CHIEF EXECUTIVE OFFICER’S REPORT

If our people share in our vision for prosperity, we all profit from the outcome. Putting people first at AEEI is driving us forward to not only sustain Company output but is leading the way in how business of the future will be conducted.

Khalid Abdulla | Chief executive officer

SEEING OUR VISION 2020 VISION IN ACTION

The 2017 financial year has been one characterised by economic challenges, political volatility and social unrest. Many of us have experienced some of these “interesting times” first hand. The aforementioned notwithstanding, it has also been a year of great advances – for social innovation, business and the development of new technologies that will in time, underpin the functioning of everything we need to live and work. This also necessitates the rapid changes in the way we do business.

Looking back, AEEI had its fair share of challenges as we entered a period of global economic austerity, but we also rose to the challenge more than comfortably and delivered outstanding results yet again. This is, in many ways, thanks to the exceptional teams that we work with across the Group. We are a Company founded on the principle of putting our people first. This approach is yielding great benefits in the marketplace, in our business, for our shareholders and in our communities. It therefore seems fitting that I begin my report by acknowledging each and every one of you and thanking you for your concerted efforts to ensure that AEEI continues to grow in strength and stature.

AEEI is a business built on excellence and everything we do is by design rather than per chance. Our values and our Vision 2020 Vision strategy determine our actions and our goals. Our guiding principle of custodianship requires that we integrate social, governance and environmental priorities alongside the financial performance of the Group.

I am pleased to announce that we have exceeded our growth targets for the financial year as we continue to create value for all our stakeholders by focusing on our set strategic objectives. More details are available in Vision 2020 Vision.

AEEI, which is now in its 18th year as a JSE-listed company, yielded excellent results for the 2017 financial year. The AEEI brand is gaining influence in the market place and is becoming synonymous with the conception of an exciting and innovative company that is growing consistently.

Our primary goal is to become sustainable in every aspect of the business – after identifying the factors that will leverage future growth, formulating and implementing the plans and then checking back in, on a regular basis, to confirm that we are on track with our Vision 2020 Vision strategy. The year 2020 is but three years away and I am happy to report that we are progressing ahead of schedule. This is due to our interpretation of constantly changing market indicators and trends and our ability to be nimble in adapting our strategies where needed. This is not an easy task, but it is something the Group accomplishes with professional enthusiasm. We are holding our course, due to our employees and the systems we have in place.

Once again, AEEI is able to present a strong and improved balance sheet on account of a number of critical achievements, including value-creating acquisitions, and separately listing our fishing and brands division. This contributed to the effective management of the Company’s balance sheet to fund further growth plans and enhance shareholder value. The in-depth financial results are published in the chief financial officer (CFO)’s report.

Seeing Clearly – OUR Vision 2020 Vision Overview

Previously, I promised to focus on our Vision 2020 Vision strategy and the future orientation of the Company. I believe that we have now provided a clear roadmap to our stakeholders of how we see the Group progressing in the years to come and how we will generate long-term value creation for all our stakeholders.

Our approach, energy and willingness to adapt where we need to, bodes well for ensuring the Group’s future sustainability and excellent financial performance.

EXTERNAL AFFIRMATION

In terms of recognition, it has been a bumper year of awards, details of which can be seen in our recent awards/achievements. We would not have achieved anything without teamwork – I encourage you to read about our accomplishments, bearing in mind that everyone in the organisation contributed to our collective achievements.

However, one thing we cannot afford to do is to become complacent. As wonderful and as gratifying as it is to receive acknowledgment for our efforts towards positively transforming the South African business landscape and consistently delivering excellent results for our stakeholders, there is still more to achieve. As a reminder of what sets us apart from our competitors and why we consistently achieve recognition, refer to what sets us apart.

AEEI is known to be a Group that is innovative in its thinking and pushes beyond entrenched practices to advance progress on all levels. Furthermore, our communication and ongoing engagement with associates, employees, government, labour unions, our sponsors, partners, shareholders and other business leaders is geared to promoting economic inclusivity and optimal growth for all parties concerned. Here, our contribution to the 2030 National Development Plan is of significance – it has been plotted as part of our projected “business as usual” practices and will begin to filter through to all of our business units through our strategy.

By the Numbers

It is indeed the case that the country as well as the global markets have faced an economic downturn; however, AEEI has remained positive and focused on delivering sustainable, positive stakeholder value with single minded determination. This was achieved through a combination of sound decisions that include cash-generating business deals, prudent control of working capital and the containment of expenditure, without compromising investment safety and risk management-related items, all of which are non-negotiable.

I am delighted to advise that the Group remains on a positive trajectory. The Group delivered excellent revenue, operating profit and asset growth due to the strong contributions from all its underlying operations and investments for the year under review. The consistent increase in earnings and asset growth during the ongoing economic volatility, low investor and consumer confidence, as well as the rating downgrade demonstrates the efficiency and effectiveness of our business model in challenging market conditions.

