Wrap Text
Reviewed condensed consolidated provisional financial results for the year ended 31 August 2016
enX Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 2001/029771/06)
JSE share code: enX
ISIN: ZAE000222253
Reviewed condensed consolidated provisional financial results
for the year ended 31 August 2016
* Revenue up 30% to R1,151 million
* Adjusted headline earnings down 41% to R21,1 million
* Net asset value per share up 5% to 114,5 cps
* Capital raised with the conclusion of the empowerment deal
* Genmatics, WAI and AGL acquisitions concluded and integrated into the
Group
* Successful completion of the Eqstra transaction, implementation set
for 2017 year end
Condensed consolidated statement of profit and loss and other
comprehensive income
Reviewed Audited
year ended year ended
31 August 31 August
% 2016 2015
change R’000 R’000
Revenue 30 1 150 951 882 835
Cost of sales (881 043) (628 468)
Gross profit 6 269 908 254 367
Gross profit (%) 23% 29%
Other operating income 10 294 6 232
Operating expenses (250 623) (198 601)
IFRS 2 share appreciation rights
charge (6 323) (15 480)
Impairment of property, plant and
equipment (2 941) –
Impairment of goodwill (78 205) (10 961)
(Loss)/profit before interest and
taxation (263) (57 890) 35 557
Net interest paid (8 484) (2 165)
Interest received 3 016 1 997
Interest paid (11 500) (4 162)
Share of profits/(losses) from
associates 293 (77)
Net (loss)/profit before taxation (298) (66 081) 33 315
Taxation (5 312) (11 473)
(Loss)/profit for the year
attributable to equity holders of
the parent (427) (71 393) 21 842
Other comprehensive loss:
Items that may be reclassified
subsequently to profit or loss
– Foreign currency translation
reserve (40) –
Total comprehensive (loss)/income
for the year (71 433) 21 842
Basic (loss)/earnings per share
(cents)* (340) (12.6) 5.3
Headline earnings per share
(cents)* (79) 1.6 7.6
Adjusted headline earnings per
share (cents) (57) 3.7 8.7
EBITDA2 (181) (39 595) 49 173
Adjusted EBITDA2 (12) 58 124 66 342
Number of shares in issue at end
of year 600 184 057 421 689 018
Weighted average number of shares
in issue 566 256 129 415 089 994
* Dilutionary instruments in issue do not have a dilutionary effect.
1. Reconciliation of earnings to headline earnings
Net (loss)/profit for the year
attributable to equity holders of
the parent (71 393) 21 842
Adjusted for:
Loss/(profit) on sale of property,
plant and equipment 379 (1 100)
Impairment of property, plant and
equipment 2 941 –
Impairment of goodwill 78 205 10 961
Gain on loss of control – (417)
Taxation effect on adjustments (929) 308
Headline earnings attributable to
ordinary shareholders (71) 9 203 31 594
Adjusted for:
IFRS 2 share appreciation rights
charge 6 323 15 480
Restructuring costs 5 426 –
Transaction costs (WAI, AGL and
Eqstra) 4 824 –
Release of straightline provision
for operating lease – (9 272)
Taxation effect on adjustments (4 641) (1 738)
Adjusted headline earnings
attributable to ordinary
shareholders (41) 21 135 36 064
2. EBITDA reconciliation
(Loss)/profit from operations
before interest and taxation (57 597) 35 557
Depreciation and amortisation 18 002 13 616
EBITDA (181) (39 595) 49 173
IFRS 2 share appreciation rights
charge 6 323 15 480
Transaction costs (WAI, AGL and
Eqstra) 4 824 –
Restructuring costs 5 426 –
Release of straightline provision
for operating lease – (9 272)
Impairment of property, plant and
equipment 2 941 10 961
Impairment of goodwill 78 205 –
Adjusted EBITDA (12) 58 124 66 342
Adjusted EBITDA (%) 5.1 7.5
Condensed consolidated statement of financial position
Reviewed Audited
as at as at
31 August 31 August
2016 2015
R’000 R’000
Assets
Non-current assets 424 902 246 315
Property, plant and equipment 121 928 80 271
Goodwill 151 336 125 931
Intangible assets 128 393 21 809
Trade and other receivables 5 985 –
Investment in associate 971 678
Deferred taxation 16 289 17 626
Current assets 999 415 636 981
Inventories 542 626 353 736
Trade and other receivables 394 552 248 630
Taxation receivable 2 087 655
Bank and cash balances 60 150 33 960
Total assets 1 424 317 883 296
Equity and liabilities
Total shareholders’ interests 687 420 461 346
Stated capital 634 565 345 387
Non-distributable reserves (40) –
Accumulated profits 52 895 115 959
Non-current liabilities 178 059 36 894
Interest-bearing liabilities 75 891 30 041
Vendor loans payable 65 864 –
