Wrap Text
Unreviewed Condensed Consolidated Interim Results for the Six Months Ended 31 August 2017
EFORA ENERGY LIMITED
(Formerly SacOil Holdings Limited)
(Incorporated in the Republic of South Africa)
(Registration number 1993/000460/06)
JSE share code: EEL
ISIN: ZAE000248258
("Efora" or "the Company" or "the Group")
UNREVIEWED CONDENSED CONSOLIDATED INTERIM RESULTS
for the six months ended 31 August 2017
PERIOD HIGHLIGHTS
- Acquisition and integration of the AfricOil Proprietary Limited ("AfricOil") business
- One cargo lifted under the crude trading contract in Nigeria
- Changes to Board composition to support the growth strategy of the Group
- Delisted from London Stock Exchange's AIM Market as part of cost control measures
- Rationalisation of portfolio with relinquishment of Malawi and Botswana assets
POST-PERIOD HIGHLIGHTS
- Rebranding and renaming the Company to Efora Energy Limited ("Efora")
- Consolidation of Company shares
- Successfully spudded pilot well Lagia #14 on the Lagia Oil Field
- Expansion of downstream operations through the yet-to-be-completed acquisition of Belton Park Trading
Dr Thabo Kgogo, Chief Executive Officer at Efora commented: "I am pleased to report that during the
first half of the 2017/2018 financial year ("H1 FY2018") the Group continued to make significant
strides towards becoming an integrated oil and gas play, as well as progressing other strategic
targets. The transformation into Efora commenced in 2014 following the revision of the Group's
strategy, with the aim of transitioning the Group's focus from a pure exploration company to an
integrated business with operations in key segments of the oil and gas value chain. The new
business model was introduced to reposition Efora as a cash-generative Group with a focus on
profitability and growth.
Whilst we made significant progress in executing our strategy over the past years, the Group's
performance continued to be impacted by the developments in the global oil and currency markets.
The oil price has been suffering from an oversupply in crude, driven by the US shale producers
and OPEC's inability to reign in supply. Market expectations are that oil prices will trade within
the $60/bbl range, which would provide support for investment in the industry. The Rand/US Dollar
exchange rate will likely continue to be volatile and expectations are that there are certain
material political triggers that could have a significant impact on the exchange rates.
The weakening of the Rand had a positive impact on our results during the period as a significant
part of our assets are US Dollar denominated. Within the downstream sector, South Africa still
presents great opportunities given its consumption of approximately 21 billion litres of diesel
and petrol per annum and it is for this reason that the Board has proactively sought to diversify
the business by establishing a meaningful position in this market by way of acquisitions.
During H1 FY2018 we successfully completed the acquisition of AfricOil, a downstream fuel wholesale
distribution business, which expanded our geographical reach in line with our pan-African vision
and diversified our operations across the value chain. Since completing the acquisition our focus
has been on ensuring that the AfricOil business is better positioned to effectively compete in the
wholesale market. The integration plan has progressed well with the main focuses being to ensure
competitive product supply options, strengthening the corporate structure and ensuring that the
cost base is suitable for a business of this nature. As anticipated at the time of acquisition,
these changes have resulted in certain once-off costs being incurred in the short term. Pleasingly,
these changes have largely now been implemented and we are confident that the business is now
positioned to deliver a markedly improved performance in line with our expectations.
Our performance at Lagia has been impacted by the delay in the pilot well that was rescheduled for
November 2017. The reservoir characterisation studies undertaken led to the recommendation to
drill a pilot well to confirm optimal well completion and steam injection configuration.
Preparations for the drilling of this well have gone smoothly and the well spud on 28 November 2017
with the results of the pilot well due to be finalised in Q1 2018. The detailed analysis of the
field throughout the year has provided us with an opportunity to gain a far greater understanding
of the complex geology and the completion and development strategies required to extract maximum
value from the field. A successful outcome from the pilot well represents a positive near-term
catalyst for the Group. The recent improvements in oil prices provides support for undertaking
the required development of the field to ensure that it generates a positive contribution for the
Group. Whilst Lagia has continued to present operational challenges stemming from poor well
productivity throughout the period, our efforts to improve cost control at the field have resulted
in a reduced gross operating loss of R7.7 million for the period when compared to the prior year
(R20.7 million).
The crude trading contract with the Nigerian National Petroleum Company ("NNPC") has been extended
to 31 March 2018. This segment of the business contributed an income of R2.5 million for the period
through our joint venture, where the Group is entitled to a 50% share of Sacoil Energy Equity
Resources Limited ("SEER") operating results and net assets.
Our activities at Block III in the Democratic Republic of Congo ("DRC") is focused on assessing
the results of the 2D seismic undertaken and we are working closely with Total on the seismic
processing and interpretation in order to identify prospects for drilling. The schedule currently
being considered is that an exploration well will be drilled during 2019, assuming the
interpretation of the seismic data identifies technically suitable prospects. The exploration
licence is due to expire in January 2018 and the parties are currently in the process of engaging
the DRC Government to obtain an extension. Based on the investment and activities
to date, the parties are confident that the required extension will be forthcoming.
In line with our strategy, we have evaluated our position in Malawi and Botswana and the prospectivity
of the respective fields. Those reviews indicated that the prospects of success on these two
fields did not meet with our project investment criteria and as such we decided not to renew the
exploration licences when they expired during H1 FY2018.
The Group will continue to evaluate various other business development opportunities that can
complement our existing asset base and also ensure that the Group would be a sustainable business.
The announcement around Belton Park Trading ("Belton Park") provides further evidence of our strategy
to create an integrated energy business.
We remain committed to the resolution of the outstanding litigation matters and the recovery of
funds owed to the Group. The Group continues to pursue legal action against Transcorp and the
Encha Group to recover amounts owed pursuant to the withdrawal from OPL 281 and under the terms of
the written acknowledgement of debt, respectively. In addition, we expect that the Encha and
Robin Vela disputes should be resolved around the end of this calendar year.
I am very pleased to report that there were no significant reportable health, safety and
environmental ("HSE") incidents during H1 FY2018. We will continue to drive initiatives across
the Group to maintain our HSE performance within the acceptable levels.
Post-period, we commenced two corporate actions to rebrand the Company to Efora Energy Limited and
to effect the consolidation of the Company's shares. The acronym SacOil came from South African
Congo Oil Company, a name created in 2008, which now does not reflect the diversification of the
Company's operations into other African territories and across the oil and gas value chain.
The Company, through its acquisitions and investments, now has business activities in Egypt,
Nigeria, South Africa and Zimbabwe, in addition to the exploration activities in the Democratic
Republic of Congo. The new name, Efora Energy, stands for "Energy for Africa", a concept that
underpins Efora's revised strategy and vision to become a leading pan-African player with diverse
operations within the energy sector. Regarding the share consolidation, this has been a strategic
priority for the Company and is seen as a mechanism to transition the Company's share from a penny
stock to a more stable share. The ultimate objective of the significant operational and corporate
evolution that we have overseen at Efora over the past few years is to position the Company as a
credible, institutional investment grade proposition with a diverse portfolio of assets underpinned
by consistent cash flows and earnings. We are confident that the Company has made considerable
headway in this regard and now look forward to developing a track record for delivering growth and
creating sustainable long-term value for our shareholders.
The focus for the remainder of the year remains on improving the performance and operations of
AfricOil, improving the Lagia performance in light of the results of the pilot well, securing
additional loads on crude trading, cost optimisation across the Group and seeking further projects
and acquisitions.
We thank our stakeholders for their continued support over the years as we continue to work towards
a sustainable integrated oil and gas business."
OPERATIONS UPDATE
LAGIA OIL FIELD ("LAGIA"), EGYPT
Operations at Lagia continue to present challenges stemming from poor well productivity due to the
characteristics of the reservoir. Production levels were impacted by our decision to limit steaming
activities in the period in order to manage costs through the low oil price environment whilst we
undertook the studies and planned for the pilot well.
We are pleased to report a significant decrease in the average operating costs for Lagia during
the period. As a result of a number of initiatives to optimise the cost base of the asset, as well
as a significant decline in the exchange rates caused by the free floating of the Egyptian Pound
against the US Dollar in November 2016, we delivered an average reduction in operating costs of
61.2% for the period.
As previously reported, the results of the pilot well, spudded at the end of November 2017, will
determine the Group's development strategy for Lagia based on the improved pricing environment.
The results of the pilot well will be known in Q1 2018.
CRUDE TRADING, NIGERIA
In December 2016 a new crude trading contract with the Nigerian National Petroleum Company ("NNPC")
was awarded to SEER, Efora's joint venture with Energy Equity Resources (Nigeria Services) Limited
("EER"), for 12 months that has now been extended to February 2018. The agreement entitles SEER to
lift up to 950 000 barrels of crude oil per month, subject to availability. The increased number of
parties awarded contracts by NNPC have impacted the availability of crude oil during the current
period. We have managed to secure one crude lifting during the period in August 2017 and we will
continue to work towards securing additional loads for the remainder of the contract. The average
margin achieved during the period has increased by around 40% from that achieved in the corresponding
period last year, due to the improved marketing efforts.
BLOCK III, DEMOCRATIC REPUBLIC OF CONGO
During June 2016 Total E&P RDC ("Total"), operator of Block III, successfully completed the
acquisition of 244 km of 2D seismic data and is in the process of interpreting and integrating
the data with previously acquired gravity and magnetic information. The review of the Block III
seismic data is ongoing. In September 2017 Total, as operator, indicated that it has requested the
DRC Government to extend the Block III licence by two additional years. It is likely that a well
would only be drilled as early as 2019 on the assumption that economically and technically viable
prospects and an identifiable well location are established.
As reported previously, the seismic survey did not encroach on the Virunga National Park.
Total continues to carry Efora's share of exploration costs relating to Block III under the terms
of the Farm-in Agreement.
BLOCK 1, MALAWI AND PETROLEUM EXPLORATION LICENCES ("PELs") 123, 124 AND 125, BOTSWANA
As previously reported, the Company decided not to renew the PELs 123, 124 and 125 when they
expired in June 2017, as well as the Block 1 licence in Malawi which expired in August 2017.
