in fixing the business. The overall bulk volumes are down by 0.6%. SA, however, is down by 15.5%. But the rest of the African continent, again, came to the party, and we -- specifically, West Africa has really done well for us. So that helped us again. Asia Pacific, I think, half year, we were 7% down, and you'll see we're flat now. So the second half has really done well. And our MMUs are all now fully utilized, and we've also expand into Western Australia. And we're planning to ramp up that successfully in that area, and we said that's the area we would like to go into. Initiating systems, volumes are down 7.2%. Mark mentioned at the beginning of the year we had a strike at Sibanye, and hopefully, we don't have one of those again. But then there were also additional closures of shafts, and those are permanently lost from initiating system point of view. And we don't know what the effect of -- I know Sibanye and the mines are talking about 6,000 workers they still want to let go. We don't know what the future effect will be, but we're confident that we can supply the market and do well with our products. Our strategic realignment project, when we went to our customers, it was really well supported. Our customers understood our need for the realignment project. And they also understood that it's important to have a reliable local supplier. So we were thankful that our customers really supported us in that area. The tenders, the 2 tenders that I spoke, they're still not awarded. We have to respect our customers' processes. They're still busy in their processes, and we await the award. So we will just see when the outcome is. We spoke about Lat Am, and the challenge was to get our military license. I can tell you all, we've got our military license. It's in the bag. We -- most of the important licenses we've got. The big challenge now is we're sitting, waiting to understand at what stage will the judge tell us to take over the business. I've booked a flight to go and do the grand opening, so I hope my guesstimate is correct. In Chile, we are looking at 3 sites where we will select 1 site and put up a plant. And we're looking at expansion in that area. So we're excited about that region as well. And we want to be ready when the -- there are a few big contracts that will come out. And we want to be ready when those contracts come out. If you look at the Mining Chemicals portion of the business, we continually drive our sales into the specialty collectors, and that is getting good momentum. The exports of our products on the back of better utilization of the facility really increased. We had a volume increase of 12% and a 22% increase in value sales. So it really helped that chemical business very well. And it was in different territories in African continent, in the Eastern European territory and also in the South American territory where we managed to get these sales. However, our local liquid Xanthates is taking a strain because of closures of facilities or processing plants. And that was a little bit down for us. The export of our surfactants on the other portion of our chemical business was also very good and specifically into South America. So the chemical business is starting to take really nice shape within this bigger Asian mining sector, so we're very happy with that business performance. And I'll hand over to Mark Dytor, who will speak about the Water & Process.

Thanks, Edwin. And maybe also, the focus is still on Edwin delivering the alignment project throughout this year, which is that annualized ZAR 200 million. If we look at the chemical at the water side, this is now -- in the past, remember, we reported chemicals. It was actually water. It was the extraction chemicals that Edwin has just spoken about. It was also the food and also the agriculture and the chemicals. So what -- if you looked at it across, it's not -- we would have -- you wouldn't have seen it expose us in terms of what we're now referring a little bit later in terms of the base chemicals. So water treatment, a great result. The delivery of the project was exceptional. We also received some of those outstanding debts from Africa. We've learned a lot of lessons from those and a lot of the new orders are on LC. We gained the Ghana tender and was paid. We also had exports into Uganda and also Rwanda. So exports, actually, we saw an uptick in terms of the volumes. Locally, obviously, still under pressure on the volume side, but pleasing result is the profitability of this business. And of course, you can work out, we are looking for the ZAR 100 million annualized this year in 2020. And we're actually set to do that. The business has gone through the same process that AEL went through. And they went through that to Get Healthy. Now it's Get Business and Get Strong again. And Edwin likes the Get Strong part. So we're moving quite aggressively with this. It is something that we're very excited about, especially as we expand this portfolio. And that's why we've also lifted it into one of our executive members to take full charge of this business from now on. So in half year, he will be coming to tell you how he has delivered some of these promises. No pressure, Dean, but a great platform, a great businesses. And you look in terms of South Africa, good performance overall, but definitely a shift into drinking and wastewater and especially with the challenges in South Africa right now. And water security is top. The reason why that is, and that's probably a picture of the Hammanskraal in terms of the schools that we've given support there in terms of drinking water. And I'll talk to you a little bit later on it as I go in the outlook because this is really exciting work that we're currently conducting throughout the country. The Plant & Animal Health, it has 2 sections in there. It has Nulandis section, which looks into crop protection. So they had a great year compared to last year. And the reason is there was also good rains in Western Cape. But then they also, let me qualify that by saying late-onset rains in the free states. So you can never be happy in the farming world, right? But the profitable area is Western Cape, as we have told you. And we started to see the upliftment of that Western Cape area with the good rains that they had. We also were able to ship products to our own local registrations and our own local manufacturing, which means our margins are better. And that will continue to be the strategy moving forward. We also -- we're able to convert 2 farms to the new SupPlant technology, which is coming out of our innovation hub. And really, that is actually monitoring moisture, supplementing soil and actually getting higher yields. We reported -- and we will look at case studies on this, and we will give that into the market, but those farms are reporting up to 60% increase in crop yield by using this type of technology. There's a few -- there are other farms that are actually going to be converting throughout this year. So that's really on today. The other section is Schirm. And I ask, Mark is accountable for Schirm, as part of his executive role, and maybe there has been good progress. We probably -- and we did allude to it. There is focus on making sure that this gets back to the investment case. So Mark, do you want to maybe just say 2 words or 3?