Deferred taxation 36 304 6 853
Current liabilities 558 838 385 056
Interest-bearing liabilities 65 343 65 169
Vendor loans payable 33 897 –
Trade and other payables 405 962 296 631
Taxation payable 1 483 1 930
Bank overdrafts 52 153 21 326
Total equity and liabilities 1 424 317 883 296
Net asset value per share (cents) 114.5 109.4
Net tangible asset value per share (cents) 73.9 74.4
Average net operating assets (R’000) 650 301 424 303
Average net tangible assets (R’000) 406 451 276 563
Average net operating assets turnover (x) 1.8 2.1
Average net tangible assets turnover (x) 2.8 3.2
Adjusted operating profit margin (%) 3.5 6.0
Pre-tax return on average net operating
assets (%) 5.6 12.6
Pre-tax return on average net tangible
operating assets (%) 8.5 19.2
Condensed consolidated statement of cash flow
Reviewed Audited
year ended year ended
31 August 31 August
2016 2015
R’000 R’000
Cash flows from operating activities 12 294 (73 148)
Cash generated from/(utilised by) operations 22 162 (69 051)
Interest received (in cash) 3 016 1 997
Interest paid (in cash) (7 725) (4 162)
Taxation paid (5 159) (1 932)
Cash flows from investing activities (276 701) (75 116)
Additions to property, plant and equipment (20 135) (42 454)
Proceeds on disposal of property, plant and
equipment 754 6 598
Business combinations (257 320) (39 598)
Loss of control in subsidiary – 338
Cash flows from financing activities 259 770 87 254
Interest-bearing liabilities raised 80 000 89 781
Interest-bearing liabilities paid (67 093) (2 527)
Payments on transactions with non-controlling
interest (9 340) –
Proceeds from additional shares issued 256 203 –
Net decrease in cash and cash equivalents (4 637) (61 010)
Cash and cash equivalents at the beginning of
the year 12 634 73 644
Cash and cash equivalents at the end of the
year 7 997 12 634
Condensed consolidated statement of changes in equity
Reviewed Audited
year ended year ended
31 August 31 August
2016 2015
R’000 R’000
Stated capital 634 565 345 387
Balance at beginning of year 345 387 295 497
Increase through the issue of shares (net of
costs) 289 178 49 890
Non distributable reserve (40) –
Balance at beginning of year – –
Foreign currency translation reserve (40) –
Non-controlling interest – –
Balance at beginning of year – –
At acquisition of subsidiary 9 979 –
Transactions with non-controlling interest (1 650) –
Transferred to accumulated profits (8 329) –
Accumulated profits 52 895 115 959
Balance at beginning of year 115 959 94 117
Total comprehensive (losses)/income for the
year (71 393) 21 842
Transferred from non-controlling interest 8 329 –
Balance at the end of the year 687 420 461 346
Condensed segmental analysis
Power
Reviewed Audited
as at as at
31 August 31 August
2016 2015
R’000 R’000
Revenue 370 247 454 620
External 370 206 454 620
Intercompany 41 –
Gross profit 102 528 136 984
Gross profit (%) 28% 30%
EBITDA3 7 827 64 791
Adjusted EBITDA 14 759 55 583
Capital expenditure 15 580 22 213
Depreciation and amortisation 7 110 3 992
Total assets 373 984 445 675
Total liabilities 59 801 198 897
Net tangible operating assets4 277 324 258 306
Number of employees 222 271
Petrochemicals
Reviewed Audited
as at as at
31 August 31 August
2016 2015
R’000 R’000
Revenue 546 633 210 000
External 544 598 210 000
Intercompany 2 035 –
Gross profit 92 367 47 932
Gross profit (%) 17% 23%
EBITDA3 39 154 8 026
Adjusted EBITDA 39 253 8 026
Capital expenditure 6 011 11 792
Depreciation and amortisation 5 999 3 662
Total assets 656 543 215 498
Total liabilities 394 114 158 125
Net tangible operating assets4 367 895 138 505
Number of employees 91 42
Wood
Reviewed Audited
as at as at
31 August 31 August
2016 2015
R’000 R’000
Revenue 236 147 218 215
External 236 147 218 215
Intercompany – –
Gross profit 74 928 72 109
Gross profit (%) 32% 33%
EBITDA3 19 149 17 249
Adjusted EBITDA 20 714 17 431
Capital expenditure 1 140 7 495
Depreciation and amortisation 4 108 5 691
Total assets 149 042 132 704
Total liabilities 63 962 49 344
Net tangible operating assets4 82 455 96 005
Number of employees 140 157
Head Office
Reviewed Audited
as at as at
31 August 31 August
2016 2015
R’000 R’000
Revenue 25 260 26 481
External – –
Intercompany 25 260 26 481
Gross profit 25 260 26 481
Gross profit (%) 100% 100%
EBITDA3 (26 731) (30 428)
\Adjusted EBITDA (20 636) (14 843)
Capital expenditure 57 954
Depreciation and amortisation 243 126
