CONSOLIDATED INFRASTRUCTURE GROUP LIMITED - Unaudited consolidated interim results for the six months ended 28 February 2018 ("interim period")

Release Date: 23/05/2018 17:05
 
Wrap Text
Unaudited consolidated interim results
for the six months ended 28 February 2018 ("interim period")

Consolidated Infrastructure Group Limited 
(Incorporated in the Republic of South Africa) 
(Registration number: 2007/004935/06)
JSE share code: CIL ISIN: ZAE000153888
Debt company code: CIG

www.ciglimited.co.za

Unaudited consolidated interim results
for the six months ended 28 February 2018 ("interim period")

CIG shareholders are referred to the company's announcement published on
SENS on 15 February 2018 in respect of the "Extended Waiver" to enable
the group to focus on satisfying the further requirements of its Funders.

One of the initiatives undertaken as part of the Extended Waiver, was for CIG to 
commence a process to review and evaluate its optimal long-term funding 
requirements and capital structure. FirstRand Bank, acting through its Rand 
Merchant Bank division, was appointed to provide CIG with strategic advice in 
relation to the execution of this strategy.

In the recapitalisation announcement published on SENS on 18 May 2018, CIG 
shareholders were informed regarding the proposed transaction with Fairfax 
Africa Holdings Corporation ("Fairfax Africa"). Fairfax Africa's investment 
objective is to achieve long-term capital appreciation, while preserving 
capital, by investing in public and private equity securities and debt 
instruments in Africa and African or other businesses with customers, 
suppliers or business primarily conducted in Africa. Through this long-term 
partnership, CIG is now enabled to focus on preserving the sustainability 
of its operations, execute the turnaround and optimisation of Consolidated 
Power Projects Group Proprietary Limited ("Conco") and maximise the 
value to be created for all CIG shareholders over the medium 
to long term.

Fairfax Africa is an investment holding company, listed on the Toronto 
Stock Exchange (under the symbol "FAH.U") with a market capitalisation 
of c.USD660 million.

As previously announced, in order to facilitate and enable this capital 
injection, CIG has entered into a suite of agreements (the "Definitive 
Agreements") with Fairfax Africa Investments Proprietary Limited ("FSA"), 
a wholly owned subsidiary of Fairfax Africa, to implement a transaction 
(the "Proposed Transaction"), consisting of the following three
components:
- Component 1: R300 million loan to be advanced by FSA to CIG (the 
"Upfront Loan").
- Component 2: R800 million non-renounceable rights offer to CIG
shareholders, fully underwritten by FSA at a fixed price of
R4,00 per CIG ordinary share ("CIG Share(s)") issued (the "Rights
Offer"), representing a c,2% premium to the 30-day VWAP as at 
16 May 2018.
- Component 3: Conversion rights under which FSA has an option to convert 
the Upfront Loan into CIG Shares and, under certain circumstances, CIG has 
an option to convert the Upfront Loan into CIG Shares (the "Conversion Rights").

Component 1 addressed the short-term capital requirements, whilst component 2 
is critical for CIG's long-term strategy to preserve and maximise the 
existing value for shareholders.

As part of the Proposed Transaction, CIG agreed to revised terms with 
respect to the Extended Waiver which significantly relaxes the default 
trigger covenants and reverts the cost of debt to what was originally agreed, 
whilst the amended capital repayment profile, as previously agreed, remains 
in place.

Implementation of the Fairfax Africa transaction will ensure that:
- Conco is optimally turned around and that its value is maximised for
CIG shareholders through:
- right-sizing the business;
- optimising its business model;
- providing prospective customers, suppliers and insurers with the necessary 
comfort with respect to CIG's solvency and liquidity;
- attracting and retaining talent; and
- focusing on cash flow return on investment
- a sustainable long-term capital structure, suited to CIG's business risk 
profile, is established, whilst the current funding, provided by the CIG 
Funders, remains intact and its costs are normalised;
- significant CIG shareholder value is unlocked;
- significant additional value is created by pursuing growth initiatives 
within CIGenCo Proprietary Limited ("CIGenCo") and Conlog Proprietary Limited 
("Conlog"), which will focus on increasing the annuity income generated within 
the Group; and
- partnering with a like-minded, financially strong strategic investor with 
a long-term perspective, which creates significant strategic optionality.