Yes. And last year, we spoke about Schirm's poor performance in safety. And this year, we had a more than 50% improvement. So there is some discipline coming back into the organization. The investment case has really been delayed, and there's been lower demand of agrochemicals in that area in herbicides and fungicides, especially from the more traditional players. What we are seeing are some generic players coming into the market, and that's where we need to formulate our relationships with those players. There has been a shift of production. What we have seen with Russia, because quite a lot of our volumes, especially from one specific customer used to be exported into Russia. What's happened there, the Russians have imposed duty on products coming in. So what that customer has done is it's actually moved its production volumes directly into Russia. So Schirm has been bypassed. There are some one-off costs that we incurred during the course of this year. Obviously, those costs, like property taxes and some recruitment costs, those costs won't repeat itself next year. So that's good. And we'll -- and as Mark later on will talk about some of the improvements that we're going through. And then obviously, the synthesis plant. The new MSA 3 plant that was put in, that's been totally underutilized during the course of this year. But I'm glad to say that the product -- the sugarbeet herbicide product that was meant to be manufactured on that plant has had full EU authority now, and we're starting to switch over volumes into that plant. And for the first time, we've seen the run rate of that product is actually making more product on that plant than what we've made on the Magdeburg plant. So we believe by May, that plant will be fully switched over to this new sugarbeet herbicide -- or not new, but the sugarbeet herbicide that's coming through on there. The U.S. business, that's been a real star. It's exceeded our expectations, has exceeded the investment case. And actually, next year, we will be putting some capital in there to support the demand for that market. And it has benefited from the global trade wars that we have seen.