Total assets 537 672 331 778
Total liabilities 182 071 76 365
Net tangible operating assets4 517 615 338 483
Number of employees 7 7
Consolidation
Reviewed Audited
as at as at
31 August 31 August
2016 2015
R’000 R’000
Revenue (27 336) (26 481)
External – –
Intercompany (27 336) (26 481)
Gross profit (25 175) (29 139)
Gross profit (%)
EBITDA3 (78 994) (10 465)
Adjusted EBITDA 4 034 145
Capital expenditure – –
Depreciation and amortisation 542 145
Total assets (292 924) (242 359)
Total liabilities 36 949 (60 781)
Net tangible operating assets4 (478 177) (259 200)
Number of employees
Total
Reviewed Audited
as at as at
31 August 31 August
2016 2015
R’000 R’000
Revenue 1 150 951 882 835
External 1 150 951 882 835
Intercompany – –
Gross profit 269 908 254 367
Gross profit (%) 23% 29%
EBITDA3 (39 595) 49 173
Adjusted EBITDA 58 124 66 342
Capital expenditure 22 788 42 454
Depreciation and amortisation 18 002 13 616
Total assets 1 424 317 883 296
Total liabilities 736 897 421 950
Net tangible operating assets4 767 112 572 099
Number of employees 460 477
3. Exclude intercompany management fees and dividends.
4. Excludes goodwill and intangibles.
Commentary
The recent completion, subsequent to the year end, by enX Group Limited
(“enX” or “the Company” or “the Group”) of the acquisition of Eqstra
Holdings Limited’s (“Eqstra”) Industrial Equipment and Fleet Management
and Logistics businesses has transformed enX into a diversified industrial
group that provides quality branded industrial equipment, petrochemical,
and fleet management and leasing products and services to a broad range
of economic sectors in South Africa and sub-Saharan Africa. A key component
of enX’s business model is its offering of ongoing servicing and customer
support, thereby adding value to the products sold through its partnerships
with predominate global OEM’s. Eqstra has recently been renamed eXtract
Group Limited (“eXtract”). For the financial period being reported on,
enX’s major lines of business were the provision of quality branded power,
petrochemical and wood products.
For the current financial reporting period the business were organised into
the following three business segments:
* Power segment (“Power”) incorporating:
– Private Power Sales: The manufacture, supply, installation and maintenance
of diesel generators and related components;
– Power Product Distribution: The distribution of industrial engines, marine
engines and components; and
– Temporary Power: Rental of temporary power in the form of diesel
generators.
* Petrochemicals segment (“Petrochemicals”) incorporating:
– Oil lubricants: The production and marketing of oil lubricants; and
– Chemicals: The distribution of plastics, polymers, rubber and speciality
chemicals
* Wood segment (“Wood”) encompasses the distribution of professional
woodworking equipment, tooling and edging and provision of associated
services such as blade sharpening and equipment maintenance.
Post the Eqstra transaction, enX will be organised into the three operating
segments, being Industrial Equipment, Fleet Management and Petrochemicals.
This is fully detailed in the prospects paragraph below.
Overview
The Group has had a transformational year in terms of realising its
vision of building a large industrial business, having completed four
material corporate transactions in pursuit of this goal. The sum of these
transactions establishes enX as a diversified industrial business with
significantly increased market capitalisation, assets under management
and earnings base for the Group.
1. Our empowerment ownership transaction closed in September 2015, introducing
a 25,01% empowerment shareholder and R213,8 million of fresh equity capital.
2. In the same month, we acquired the business of Genmatics, a provider of
temporary power solutions based in KwaZulu-Natal. Genmatics operates a temporary
power business, offering generators ranging in size from 30 kVA to 1 000 kVA to
clients across South Africa. This transaction gave enX’s Temporary Power division
an immediate and substantial presence in KwaZulu-Natal, thereby establishing a
national footprint. The combined Temporary Power fleet is now in excess of
250 generator sets, ranging in size from 4,5 kVA to 1 000 kVA. As part of the
integration of this acquisition, the existing rental unit within the Power
segments was rebranded as Genmatics (previously Neptune Plant Hire).