Group overview
CIG is a decentralised infrastructure group operating across Africa.

The interim period proved to be challenging as cautioned to shareholders in 
the 2017 Integrated Annual Report. While restructuring initiatives at Conco 
progressed well in the interim period, this came at great cost and impacted 
negatively on profitability. In addition, the legacy
operational and trading problems continued.

As a result, group revenue decreased by 52% to R1,3 billion (2017: R2,7 billion) 
leading to an operating loss of R1 472 million (2017: operating profit of 
R215 million) and a loss after tax of R1 203 million (2017: profit after tax 
of R203 million). The group incurred a loss per share of 612,9 cents (2017: 
earnings per share of 111,0 cents). After eliminating the impact of the 
impairment of the entire goodwill at Conco and the impairment of the carrying 
value of AES, the headline loss per share was 341,7 cents (2017: headline 
earnings per share 111,1 cents).

Despite the significant operating loss, R255 million of cash was utilised 
in operations.

Divisional overview
Power
- Revenue R0,9 billion (2017: R2,3 billion)
- Loss before interest, taxation, depreciation and amortisation R789 million 
(2017: EBITDA R275 million)
- Order book down 11% to R5,5 billion (2017: R6,2 billion)

Conco
During the period under review, performance was impacted by exceptionally 
tough trading conditions, mediocre management and the adverse effects of 
the restructuring process resulting in low levels of execution and disruption 
to operations. Conco recorded an operating loss of R1,009 million.

The critical steps identified to restructure Conco outlined in the 2017 
Integrated Annual Report are in the final stages of implementation, the 
impact of which will be beneficial in future periods. The short-term 
impact of cost overruns, labour underutilisation and project delays 
decreased margins in the interim period. Furthermore, an underrecovery of 
fixed overhead, an increase in provisions relating to bad debt and potential 
customer claims, coupled with inadequate commercial management, continued to 
impact the profitability of the business. The retrenchment process, required 
to right-size the business, has resulted in uncertainty amongst staff and a 
consequent decline in morale. These events have had a negative impact on 
projects that span multiple fiscal years and result in downward margin 
adjustments. The aforementioned have had a disproportionately negative 
impact on the current results, which affected the interim earnings by 
R584 million.

As a result of the aforegoing, CIG has impaired the entire goodwill of 
R398 million and provided for R100 million relating to retrenchment and 
restructuring costs.

During the period under review, Conco had no claims for delays or damages.

Looking ahead, a re-energised, sustainable Conco will be well positioned 
to take advantage of the improved outlook in South Africa as well as 
selected opportunities across Africa, particularly in areas of 
clean energy.

A deferred tax asset has been recognised based on cumulative losses
incurred to date, the extend to which the aforementioned turnaround
in Conco will result in utilisation of the deferred asset through
future taxable profits will be reassessed at year-end.

Rest of the Power Division
CIGenCo is a developer and investor in small and midsize renewable energy 
plants. In the interim period it successfully reached financial close of 
its first independent power supply project in Namibia, which is exceeding 
expectations on the initial return benchmarks.

Consolidated Power Maintenance Proprietary Limited ("CPM") provides 
operation and maintenance services on renewable energy sites and transmission 
substations. The business performed in line with expectations.

Conlog, a leading developer, manufacturer and distributor of pre-paid smart 
solutions including electricity meters and support, continued to deliver 
to expectations.

Building Materials
- Revenue down 2% to R243 million (2017: R247 million)
- EBITDA down 21% to R30 million (2017: R38,2 million)

Building materials supplies aggregates, clay bricks and concrete roof tiles
in the Gauteng region. A decision to reduce inventory levels at West End 
Clay Brick resulted in decreased output which led to an underrecovery 
of overhead.

Oil and Gas Services
- Profit attributable to AES down 69% to R10 million (2017: R33 million)

AES collects, recycles and disposes of waste generated in the oil production 
and drilling process from oil and gas rigs located off the coast of Angola.