The decision to relinquish these assets was based on extensive consideration of geo-scientific
data which concluded that the potential for finding hydrocarbons was low for these licensing areas.
These exits were also in line with the Group's strategic focus on cash-generating assets.
AFRICOIL PROPRIETARY LIMITED ("AfricOil")
The transformational acquisition of a controlling interest in AfricOil, a leading fuel wholesale
business in southern Africa, on 31 May 2017, added an established downstream business to our broad
portfolio in line with our current strategy. The AfricOil acquisition provides the Group with a
strong position in the southern African fuel distribution business that provides a platform for
further acquisitions within the sector.
The total volumes sold during the period was 223 million litres with an average of 33 million per
month. These were lower than the expected volumes due to the loss of low-margin reseller customers
in the diesel segment, driven by changes in the supply environment and the suspension of the
Zimbabwean operations as explained below. Initiatives are currently in place to address these
issues as set out below.
Financial results from the acquisition to date have been impacted by the cost associated with the
integration activities, the impact of which is set out in the financial update, as well as the
challenges faced in the product supply environment and the increased working capital requirements
driven by the recent increasing fuel prices.
The Group has also initiated a review and undertook the restructuring of the Zimbabwean operations
of AfricOil due to the previous business model of AfricOil not being optimal for the operational
environment existing in Zimbabwe. The Zimbabwean business contributed a net loss of R2.0 million
due to provisions for retrenchments and minimal loads delivered to Zimbabwe. The sales volumes for
the period was only 730 000 litres although the volumes in the prior year was 2 million litres at
good gross margins. Plans have been implemented to restore the volumes in Zimbabwe, which commenced
on 1 October 2017.
The Group has been working on a number of actions to ensure sustainable improvements in the
performance for the remainder of the year by focusing on the following:
- pursuing existing large-scale strategic customers to improve volume and margin growth;
- extending our existing strategic relationship with Engen and looking to appoint additional
product suppliers based on security of supply and obtaining favourable product prices based on
the increased rateable volumes since the acquisition of Forever Fuels by AfricOil in February 2017;
- reviewing the operational cost structure and optimising costs to suit the current size of the
business; and
- resuming trading from Beitbridge in Zimbabwe, based on the revised business model.
Efora's management has been actively involved in the management of the AfricOil business to ensure
that the integration activities planned by the Group are implemented to drive sustainable performance.
BUSINESS DEVELOPMENT ACTIVITIES
The Group continues to explore additional opportunities to expand the cash-generating capabilities
of the Group across the oil and gas value chain. The Group has recently announced the intended
acquisition of an interest in the Belton Park fuel distribution business that would enable it to
increase its footprint in the southern African fuel distribution segment and drive further synergies
between Belton Park and AfricOil. The Belton Park acquisition would also bring a strong management
team that would work with existing management to drive the growth of the fuel distribution business.
The parties are currently in the process of addressing the outstanding conditions precedent on the
agreement.
FINANCIAL REVIEW
FINANCIAL PERFORMANCE
The Group generated a loss after tax of R54.7 million (2016: loss of R221.4 million), a basic loss
per share of 1.36 cents (2016: basic loss per share of 6.77 cents) and a basic headline loss per
share of 1.36 cents (2016: basic headline loss per share of 6.77 cents) for the period ended
31 August 2017. The current period is the first reporting period that contains the financial
results for AfricOil for the three months since the completion of the transaction and have a
significant impact on the Group's results.
The Group had significant once-off items in H1 FY2017 that significantly impacted that period's
results, that have not occurred in H1 FY2018 at these higher levels, these being the significant
foreign exchange losses of R61.4 million and impairments of financial assets totalling R164.0 million
related to the Encha receivable and the impairment of the Lagia asset that was partially off-set by
the investment income of R54.9 million. The exchange gains in H1 FY2018 of R0.5 million, impairments
of R0.1 million and investment income of R25.4 million contributed to a significant improvement
in the loss.
Lagia's performance
Lagia contributed lower-than-expected revenue of R1.6 million (2016: R3.2 million) due to sales
volumes being significantly lower due to delays in the steaming activities in light of the low oil
price environment and the impact of the review of the operations at Lagia. This has also impacted
the cost of sales that has decreased by R6.0 million to R4.0 million. The overall loss for the year
has decreased from R20.7 million to R7.7 million as a result of the improved cost containment at
the field for the period that reduced the overall costs from R23.9 million to R9.4 million in the
current period.
AfricOil's performance
The AfricOil business acquired on 31 May 2017 generated a total of R927.3 million revenue for the
period, of which R2.3 million is attributable to its Zimbabwean operations. AfricOil contributed a
total gross profit of R30.2 million for the period from 1 June 2017 and the overall loss for the
period after tax was R19.4 million for the period. The key factors contributing to the loss were as follows:
- the suspension of Zimbabwean operations resulting in a net loss of R2.0 million that was also
impacted by retrenchment provisions of R1.9 million;
- increase of the provision for doubtful debt in accordance with the Group's policy that resulted
in the provisions increasing to R6.0 million;
- increased finance costs of R7.4 million associated with the loan from the Unemployment Insurance Fund,
represented by its duly authorised representative the Public Investment Corporation ("PIC"), for the
acquisition of the Big Red business; and
- direct integration costs of R1.9 million were incurred to integrate the business during the period.
Other income
Other income at 31 August 2017 included consulting income of R0.8 million (2016: Rnil), foreign
exchange gains of R0.5 million (2016: R61.4 million) as the Rand remained relatively stable against
the Dollar for the period, management fees received from the joint venture SEER of R0.5 million and
transportation income of R0.6 million from AfricOil.
Share of profit from joint venture
The treatment of the SEER crude trading business was reclassified at the start of the period from
a cost-sharing arrangement to a joint venture and accordingly the financial performance of the crude
trading was included within the share of profit from joint ventures.
SEER secured one cargo during the period that generated revenue of R652.7 million, with an associated
cost of sale of R647.2 million, thereby generating a gross profit of R4.9 million for the period.
The Group is entitled to R2.5 million for the period representing its 50% share as disclosed in note 10.
Other operating costs
The acquisition of AfricOil has contributed to the overall cost base of the Group. However, the overall
operating costs decreased by R178.1 million during the period, as a result of the following:
- the Rand/US$ exchange rate weakening during the period and resulting in a R0.5 million foreign
exchange gain compared to prior period foreign exchange losses totalling R61.4 million; and
- impairments in the current period of R0.1 million (2016: R164.0 million).
The major costs for the period were business development at R12.4 million (2016: R6.7 million)
and AfricOil's operating costs consisting of remuneration of R10.5 million, depreciation of
R7.6 million, motor vehicle expenses of R5.9 million, general overheads at R5.5 million, increased
finance costs at R7.4 million and provision for doubtful debts of R6.0 million.
A breakdown of the Group's other operating expenses is provided in note 3.
Investment income
Investment income for the period has decreased from R54.9 million to R25.4 million in the comparable
period largely due to the prior period including an interest accrual attributed to Encha
of R40.3 million that related to penalty interest attributable to the non-payment of the
amount outstanding. The investment income also contains the interest receivable on the Transcorp
Refund of R10.3 million (28 February 2017: R10.5 million) and on the contingent consideration on
Block III of R10.4 million (28 February 2017: R17.6 million) due to the time value of money.
Finance costs
As previously reported, the Group secured a loan from Gemcorp Africa Fund I Limited on 31 May 2017
and the related finance costs within the period amounted to R3.6 million based on the interest
rate of 8.5% p.a. In addition, AfricOil secured a loan from the Public Investment Corporation for
the acquisition of the Forever Fuels business, with the interest accrued since 1 June 2017
amounting to R7.1 million.
CASH RESOURCES OF THE GROUP
The Group generated a positive cash movement for the period mainly due to the loan received from
Gemcorp of R163.8 million. The main drivers of cash consumption for the period were payments for
the FEC asset of R11.6 million, finance costs on interest paid to Gemcorp of R3.6 million,
employee costs of R22.4 million and business development costs of R12.4 million.
At 31 August 2017 the Group's cash balances stood at R158.3 million.
FINANCIAL POSITION OF THE GROUP
Changes in the asset base of the Group
The total assets of the Group have increased by R695.0 million at the end of H1 FY2018 primarily
due to the acquisition of AfricOil that is now fully consolidated for the three months to
31 August 2017. The significant increases in our asset base resulting from the AfricOil acquisition
was on property, plant and equipment of R182.9 million, intangible assets of R49.5 million,
inventories of R11.5 million and trade and other receivables of R225.7 million. The strengthening
of our statement of financial position is critical in providing a more sustainable business.
The net movement in the Group's asset base, excluding the AfricOil acquisition, saw the other
financial assets increase by R25.7 million, consisting of interest on the contingent consideration on
Block III of R10.4 million and interest on the Transcorp Refund of R10.3 million. These assets are
further disclosed in note 9. In addition, the foreign exchange contracts secured by the Group to
hedge the capital repayment of the Gemcorp loan is due at the end of May 2018. Refer to note 13
for disclosure.
Changes in the liabilities of the Group
During the period the Group secured an equity bridging loan from Gemcorp of R163.8 million that is
repayable on 31 May 2018 from the proceeds of a rights issue. These funds were applied to the cash
component of the purchase consideration payable for AfricOil of R49 million, transaction costs
related to the transaction and raising the funding and for general corporate purposes. The AfricOil
transaction's contingent consideration of R2.3 million was accrued in the financial statements and
payable based on certain milestones, as disclosed in the SENS announcement. Refer to note 17 for
disclosure.
The total liabilities of the Group have increased by R636.4 million at the end of H1 FY2018
primarily due to the acquisition of AfricOil, except for the Gemcorp loan above. The significant
increases in our liabilities resulted from the AfricOil loan from the Public Investment Corporation
of R216.3 million, other financial liabilities of R38.6 million, and trade and other payables of
R180.0 million.
LITIGATION UPDATE
OPL 281
As previously announced, SacOil 281 Nigeria Limited ("SacOil 281") terminated its participation
with Transnational Corporation of Nigeria Plc. ("Transcorp"), the operator of Oil Prospecting
Licence ("OPL") 281.