3. In July 2016, we completed the acquisitions of West Africa International
Proprietary Limited (“WAI”) and African Group Lubricants Proprietary Limited
(“AGL”). The AGL acquisition will increase enX’s market share in the oil
lubricants market in South Africa and add scale to the business. In addition,
it will increase enX’s exposure to Sub- Saharan Africa and its proportion of
United States Dollar denominated revenues. The chemicals distribution business
of WAI brings a stable, defensive and cash generative business into enX in
the speciality chemicals sector. The business has an experienced management
team, profitable market positions and a well established distribution platform
through which to channel new products. It will also open up a new industry
for acquisitive growth opportunities for enX. Both transactions strengthen
our relationship with ExxonMobil.
4. Finally, subsequent to the year end, in early November we completed the
acquisition of Eqstra’s Industrial Equipment (“IE”) and Fleet Management
and Logistics (“FML”) businesses, a R1,5 billion equity capital raise and
investment in debt, mezzanine and equity instruments issued by eXtract which
contains the contract mining division of the pre-transaction Eqstra. The IE
division provides distribution, rental and value added services for industrial
and materials handling equipment in South Africa, various African countries
and the United Kingdom. It remains the market leader in the Southern African
forklift segment with the largest infrastructure of its kind in the region.
The division has exclusive distribution rights in Southern Africa for amongst
others, Toyota Forklift, BT Warehousing equipment, Konecranes heavy duty
forklifts and container handling equipment and Hoppecke batteries and chargers.
The UK industrial equipment business, Impact Fork Truck Limited, is the
exclusive distributor for Cat Lift Trucks and Konecranes heavy duty forklifts
and container handling equipment in the UK and Ireland. The FML division provides
a full spectrum of passenger and commercial vehicle services including leasing,
fleet management, outsourcing solutions, maintenance, warranty management and
vehicle tracking solutions. Its footprint is in South Africa and sub-Saharan
Africa. The FML division’s commercial vehicle operations are supported
by a nationwide network of workshops and panel repair shops. eXtract is a
leading contract miner in sub-Saharan Africa. Full details of the aforementioned
transaction are set out in the circular to enX shareholders and enX’s revised
listings particulars issued on 24 August 2016.
In terms of transformation, the Group has recently been verified as a Level 5
contributor in terms of the amended codes of good practice. Certain subsidiaries
and associates within the Group have achieved Level 4 and Level 2 status.
Results
The board presents the results of enX for the financial year ended 31 August 2016,
which excludes any effects of the Eqstra transaction.
Revenue for the year increased 30% to R1,151 million (2015: R883 million) driven
by healthy growth from the Petrochemicals segment. The oil lubricants business
delivered strong organic growth in addition to being accounted for a full 12 months
and the inclusion of the revenues generated by WAI and AGL for 2 months. Power
segment revenues decreased by 19% to R370 million (2015: R455 million) as a result
of the cessation of load shedding in August 2015. The Group’s gross margins reduced
to 23% (2015: 29%) as a result of the decline in margins in the Power segment and
the significantly lower margins that are customary in the chemicals distribution
business. Operating expenses increased 26% on the prior year, primarily due to the
inclusion of Centlube for a full 12 months and the acquisition of WAI and AGL. On
an adjusted basis, excluding once-off transaction and restructuring costs, the
increase in operating expenses is 21%. A loss before interest, taxation, depreciation
and amortisation of R39,6 million was incurred (2015: profit of R49,2 million).
Consistent with prior year disclosure, management has elected to disclose adjusted
earnings before interest, taxation, depreciation and amortisation (“EBITDA”) which
provides a more meaningful reflection of sustainable earnings. Adjusted EBITDA
decreased by 12% to R58,1 million (2015: R66,3 million) at an adjusted EBITDA
margin relative to revenue of 5.1% (2015: 7,5%). The adjustments to EBITDA arise
from:
* IFRS2 charges of R6,3 million (2015: R15,5 million) relating to the provision
for long-term share-related incentives awarded to Wild Rose Management Proprietary
Limited and enX staff;
* restructuring costs of R5,4 million incurred in the Power and Wood clusters;
* transaction costs of R4,8 million relating to the WAI, AGL and Eqstra transactions;
* goodwill impairment of R78,2 million relating to the Private Power
division of the Power segment; and
* impairment of property, plant and equipment in the Temporary Power division of the
Power Segment to the value of R2,9 million.