As anticipated, the number of rigs actively drilling in Angola continued to 
drop in the interim period with a negative impact on revenue. This resulted 
in a 69% decrease in equity-accounted profits compared to the prior period. 
In the 2017 Integrated Annual Report, shareholders were cautioned as to the 
devaluation of the Angolan Kwanza to the US Dollar. Consequently, an 
impairment of the carrying value of the investment of R134 million has been 
recognised.

Rail
- Revenue down 3% to R148 million (2017: R152 million)
- EBITDA down 83% to R3 million (2017: R18 million)

Tractionel specialises in the electrification of railways and installation 
of overhead traction equipment. The loss for the six-month period arose 
as a consequence of a weak South African macro environment, coupled with 
difficult operating conditions due to client-induced delays relating to 
strike action as well as inclement weather impacting projects. Corrective 
action has been taken to minimise losses.

Outlook and Prospects
The trading period has been the toughest ever experienced by the management 
team. The failure to anticipate the impact as well as the poor response to 
the challenges cannot be repeated. The effort to revise and revitalise the 
business, together with the loan advanced by FSA and the underwritten rights 
offer, provides the liquidity lifeline as well as the necessary time 
horizon for the group to emerge positively from the current environment.

The recommencement of the Round 4 REIPPP bodes well for Conco, and will 
contribute to earnings in the next financial year. The niche expertise 
in CIGenCo, CPM and Conco as late-stage investor operator and constructor 
will be harnessed as the continent adopts cost-efficient clean energy.

The BECX range of meters were launched by Conlog on 15 May 2018. CIG is
optimistic that the new generation of radio frequency and power line 
communication meters will establish new markets across the continent. 
Extensive efforts are under way to develop a services and product platform, 
the result of which will contribute to a higher proportion of annuity 
revenues. These initiatives are set to contribute positively to the next 
financial year.

The management team and the CIG board firmly believe that the Fairfax 
Africa transaction presents shareholders with the best opportunity to maximise 
value over the medium to long term by aligning the group with a strategic 
investor with common objectives for long-term capital growth. Further, 
with an aligned Africa expansion strategy based on shared conviction that 
infrastructure will continue to power African growth, positions the group 
to deliver sustainable returns.

Dividend
The group's policy is for the board to consider a dividend on an annual 
basis after reviewing the annual results.

Basis of preparation
The unaudited interim consolidated financial statements for the period 
ended 28 February 2018 are prepared in accordance with the JSE Listings 
Requirements for interim reports and the requirements of the Companies Act 
of South Africa. The JSE Listings Requirements require interim 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 the 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 interim consolidated unaudited 
results are in terms of IFRS and are consistent with those applied in the 
financial results for the year ended 31 August 2017.

These interim results have been prepared under the supervision of the
Group Financial Director, I Klitzner CA(SA).

These interim results have not been reviewed or reported on by the 
company's auditors.

Subsequent event
In Conco, continuous assessment of projects is performed. The assessment 
relating to the interim period resulted in the operating loss reported. 
The analysis of the cost to complete all contracts along with the 
resultant anticipated margin that will be achieved, has indicated that 
project margins previously estimated will be reduced. This decline, post 
year-end, has indicated that the goodwill in Conco had been eroded at 
28 February 2018 to the point that management has decided to impair the 
entire goodwill, as the nature of the turnaround strategy indicates a 
longer than initially estimated return to profitability.

Investor Presentations
Shareholders are referred to the company website for investor presentations 
relating to:
- interim results; and
- material non-public information disclosed to relevant stakeholders prior 
to the recapitalisation transaction announcement.

Appreciation
The directors and management of CIG wish to thank all staff for their 
loyalty in these difficult times and their fervent commitment to improving 
the business going forward. We also thank our customers, business partners, 
advisers, suppliers and our shareholders for their ongoing support.