Efora contributed $12.5 million towards farm-in fees on 28 February 2011, which fees contractually
were to be refunded with interest by Transcorp. Notwithstanding the receipt of Transcorp's
acknowledgement of its refund obligation, Efora subsequently received notice from Transcorp that
Efora's termination of the Farm-out and Participation Agreement ("FoPA") in December 2014 was
wrongful and amounted to a repudiation of the FoPA. Pursuant to the FoPA, SacOil 281 filed a notice
for arbitration with the Nigerian Chartered Institute of Arbitrators, Nigeria Branch on
28 August 2015 to recover its farm-in and related fees plus interest thereon.
On 18 June 2015 Transcorp in response filed the following two court applications in the High Court:
Lagos State:
(i) alleging the repudiation of the FoPA by SacOil 281, claiming the sum of US$50.0 million as
special damages for wrongful termination; and
(ii) challenging the validity, applicability and appointment of arbitrators and the arbitration
clause in the FoPA.
SacOil 281 opposed these proceedings and on 31 May 2016 the High Court and Lagos State ruled
against SacOil 281 on "matter (ii)" but granted SacOil 281 leave to appeal on 30 June 2016.
Transcorp have made a settlement offer to Efora in an attempt to resolve the legal dispute,
which would allow Efora to farm-in to OPL 281 for 40% of the working interest. There are ongoing
discussions with Transcorp around alternative proposals; however, the legal process relating to
the appeal hearing is still in progress. A court date is scheduled for February 2018, and we
anticipate that the Transcorp matter will be finalised during the second half of 2018.
ENCHA GROUP LIMITED AND ENCHA ENERGY PROPRIETARY LIMITED
The Company instituted action against Encha Group Limited for payment of R75.0 million, together
with interest and costs. In the same action, the Company is claiming payment of R75.0 million,
plus interest, from Encha Energy Proprietary Limited and Encha Group Limited on the basis of a
written acknowledgement of debt provided by Encha Energy Proprietary Limited, in respect of which
Encha Group Limited bound itself as surety. The parties have agreed to refer the matter to
arbitration and the arbitration process was due to begin on 20 November 2017. The matter has been
postponed by the parties and the revised date will be agreed between the arbitrator and the
parties in due course.
ROBIN VELA
The Company instituted legal action against Mr Robin Vela (its former CEO) in which it claimed an
amount of R3.3 million together with interest in respect of taxes that became due to the
South African Revenue Service and which were not deducted from the salary that was paid to him by
the Company during his tenure as CEO. The Company has also claimed legal costs. Mr Vela is defending
the action and has also raised three counterclaims in the action in terms of which he claims an
amount of R0.3 million allegedly owing in respect of unpaid leave; an amount of R2.8 million
allegedly due in respect of a bonus; and an amount of R16.9 million allegedly owing in respect of
the breach of a share option agreement. In addition, Mr Vela is also claiming interest on these
amounts and legal costs. The trial commenced on 28 August 2017 and ended on 31 August 2017.
The court reserved judgement and indicated judgement will be delivered, but the Judge did not give
a date for judgement.
RICHARD LINNELL
Mr Richard Linnell (the Company's former Chairman) instituted legal action against the Company
during September 2016 in which he claims, amongst others matters, payment of R14.7 million,
together with interest, and the reinstatement of 12.6 million share options which the Company
contends have lapsed. He is also claiming legal costs. The Company is defending the action. The plea
on behalf of the Company is finalised and will be served once Mr Linnell takes further action.
OUTLOOK
The outlook for the global oil markets has improved on the back of higher oil prices. However, some
volatility is still expected to remain due to uncertainties around supply and demand. We will
continue to focus on improving the operational performance at Lagia and complete the integration
activities at AfricOil. In the coming months we will continue to aggressively pursue the acquisition
of cash-generative assets to ensure the sustainability of the Group and look at projects that deliver
attractive returns for the Group. We will maintain our focus on cost containment across the Group
and drive the eventual resolution of long outstanding legacy issues. Efora will mark the start of the
new business that would focus on achieving the strategic focus on becoming a sustainable energy business.
GOING CONCERN
The Group continues to rely on its ability to successfully raise further financing to fund future
working capital, repayment of the Gemcorp equity bridge facility and business development needs.
The Board remains reasonably confident that it will manage the material uncertainties that exist
which are highlighted in note 30 to the condensed consolidated interim results. The condensed
consolidated interim results have therefore been prepared on a going concern basis.
CHANGE IN DIRECTORATE
The following changes were made to the Board of Directors of Efora:
Appointments
Mr Boas Seruwe* 1 April 2017
Ms Thuto Masasa 1 April 2017
Mr Patrick Mngconkola 1 April 2017
* Mr Boas Seruwe has been selected as the new chairman of the Board from 2 October 2017.
Resignations or retirement
Mr Tito Mboweni 2 October 2017
Mr Mzuvukile Maqetuka 2 October 2017
Mr Vusumzi Pikoli 28 September 2017
Ms Titilola Akinleye 28 September 2017
ABOUT EFORA
Efora Energy Limited is a South African based independent African oil and gas company, listed on
the JSE. The Company has a diverse portfolio of assets spanning production in Egypt; exploration
and appraisal in the Democratic Republic of Congo; midstream project relating to crude trading in
Nigeria and material downstream distribution operations throughout southern Africa. Our focus as
a Group is on delivering energy for the African continent by using Africa's own resources to meet
the significant growth in demand expected over the next decade.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unreviewed Reviewed
Six months to Six months to
31 August 2017 31 August 2016
Notes R R
Revenue 928 975 159 344 121 617
Cost of sales (901 128 676) (348 721 804)
Gross profit/(loss) 27 846 483 (4 600 187)
Other income 2 627 644 399 077
Share of profit from joint venture 10 2 463 698 -
Other operating costs (97 294 947) (275 363 570)
Operating loss 3 (64 357 122) (279 564 680)
Investment income 4 25 396 016 54 932 952
Finance costs 5 (11 021 958) -
Loss before taxation (49 983 064) (224 631 728)
Taxation (4 678 403) 3 197 132
Loss for the period (54 661 467) (221 434 596)
Other comprehensive loss:
Items that may be reclassified to profit or loss in subsequent periods:
Exchange differences on translation of foreign operations (2 089 534) (11 669 350)
Other comprehensive loss for the year net of taxation (2 089 534) (11 669 350)
Total comprehensive loss for the period (56 751 001) (233 103 946)
Loss attributable to:
Equity holders of the parent (50 304 453) (221 434 596)
Non-controlling interest (4 357 014) -
(54 661 467) (221 434 596)
Total comprehensive loss attributable to:
Equity holders of the parent (51 796 711) (233 103 946)
Non-controlling interest (4 954 290) -
(56 751 001) (233 103 946)
Loss per share
Basic (cents) 7 (1.36) (6.77)
Diluted (cents) 7 (1.36) (6.77)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unreviewed Audited
As at As at
31 August 28 February
2017 2017
Notes R R
ASSETS
Non-current assets
Exploration and evaluation assets 50 876 067 51 029 258
Oil and gas properties 8 183 329 735 183 758 143
Other financial assets 9 494 302 444 468 321 631
Investment in joint venture 10 7 048 757 -
Deferred tax asset 22 5 816 000 -
Intangible assets 11 176 187 787 58 284 698
Property, plant and equipment 12 183 840 830 1 186 726
Total non-current assets 1 101 401 620 762 580 456
Current assets
Other financial assets 9 2 218 364 2 573 891
Inventories 19 010 092 7 483 704
FEC asset 13 7 660 471 -
Trade and other receivables 14 199 899 906 2 191 941
Cash and cash equivalents 158 277 032 18 724 004
Total current assets 387 065 865 30 973 540
Total assets 1 488 467 485 793 553 996
EQUITY AND LIABILITIES
Shareholders' equity
Stated capital 15 1 305 911 241 1 216 503 883
Reserves 56 960 268 58 452 526
Accumulated loss (637 380 425) (587 075 972)
Equity attributable to equity holders of the parent 725 491 084 687 880 437
Non-controlling interest 16 20 866 167 -
Total shareholders' equity 746 357 251 687 880 437
LIABILITIES
Non-current liabilities
Deferred tax liability 104 426 162 83 403 328
Other financial liabilities 17 15 613 386 -
Finance lease obligation 18 2 683 242 -
Total non-current liabilities 122 722 790 83 403 328
Current liabilities
Loan from joint venture 19 6 152 414 -
Other financial liabilities 17 401 957 664 -
Trade and other payables 20 190 295 481 9 419 411
Current tax payable 14 132 418 12 850 820
Provisions 21 5 334 982 -
Finance lease obligation 18 1 514 485 -
Total current liabilities 619 387 444 22 270 231
Total liabilities 742 110 234 105 673 559
Total equity and liabilities 1 488 467 485 793 553 996
Number of shares in issue 3 697 313 357 3 269 836 208
Net asset value per share (cents) 20.19 20.99
Net tangible asset value per share (cents) 14.05 17.90
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Total equity
Foreign attributable Non-
currency Share-based to equity controlling
Stated translation payment Total Accumulated holders of interest Total
capital reserve reserve reserves loss the parent ("NCI") equity
R R R R R R R R
Balance at 28 February 2017 1 216 503 883 48 641 526 9 811 000 58 452 526 (587 075 972) 687 880 437 - 687 880 437
Changes in equity:
Loss for the period - - - - (50 304 453) (50 304 453) (4 357 014) (54 661 467)
Other comprehensive loss for the period - (1 492 258) - (1 492 258) - (1 492 258) (597 276) (2 089 534)
Total comprehensive loss for the period - (1 492 258) - (1 492 258) (50 304 453) (51 796 711) (4 954 290) (56 751 001)
Acquisition of subsidiary (note 15) 89 407 358 - - - - 89 407 358 25 820 457 115 227 815
Total changes 89 407 358 (1 492 258) - (1 492 258) (50 304 453) 37 610 647 20 866 167 58 476 814
Balance at 31 August 2017 1 305 911 241 47 149 268 9 811 000 56 960 268 (637 380 425) 725 491 084 20 866 167 746 357 251