The effective tax rate for the financial year was (8%) (2015: 34%). If the once off
non-deductible charges for goodwill impairment and transactions costs are excluded,
the effective tax rate would be 31%.
Headline earnings decreased by 71% to R9,2 million (2015: R31,6 million). This
translates into headline earnings per share of 1,6 cents (2015: 7,6 cents). Adjusted
headline earnings decreased by 41% to R21,1 million (2015: R36,1 million) and translated
into adjusted headline earnings per share of 3,7 cents (2015: 8,7 cents).
With the completion of the acquisition of WAI and AGL, the Group’s net interest bearing
debt levels (both bank and vendor funded) increased by R166 million resulting in net
gearing ratio of 34% (2015: 18%). Approximately R38 million of the recognised vendor
loans may be equity settled. The final liability will be determined based on the
achievement of earn-out targets. As a result of the higher debt levels, the Group’s
net interest charge increased by R6,3 million to R8,5 million.
Net working capital increased by R225 million as a result of the WAI and AGL
acquisition. Excluding acquired receivables, inventory and payables from WAI and
AGL, working capital increased by R33 million (11%).
Cash outflows from investing activities amounted to R276,7 million of which
R257,3 million resulted from business combinations. Net additions to plant and
equipment of R20,1 million were incurred to install oil lubricant storage equipment
at customers, expanding the Temporary Power fleet, installing a new ERP system at
Power and acquiring new delivery vehicles at Wood. The cash required to finance
the business combinations was primarily sourced from the empowerment transaction
and additional bank funding raised.
Operational review
Power
The Power segment, in particular the Private Power Sales division experienced a
significant decline in revenue for the second half of the year. For the full year,
revenue was down 19% to R370,2 million (2015: R454,6 million). This was driven by
a significant decline in sales orders post load-shedding, compounded by a subdued
macro-economic environment, particularly in the construction sector. In addition,
two large orders which were expected to materialise in the second half were
not awarded although they remain good prospects. The heightened activity
during load shedding resulted in demand being brought forward, increased industry
inventory levels and a number of new competitors entering the market. The result
is that competition in the sector had increased simultaneously with a decline in
demand. This has placed significant downward pressure on margins. In response to
these conditions, the business has substantially reduced manufacturing and operating
costs. Importantly, cash was released from working capital and the segment has
been self-funding.
As a result of this financial result and market conditions, management and the
board have reviewed the long-term outlook for the business and concluded that given
the uncertainty regarding how the market may adjust to post load-shedding conditions
it is prudent that the goodwill relating to the Private Power Sales division be
impaired. The goodwill relating to the Temporary Power division remains intact.
The Distribution and Temporary Power divisions performed satisfactorily in a very
tough market.
Petrochemicals
The segment generated revenues of R544,6 million (2015: R210,0 million) and adjusted
EBITDA of R39,3 million (2015: R8,0 million) before taking into account the impact
of acquisitions. This is not directly comparable to the prior period which included
9 months of trading from the effective date of the Centlube acquisition being
1 December 2014.
Nonetheless the business has performed exceptionally well with oil lubricant contract
manufacturing volumes increasing significantly and having addressed the teething
problems experienced with the take-on of the ExxonMobil distributorship. Gross
margins also recovered having avoided the negative impact of volatile exchange
rates experienced in the prior year.
The completion of the WAI and AGL acquisitions on 1 July 2016, has resulted in the
inclusion of revenues of R143,4 million and adjusted EBITDA of R8,9 million.
Wood
The Wood segment performed in line with expectations against the backdrop of
subdued wood industry trading conditions. Revenue increased 8% to R236,1 million
(2015: R218,2 million) driven by strong equipment sales and price increases brought
on by the weaker Rand. Gross margins saw a slight contraction as a result of the
change in sales mix from higher margin consumables to equipment and certain large
equipment sales being concluded at margins lower than our targets. Cost reduction
initiatives were also effected during the year resulting in a 19% increase in
adjusted EBITDA to R20,7 million (2015: R17,4 million).
Empowerment transaction and equity capital raise
As reported on at the half year end, an additional 25,01% B-BBEE equity
participation in enX was successfully completed on 9 September 2015.
140 637 983 enX ordinary shares were issued to Samvenice Trading 1
Proprietary Limited, a wholly-owned subsidiary of CapLeverage Proprietary
Limited, for an aggregate subscription price of R213,8 million.