Thanks, Mark. And we'll take some questions on this after the presentation. Going to Food & Beverage business, which is comprised of 2 businesses, which is Lake Food and SCP. Obviously, these are combined. If you take that impairment out, still not great in terms of margin percentage. And there is a lot of -- they're gaining volumes. They've tied up some nice business with some big retail customers. However, the challenge is we've got sales. And I'm happy to have the sales. It's now turning those into profitable returns. So we are looking at how we're going to improve margin, but we also need to see and cost out that warehouse, which is a fantastic facility. It's refrigerated. And obviously, with the sugar tax, you need now to refrigerate a lot of it because the formulations are changing. Therefore, you need to refrigerate more. We needed to be rewarded for that service. So this business also is going to form part of the chemicals restructuring, all right? So there is opportunity to take cost out. And we're looking at shared services in this area now. There was also a ZAR 9 million once-off as we started integrating this business that we've looked at the stocks. And we've really cleaned out this business and set it up for success this year. Chemicals, the Base business, as I referred to here, is the business, excluding Much, because Much Asphalt is sitting in this sector. This composes of 4 additional companies there. However, there's been a mixed bag of negative performance from production to key raw materials that we couldn't get hold of that have escalated in price, especially around our SANS operation in the United States and also a lot of pressure on the margin. And as I said, because there's no volumes improvement in terms of the manufacturing sector, there's a lot of supply, a lot of suppliers out there and margins have been taking a tumble in some of the areas. We know exactly where it is. We know exactly what to do. And that's obviously initiated the restructuring program. However, it generates cash. We must be always mindful of that. And you can look at the working capital. It's actually really still a good business. We do need to make it more profitable. So that's the focus in [ AECI ] in the year to come. On this Much Asphalt, good overall performance. They were up year-on-year despite the environment that they found themselves in. So an uptick in the asphalt business. They did meet their budget. Their budget was not an investment case. This year's budget is. So if we look at the investment case, if they reach this year's budget, which they've put in, we will start to meet that this year. There, we did see, in terms of Department of Transport. And also, we did see something coming from SANRAL, but it was more of a lighter, the bitumen-type repair work. We do see delays. We have seen delays in terms of the letting out of the contracts. And the working capital in this business, 10%. So it generates a lot of cash. And it's a B Level 1 contributor, so that puts it in the right sweet spot in terms of supplying in this area. I'll look at the outlook. So that is the year as when passed. Now the outlook. Now we've got to tell you about some of the ideas that we have and some of the initiatives we have on which -- and we have not run out of ideas, right? We have to. In this environment, you need switched on people and real testament to the people within AECI. We have some fantastic people. And it's how we turn them on. How we switch them on is our challenge going forward in this environment. But we've got good ideas. The markets that we're in and the geographical footprint of our mining business still looks pretty robust. And if you look at the areas that we're in, this is taken as February 2020, so it's updated. So you can see, in each region, we keep a very close eye on what is exploration taking place. And you can see, in the rest of Africa, there's a massive amount of exploration taking place at the moment. And of course, as you see, you go down into pre-feasibility, feasibility and in construction. So lots of activity still going on in this sector. So we like the sector. It's in our DNA. We need to chase these markets and that it fits really in our sweet spot. And that's why we'll also continue where we can buy small acquisitions in other areas. We'll look at that. And that will give us the licensing to operate. So we're very good at that. There's some great technology. We also have in the drop-off in terms of the mines, and we've moved now our emulsion to underground in terms of bulk emulsions and what we're now putting it down a hole. So on the next slide, we're now down to 980 meters in 1 drop. So that's moving explosives down a path to 980 meters below surface. And we've conducted a successful blast. This is probably if not one of the deepest applications of this type of product. It's a safer, but it's also cost effective. Remember, you're not moving explosives down shafts or down inclines anymore. So there's some really good technology on this, which Edwin and his team is looking at. The other one, when we've actually get healthy in Edwin's business, we've moved a lot of customer base away from Anfex. In fact, we've closed our Anfex plant down. So with the initiating systems comes the underground pumpable explosives. We put in 746 units last year. There's an order for another 300. And actually, at the moment, Edwin and his team are really battling to keep up with the demand on producing these units because the mines are starting to convert now. They want a safer explosive underground. And this is fantastic technology, both in platinum and also in gold. So great kudos to that team. Outlook for water. We've obtained, in terms of supply, for 100% of the big municipality for 3 years. So that -- and it is accredited that it has to come from our plant because of the quality. So we've got that in our bags. So it's because good volumes coming out of our Pietermaritzburg site team. We're also looking at enhancements in terms of greener technology. In Africa, we're looking at producing closer to customer, and we're looking at new formulations and new greener technology. We definitely like the greener way of doing things. There is opportunities in water infrastructure. And when I talk about purpose in the next few slides, that will come into it. But Africa, looking good. And we are receiving more LCs. And I think we've got clearance for the big order that's just come through. So we are seeing a lot of momentum around water in Africa. A very exciting space for us. Plant & Animal Health, we are going to continue with the technology in terms of the SupPlant. We've got -- the Biocult has been registered and running trials in Canada now. We've got the registrations. We are doing more registrations in Africa and the registrations around generics of our own formulations. And our margins are higher in those formulations. So there's a drive as we bring more of our own IP into our customers and into the market. We're also looking at apps in terms of disruptors. This app gets us more into the informal market. So they've got a link between what they produce into the retailers. But now there's a link between us and supplying them different crop protection chemicals, all done online. So that's quite exciting. Schirm, Mark alluded to it. Biggest -- we need to fill up that synthesis plant this year. And it's a high priority. And it looks like we'll be able to close by June. We'll be closing down the Magdeburg site, so that cost