Balance at 29 February 2016 1 216 503 883 70 176 479 7 785 434 77 961 913 (375 253 418) 919 212 378 - 919 212 378
Changes in equity:
Loss for the period - - - - (221 434 596) (221 434 596) - (221 434 596)
Other comprehensive loss for the period - (11 669 350) - (11 669 350) - (11 669 350) - (11 669 350)
Total comprehensive loss for the period - (11 669 350) - (11 669 350) (221 434 596) (233 103 946) - (233 103 946)
Share options issued - - 123 414 123 414 - 123 414 - 123 414
Total changes - (11 669 350) 123 414 (11 545 936) (221 434 596) (232 980 532) - (232 980 532)
Balance at 31 August 2016 1 216 503 883 58 507 129 7 908 848 66 415 977 (596 688 014) 686 231 846 - 686 231 846
CONSOLIDATED STATEMENT OF CASH FLOWS
Unreviewed Reviewed
Six months to Six months to
31 August 2017 31 August 2016
Notes R R
Cash flows from operating activities
Cash used in operations (31 282 123) (50 338 910)
Interest received 4 2 137 740 2 951 017
Finance costs 5 (3 906 210) -
Tax paid 910 881 -
Net cash used in operating activities (32 139 712) (47 387 893)
Cash flows from investing activities
Purchase of exploration and evaluation assets - (476 219)
Purchase of property, plant and equipment 12 (190 820) (446 364)
Purchase of oil and gas properties 8 (364 785) (6 624 622)
Acquisition of subsidiary 22 20 201 806 -
Investment in joint venture 10 (4 585 059) -
Payments made for other financial assets (139 686) -
Net cash from/(used in) investing activities 14 921 456 (7 547 205)
Cash flows from financing activities
Proceeds from other financial liabilities 163 750 000 -
Repayments from other financial liabilities (1 466 034) -
Payments on share issue 15 (80 082) -
Loan from joint venture 19 6 768 174 -
Repayment of finance lease obligation (575 774) -
Payments for FEC asset (11 625 000) -
Net cash from financing activities 156 771 284 -
Total movement in cash and cash equivalents for the period 139 553 028 (54 935 098)
Cash and cash equivalents at the beginning of the period 18 724 004 107 349 463
Cash and cash equivalents at the end of the period 158 277 032 52 414 365
1 BASIS OF PREPARATION
The condensed consolidated interim financial statements of the Group, comprising Efora Energy
Limited and its subsidiaries (together "the Group"), for the six months ended 31 August 2017,
have been prepared in accordance with the recognition and measurement criteria of International
Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards
Board ("IASB"), the preparation and disclosure requirements of IAS 34 - Interim Financial
Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee,
the Financial Pronouncements as issued by the Financial Reporting Standards Council, the Listings
Requirements of the JSE Limited and in the manner required by the South African Companies Act
No. 71, 2008 (as amended). Accordingly, certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with IFRS, as issued by the IASB,
have been omitted or condensed as is normal practice.
Principal accounting policies
The same accounting policies, presentation and methods of computation have been followed in
these consolidated condensed interim financial statements of the Group as those applied in the
preparation of the Group's annual financial statements for the year ended 28 February 2017,
except for those related to joint ventures (note 10). The following improvements arising from
the International Accounting Standards Board's annual improvements projects and the amendments
to IFRS listed below, effective for financial periods beginning after 1 January 2017, were
effective for the first time during this interim period and did not have an impact on the
Group's results:
- Improvement to IFRS 12 - Disclosure of Interest in Other Entities
- Amendments to IAS 7 - Statement of Cash Flows regarding the disclosure initiative
- Amendments to IAS 12 - Income Taxes, regarding the recognition of deferred tax assets for
unrealised losses
Details pertaining to the amendments or improvements referred to above are provided in the
Group annual financial statements for the year ended 28 February 2017.
These condensed consolidated interim financial statements have been prepared on a going
concern basis.
All monetary information is presented in the functional currency of the Company, which is
the South African Rand.
2 PREPARATION OF THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
The directors take full responsibility for the preparation of these condensed consolidated interim
financial statements of the Group for the six months ended 31 August 2017. The condensed
consolidated interim financial statements have been prepared under the supervision of the Chief
Financial Officer, Mr Damain Matroos CA (SA), and have not been audited or reviewed by the Group's
external auditor, Ernst & Young Inc.
31 August 2017 31 August 2016
Notes R R
3 OPERATING LOSS
Provision for impairment of financial assets (113 766) (163 974 144)
Transportation income 602 592 -
Foreign exchange gains/(losses) 507 408 (61 369 036)
Consulting fees received 784 934 -
Installation allowance for rental premises received 218 700 -
Bad debts recovered 2 175 399 077
Provision for bad debts (5 982 000) -
Management fees received from joint venture 511 835 -
Corporate costs (2 133 249) (3 724 220)
External auditor's remuneration (2 196 811) (1 800 209)
Audit fees (1 646 811) (1 780 009)
Other services (550 000) (20 200)
Internal auditors' remuneration (38 025) (102 055)
Employee benefit expense (24 537 461) (15 602 080)
Financial advisory fees (3 800 572) -
Loss on FEC asset (3 964 529) -
Consulting fees paid (4 733 459) (6 763 284)
Business development (12 409 494) (6 714 119)
Legal fees (3 001 927) (4 473 597)
Travel and accommodation (2 224 061) (1 921 365)
Depreciation and amortisation (13 221 560) (5 917 378)
Oil and gas assets 8 (684 401) (2 624 991)
Property, plant and equipment 12 (7 219 997) (225 480)
Exploration and evaluation assets (153 191) (399 845)
Intangible assets 11 (5 163 971) (2 667 062)
Rentals - premises (3 572 259) (1 345 786)
Motor vehicle expense (5 871 112) -
Donations (400 000) -
Subscriptions (709 484) -
Repairs and maintenance (530 861) -
Advertising costs (257 834) -
Broker's fees - (445 959)
Share-based payment expense - (123 414)
4 INVESTMENT INCOME
Interest receivable - loans 170 262 40 334 716
Interest received - cash and cash equivalents 2 137 740 2 951 017
Interest on financial assets 23 088 014 11 647 219
25 396 016 54 932 952
Interest from loans of R40.3 million in the prior year is attributable to the accrual of
interest on the receivable outstanding from Encha Energy which is disclosed in note 9.
5 FINANCE COSTS
Interest paid to Gemcorp Africa Fund I Limited 3 550 152 -
Interest payable to the Unemployment Insurance Fund 7 129 127 -
Interest paid to suppliers 283 725 -
Interest and penalties paid to the South African Revenue Service 58 663 -
Interest paid to financial institutions 291 -
11 021 958 -
6 SEGMENTAL REPORTING
The Group operates in eight geographical locations which form the basis of the information evaluated by its executive management team.
For management purposes the Group is organised and analysed by these geographical locations. These locations are: South Africa, Egypt,
Nigeria, DRC, Malawi, Botswana, Zimbabwe and Mauritius. Head office activities relate to the Group activities which include the general
management, financing and administration of the Group. The head office is located in South Africa.
Head office South Africa Egypt Nigeria DRC Malawi Botswana Zimbabwe Mauritius Eliminations Consolidated
R R R R R R R R R R R
For the six months ended
31 August 2017
Revenue - 925 928 882 1 645 461 - - - - 2 318 450 - (917 634) 928 975 159
Cost of sales - (895 855 309) (3 995 597) - - - - (2 195 404) - 917 634 (901 128 676)
Gross profit/(loss) - 30 073 573 (2 350 136) - - - - 123 046 - - 27 846 483
Other income 3 940 769 480 351 46 656 - - - - 149 701 - (1 989 833) 2 627 644
Share of profit from joint
venture (note 10) - - - 2 463 698 - - - - - - 2 463 698
Investment income 9 734 497 137 684 - 5 173 649 10 350 186 - - - - - 25 396 016
Finance costs (3 609 106) (7 412 852) - - - - - - - - (11 021 958)
Other operating expenses (46 918 029) (43 501 823) (5 403 623) (244 277) (635 421) - (322 656) (2 250 116) (8 835) 1 989 833 (97 294 947)
Taxation (626 497) - - - (4 051 906) - - - - - (4 678 403)
(Loss)/profit for the period (37 478 366) (20 223 067) (7 707 103) 7 393 070 5 662 859 - (322 656) (1 977 369) (8 835) - (54 661 467)
Segment assets - non-current 365 840 580 250 924 394 239 067 400 116 337 269 269 207 152 307 000 - 46 279 074 4 840 488 (191 401 737) 1 101 401 620
Segment assets - current 94 998 293 344 709 631 11 886 503 66 585 23 160 - 4 148 16 226 048 114 654 (80 963 157) 387 065 865
Segment liabilities - non-current - 7 530 921 (118 332 326) - (165 209 880) - (5 197 244) (1 351 618) (31 564 380) 191 401 737 (122 722 790)
Segment liabilities - current (189 759 975) (377 676 311) (4 968 931) (199 166) - - (14 932) (127 469 758) (261 528) 80 963 157 (619 387 444)
South Africa Egypt Nigeria DRC Malawi Botswana Eliminations Consolidated
R R R R R R R R
For the six months ended
31 August 2016
Revenue - 3 211 927 340 909 690 - - - - 344 121 617
Cost of sales - (9 916 452) (338 805 352) - - - - (348 721 804)
Gross (loss)/profit - (6 704 525) 2 104 338 - - - - (4 600 187)
Other income 2 799 303 - 280 545 - - 70 765 (2 751 536) 399 077
Investment income 45 980 359 - - 8 952 593 - - - 54 932 952
Other operating expenses (209 350 324) (13 956 565) (40 982 162) (13 032 978) - (793 077) 2 751 536 (275 363 570)
Taxation - - - 3 197 132 - - - 3 197 132
Loss for the period (160 570 662) (20 661 090) (38 597 279) (883 253) - (722 312) - (221 434 596)
Segment assets - non-current 373 921 939 204 091 042 114 641 492 238 891 312 97 776 382 977 (202 926 748) 729 099 790
Segment assets - current 48 086 562 17 914 349 33 897 27 910 - 4 179 - 66 066 897
Segment liabilities - non-current - (118 685 214) - (155 680 159) - (3 890 272) 202 926 748 (75 328 897)
Segment liabilities - current (26 106 592) (7 038 511) - - - (460 841) - (33 605 944)
BUSINESS SEGMENTS
The operations of the Group comprise oil and gas exploration and production, crude trading
and the sale of petroleum products. The activities currently undertaken in Zambia and the
Democratic Republic of Congo with regardS to AfricOil Proprietary Limited are not significant
at this stage and have not been separately disclosed. These activities therefore do not meet
the recognition criteria for operating segments.