By order of the board
Frank Boner              Raoul Gamsu
Chairman                 CEO

23 May 2018



Condensed consolidated statements of comprehensive income 
for the six months ended 28 February 2018

                                     Unaudited       Unaudited 
                                    six months      six months        Audited
                                         ended           ended     year ended
                                   28 February     28 February      31 August
                                          2018            2017           2017
                                         R'000           R'000          R'000
Revenue                              1 303 973       2 698 907      4 368 875
Cost of sales                       (1 500 531)     (2 059 097)    (3 772 258) 
Gross (loss)/profit                   (196 558)        639 810        596 617
Other income                            28 004          42 162         74 810
Operating expenses                    (513 158)       (347 999)      (628 335) 
Foreign exchange (loss)                (92 777)         (5 505)       (37 728) 
(Loss)/earnings before
interest, taxation,
depreciation and amortisation
("EBITDA")                            (774 489)        328 468          5 364
Impairment of carrying value
in joint arrangement                  (134 401)              -              - 
Depreciation and amortisation          (56 200)        (45 421)       (97 678) 
Impairment of goodwill                (397 938)              -              - 
(Loss)/profit before interest
and taxation                        (1 363 028)        283 047        (92 314)
Interest received                       10 939          14 971         34 520
Interest paid                         (130 019)        (83 420)      (138 211) 
Equity-accounted income from
joint arrangement                       10 419          33 389         50 558
(Loss)/profit before taxation       (1 471 689)        214 598       (145 447) 
Taxation                               268 992         (44 805)        (5 009) 
(Loss)/profit for the period        (1 202 697)        203 182       (150 456) 
Total (loss)/profit for the
period attributable to:
Equity holders of the parent        (1 202 916)        203 063       (146 787) 
Non-controlling interest                   219             119         (3 669) 
Other comprehensive income:
Recyclable in profit and loss:
Exchange rate differences on
translating foreign operations         (27 433)       (116 471)      (133 891) 
Remeasurement of defined
benefit liability                        1 012                           1 021
Total comprehensive (loss)/income   (1 229 118)         86 711       (283 326) 
Total comprehensive
(loss)/income attributable to:
Equity holders of the company       (1 229 337)         86 592       (280 318) 
Non-controlling interest                   219             119         (3 008) 
Basic (loss)/earnings per
share (cents)                           (612,9)          111,0          (77,5)
Diluted (loss)/earnings per
share (cents)                           (612,9)          108,8          (77,5) 
Reconciliation of headline
earnings:
(Loss)/profit attributable to
ordinary shareholders               (1 202 916)        203 063       (146 787) 
Adjusted for:
Profit on disposal of
property, plant and equipment             (151)            (32)        (1 231) 
Impairment of goodwill                 397 938               -              - 
Impairment of carrying value
in joint arrangement                   134 401
Tax effect on adjustments                   42               9            345
Headline earnings attributable 
to ordinary shareholders              (670 686)        203 086       (147 673) 
Weighted average number of
shares in issue (000's)                196 255         182 873        189 484
Diluted weighted average number 
of shares in issue (000's)             200 087         186 705        192 275
Headline earnings per share (cents)     (341,7)          111,1          (77,9) 
Diluted headline earnings per
share (cents)                           (341,7)          108,8          (77,9)