will go away. And we can utilize those skills and move them across into the Schonebeck site. So that's the plan. They are here -- the team is here this week, and we're looking still for opportunities in our terms of our raw material supply in this market. And we are seeing some of the blender that's giving us a good return. And we've appointed a brand-new sales team. And that, on a weekly basis, we're getting updated on their sales pipeline, which is looking pretty healthy for us right now. Much Asphalt, I would be amiss not to say anything about this one. We are seeing a lot more activity with SANRAL. In perspective, in terms of 2019, yes, we sell about 1.9 million tons of asphalt. We only sold 75,000 tons to SANRAL in 2019. The usual offtake from us is between 16% and 25% of that 1.9 million tons. So there's opportunity if we can get them to start letting out those contracts. The news is that we are started to see, and I think we will see the effects of that, definitely in the second half of 2020. So we're quite a little bit more upbeat about this. I've given you examples of some of the work and the tenders that are out there that we're working. Also in Namibia, quite interestingly, they are starting to spend on asphalt again now. And there's quite a few projects. As you know, we do have an asphalt plant in Namibia as well. So much -- and that team is a lot more upbeat, and Dean went to their strategic meeting a week or so ago and came back with a sort of smile on his face. And I'm saying sort of a smile, but a lot more positive than when 2 years ago when we bought this business. But I think we're going to see most of it, obviously, in the second half of this year, moving into next year is when you're going to see that kick. Chemicals, we are looking at restructuring. We are including the Food & Beverage business in that. We will give you an idea as we have our engagement with you through the year. The final numbers are not being put together yet, but what the idea is exactly like the other 2 projects is whatever we're going to pay out by half year in terms of the cost reduction exercise, we will gain it back in the following 6 months. So that's the concept. And I think we've got a lot of credibility and able to do that now. We know exactly what to do. We know what resources that we have, and we know how to engage and deliver. So we're quite happy with that. Still, top of our list is our innovation hub. You can start seeing, as I look to the outlook, a lot of those projects that we're getting out of our innovation office are being now implemented and put into the market. We do see this year about ZAR 48 million. We did meet the expectation last year, and we see a further ZAR 48 million coming through there. Those are really the ideas of today, all right? That excludes some of those big projects that I've been talking about. Dean is busy with that. The innovation updates, this project purpose, high on our agenda. We are now engaging with government, talking about projects that we can work together with them. And really, it's around sustainability. We are now looking at Modderfontein as a good case where we're going to take them in terms of the vision. It's also part of our values in going green is how we're going to take them off the grid in terms of water. So we're going to take -- we're busy working now with a big project with that team, where we're taking all their wastewater and will be returning it back into the factory. So -- and it will be a fantastic showcase for us to take obviously, customers, but also government officials. Because the purpose is now about how do we take water and put it in the right area in terms of communities but also into farming? And we're also talking about taking wastewater, diverting wastewater, treat it and moving it into agriculture. And sort of where we went at Hammanskraal, we did that where we've helped schools, taking borehole water, cleaning up. We supply now 4 or 5 -- 5 schools in the region with this water and the community and the clinic. And we're also taking this water and putting it to a standard to build small vegetable farms. So schools are now actually selling some of those produce. You might say this looks a fantastic specimen, right? Because it's using our biostimulants from Nulandis. So we're also educating them. So if you look on a bigger scale, I think there's a great promise that we can actually look at communities that have municipalities with wastewater where we can actually start helping them to grow food. So that's project purpose. Dean is in full charge of that. All right. So it's not all rosy out there. So in terms of the global market, uncertainty around trade, obviously, with China, America, Brexit, but is -- what is definitely coming to the fold now is effects of coronavirus, right? That is higher on our risk agenda right now. We have got procedures in place in terms of travel, in terms of our operations outside. I am concerned around after the Chinese New Year and the DRC and Zambia, where we're having a lot of people returning. And we are hearing that there is quarantine on some of the mines. So it is still a place that we are concerned about. It does have effect on supply chain. We do have a Chinese sourcing office, and we are getting day-to-day updates in terms of raw materials. We are shifting raw materials we can buy from Europe and also, obviously, the U.S., anywhere we need to. So supply chain. Shipping is a concern. But we're actually are on top of that right now, okay? South Africa, really power. I think it's not going to get any better this year. GDP is a concern. Manufacturing sector is a concern. And of course, we are starting to see loss of skills out of South Africa at the moment, which we need to keep a very close eyes. So the South African economy in 2020, I don't think is going to be any better. It's us being able to take the opportunities and taking costs out of our business again and actually making us more healthier to take on the challenges out there. And objectives is obviously to improve our safety performance. That always continues. We need to have a look on delivery of the Much Asphalt and the Schirm investment cases. That's high in our priority. The benefits of the -- we have a monthly meeting where we look at the benefits of those projects in terms of project align and ripple. Strategic realignment of the chemicals is now hot on the agenda of Dean, and Dean is assisting. And then we're also looking at the Brazilian Dinacon business that Edwin wants to bring in. It's a business that supplies into the construction into the quarry. Predominantly, quarry has not got the technology to go into mining. What we bring to that is we have the licenses now to move into that Brazilian mining sector. And we also are looking at that explosives unit in Chile. Geographic footprint in Africa, very important. And we are starting to see how the mining business is pulling a lot of the other companies into Africa right now and into other areas of the world. The Food & Water security, great opportunity for us. And we have the technology and the people in able to grow that business. And top of the list is cash. In these times, we're making sure around our covenants. We're making sure that we're collecting cash. And in that slide that Mark put up there, below the gray line was there was cash. So -- and we continue to generate cash. But it's continuous work and continuous focus. So with that, thank you for attending. We'll now take some questions.