REVENUE
The Group's reported revenue is generated from the Egyptian General Petroleum Corporation
("EGPC") and SOCAR Trading Middle East DMCC with respect to oil sales and crude trading,
respectively. These revenues are attributed to the Egypt and Nigeria segments, respectively.
The revenue attributed to the South Africa segment is generated from the income earned from
the sale of petroleum products.
TAXATION - EGYPT
No income or deferred tax has been accrued by Mena International Petroleum Company Limited
("Mena") as the Concession Agreement between the EGPC, the Ministry of Petroleum and Mena
provides that the EGPC is responsible for the settlement of income tax on behalf of Mena,
out of EGPC's share of petroleum produced. The Group has elected the net presentation approach
in accounting for this deemed income tax. Under this approach Mena's revenue is not grossed up
for income tax payable by EGPC on behalf of Mena. Consequently, no income or deferred tax is accrued.
31 August 2017 31 August 2016
Note R R
7 LOSS PER SHARE
Basic (cents) (1.36) (6.77)
Diluted (cents) (1.36) (6.77)
Loss for the period used in the calculation of the
basic and diluted loss per share (50 304 453) (221 434 596)
Weighted average number of ordinary shares used in
the calculation of basic loss per share 3 697 313 357 3 269 836 208
Issued shares at the beginning of the reporting period 3 269 836 208 3 269 836 208
Effect of shares issued during the reporting period
(weighted) 15 427 477 149 -
Add: Dilutive share options - 148 718
Weighted average number of ordinary shares used in the
calculation of diluted loss per share 3 697 313 357 3 269 984 926
Headline loss per share
Basic (cents) (1.36) (6.77)
Diluted (cents) (1.36) (6.77)
Reconciliation of headline loss
Loss attributable to equity holders of the parent (50 304 453) (221 434 596)
Headline loss for the period (50 304 453) (221 434 596)
R
8 OIL AND GAS PROPERTIES
Cost
At 1 March 2016 225 422 431
Additions 6 915 734
Disposals (282 985)
Translation of foreign operations (31 277 873)
At 28 February 2017 200 777 307
At 1 March 2017 200 777 307
Additions 364 785
Translation of foreign operations (108 792)
At 31 August 2017 201 033 300
Depletion and impairment
At 1 March 2016 (59 392 319)
Reversal of impairment (note 27) 46 178 612
Depletion (3 805 457)
At 28 February 2017 (17 019 164)
At 1 March 2017 (17 019 164)
Depletion (684 401)
At 31 August 2017 (17 703 565)
Net book value
At 28 February 2017 183 758 143
At 31 August 2017 183 329 735
31 August 2017 28 February 2017
Footnotes Notes R R
9 OTHER FINANCIAL ASSETS
Non-current
Contingent consideration 1 218 638 085 208 508 320
Transcorp Refund 2 218 577 024 208 450 088
Supplier Development Companies 3 3 117 500 -
Gentacure Proprietary Limited 4 25 533 931 -
Phembani Group Proprietary Limited 4 25 827 349 -
Loan due from EERNL 53 858 555 51 363 223
495 552 444 468 321 631
Less: Provision for impairment 5 (1 250 000) -
494 302 444 468 321 631
Current
Loan due from EERNL 221 581 667 713
Advance payment against future services 6 115 824 716 115 824 716
Deferred consideration on disposal of
Greenhills Plant 1 996 783 2 000 000
118 043 080 118 492 429
Less: Provision for impairment 7 (115 824 716) (115 918 538)
2 218 364 2 573 891
Total 496 520 808 470 895 522
1 The contingent consideration represents SacOil DRC SARL's ("SacOil DRC") right to receive
cash from Total upon the occurrence of certain future events under the terms of the Farm-in
Agreements concluded in 2011 and 2012. The agreements were concluded between Total and Semliki.
Pursuant to the reorganisation completed in the 2016 financial year Efora's interest in
Block III and its rights under the various agreements relating to the asset were transferred
to SacOil DRC. The valuation assumptions for the contingent consideration are consistent
with those applied at 28 February 2017. The movement in the contingent consideration is
attributable to imputed interest of R10.4 million (28 February 2017: R17.6 million) and a
foreign exchange loss of R0.2 million (28 February 2017: R37.1 million).
2 The increase in the receivable during the period is attributable to foreign exchange losses
of R0.2 million (28 February 2017: R52.9 million) and interest of R10.3 million
(28 February 2017: R10.5 million).
3 Supplier development loans were advance in line with AfricOil Proprietary Limited's strategy
for broad-based black economic empowerment of supplier development. The following companies
were awarded supplier development loans:
- Kamoso Fuel and Gas Proprietary Limited (R0.9 million);
- Indovana Meat Delight Proprietary Limited (R1.3 million); and
- MCV International Forwarding Proprietary Limited (R0.9 million).
4 These loans arose as a result of cost recovery for legal fees incurred and shared with the
shareholders of AfricOil Proprietary Limited.
5 A full provision for impairment of R1.3 million was created for the loan with Indovana
Meat Delight Proprietary Limited. Indovana Meat Delight Proprietary Limited forms part of
the Supplier Development Companies as mentioned above.
6 The amount due represents Encha Energy's indebtedness to Efora Energy Limited under the
Acknowledgement of Debt Agreement concluded between the two parties on 28 February 2013
("the Agreement"). This debt became due and payable on 29 February 2016 and remains unpaid
as at the date of the condensed consolidated interim financial statements. The financial asset
recognised at 31 August 2017 is R115.8 million (28 February 2017: R115.8 million)
representing the advance of R75.5 million and interest allocated in the prior year totalling
R40.3 million calculated at the prime rate plus 3% ("default interest"). The Agreement
provides for the accrual of default interest on the amount outstanding from 28 February 2013
until such time the debt is paid in full, however, due to the uncertainty related to the
recovery of the amount and based on the amount being fully impaired, no further interest
was provided in the interim period. The amount due from Encha Energy has been provided for
as outlined below, pending the outcome of the debt recovery process.
7 For the duration of the Agreement referred to above, as provided for therein, the Company
received certificates from Encha's auditors which confirmed at each reporting date that the
net asset value of the Encha Group exceeded R100 million as a basis to support the
recoverability of the amount owed. Since the expiry of the Agreement and the subsequent
default by Encha on its obligations, this information has not been made available to the
Company to enable a complete assessment of the financial position of the Encha Group.
Information available to enable an assessment of the recoverability of the R115.8 million
owed to the Company at 31 August 2017 was therefore limited to information available in
the public domain on Encha's asset base. This information, however, does not provide
visibility of Encha's liabilities to enable a complete assessment of the net asset position
at 31 August 2017. A provision for impairment of R115.8 million has therefore been raised
in the prior year.
10 INVESTMENT IN JOINT VENTURE
Participating interest
Country of Nature of 31 August 2017 28 February 2017
incorporation activities % %
Sacoil Energy Equity Resources Limited ("SEER") Seychelles Crude trading 50 -
Crude trading, Nigeria
Efora, jointly with Energy Equity Resources (Norway) Limited, through Sacoil Energy Equity
Resources Limited, participates in crude trading in Nigeria. Efora's share of this arrangement
is 50%. The interest in this joint venture is accounted for using the equity accounting method.
Summarised financial statement information (100%) of the joint venture, based on its IFRS
financial statements, and reconciliation with the carrying amount of the investment in the
Group's consolidated financial statements are set out below:
31 August 2017
R
Revenue 652 708 511
Cost of sales (647 206 253)
Other income -
Other operating costs (574 862)
Profit for the year 4 927 396
Group's share of profit for the year 2 463 698
Non-current assets 11 569
Current assets 17 015 630
Current liabilities (2 929 686)
Equity 14 097 513
Portion of the Group's ownership 7 048 757
The joint venture had no contingent liabilities or capital commitments as at 31 August 2017.
SEER cannot distribute its profits until it obtains the consent from the two joint venture
partners. SEER is domiciled in the Seychelles and is tax exempt.
In the prior year this arrangement was neither a joint venture nor a joint operation but
rather classified as a cost-sharing arrangement. In the current year this arrangement is
classified as a joint venture. The change in the basis of accounting post acquisition is due
to the change in the structuring of the Group's interest in SEER. Since the incorporation of
SEER up until 22 March 2017 the Group's participation in SEER was governed by a 50/50 cost-
sharing agreement which meant that the Group accounted for its 50% share of assets, revenues
and costs in preparing its financial statements. Since the conclusion of a shareholders'
agreement on 22 March 2017 which now stipulates that the Group is entitled to a 50% share of
SEER's net assets, the Group now accounts for this investment as a joint venture in line with
IFRS 11.