AEEI has been successful in that the Group’s revenue, operating profit, earnings, profit before tax, asset base and net asset value all increased significantly for the financial year.

As a result of the solid financial performance of the underlying businesses, net cash generated from operating activities increased substantially over the past few years. More detail in this regard can be found in the CFO’s report.

Review of our Investments

GROUP PROFILE

The Group as a whole performed very well showing growth in all our key performance indicators due to strong contributions from all of our underlying operations and investments.

The Group’s revenue increased by a significant 43% from R736m in 2016 to R1 052m in 2017, the operating profit increased by 111% from R310m in 2016 to R655m in 2017, while our asset growth rose by 65% from R1,76bn in 2016 to R2,8bn in 2017.

These financial indicators are all very significant achievements setting new records for the Group and raising the bar for further growth in the future.

Fishing and brands division

We successfully listed our fishing and brands division separately on the JSE. In the listing process, the Company raised R526m and achieved a market capitalisation of approximately R1,2bn on listing date.

Premier Fishing and Brands Ltd (Premier) delivered a consistent and satisfactory set of results for the year with operating profit increasing to R77m.

Premier’s revenue and product basket is further diversified through customer geographies in the USA, Europe and the Far East, which we believe mitigates various economic and global risks.

The overall improved catch rates, greater sales volumes, better pricing and efficient vessel management all contributed to their more than satisfactory financial performance during the year.

The abalone farm expansion plans are all on track and are expected to be completed by 2020 with full production increasing to over 300 tons.

Premier announced in October 2017 that it concluded a binding heads of agreement with Talhado Fishing Enterprises (Pty) Ltd, the largest squid company in South Africa, to acquire a 50.01% equity interest in their company. This acquisition will further complement its overall diversification strategy and enhance its product range.

Technology division

A sizeable percentage of AEEI’s value now resides in our technology division. This is evident in the results of our operating profits and is an indication of how our ambition to realise the goals and objectives we set out in our Vision 2020 Vision strategy are coming to fruition. The technology division has over the past five years, shown consistent year-on-year growth and has delivered strong operating profits for the 2017 financial year once again.

The division delivered on its acquisition strategy by acquiring two information technology (IT) companies to bolster its product portfolio, which resulted in existing revenues and operating profits increasing by a substantial 182% and 141% respectively. This result includes the R570m telecommunications segment, which has now been reflected as part of the technology division. This produced the necessary economies of scale required to meet its Vision 2020 Vision strategy in relation to the potential listing of the division in the short to medium term.

The diversification in the various technology businesses complements its existing portfolio and will enhance its future offerings to its broader customer base.

During the period under review, the Group gained significant influence over its fully paid-up investments in BT Communication Services South Africa (Pty) Ltd (BT). This resulted in the technology division recognising the investment previously held as an investment at fair value through profit as an associate.

A major constituent of the division underwent a name change during this financial reporting period – Sekunjalo Technology Solutions Ltd was renamed to AYO Technology Solutions Ltd (AYO Technology), with “AYO” meaning “joy and happiness”.

More importantly, the Board approved a proposal to list the above-mentioned subsidiary, AYO Technology on the main board of the JSE, subject to market conditions.

Health and beauty division

The health and beauty division increased revenue by 252% from R4,2m to R14,8m through increasing its footprint to regions less affected by drought and by acquiring a 90% equity interest in Orleans Cosmetics (Pty) Ltd (Orleans Cosmetics). Orleans Cosmetics is the exclusive South and Southern African distributor of imported, high-end cosmetic brands such as Gatineau, NUXE, RVB SKINLAB/diego dalla palma professional and Sothys.

Biotechnology

Genius Biotherapeutics (Genius), South Africa and Africa’s largest medical biotechnology company, continues with its research and development activities.

Genius’ management focused their plans on updating all regulatory work by employing the necessary human resources required to meet Medicines Control Council (MCC) compliance standards for the production of Repotin.

Events and tourism DIVISION

espAfrika continues to generate strong bottom-line growth. This has been achieved through rationalising business and streamlining processes over the past three years. The entertainment sector is evolving to appeal to a clientele looking for more experience-based events and espAfrika
is positioning itself accordingly, with new Company-owned initiatives as well as a number of planned joint venture projects coming on the market in the short to medium-term.

espAfrika hosted another very successful 18th Cape Town International Jazz Festival post interim period. In 2016 espAfrika launched its own second annual event called “The Royal Escape” at Sun City and this was held again in July 2017.

The radio station Magic 828, which has been in existence for 24 months, contributed to the gross revenue for the period. The station increased their listenership by 155% in the greater Western Cape region from 134 000 to 342 000.

Tripos’ growth in its inbound and outbound travel volumes improved as expected, which is in-line with the Group’s strategy.

Strategic investments

AEEI has minority equity stakes in Saab, Sygnia and Pioneer Foods and these investments have demonstrated an improvement in value since the date of the respective acquisitions.

