Wrap Text
Condensed consolidated results for the year ended 31 March 2018
Wescoal Holdings Limited
Incorporated in the Republic of South Africa
(Registration number 2005/006913/06) Share code: WSL
ISIN: ZAE000069639
("Wescoal" or "the company" or "the group")
Condensed consolidated results for the year ended 31 March 2018
"I'm delighted to report that Wescoal has grown into a substantial mining and
resource trading enterprise having successfully integrated Keaton. The business
continues to seek ways to increase its presence as a key component of our
country's energy supply chain while looking at various diversification
strategies including the export markets."
Waheed Sulaiman Chief executive officer
- Mining volumes doubled for the second consecutive year
- HEPS increased by 311% to 46.4 cents per share
- Cash flow generated from operations R358.8 million
- Total resources increased to +300mt
- Final FY18 dividend of R35 million
- Revenue increased by 67% to R3 527 million (FY17: R2 118 million)
- Gross profit increased by 54% to R565 million (FY17: R367 million)
- Cash flow from operations of 86 cents per share (cash flow yield 51%)
- EPS increased by 314% to 48.1 cents per share
- Total comprehensive income increased by 569% to R202 million
(FY17: R30.2 million)
- Secured long-term debt funding
Chairman and chief executive officer's review
It has been another exceptional year for the company with strong performances
across the entire group. Wescoal's mid-term vision has been successfully
delivered with several notable achievements, including transformation of the
group, securing long-term debt funding, increased production and the successful
acquisition and integration of Keaton.
By end of March 2018, 90% of our initial objectives set out in 2015 were
achieved. Most notable was the acquisition of Keaton as a key milestone and a
strategic as well as transformational boost to coal production and processing
capacity.
The group now has coal resources in excess of 300 million tonnes, four mines,
four processing plants and an interest in coal supply chain infrastructure.
The organisation has been strengthened into a strong, sustainable business. Our
operations are now closer to our near-term target of 8 million tonnes per annum
run of mine ("ROM"), while adhering to the principles of sustainability, good
corporate governance and the continuous development of our social responsibility
as crucial elements of our commitment to all stakeholders.
Over the past few years, the company has effectively transitioned from
successfully operationalising Elandspruit to focus on growth, diversity and
optimising operations. The Wescoal team has seized the opportunity within the
improving economic climate to once again present shareholders with a strong
financial performance.
Wescoal has sustained a steady period of growth and profitability with a
three-year compounded net profit growth average of 91% per annum. Other key
metrics have also improved in the past three years, with EBITDA at 71% and
revenue at 28% per annum.
Strong cash generation metrics, such as a 51% cash generation yield, have
allowed Wescoal to outperform its domestic peers.
The business strategy is demonstrating success in reduced costs and improved
profitability through the introduction of efficiencies across all operations.
Additionally, the company has returned R85 million to shareholders through our
progressive and consistent dividend and share buy-back programmes over the past
three years. This represents a compounded annual growth of 129%.
Going forward we intend maximising returns from existing assets, carefully
managing costs and operational efficiencies and growing through organic and
inorganic avenues. We will continue to grow in a sustainable, responsible
manner with a focus on long-life, high-quality resources.
Capital structure
The group's strengthened balance sheet maintained a gearing ratio of 30% after
the acquisition of Keaton (FY17: 27%). Net asset value per share increased
to 239 cents compared to 196 cents at 31 March 2017. Strong cash flows from
operations have allowed Wescoal to repay expensive short-term debt, while
continuing to pay dividends to shareholders, amidst rapid growth.
Wescoal secured long-term debt funding with Nedbank, which facilitated the
consolidation and optimisation of various debt instruments. Combined with
strong cashflows, the net current asset position, excluding restricted cash
balances in FY17, improved by R137 million.
The group is well positioned to take advantage of acquisition opportunities
when they arise.
Wescoal maintained BEE ownership subsequent to shares issued for the Keaton
acquisition and the effective BEE shareholding at 58% of which 48% is secured
for five years via the BEE structure.
Mergers and acquisitions and corporate structure
The 2017 acquisition of Keaton strengthened Wescoal's balance sheet, free
cash generation and further diversified the asset base, realised economies of
scale and synergies, as well as enhanced optionality in contracts and off-take
negotiations. The enlarged business now has coal resources in excess of
300 million tonnes, four operating mines, four processing plants and
significant interests in coal supply chain infrastructure.
The company is pleased to report that the integration of Keaton is now
complete. Key technical and mining skills were retained successfully with
personnel redeployment and overhead reductions complete. Operational
cost-savings and efficiencies identified during the acquisition have been
implemented, with the combined savings effect in excess of R40 million per
annum. Additional cost-saving opportunities have been identified and are
being implemented.
An integrated resource management and reporting system has been rolled out,
which will enhance common reporting across all operations and facilitate
effective management with integrated and data-driven decision-making. Wescoal
has been restructured to be scalable and facilitate smooth integration of
new assets and businesses. This model aligns well with our consolidation
strategy and facilitates unlocking of inherent value in acquisitions.
Wescoal will continue to play a role of a consolidator in the coal sector
and will embrace acquisition opportunities where they meet the strategic
criteria and improve shareholder value.
The group will seek to sell non-core assets in line with the company's strategy
of realising value for shareholders and building a scalable and sustainable
business. A cautionary SENS announcement on 29 May 2018 stated that the
company has accepted an offer for the disposal of one such assets in a JSE
Category 2 transaction.