Other
Customer Computer intangible
Brands relationships Goodwill software assets Total
Notes R R R R R R
11 INTANGIBLE ASSETS
Cost
At 1 March 2016 - - - 816 231 85 014 715 85 830 946
Translation of foreign operations - - - - (10 343 740) (10 343 740)
At 28 February 2017 - - - 816 231 74 670 975 75 487 206
At 1 March 2017 - - - 816 231 74 670 975 75 487 206
Acquisition of subsidiary 22 24 522 681 31 024 522 67 534 397 - - 123 081 600
Additions - - - - - -
Translation of foreign operations - - - - (14 540) (14 540)
At 31 August 2017 24 522 681 31 024 522 67 534 397 816 231 74 656 435 198 554 266
Accumulated depreciation and impairment
At 1 March 2016 - - - (380 777) (27 604 749) (27 985 526)
Reversal of impairment 27 - - - - 15 967 661 15 967 661
Amortisation - - - (198 838) (4 985 805) (5 184 643)
At 28 February 2017 - - - (579 615) (16 622 893) (17 202 508)
At 1 March 2017 - - - (579 615) (16 622 893) (17 202 508)
Amortisation (1 226 134) (1 551 226) - (90 734) (2 295 877) (5 163 971)
At 31 August 2017 (1 226 134) (1 551 226) - (670 349) (18 918 770) (22 366 479)
Net book value
At 28 February 2017 - - - 236 616 58 048 082 58 284 698
At 31 August 2017 23 296 547 29 473 296 67 534 397 145 882 55 737 665 176 187 787
The Group's brands and customer relationships arose from the acquisition of Phembani Oil
Proprietary Limited as part of the identification of separately identifiable intangible assets
acquired in a business combination.
The Group's other intangible assets arose from the acquisition of Mena in October 2014.
Mena owns the Lagia Oil Field. The Petroleum Concession Agreement gives Mena the right to
drill for petroleum reserves.
Goodwill arose from the acquisition of Phembani Oil Proprietary Limited. The goodwill arising
on the acquisition of Phembani Oil Proprietary Limited is attributable to expected synergies
from the integration of the AfricOil and Big Red businesses and the value of the brand and customer
relationships. The purchase price allocation for the acquisition of AfricOil is still being finalised.
Land and Plant and Motor Computer Furniture Assets under
buildings equipment vehicles equipment and fittings construction Total
R R R R R R R
12 PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 March 2016 - - 548 687 721 994 608 912 - 1 879 593
Additions - - - 308 173 277 398 - 585 571
At 28 February 2017 - - 548 687 1 030 167 886 310 - 2 465 164
At 1 March 2017 - - 548 687 1 030 167 886 310 - 2 465 164
Acquisition of subsidiary 28 818 129 43 436 392 107 728 367 374 540 2 337 833 7 265 710 189 960 971
Translation of foreign operations (75 834) (132 995) (15 930) (5 711) (5 511) (41 709) (277 690)
Additions - - - 190 820 - - 190 820
At 31 August 2017 28 742 295 43 303 397 108 261 124 1 589 816 3 218 632 7 224 001 192 339 265
Accumulated depreciation and impairment
At 1 March 2016 - - (213 165) (428 453) (160 496) - (802 114)
Depreciation - - (107 367) (241 215) (127 742) - (476 324)
At 28 February 2017 - - (320 532) (669 668) (288 238) - (1 278 438)
At 1 March 2017 - - (320 532) (669 668) (288 238) - (1 278 438)
Depreciation (65 259) (1 912 764) (4 780 143) (239 728) (222 103) - (7 219 997)
At 31 August 2017 (65 259) (1 912 764) (5 100 675) (909 396) (510 341) - (8 498 435)
Net book value
At 28 February 2017 - - 228 155 360 499 598 072 - 1 186 726
At 31 August 2017 28 677 036 41 390 633 103 160 449 680 420 2 708 291 7 224 001 183 840 830
31 August 2017 28 February 2017
R R
13 FEC ASSET
Forward exchange contracts ("FECs") 7 660 471 -
Forward exchange contracts were used to hedge against the Gemcorp Africa Fund I Limited loan
repayable on 31 May 2018. Included in the FEC asset total is a hedging fee of R11.6 million
reduced by a loss on the FEC asset of R4 million included in other operating costs. The loss
on the FEC asset occurred as a result of the mark-to-market valuations provided by Investec
Bank Limited using a discount factor of 0.95059.
31 August 2017 28 February 2017
R R
14 TRADE AND OTHER RECEIVABLES
Trade receivables 227 909 352 1 003 544
Value-added tax 6 900 361 485 643
Other receivables 13 191 555 4 027 278
248 001 268 5 516 465
Less: Provision for impairment (48 101 362) (3 324 524)
199 899 906 2 191 941
At 31 August 2017 other receivables include an amount of R3.3 million (28 February 2017:
R3.3 million) relating to employee taxes recoverable from a former employee of the Company.
A provision for impairment of R3.3 million (28 February 2017: R3.3 million) has been recognised
for this receivable pending the outcome of a legal recovery process. An amount of R44.8 million
was provided for as an allowance for credit losses against trade receivables with regard to
long outstanding debtors in Zimbabwe (R29.2 million) and South Africa (R15.6 million) relating
to AfricOil Proprietary Limited.
At 31 August 2017 all other trade receivables are fully performing. The carrying values of
all trade and other receivables approximate their fair values.
31 August 2017 28 February 2017
Note R R
15 STATED CAPITAL
Authorised:
Number of ordinary shares with no par value 10 000 000 000 10 000 000 000
Allotted equity share capital:
Reported at the beginning of the year 1 216 503 883 1 216 503 883
Non-cash shares issued 22 89 407 358 -
As at 31 August 1 305 911 241 1 216 503 883
Reconciliation of number of shares issued:
Reported at the beginning of the year 3 269 836 208 3 269 836 208
Non-cash shares issued 427 477 149 -
As at 31 August 3 697 313 357 3 269 836 208
Non-cash shares issued comprise:
Number of Issue price1 Fair value
Date Nature of transaction shares issued R R
31 May 2017 Acquisition of Phembani Oil Proprietary Limited 427 477 149 0.21 89 487 440
Less listed costs associated with the acquisition (80 082)
427 477 149 89 407 358
1 The issue price is rounded to two decimal places.
16 SUBSIDIARIES WITH MATERIAL NON-CONTROLLING INTERESTS
The Group has one subsidiary with a material non-controlling interest ("NCI"). Information
regarding this subsidiary is as follows:
NCI in subsidiary Loss allocated to NCI Accumulated NCI
Principal place August 2017 February 2017 August 2017 August 2016 August 2017 February 2017
Name of business % % R R R R
AfricOil Proprietary Limited ("AfricOil") South Africa 29 - (4 357 014) - 20 866 167 -
(4 357 014) - 20 866 167 -
No dividends were paid to NCI during the current period.
Summarised financial information of the subsidiary with material non-controlling interests,
representing 100% of the underlying subsidiary's relevant figures, is set out below:
AfricOil Total
R R
August 2017
Non-current assets 241 449 778 241 449 778
Current assets 280 087 176 280 087 176
Total assets 521 536 954 521 536 954
Non-current liabilities (20 031 922) (20 031 922)
Current liabilities (424 444 440) (424 444 440)
Total liabilities (444 476 362) (444 476 362)
Net assets 77 060 592 77 060 592
Equity attributable to owners of the parent 56 194 425 56 194 425
Non-controlling interests 20 866 167 20 866 167
Revenue 927 329 698 927 329 698
Cost of sales (897 133 079) (897 133 079)
Other income 630 052 630 052
Other operating costs (42 983 414) (42 983 414)
Investment income 137 684 137 684
Finance costs (7 412 852) (7 412 852)
Taxation - -
Loss after tax (19 431 911) (19 431 911)
Exchange differences on translation of foreign operations (2 059 571) (2 059 571)
Total comprehensive loss for the period (21 491 482) (21 491 482)
Equity attributable to owners of the parent (17 134 468) (17 134 468)
Non-controlling interests (4 357 014) (4 357 014)
31 August 2017 28 February 2017
Footnote Note R R
17 OTHER FINANCIAL LIABILITIES
Non-current
Kobus van der Watt 1 15 613 386 -
15 613 386 -
Current
Contingent consideration 2 2 262 560 -
Gemcorp Africa Fund I Limited 3 162 673 575 -
Unemployment Insurance Fund 4 25 216 332 072 -
Kobus van der Watt 1 4 532 153 -
Moopong Investment Holdings Proprietary Limited 5 25 5 000 000 -
G Andouliakos and S Bailey 6 2 849 540 -
Impact Trust 7 8 307 764 -
401 957 664 -
Total 417 571 050 -
1 The loan represents an amount payable to Kobus van der Watt which arose as a result of the
acquisition of the business assets of Big Red Proprietary Limited, Turquoise Moon Trading 477
Proprietary Limited and Redlex Investments Proprietary Limited. This loan is interest free
and repayable in 30 monthly instalments of R0.9 million each. Repayment started in March 2017.
2 The contingent consideration arose from the acquisition of Phembani Oil Proprietary Limited.
Refer to note 22 for further details.
3 The Gemcorp Africa Fund I Limited loan is repayable in 12 months from the proceeds of a
rights issue which the Board has committed to undertake by 31 May 2018. The loan is secured
by a cession in security of the rights offer proceeds, bears interest at 8.5% per annum and
was arranged at a fee of 2%. The loan was utilised to fund the acquisition of Phembani Oil
Proprietary Limited and will also be used for working capital and general corporate purposes
of the Group. Interest totalling R3.6 million has been charged to profit or loss.
4 The loan is repayable over 20 equal quarterly instalments effective from August 2017 and
attracts interest on a monthly basis compounded quarterly at a rate of three-month Jibar plus
420 basis points. This loan was used for the acquisition of the business assets of Big Red
Proprietary Limited, Turquoise Moon Trading 477 Proprietary Limited and Redlex Investments
Proprietary Limited (all previously owned by Kobus van der Watt). Interest totalling
R7.1 million has been charged to profit or loss. The Unemployment Insurance Fund is
represented by its duly authorised representative the Public Investment Corporation.
5 The loan is unsecured, bears interest at the prime rate and is repayable in full on
31 December 2017. The borrower may repay part of the loan by giving one day's business
notice to the lender.
6 The loan represents an amount payable to G Andouliakos and S Bailey which arose as a
result of the purchase of Pallematic Freight Private Limited. The loan amount is secured,
bears no interest and is repayable on 11 November 2017.
7 The loan amount arose from the purchase of the business assets of AfricOil Petroleum -
Zimbabwe and represents the balance owing to the liquidator. The loan is secured, bears no
interest and has no fixed terms of repayment.