Condensed consolidated statements of financial position 
as at 28 February 2018

                                     Unaudited       Unaudited        Audited
                                         as at           as at          as at
                                   28 February     28 February      31 August
                                          2018            2017           2017
                                         R'000           R'000          R'000
Assets
Non-current assets                   2 321 458       2 547 606      2 708 085
Property, plant and equipment          495 582         482 151        513 660
Goodwill                               754 029       1 232 111      1 151 969
Intangible assets                      153 743          64 578        163 373
Deferred tax                           385 928          44 127        140 293
Investment in joint arrangement        521 036         706 146        724 783
Financial assets                        11 140          18 493         14 007
Current assets                       3 459 615       5 312 491      4 303 542
Inventories                            257 799         188 377        232 208
Financial assets                         5 890           1 381          7 191
Trade and other receivables            447 251         536 036        522 958
Amounts due from contract
customers                            2 338 540       3 956 808      3 107 633
Taxation receivable                    106 743          45 251         73 334
Cash and cash equivalents              303 392         584 638        360 218
Total assets                         5 781 073       7 860 097      7 011 627
Equity and liabilities
Equity                               2 616 004       4 207 821      3 839 348
Share capital                        2 328 926       2 327 007      2 328 926
Share-based payment reserve             55 184          49 765         49 410
Foreign currency translation
reserve                                 16 849          62 363         44 282
Non-controlling interest                (1 691)          1 217         (1 910)
Accumulated profits                    216 736       1 767 469      1 418 640
Non-current liabilities                310 988       1 085 376        229 319
Financial liabilities
- interest bearing                     120 860         925 008            111
Financial liabilities
- non-interest bearing                  79 618          87 885         87 144
Provisions                              17 346          24 385          6 905
Operating lease liability                6 569               -          6 569
Instalment sale liabilities             17 800          24 429         25 480
Deferred tax                            68 795          23 669         87 512
Current liabilities                  2 854 081       2 566 900      2 942 960
Other financial liabilities            945 399          42 398        932 389
Trade and other payables             1 118 121       2 204 277      1 466 352
Amounts received in advance            181 792         112 888         79 325
Amounts due to contract customers       65 323         145 958         68 276
Bank overdraft                         522 042          36 542        370 774
Provisions                                 589               -            589
Instalment sale liabilities             12 198          13 254         15 838
Operating lease liability                3 377               -          3 377
Taxation payable                         5 240          11 583          6 040
Total equity and liabilities         5 781 073       7 860 097      7 011 627
Number of shares in issue (000's)      196 255         195 826        196 255
Net asset value per share (cents)        1 333           2 149          1 956
Net tangible asset value per
share (cents)                              870           1 487          1 286


Condensed consolidated statements of cash flow 
for the six months ended 28 February 2018

                                     Unaudited       Unaudited 
                                    six months      six months        Audited
                                         ended           ended     year ended
                                   28 February     28 February      31 August
                                          2018            2017           2017
                                         R'000           R'000          R'000

Cash flows from operating activities
Cash (used)/generated from
operations                             (96 498)        152 639        (43 142)
Interest income                         10 939          14 971         34 520
Finance costs                         (130 019)        (83 420)      (137 180)
Tax paid                               (39 482)        (56 606)      (121 812) 
Net cash flows used in/from
operating activities                  (255 060)         27 584       (267 614)
Cash flows from investing 
activities
Acquisition of property,
plant and equipment                    (38 273)        (53 131)       (83 309) 
Proceeds on sale of property,
plant and equipment                        151           1 167          3 506
Purchase of other intangible assets          -               -        (39 563) 
Business combinations                        -        (673 102)      (824 623) 
Acquisition of financial assets              -          (5 222)        (4 305)
Net cash flows from investing
activities                             (38 122)       (730 288)      (948 294) 
Cash flows from financing activities
Proceeds on share issue                      -         720 948        720 947
Increase/(decrease) in
financial liabilities                  109 885          (9 226)       (55 169) 
Repayment of instalment sale
liabilities                            (17 300)        (14 737)       (25 197)
Net cash flows from financing
activities                              92 585         696 985        640 581
Total cash and cash equivalents 
movement for the period               (200 597)         (5 718)      (575 327) 
Cash and cash equivalents at
beginning of the year                  (10 556)        557 925        557 926
Effect of foreign currency
translation on cash balances            (7 497)         (4 111)        (6 845) 
Total cash and cash
equivalents at the end of 
the period                            (218 650)        548 096        (10 556)


Condensed consolidated statements of changes in equity 
for the six months ended 28 February 2018

                                     Unaudited       Unaudited 
                                    six months      six months        Audited
                                         ended           ended     year ended
                                   28 February     28 February      31 August
                                          2018            2017           2017
                                         R'000           R'000          R'000
Balance at beginning of the
period                               3 839 348       3 393 272      3 393 272
Issue of share capital and
share issue expenses                         -         720 948        720 948
Share-based payment reserve              5 774           6 890          8 454
Total comprehensive income
for the period                      (1 229 337)         86 592       (280 318)
Non-controlling interest                   219             119         (3 008)
Balance at end of the period         2 616 004       4 207 821      3 839 348