Business combinations
Genmatics
In line with management’s intention to expand the Temporary Power
division within the Power Segment, the Group, through New Way Power
(a wholly owned subsidiary), acquired the diesel generator rental
business of Galeprops 2661 CC (trading as Genmatics), effective
1 September 2015.
The detail of the net assets acquired through this business combination,
for which the purchase price has been allocated to the respective assets
and liabilities, are as follows:
Genmatics R’000
Non-current assets 34 392
Current assets 244
Current liabilities (43)
Net tangible assets acquired 34 593
Goodwill 38 845
Total assets acquired 73 438
Contingent purchase consideration (12 326)
Purchase consideration settled in cash 61 112
Revenue of R24,6 million and net profit after tax of R9,5 million have been
included in these results since the acquisition date.
West Africa International and Africa Group Lubricants
With effect from 1 July 2016, the Group acquired 100% shareholding and
shareholders claims in WAI for a purchase consideration settled in cash
and the issue of enX shares. One of WAI subsidiaries is AGL, of which WAI
owned 62,4%. On 21 July 2016, enX acquired the remaining balance of
37,6%, in AGL.
The details of the net assets acquired through this business combination,
for which the purchase price has been allocated to the respective assets
and liabilities, is as follows:
WAI and AGL R’000
Non-current assets 7 855
Current assets 392 438
Shareholder loans (79 857)
Non-current liabilities (11 752)
Current liabilities (248 555)
Net tangible assets acquired 60 129
Intangible assets acquired 77 521
– WAI 63 676
– AGL 43 992
– Deferred taxation raised on intangible assets (30 147)
Total identifiable net assets 137 650
Non-controlling interest (37.6%) (9 979)
Goodwill raised 64 765
– WAI 52 461
– AGL 12 304
Total assets acquired 192 436
Contingent purchase consideration (75 193)
Purchase consideration settled in shares (32 618)
Purchase consideration settled in cash 84 625
Cash balances (overdraft) taken over 58 858
Cash outflow – shareholder loans acquired 52 725
Net cash outflow 196 208
The purchase price allocation of the WAI and AGL business combination is
provisional and will be finalised on the one year anniversary of the
business combination.
In order to bridge the funding for the WAI and AGL transaction, an
interest-bearing shareholder’s loan of R35 million was obtained on market
related terms. The full loan has been repaid subsequent to year end from
bank credit lines.
Revenue of R143,4 million and net profit after tax of R4,8 million has
been included in these results since the acquisition date. If the
acquisition had occurred on 1 September 2015, the following amounts
would have been included in these results: Revenue of R948,2 million
and net profit after tax of R31,7 million.
Eqstra Holding’s IE and FML divisions
Subsequent to the year end, with effect from 8 November 2016, enX acquired
the IE and the FML divisions of Eqstra, through the issue to Eqstra of
52 715 390 new enX shares at an issue price of R21.00 per share. In
addition, enX lent monies of R700 million to, assumed debt and acquired
preference shares to the value of R600 million in MCC Contracts
Proprietary Limited (“MCC”), with the option to subscribe for new
eXtract shares. On 16 November 2016, enX acquired a strategic investment
into eXtract, with 20% of its ordinary share capital issued to the Company,
which comprises the Contract Mining and Plant Rental division (“CMPR”)
of the former Eqstra.
Full details of the transaction are documented under the Subsequent
Events section below.
Due to the close proximity in timing of the deal being concluded and enX’s
results being authorised for issue, enX is unable to present details of
the amounts recognised at the acquisition date for each major class of
assets and liabilities assumed, together with any resulting goodwill that
will arise from the business acquisition. It is anticipated that the
acquisition will result in a bargain purchase. Full details of this
will be provided in due course.
Prospects
Post the completion of the Eqstra transaction, the enX businesses will be
arranged and managed under three clusters, in addition to enX’s strategic
investment in eXtract. An overview of the three clusters and the growth
strategy of each is set out below:
Industrial Equipment, which will comprise IE, Power and Wood:
* Eqstra IE (South Africa) will seek to maintain its share of the local
forklift market. The strategy to be employed by the team is centred on
building and maintaining partnerships with key suppliers to ensure high
quality products are available to customers at good prices and on
competitive terms. In addition, we will seek to grow revenues from
maintenance and services as customers delay future purchases of
capital equipment.
* Eqstra IE division (United Kingdom) will seek to expand its market
share significantly. The key driver for this growth is intended to be
the acquisition of a complementary forklift business and a long-term
partnership with a multinational forklift manufacturer.