31 August 2017 28 February 2017
R R
18 FINANCE LEASE OBLIGATIONS
Reconciliation between the total minimum lease payments
and their present value:
Minimum lease payments
- within one year 1 514 485 -
- after one year but not more than five years 3 054 091 -
4 568 576 -
Less: future finance charges (370 849) -
Present value of minimum lease payments 4 197 727 -
Present value of minimum lease payments
- within one year 1 514 485 -
- after one year but not more than five years 2 683 242 -
4 197 727 -
Non- current liabilities 2 683 242 -
Current liabilities 1 514 485 -
4 197 727 -
It is AfricOil Proprietary Limited's policy to lease certain motor vehicles and equipment
under finance leases. The average term is five years for motor vehicles.
31 August 2017 28 February 2017
R R
19 LOAN FROM JOINT VENTURE
Sacoil Energy Equity Resources Limited 6 152 414 -
The loan consists of cash advances paid to Efora by Sacoil Energy Equity Resources Limited
("SEER"), after deduction of operational costs paid by Efora on behalf of SEER. This loan will
be reduced by dividends declared by SEER to Efora in future. This loan is unsecured, interest
free and has no fixed terms of repayment.
31 August 2017 28 February 2017
R R
20 TRADE AND OTHER PAYABLES
Trade payables 152 125 142 5 083 644
Accruals 6 562 619 3 284 468
Other payables 31 607 720 1 051 299
190 295 481 9 419 411
The carrying values of trade and other payables approximate their fair values.
21 PROVISIONS
Utilised during
Opening balance Additions the year Total
Reconciliation of provision Footnote R R R R
- August 2017
Bonus provision 1 575 378 - - 1 575 378
Leave pay provision 1 815 240 157 786 (128 153) 1 844 873
Provision for retrenchment costs 1 - 1 914 731 - 1 914 731
3 390 618 2 072 517 (128 153) 5 334 982
1 The Group has initiated a restructuring process for the Zimbabwe operation of AfricOil
Proprietary Limited resulting in the retrenchment of certain staff members for operational
reasons. Affected employees were paid retrenchment packages, in accordance with the labour
relations legislative requirements, after the interim period. The process was lodged with
the Zimbabwean authorities on 30 September 2017 and the amount has been fully provided at
31 August 2017.
22 BUSINESS COMBINATION
On 31 May 2017 the Group acquired 100% of the share capital of Phembani Oil Proprietary Limited
("Phembani"), an investment holding company whose only asset is a 71% equity interest in
AfricOil Proprietary Limited which owns a fuel distribution business. Phembani has been
acquired to enable the Group to enter the downstream segment of the oil and gas value chain and
also expand our footprint in South Africa. The acquisition is also expected to contribute
significant revenues and cash flows to the Group in line with our strategy to establishing a
sustainable group.
The provisional fair values of the identifiable assets and liabilities of Phembani as at the
date of acquisition were:
Provisional fair value
R
Property, plant and equipment 189 960 971
Intangible assets 55 547 203
Other financial assets 3 086 473
Deferred tax assets 5 816 000
Inventories 17 791 135
Loans to Group companies -
Other financial assets -
Current tax receivable 252 865
Trade and other receivables 197 010 852
Cash and cash equivalents 59 201 806
528 667 305
Other financial liabilities (234 552 945)
Finance lease obligations (4 773 501)
Deferred tax liability (16 970 928)
Other financial liabilities (12 342 100)
Current tax payable -
Deferred consideration -
Trade and other payables (167 601 153)
Provisions (3 390 618)
Bank overdraft -
(439 631 245)
Total identifiable net assets at fair value 89 036 060
Non-controlling interest (25 820 457)
Goodwill arising on acquisition 67 534 397
Consideration at fair value 130 750 000
Cash 39 000 000
Equity instruments 89 487 440
Contingent consideration (equity instruments) 2 262 560
The cash outflow on acquisition is as follows:
Cash paid 39 000 000
Net cash acquired with the subsidiary (59 201 806)
Net consolidated cash inflow (20 201 806)
The fair value of the 690 million Efora ordinary shares issued or to be issued as part of the
consideration paid for the acquisition of Phembani was based on the 90-day volume weighted
average price on 31 May 2017, at a discount of 10%.
The contingent consideration disclosed in the annual financial statements for the year ended
28 February 2017 of R55 million indicated that it will be settled in Efora ordinary shares if
Phembani achieves EBITDA of between R68 million and R100 million for the year ending
31 December 2017, obtain the required tax deductions for certain provisions and if it recovers
specified accounts receivable within 12 months. Subsequently the contingent consideration was
reviewed and the only remaining portion still applicable is the required tax deductions for
certain provisions resulting in a contingent consideration of R2.3 million. The EBITDA and
recovery of specified accounts were excluded due to the likelihood of these amounts falling
due assessed to be low.
The fair values disclosed are provisional due to the complexity of the acquisition and the
fact that the assessment of the underlying intangible assets acquired (brand and customer
relationships), and the allocation of value to these assets is still being finalised.
In addition, these fair values are based on the statement of financial position as at
31 May 2017, being the financial information at the closing date for the acquisition.
As a result the final fair values and final goodwill acquired may differ once the intangible
asset valuation process has been completed. The review of the fair value of the assets and
liabilities acquired will be completed for the financial year-end reporting.
The fair values shown for 31 August 2017 are based on balances at 31 May 2017 as indicated
above. This differs from the balances used in the annual financial statements for the year
ended 28 February 2017. The balances used for 28 February 2017 were based on the statement
of financial position as at 31 March 2017, being the latest available financial information
at that time. This resulted in significant movements for deferred tax assets and intangible
assets. Intangible assets consist of intangible assets identified as part of the business
combination and the movement in deferred tax assets is mainly due to the finalisation of the
31 December 2016 closing balances.
Additional information regarding receivables as required by IFRS 3 paragraph B64(h) is not
yet available.
The goodwill arising on acquisition is attributable to expected synergies from the integration
of the AfricOil Proprietary Limited and Big Red Investments Proprietary Limited businesses
and the value of the brand and customer relationships.
23 FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents, trade and other receivables, trade and other
payables and the loan from the joint venture approximate carrying values due to the short-term
maturities of these instruments. Other financial assets and other financial liabilities are
evaluated by the Group at measurement date based on inputs such as interest and exchange
rates, country-specific factors and creditworthiness of debtors.
Valuation techniques and assumptions applied to measure fair values:
Carrying value Fair value
Footnote 31 August 2017 28 February 2017 31 August 2017 28 February 2017
Financial instrument R R R R Valuation technique Significant inputs
Other financial assets 1 496 520 808 470 895 522 425 306 299 428 681 934 Discounted cash flow model Weighted average cost of capital
Other financial liabilities 417 571 050 - 416 268 749 - Discounted cash flow model Weighted average cost of capital
1 In terms of Efora's accounting policies and IAS 39 - Financial Instruments: Recognition and
Measurement ("IAS 39") these financial instruments are carried at amortised cost and not at
fair value, given that Efora intends to collect the cash flows from these instruments when
they fall due over the life of the instrument. Changes in market discount rates which affect
fair value would therefore not impact the valuation of these instruments and are not
considered to be objective evidence of impairment for items carried at amortised cost per
IAS 39 as this does not impact the timing or amount of expected future cash flows.
Fair value hierarchy
The following table presents the Group's assets not measured at fair value in the statement
of financial position, but for which the fair value is disclosed above. The different levels
have been defined as follows:
Level 1 - Quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2 - Other techniques for which all inputs which have a significant effect on the recorded
fair value are observable, either directly or indirectly
Level 3 - Techniques which use inputs that have a significant effect on the recorded fair value
that are not based on observable market data
Level 1 Level 2 Level 3 Total
R R R R
At 31 August 2017
Other financial assets - - 425 306 299 425 306 299
Other financial liabilities - - 416 268 749 416 268 749
At 28 February 2017
Other financial assets - - 428 681 934 428 681 934
There were no transfers between levels during the period. The Group's own non-performance
risk at 31 August 2017 was assessed to be insignificant.
31 August 2017 31 August 2016
R R
24 COMMITMENTS AND LIABILITIES
Commitments
Exploration and evaluation assets - work programme
commitments - due within 12 months - 1 665 000
Exploration and evaluation assets - work programme
commitments - due within 13 to 48 months - 44 698 778
- 46 363 778
Exploration and evaluation commitments will be funded through a combination of cash, debt
and equity funding.
31 August 2017 28 February 2017
Footnote R R
Contingent liabilities
Cost carry arrangement with TOTAL 1 113 933 430 114 002 716
113 933 430 114 002 716
1 Cost carry arrangement
The Farm-in Agreement between Semliki and Total provides for a carry of costs by Total on
behalf of Semliki on Block III. Semliki's rights under the contract were subsequently
assigned to SacOil DRC as part of the reorganisation concluded on 29 February 2016.
Total will be entitled to recover these costs, being SacOil DRC's share of the production
costs on Block III, plus interest, from future oil revenues. The contingency becomes
probable when production of oil commences and will be raised in full at that point.
At 31 August 2017 Total has incurred R113.9 million (28 February 2017: R114.0 million) of
costs on behalf of SacOil DRC. Should this liability be recognised a corresponding increase
in assets will be recognised which, together with existing exploration and evaluation assets,
will be recognised as development infrastructure assets.
31 August 2017 31 August 2016
Footnote Notes R R
25 RELATED PARTIES
(a) Transactions with Group companies
Management fees
Sacoil Energy Equity Resources Limited 3 511 835 -
(b) Balances with Group companies
Other financial assets
Phembani Group Proprietary Limited 9 827 349 -
(c) Balances with shareholders
Other financial assets
Gentacure Proprietary Limited 9 533 931 -
Other financial liabilities
Unemployment Insurance Fund 17 216 332 072 -
Moopong Investment Holdings Proprietary Limited 17 5 000 000 -
(d) Balances with members of key management
Other receivables 14
Tseke Benny Nkadimeng 1 1 432 110 -
1 This receivable was netted off against the amount owing to Moopong Investment Holdings
Proprietary Limited on 1 September 2017.