Consistent growth in earnings and regular dividends were received from all the strategic investments. During the current year, AEEI purchased additional shares in Sygnia as a result of a rights issue, which resulted in the Group obtaining an additional 0.867% and now own 1.735% of
the company.

Sale of business

During the current year, the Group disposed of the going concern in Saratoga Software (Pty) Ltd (Saratoga). Total net assets of R13,3m were sold, R4,6m of which was in relation to goodwill. The consideration receivable amounted to R19,4m, which resulted in a profit on disposal of R6,1m reflected in the statement of profit and loss and other comprehensive income.

Future focused

The Group will continue with its strategic focus on growing the value of its core operational investments and improving the value-add to its strategic investments.

AEEI has built a solid platform for further organic growth and has positioned itself well to increase its investments by acquisition. Management is focused on its five-year strategic plan – Vision 2020 Vision – and has reinforced its overall acquisition pipeline and especially for its fishing and brands and technology divisions.

I had the pleasure of attending the World Economic Forum on Africa in Durban earlier this year. While it was an excellent opportunity to network with world thought leaders, to share and to learn from best practices, it is also the forum from which to gain insight into future trends. As I have already mentioned, technology and innovation will play an increasingly important role in business and consumer-related activities. There is much talk about the dawning of the 4th Industrial Revolution in which man and machine (mostly virtual) would merge. In fact, it is already here and AEEI is preparing for this evolution in a number of ways.

As an addition to AEEI’s growth aspirations, a Group-wide innovation drive was initiated with our Vision 2020 Vision strategy. Innovation projects have been designed to improve the overall quality of earnings, while accelerating and enhancing our existing business and potentially diversifying the portfolio further, even as we take into account our transformation philosophy through B-BBEE, supplier and enterprise development responsibilities.

In the global innovation landscape, tomorrow’s to-do list has already been realised with a click of a button. In the new “app economy”, Millennials have made way for “Generation Z” – those individuals who were born in the digital era from 1995 – who are fast becoming the largest percentage of stakeholders and clientele worldwide.

While the latest app, cellular telephone, gadget, cloud and everything in-between is simplifying some aspects of our daily lives, digital and other technology is also enabling nefarious cyber activity. This has prompted us to install and upgrade stringent security measures to safeguard our online assets, intellectual property and information. Other future developments for the Group will include further acquisitions and diversification as we continue to expand our sphere of operations across Africa and embrace some direct consumer-focused brands to further diversify our holdings and safeguard the growing e-commerce trend, among others. All in all, it is shaping up to be an extremely exciting period for AEEI.

Sincere appreciation

This past financial year has been exceptional on many levels – the Company’s performance, both on a quantitative as well as a qualitative basis has been remarkable and we have been acknowledged with a number of high-level prestigious awards by our peers and industry.

In addition to the Company’s awards mentioned in the chairman’s report, I am honoured, but also delighted, yet humbly so, to share the following awards with you, as they come as a result of all our collective efforts.

This year I was honoured with the Top CEO Africa Award for South Africa by the CEO Today Africa Awards magazine – a publication that recognises and celebrates outstanding leadership, superb strategic thinking and entrepreneurial spirit.

I received both the Business Leader of the Year – Southern Africa 2017 award at the 7th All Africa Business Leaders Awards in partnership with CNBC Africa and South Africa’s Most Empowered Business Leader of the Year 2017 at the Oliver Empowerment Awards. In addition to this, I was lauded as SA’s Future Maker – Driver for Change Award 2017 at the inaugural Vision 2030 Awards and AEEI has also been recognised as a Most Empowered Company by Empowerdex over the many years since its inception.

While some of these awards have my name on it, I acknowledge that it is due to our collective efforts to deliver the results that we have, as a Group. I am truly blessed to be supported by a very talented, highly skilled and hardworking team of employees, partners and associates as well as our visionary shareholders.

These awards all stand as a testament to our commitment to continuing on our path of transformation and building AEEI as a sustainable business – one that can be admired and emulated as much for its ethics and governance as for its financial performance.

Our diversified operational and investment portfolio, expanding footprint, knowledge, skills and continued growth will be harnessed to improve and ensure a sustainable business for years to come.

I started this report by expressing my thanks to all who have shared our vision and helped us deliver on it. I would like to end this report by reminding everyone that investment in human capital is a prerequisite for laying the foundations of great economies. AEEI is successful because of its employees. The country may be entering uncertain times, but if we look to one another, support one another and share our successes as well as our failures and learn from both, as a community, we can achieve what we all dream of – prosperity.

I extend a special thank you and my sincere appreciation to the entire Board of directors and especially our chairman, Reverend Dr Vukile Charles Mehana and deputy chairman Mr Salim Young for their continued guidance and wisdom. I would also like to thank the executive management team, employees, strategic partners and associates for their passion, dedication and unwavering support as they continue contributing to the success of AEEI.

I look forward to the next phase of AEEI’s growth trajectory based on our Vision 2020 Vision.

Thank you.

Khalid Abdulla

Chief executive officer