* Power will seek to generate new sources of power related revenues. It
will also consolidate its operations to reduce costs and improve
efficiencies. There have been early signs of improvement in activity
in the sector since the financial year end which has resulted in an
increase in its order book. The Temporary Power and Distribution
divisions are performing according to plan.
* Wood will seek to grow consumable and service revenues, which are more
annuity based in nature and typically at a higher gross margin than
equipment sales. Buoyant equipment sales have continued into the new
financial year and the business is performing according to plan. Fleet
Management comprising only FML:
* FML will be focused on growing revenues derived from complementary
services to the fleet offering. Such services are capital-light and
typically at a higher gross margin. Capital will also be made available
to this division to pursue new customer contracts. In addition, FML
expects a gain in operating efficiencies following the roll out of its
cutting-edge ERP operating system, Quest.
Petrochemicals which will comprise the oil lubricants and chemicals
distribution businesses:
* The oil lubricants business will focus on growing its distribution and
contract manufacturing volumes in addition to seeking new product
opportunities through its key supplier partnerships. The integration
of AGL will present opportunities to rationalise costs and improve
efficiencies. We are in the process of seeking out additional
manufacturing capacity to support anticipated higher volumes. The
business is performing ahead of expectations.
* The chemicals distribution business of recently acquired WAI, will
focus on growing market share in selected and niche chemicals where
decent gross margins can be extracted. This is typically forthcoming
from chemicals that are technically superior and/or have a particular
brand association. The business will also seek complementary bolt-on
acquisitions and opportunities to take on new distributorships whereby
it can channel greater volumes through its existing distribution channels.
The business is performing in line with expectations.
The broader industrial focus of enX post implementation of the Eqstra
transaction may result in the addition of new segments should the valuation
and growth prospects of the target businesses prove to be attractive.
Through enX’s strategic investment into eXtract described above, eXtract
will focus on improving the efficiencies of the mines on which they currently
operate as well as looking for new projects that will diversify eXtract’s
geographic and commodity exposure. Over the next 24 months, management will
continue to realise best value for the impaired excess and idle assets through
disposals, the majority of the proceeds of which will most likely be applied
to repay debt. In the longer term, eXtract will position itself as a mining
services entity and will look to grow the business through further
acquisitions.
A detailed description of the composition of enX post the Eqstra transaction
and a forecast profitability can be found on our website: www.enxgroup.co.za.
Subsequent events
It was announced on SENS on 30 June 2016 that enX had concluded an
agreement with Eqstra in terms of which, inter alia enX would acquire all of
the issued shares of Eqstra Investments Proprietary Limited, a newly incorporated
subsidiary of Eqstra, which would own the IE division and FML division of Eqstra,
for an aggregate consideration of approximately R7,8 billion, to be settled by
enX as follows:
* the allotment and issue of the Consideration Shares, being 52 715 390
new enX shares at R21.00 per enX share (post consolidation) and post the placement;
* assuming approximately R5,2 billion of Eqstra group’s debt obligation,
of which R4,8 billion is currently within the IE and FML divisions; and
* the recapitalisation of Eqstra to the value of approximately R1,4 billion by way of enX:
– subscribing for 101 400 000 new Eqstra ordinary shares at R1.00 per
Eqstra ordinary share;
– subscribing for 40 new MCC preference shares of R15 million each, for an aggregate
subscription price of R600 million; and
– advancing an enX loan of R700 million to MCC.
enX has, in terms of the main transaction agreement concluded with Eqstra, as amended,
been granted a call option to subscribe in one or more tranches for Eqstra ordinary
shares (at R1.50 per Eqstra ordinary share), to the value of R600 million. The call
option may be exercised at any time after all of the MCC preference shares have been
redeemed or, if the MCC preference shares have not been redeemed by the 5th anniversary
after their issue date, by no later than 30 days after the expiry of the 5th anniversary.
The call option shall lapse on the 30th day following the 5th year from the date of
issue of the MCC preference shares, to the extent that it has not previously
been exercised.
enX funded the IE and FML acquisitions and its investment in Eqstra by:
* issuing the consideration shares to Eqstra pursuant to the
acquisition; and
* raising through a private placement, R1,5 billion of cash to fund (i)
the Eqstra ordinary share subscription, (ii) the MCC preference share
subscription, (iii) the enX loan to MCC and (iv) approximately R100 million
for enX transaction costs and general corporate purposes. The capital raised
was implemented by way of the allotment and issue of enX shares pursuant to a
specific authority to issue shares for cash.
It was announced on SENS, that at the general meeting of enX shareholders, held on
22 September 2016, all of the resolutions tabled thereat in order to complete the
above Eqstra transaction were passed by the requisite majority of shareholders.