Segmental analysis
for the six months ended 28 February 2018

                                     Unaudited       Unaudited        Audited
                                   28 February     28 February      31 August
                                          2018            2017           2017
                                         R'000           R'000          R'000
Revenue
Building materials                     242 954         247 244        533 499
Power                                  913 067       2 299 310      3 441 010
Rail                                   147 952         152 353        394 366
Total                                1 303 973       2 698 907      4 368 875
EBITDA
Building materials                      29 525          38 188         99 010
Power                                 (788 642)        274 855       (128 036) 
Rail                                     2 709          17 880         41 987
Corporate                              (18 081)         (2 455)        (7 597)
Total                                 (774 489)        328 468          5 364
Profit after tax
Building materials                       8 474          15 724         47 189
Power                                 (678 904)        124 416       (305 448) 
Oil and gas                             10 419          33 389         50 558
Rail                                    (5 119)          9 874         24 073
Corporate                             (537 567)         19 779         33 172
Total                               (1 202 697)        203 182       (150 456)


                                     Unaudited       Unaudited        Audited
                                   28 February     28 February      31 August
                                          2018            2017           2017
                                         R'000           R'000          R'000
Assets
Building materials                     669 080         625 950        689 374
Power                                1 939 851       3 521 489      2 598 469
Oil and gas                            521 036         706 145        724 783
Rail                                   215 623         207 475        292 316
Corporate                            3 185 162       3 682 185      3 613 744
Inter-group elimination               (749 679)       (883 147)      (907 059) 
Total                                5 781 073       7 860 097      7 011 627
Liabilities
Building materials                     438 037         432 741        471 176
Power                                1 905 291       2 230 633      1 766 687
Oil and gas                             79 618          87 885         89 330
Rail                                   122 195         119 270        193 407
Corporate                              962 396       1 118 669      1 000 501
Inter-group elimination               (342 467)       (336 922)     (348 822) 
Total                                3 165 069       3 652 276     3 172 279



Corporate information
Independent non-executive directors
F Boner (Chairman), K Bucknor*, A Darko*, AD Dixon, K Kariuki**, J Nwokedi, 
K Ojah***

Executive directors
RD Gamsu, IM Klitzner

Independent non-executive director, R Horton, announced his resignation 
effective 31 March 2018

*Ghanaian
** Kenyan
***USA

Registration number
2007/004935/06

Business address
First Floor, 30 Melrose Boulevard, Melrose Arch 2196

Business postal address
PO Box 651455, Benmore, Johannesburg 2010
Telephone: 011 280 4040
Facsimile: 086 748 9169

Company secretary 
CIS Company Secretaries Proprietary Limited

Transfer secretaries
Computershare Investor Services Proprietary Limited

Sponsor
Java Capital

Auditors
Grant Thornton

Investor relations
Singular Systems IR

Visit our website, www.ciglimited.com, to review the investor presentation 
relating to the interim results for the six months ended
28 February 2018.

Disclaimer
The group has in good faith made reasonable effort to ensure the
accuracy and completeness of the information contained in this document, 
including all information that may be regarded as "forward-looking statements". 
Forward-looking statements may be identified by words such as "believe", 
"anticipate", "expect", "plan", "estimate", "intend", "project", "target". 
Forward-looking statements are not statements of fact, but statements by the 
management of the group based on its current estimates, projections, 
expectations, beliefs and assumptions regarding the group's future 
performance and no assurance can be given to this effect. The risks and 
uncertainties inherent in the forward-looking statements contained in this 
document include but are not limited to changes to IFRS and the interpretations, 
applications and practices subject thereto as they apply to past, present 
and future periods; domestic and international business and market conditions 
such as exchange rate and interest rate movements; changes in the domestic 
and international regulatory and legislative environments; changes to domestic 
and international operational, social, economic and political risks; and the 
effects of both current and future litigation. The group does not undertake 
to update any forward-looking statements contained in this document and does 
not assume responsibility for any loss or damage and howsoever arising as 
a result of the reliance by any party thereon, including, but not limited to, 
loss of earnings, profits or consequential loss or damage.

Date: 23/05/2018 05:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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