(e) Key management compensation R R
Non-executive directors:
Fees 2 447 813 2 011 593
Executive directors:
Salaries 4 289 753 4 812 572
Other key management:
Salaries 4 069 523 4 213 967
Total key management compensation 10 807 089 11 038 132
26 OPERATING AND FINANCE LEASE COMMITMENTS
The Group has entered into operating leases on premises, with a lease term of five years.
Future minimum rentals payable under operating leases are as follows:
31 August 2017 28 February 2017
R R
Within one year 2 620 086 1 680 181
After one year but not more than five years 8 071 278 3 623 365
10 691 364 5 303 546
Refer to note 18 for future minimum rentals payable for finance lease obligations.
27 REVERSAL OF IMPAIRMENT
In assessing whether an impairment or impairment reversal is required the carrying value of
the cash-generating unit ("CGU") is compared with its recoverable amount. The recoverable
amount is the higher of the CGU's fair value less costs to sell and value in use. Given the
nature of the Group's activities, information on the fair value of an asset is usually difficult
to obtain unless negotiations with potential purchasers or similar transactions are taking place.
Consequently, unless indicated otherwise, the recoverable amount used in assessing the impairment
charges or reversals described below is value in use. The Group generally estimates value in
use using a discounted cash flow model.
Key assumptions relating to the valuation of the oil and gas assets and other intangible assets
in the prior year include the discount rate and cash flows used to determine the value in use.
Future cash flows were estimated based on financial budgets approved by management covering a
three-year period and were extrapolated over the useful life of the assets to reflect the
long-term plans for the Group using the estimated growth rate for the specific business. The future
cash flows were discounted to their present values using a pre-tax discount rate of 10%. This
discount rate was derived from the Group's post-tax weighted average cost of capital ("WACC"),
with appropriate adjustments made to reflect the risks specific to the CGU and to determine the
pre-tax rate. The WACC took into account targeted debt and equity, weighted 50% each. The cost
of equity was derived from the expected return on investment by the Group's investors.
The cost of debt was based on the interest rate at which the Group would be able to borrow for
future expenditure. Segment-specific risk was incorporated by applying individual beta factors.
The beta factors are evaluated annually based on publicly available market data.
Other key assumptions used for the valuation in the prior year:
- Crude oil prices: Forecast commodity prices were based on management's estimates and
available market data.
- Production rates: Based on management's best estimate of production profiles.
- Growth rate estimates: Rates were based on published industry research.
- Gross margins: Gross margins were based on average values achieved since the acquisition
of the assets.
31 August 2017 28 February 2017
R R
Impairment reversals
Oil and gas properties (note 8) - 46 178 612
Other intangible assets (note 11) - 15 967 661
- 62 146 273
The trigger for testing for the reversal of previously recognised impairment losses was the
uplift in oil prices and future operating cost estimates. On 28 February 2017 the Group
reversed the impairments of oil and gas assets of US$3.5 million (R46.2 million)
and other intangible assets of US$1.2 million (R16.0 million). These reversals relate to
impairment losses recognised in the year ended 28 February 2016 attributable to these assets
which are owned by Efora's subsidiary Mena International Petroleum Company Limited. The reversals
resulted from a positive change in the estimates used to determine the assets' recoverable
amount since the impairment losses were recognised, specifically the future oil price estimates
and future operating cost estimates. The basis for the determination of the recoverable amount is
outlined above.
There were no impairments or reversals of impairments regarding oil and gas assets and other
intangible assets for the current period.
The Group's oil and gas properties and other intangible assets form part of a single CGU.
This CGU falls within the Egypt reportable segment (note 6).
28 LITIGATION
The Group is, from time to time, involved in various claims and legal proceedings arising in
the ordinary course of business. The Board believes, based on its judgement and advice obtained
from legal counsel, that the Group has valid claims for the matters under arbitration or
litigation. A change in one or more of these judgements, although not anticipated, would
significantly affect the Group's results. Provision is made for all liabilities which are
expected to materialise and contingent liabilities are disclosed when the outflows are possible.
29 DIVIDENDS
The Board has resolved not to declare dividends to shareholders for the period under review.
30 GOING CONCERN
The Group incurred a net loss for the period ended 31 August 2017 of R54.6 million
(2016: R221.4 million). The results of the Group continue to be affected by developments in
the global markets with respect to oil prices and exchange rates as well as lower-than-expected
performance of the Lagia asset and AfricOil investment for the reasons highlighted in the
operations and finance reviews.
Consequently, the Group's operations have not delivered the expected cash flows which has
resulted in a net cash outflow of R32.1 million for the period ended 31 August 2017
(2016: R47.3 million) from operations, business development activities and overhead costs.
The Group's cash resources at 31 August 2017 total R158.3 million (2016: R52.4 million) and
are presently not considered adequate to meet the Group's obligations for the foreseeable future.
The following uncertainties therefore exist with respect to the Group's ability to remain a
going concern.
Availability of funding for the Group's activities
A deficit of R30.6 million exists in the Group's cash flow forecast to February 2019
("the Forecast") for reasons highlighted above. The Forecast does not take into account the
possible cash inflow which could arise from the recovery of funds owed to the Group as disclosed
in note 9. In order to address the shortfall the Group is committed to undertake a rights
issue to secure additional funding for the Group and the repayment of the equity bridge of
US$12.5 million from Gemcorp Africa Fund I Limited ("Gemcorp") due by 31 May 2018 as disclosed
in note 17. The Board has approved the rights issue and is confident of obtaining the required
support from its key shareholders for the future rights issue; however, it is difficult to
establish with certainty the extent to which shareholders will follow their rights in order
to raise adequate funds to repay the loan.
Operational performance of the Group
Lagia production is forecast to increase significantly based on the planned development
activities to follow the drilling of the pilot well and it is expected that this should have
a material impact on the financial performance of the Group as a whole, subject to the impact
of production rates achieved for each well, the prevailing exchange rates and oil prices during
the foreseeable future.
The acquisition of Phembani Oil Proprietary Limited was completed on 31 May 2017 and management
has been focused on certain key areas that required the integration of AfricOil Proprietary
Limited's business. The integration activities had an impact on the performance of the business
due to integration-related costs, restructuring of the Zimbabwean business and a variation in
the supply arrangements of products in the business. The full realisation of benefits associated
with these activities on AfricOil's forecast remains an uncertainty that management is confident
can be effectively managed to ensure that the majority of the benefits will be realised.
The Group is still in the exploration phase for the rights that it holds in Block III in the DRC.
Should this exploration prove successful there is significant upside available in the forecasted
financial position and performance in the long term which has not been factored into the Group's
cash flow forecast to 2020. It remains to be seen whether the planned development and exploration
activities yield the expected results.
Loan conditions for the Group
The uncertainty related to the operational performance above relating to AfricOil will impact
its ability to pay the required loan payments and meet the loan covenants related to the
Unemployment Insurance Fund loan provided to AfricOil to acquire the Forever fuel business
activities on 15 February 2017. The debt equity ratio and interest cover covenants were breached
during the period and management has engaged the PIC to reconsider the existing covenants based
on the operational performance of the business during the integration period and repayment profiles.
These discussions are ongoing and the PIC has confirmed that they are supportive of management's
position on these matters, however, these are subject to the approval of the lender's Investment Committee.
The above conditions give rise to material uncertainties which may cast doubt on the Group's
ability to continue as a going concern and, therefore, that it may be unable to realise its
assets and discharge its liabilities in the normal course of business.
The Board remains reasonably confident that it will manage the material uncertainties that
exist, accordingly the financial statements have been prepared on the basis of accounting policies
applicable to a going concern. This basis presumes that funds will be available to finance future
operations and that the realisation of assets and settlement of liabilities will occur in the
ordinary course of business.
31 EVENTS AFTER THE REPORTING PERIOD
The following events occurred after the reporting period:
Acquisition of the assets and operations of Belton Park Trading
On 2 October 2017 Efora Energy Limited announced the acquisition of the assets and
operations of Belton Park Trading subject to the fulfilment of certain conditions.
The completion of this acquisition is anticipated to occur by no later than 31 December 2017
subject to the fulfilment of the conditions precedent. Efora is to acquire the operations of
Belton Park for a maximum consideration of R220 million, contingent on certain performance
parameters. Belton Park is an independent fuel wholesaler and distributor, distributing over
20 million litres of fuel products per month with a significant fleet of 32 heavy-duty tankers.
The detailed announcement regarding this acquisition is available on the Company's website at
www.eforaenergy.com.
Name change and share consolidation
On 8 November 2017 the Company announced that it has formally commenced trading under the new
name Efora Energy Limited with the share code EEL. Efora also announced the commencement of a
new capital structure following the share consolidation as voted for at the Annual General
Meeting held on 2 October 2017. The consolidation is on the basis of 10 to 1 by the
consolidation of every 10 ordinary shares into 1 ordinary share.
On behalf of the Board
Boas Seruwe Dr Thabo Kgogo Damain Matroos
Chairman Chief Executive Officer Chief Financial Officer
Johannesburg
30 November 2017
CORPORATE INFORMATION
Registered office and physical address:
1st Floor, 12 Culross Road, Bryanston, 2021
Postal address:
PostNet Suite 211
Private Bag X75, Bryanston, 2021
Contact details:
Tel: +27 (0) 10 591 2260
E-mail: info@eforaenergy.com
Website: www.eforaenergy.com
Directors
Dr Thabo Kgogo (Chief Executive Officer), Marius Damain Matroos (Chief Financial Officer),
Boas Seruwe (Chairman)*, Ignatius Sehoole*, Thuto Masasa*, Patrick Mngconkola*
* Independent non-executive directors
Advisers
Company Secretary: Fusion Corporate Secretarial Services Proprietary Limited
Transfer Secretaries: Link Market Services South Africa Proprietary Limited
Corporate Legal Advisers: Norton Rose Fulbright South Africa
Auditor - external: Ernst & Young Inc.
Auditors - internal: Grant Thornton Inc.
JSE Sponsor: PSG Capital Proprietary Limited
Investor Relations: Buchanan Communications Limited
Date: 30/11/2017 04:25:00 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
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