Capitalism’s new face…
The days when companies were focused purely on optimizing value are gone.
The new focus now is on creation of shared value where all stakeholders benefit. In times past it was acceptable for corporations to operate with a singular goal in mind. Make money. Make money for shareholders.
Even that goal was not always followed to the letter.
Managers of large multinational organizations seemed more preoccupied with creating personal fiefdoms and self-aggrandizement. They would pursue this self-serving goal at the expense of the shareholders on whose behalf they were running the business in the first place.
It is still a problem today, however, it is no longer as pronounced as it was in the past. These days investors look beyond the financial outcomes that corporations generate to see if they are truly being responsible corporate citizens.
ESG is not the future. ESG is now.
This principal framework is starting to feature more prominently in company presentations and announcements. Anglo Platinum presented its financial results today (21st February 2022) and like clockwork, the company scored some very impressive ESG results. For starters, Anglo American Platinum is the largest precious metals producer listed on the JSE and boasts a market cap of ZAR 506 billion or US$ 34 billion and it is led by a woman.
A very capable executive who happens to be a woman in a country and sector not famous for having a lot of women leaders. A 2021 PWC Report on remuneration trends showed that only 13% of South Africa’s directors and executives are women. This is to say that of all the executives and board directors in South Africa of companies listed on the JSE (there are at least 332 companies listed on the JSE) and those not listed only 81 are women.
Natascha Viljoen as CEO of Anglo-American Platinum Limited stands out in a field dominated by white males and that has a poor showing in terms of female representation.
Viljoen took up her role in April 2020 after Chris Griffith left the post after 7 years of service. Griffith is now the CEO of Goldfields Limited. Natascha Viljoen was previously the head of processing at Anglo since 2014 and prior to that, she was vice president in charge of the processing at Lonmin. She is an engineer by training and began her career at ISCOR and held senior positions at Anglo Gold and BHP before joining Lonmin in 2008. She has been ranked by Fortune Magazine as one of the most powerful women in the world.
The financial results of the company began with a report of the company’s ESG performance. What stood out the most from the company’s report is that the company achieved zero fatalities during its operations in 2021. This is most exceptional given the nature of mining operations which are for the most part dangerous.
Most if not all Anglo-Plat’s peers have reported reduced or reduced fatalities in their operations but not always a zero-fatality rate. This was attributable to what the company calls their Elimination of Fatalities (EoF) strategy. The strategy focuses on the most common causes of fatalities across Anglo American.
Its purpose is to use what the company calls “accumulated learnings from a wide range of fatalities” and use that data to take a more proactive approach to prevent incidents that result in the loss of life. The strategy has paid off resulting in an outlier performance of zero fatalities in 2021.
Anglo-Plat in 2021 contributed ZAR 148 billion (US$ 9.8 billion) to the South African economy. This figure is equivalent to the foreign exchange earned by the nation of Zimbabwe in 2021. This contribution was in terms of payment of dividends to shareholders, taxes to the government, salaries and wages, social investment, COVID response measures, capital investment and local BEE procurement.
This economic contribution at ZAR 148 billion is more than double what the company reported in 2020 at ZAR 66 billion. Anglo-Plat is therefore making a tangible economic impact on the broader economy of South Africa and the company can quantify it this impact by outlining the payments it has made to various stakeholders right across the board.
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Additionally, the company during the presentation outlined its road map to reduce emissions into the environment. Interestingly the company has had zero environmental incidents of hazardous waste since 2013. The state of the environment is something the company takes very seriously. Operationally, the company had a busy but good year in 2021.
The company reported 5.8 million ounces of refined PGM production against 3.2 million achieved in 2020, representing an increase of 81%. This translated to PGM sales volumes of 5.2 million ounces in 2021 compared to 2.8 million in 2020.
Financial performance
The increased productivity and output translated into record profits for the company. Anglo-Plat achieve revenues of ZAR 215 billion (US$ 14.2 billion), EBITDA of ZAR 108 billion (US$ 7.13 billion), and headline profits for the company the six months to end 31 December 2021 came in at ZAR 79 billion (US$ 5.2 billion). The record financial performance was the result of three major drivers namely an increase of the Rand basket price which grew by 22% in 2021 and increased sales volumes which swelled by 82% in the period under review.
Lastly, the company achieved what it calls a “mining EBITDA margin” of 65%. These three things according to company finance director Craig Miller gave impetus and critical mass to the company’s financial performance in 2021. Anglo-Plat ended 2021 in a net cash position of ZAR 49 billion (US$ 3.23 billion) after generating ZAR 124 billion (US$ 8.18 billion) of cash during the year.
On the back of this financial performance, the company treated its shareholders to a dividend of ZAR 80 billion (US$ 5.3 billion). What is especially unique about this payout is that it translates to a 100% payout ratio. What this means is that Anglo American Platinum paid out all of its net profits it made in 2021 to its shareholders.
Normally a company will be cautious and prudent in terms of its dividend policy. The common practice is that companies out of the desire to conserve cash for future projects will pay out a predetermined portion of their profits as dividends. This payout depends on a myriad of factors which may include among others how indebted a company is to its bankers and debtholders.
As a condition for accessing debt capital either from banks or from bondholders, a company will agree to a dividend payout ratio which is consistent with its ability to service long term debt held by its bankers and bondholders.
Anglo-Plat investment case
A payout ratio of 100% is not common as it demonstrates confidence by Anglo-Plat in its ability to generate cash and the fundamentals of its business. To categorize this company as a blue-chip is an understatement. As can be expected the shares of Anglo-American Platinum are not cheap. A single share of the company will set an investor back ZAR 1,926.74 (US$ 127)!
Be that as it may, according to the company’s 2020 annual report under the shareholder analysis section the majority of the company’s shareholders comprise individuals. Individual shareholders at Anglo-Plats number 10,505 to be precise. Individual investors who desire to take a position or build up a shareholding in this company and do not have substantial cash resources would be well advised to build up their position slowly or to use leverage carefully.
Despite the strong financial showing by the company. The announcement of its results did not excite the market with the shares trading in negative territory. They were in fact down 1.50% during much of the trading session on the JSE. The only plausible explanation for this is that the market was already expecting this record performance and had already priced it into the company’s shares.
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