It was further announced on SENS on 24 October 2016, that all the conditions
precedent required to implement the Eqstra transaction had been fulfilled or
waived. The IE and FML acquisitions’ effective date was 8 November 2016.
enX has on 16 November 2016 been constituted as a shareholder of reference of
eXtract, which post the disposal by Eqstra of the IE and FML division to enX in
terms of the Eqstra transaction, will have the CMPR division as its sole remaining
business.
The enX consideration shares were distributed on 21 November 2016, by way of an
unbundling to Eqstra shareholders in the ratio of 0.13 enX consideration shares
for every 1 Eqstra share held on 15 November 2016. The unbundling was the
pen-ultimate of several transaction steps required to implement the Eqstra
transaction.
As part of the transactions enX resolved to issue corporate guarantees for
the debt assumed under the bank funding and domestic medium term bond program
of Eqstra.
Prior to the implementation of the Eqstra transaction, enX consolidated its
authorised and issued shares in the ratio of 11 to 1 (such that each shareholder
now holds 1 share post-consolidation for every 11 shares held before the
consolidation) and thereafter increased its authorised share capital by an
additional 909 090 910 enX ordinary shares. These amendments to the enX
capital structure were implemented independently of the Eqstra transaction.
Apart from the above, there has been no other material events subsequent to
year-end that has been taken into account in the financial statements.
Dividend
In line with the Group policy to reinvest for growth, no dividend has been
declared for the year.
Basis of preparation
The condensed consolidated financial statements are prepared in
accordance with the requirements of the JSE Limited Listings Requirements for
provisional reports and the requirements of the Companies Act of South Africa.
The JSE Listings Requirements require provisional reports to be prepared in
accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (“IFRS”) and the
SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by Financial Reporting
Standards Council and to also, as a minimum, contain the information
required by IAS 34 Interim Financial Reporting. The accounting policies
applied in the preparation of the condensed consolidated financial
statements are in terms of IFRS and are consistent with those applied in
the previous consolidated annual financial statements.
These results have been compiled under the supervision of the Financial
Director, IM Lipworth CA (SA).
Changes in directorships
The following changes to the directorships took place during the year:
* JS Friedman resigned as the Financial Director, effective 15 April
2016; and
* IM Lipworth was appointed as Financial Director, effective 1 May 2016.
The following changes have been made to the board of directors after the
year end:
* M Motjope resigned as an alternate director to PC Baloyi on
1 September 2016;
* LN Molefe was appointed as an independent non-executive director,
effective 21 October 2016;
* TC Moodley was appointed as a non-executive director, effective
21 October 2016;
* JL Serfontein was appointed as CEO, with PD Mansour being appointed
the Executive deputy chairman, effective 8 November 2016; and
* LL von Zeuner and S Booysen were appointed as independent non-
executive directors effective 8 November 2016.
Reviewed results for the year ended 31 August 2016
The results for the year ended 31 August 2016 have been reviewed by
Grant Thornton Johannesburg and their unmodified review conclusion is
available for inspection at the company’s registered office. The
auditor’s review report does not necessarily report on all of the
information contained in these provisional condensed financial results.
Shareholders are therefore advised that in order to obtain a full
understanding of the nature of the auditor’s engagement they should
obtain a copy of the auditor’s review report together with the
underlying financial information from the issuer’s registered office.
The directors take full responsibility for the preparation of the
provisional condensed financial results and for ensuring that the
financial information has been correctly extracted from the
underlying reviewed provisional annual financial statements.
For and on behalf of the board
PD Mansour
Executive Deputy Chairman
JL Serfontein
Chief Executive Officer
IM Lipworth
Financial Director
23 November 2016
Executive directors: PD Mansour (Executive Deputy Chairman),
JL Serfontein (Chief Executive Officer), IM Lipworth
(Financial Director)
Non-executive directors: SB Joffe (Chairman), PM Makwana*
(Lead Independent), PC Baloyi, S Booysen*, NV Lila*, LN Molefe*,
TC Moodley, PS O’Flaherty, AJ Phillips*, LL von Zeuner*
*Independent
Business and registered address:
202D, 11 Crescent Drive, Melrose Arch, 2196
Postal address:
PO Box 1914, Florida, 1710
Company secretary:
CIS Company Secretaries Proprietary Limited
Transfer secretaries:
Computershare Investor Services Proprietary Limited
Sponsor: Java Capital
Auditors: Grant Thornton Johannesburg
Date: 23/11/2016 07:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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