Explosive Value from AEL Mining Services

Boom! That’s how I would like to imagine the 2015 annual report of AEL mining landing on the desk of shareholders laced with value. This formidable company traversed the turmoil of the 2015 macro environment in the mining sector that saw many of the mines in Zambia scaling back on production with some ease in the first three quarters of 2015. However, the forces in the final quarter were rather strong but the company did not relent as it had done just enough to give shareholders a good return on investment.

Although copper production saw a slump with a marginal increase of 1%, this explosives producing company was able to grow its revenues by 45%. Their annual report presents both dollar and kwacha denominated financial statements and even though the kwacha rate deteriorated, their earnings grow both in kwacha and dollar speak.

Key to the success of the company can be attributed to the company’s values. They place safety as a top priority and recorded ZERO injuries during their quest to generate value for shareholders in 2015. One would expect that due to the slowdown in the mining sector, the company would suffer however, the key to their great performance was what was happening in their operations. They were able to harness their resources and capabilities and produce an increase in operating cash flows of 147% with a bit of help from the movement in foreign currency translation (hedging) and improved change in trade and other payables. All this culminated in an operating performance (operating profit) improvement of 113% from 2014.

Shareholders must have been pleased when the announcement came for dividends in 2015 as they saw an increase of over 3000% from the 2014 payout. Further pleasure was derived from seeing equity and a plowback growth reinvestment of 122% from earnings. They also saw a 15% improvement in the return on equity which continues to range north of 300%.

What is striking about the balance sheet is how they have grown their cash over the period under review. This can be as a result of the negative effect of the slowdown in the mining sector and the company opting not to make cash heavy investments in technology (innovation). A company with no gearing and heavy on cash on the balance sheet can create anxiety on its ability to innovate in the short term. On the flipside however macro forces can also lead a company to take as safer position in case of any further headwinds. However, this signals great improvement the company has made in boosting its working capital cycle which saw a 78% increase. Furthermore, return on non-current assets saw a great improvement as the company made the most of its assets by sweating them to the maximum.

One can almost not fault this company with its impeccable performance. However, keeping an eye on the headwinds that affected the company in quarter 4 in 2015 will be vital for shareholders that seek to continue enjoying healthy returns on their investment.