Gerhard?

Gerhard Engelbrecht. Just maybe for Edwin. Edwin, with this Sasol JV and potential sale to Enaex, I mean, have you encountered Enaex in Latin America? And secondly, do you see that changing your market -- the market dynamics in South Africa and maybe north of our borders? I mean I think they're looking at going north, and they've got their own initiation systems and et cetera. So are you expecting more competition?

Look, I think if you look at the South African market as it is, we've got lots of competition. It's not that there's a new player. They're basically taking over the Sasol business. So it's the same -- for me, it's the same -- it's still a competitor. Not 100% sure how improved the technology would be. We have not come across them in South America because we're not big into South America at this stage. But if you ask me, in the rest of Africa, we've encountered all the big players, Orica, Dino, MAXAM, all the big players we've encountered and we've beaten them in Africa. So yes, it will be an extra player. Yes, we can't sit and think it will be easy. But we've played in this territory a long time, and it's our playground. So we will continue to compete.

Just a question about the land sale. Obviously, over the years, we've seen AECI's continued sell of land. I mean you didn't really talk about it much. I mean I know you are looking to shrink your footprint in Modderfontein. I mean maybe talk a little bit about the transaction. And can we anticipate going through a phase of perhaps more land realizations over the next 3 to 5 years? And how material could it be?

I knew you'd come up with that. I will ask Mark to talk about how the transaction was done. It's a relatively small parcel. And it's actually other side the road of Modderfontein, which was there. But Mark, maybe just go through the transaction process?

Yes. So that parcel was about 46 hectares. It was a parcel of land that was excluded from the Zendai transaction years ago, and we still have a portion of that parcel -- of parcels of land. But it was an opportunistic sell. A buyer came in, and we looked at it. We did -- we revalued the land, and we made sure that we got above the current market valuation. So yes, if we do shrink our explosive license circles going forward, land will become available. It's not our intention to do that currently. We're obviously business people, so we're looking at the progress of the site. And at the opportune time, where it makes sense, we would look at that process. I hope I've answered you, David.

And I think the MRT own -- they sold on to the Chinese. They are putting infrastructure in. So there are joining parts -- and which makes it more attractive in time. So I think now is not the time, but definitely part of the Board and the Board strategy. But in the short term, we've got no intention of shrinking that footprint. Okay. It is quite critical because it's a strategic footprint. It's a national key point. And maybe, I think going on in power just leads me into another ways. We do not get cut off on our national key points in terms of power. We actually get asked to throttle back on power. So we don't get any sudden cuts because of the nature of the business. So that's actually quite good. And we know relative to production, relative to site, what production sites we can actually pull back. The big challenge, though, is customers, all right? So the smaller manufacturing sectors, they get affected in a big way. And of course, especially the underground mines. And we also see the impact, especially the first half and the second half relative to that load shedding, that some of the mines will switch off the processing plants. All right? Because they've got stockpile. So they'll actually curtail power. And what we saw in December, that some of them -- and there was announcements, I think, how many per announcements, that they weren't putting people on the ground. So it affects our customers in a material way. Okay. Any other questions?

Let's just see if we've got any questions on the conference call.

We have no questions on the audio line at the moment.

We do have some questions that have come in via the webcast. The first question comes from [indiscernible] at Mosaic Financial Solutions. And he asks, at a previous presentation, the comment was made that it was difficult to get the right talent for Schirm. Given the location of the business, is that challenge been resolved?

Yes. So the challenge hasn't been entirely resolved. The business is based in East Germany. And what will happen is we have recruited some specialist skills onto the synthesis plant. When we shut down the leased plant, which is the Magdeburg plant. Magdeburg is 20 minutes away from Schonebeck. So when we shut that down, we'll enhance the skills by another 6 to 8 people. And then that will leave us a deficit of 4. And we are recruiting some skills in other parts of Europe to come through.