Safety, health and environment
Safety, health and the environment are fundamental pillars upon which we build
our business. Our record over the past few years is good and we strive to
achieve and maintain zero harm at all our operations.
The group's sustainability strategy allows for transparency for all
stakeholders. Our policy around sustained communication with all
stakeholders is a key characteristic of the business.
Production and operational performance
The company's combined operations translate into additional revenue certainty
and diversification through production of a range of coal qualities, mining
and washing/processing options, customer and sales strategies across domestic
and export markets, as well as optionality in contracts and off-take
negotiations.
Wescoal implemented improvement and efficiency projects to enhance value
creation and risk management.
The group is now strongly positioned to meet increased demand, both from
Eskom as well as other domestic and export customers. The enhanced flexibility
of the enlarged resource base and associated infrastructure has facilitated
increased ROM production and product variations to service the market
when required.
The broader organisation is producing at an overall annualised rate of
nearly 8 million tonnes ROM.
Elandspruit
Elandspruit was developed within a short period as a 'greenfield' project, for
a low capital cost of around R250 million, funded mainly from internal cash
flows. It is now operating at steady-state production level with multiple faces
active, which enables synchronised mining activities.
The open-cast production is supplemented by a small underground section which
utilises a single continuous miner. The overall monthly production is running
at about 250 000 tonnes of ROM and the current reserve has a remaining life
of about seven years. We are continually working to upgrade the Elandspruit
reserve through additional drilling programmes and engagements with
neighbouring resource owners.
Elandspruit Processing Plant
This plant is continually being refined to increase productivity and reduce
overall costs. The complex consists of a crushing section, a drum/cyclone and
fines treatment plants that can produce a range of products to meet the demands
of Eskom, other domestic consumers and the export market. Total feed capacity
of the plant is around 200 000 tonnes per month, which is more than 20% above
the original design capacity.
With Elandspruit colliery's production capacity increased, the company has
supplemented processing capacity by entering into an agreement with one of
Elandspruit's neighbours, which will see some of Elandspruit's coal being
treated on a 'toll basis'. This arrangement has boosted Wescoal's
treatment capacity without the need for any capital expenditure.
Vanggatfontein
The company now has a second large operation in the form of Vanggatfontein,
formerly Keaton's flagship mine, which has a remaining life of more than nine
years. Mining activities at Vanggatfontein are stable and the colliery has
performed according to plan.
It is producing at an annual rate of around three million tonnes ROM and
has been successfully integrated into the Wescoal group.
Intibane and Khanyisa
Combined output from Intibane and Wescoal's share of the Khanyisa complex
remains as expected, around 1.5 million tonnes on an annualised basis.
These operations have short-lived reserves of two and four years
respectively.
Wescoal Trading
The trading division continued to build on its strategy of reducing its
fixed cost base and reducing its operational footprint, while maintaining
profits and improving the quality of its debtors book. The division's
national footprint continues to be a key differentiator and source of
value and the close working relationship with mining division creates
operational flexibility and optionality. Significant focus was placed on
systems and controls, upskilling all employees and materially improving
its BEE scorecard. Operating profit increased 102% where both revenue and
margins are higher than the prior period.
Financial overview
A sustainable growth path, enabled by strong and consistent operational
performance from the growing asset base, has seen revenue increase by
67% to R3 527 million (FY17: R2 118 million) and HEPS by 311% to 46.4 cents
per share (FY17: 11.3 cents per share).
Total comprehensive income (net profit after tax) increased by 569% to
R202.0 million (FY17: 30.2 million) and EPS by 314% to 48.1 cents per share
(FY17: 11.6 cents per share). Mining volumes doubled for the second consecutive
year and the group's diversified revenue streams from the expanded business
increased non-Eskom domestic sales to 3.2 million tonnes. Eskom accounted for
47% of revenue (25% being from newly acquired Vanggatfontein colliery).
Strong operational perfomance resulted in gross profit increasing by 54%
to R565 million (FY17: R367 million).
Cash generation
The amount of R358.8 million in cash generated from operations
(FY17: R253.5 million) allowed for repayments of short-term debts, while
continuing to pay dividends. The cash generated from operations was largely
applied to fund investing activities (R118.5 million), tax payments of
R114.8 million, to reduce interest-bearing debt (R94.4 million) and to reward
shareholders with dividend payments (R26.0 million). As part of its investing
activities the group reinvested R90.6 million (42%) in projects to improve and
expand operations, the focus being the processing plant, diversion of the
D20 road to Elandspruit and enabling access to reserves in the Catwalk area of
the Khanyisa mine.
Cash generated from operations of 86 cents per share equated to a 50% cash flow
yield, Wescoal clearly outperforms its peers.
Resource and reserve
The most recent SAMREC-compliant resource and reserve statements of the
group are available on the Wescoal website (www.wescoal.com). The respective
reserve and resource statements contain details of all the competent
persons, their professional memberships, qualifications and experience.
Management
Wescoal has built a strong executive management team around its focus on
sustainability, together with solid succession and development plans. An
example is Izak van der Walt who acted as a CFO and financial manager
before his appointment as chief finance officer during September 2017.
Thivha Tshithavhane, head of mining since 1 April 2017, is ably assisted by a
core team of experienced individuals with well over 100 years of collective
mining experience. A forward-looking human resourcing and skills model ensures
that Wescoal continues to have the internal expertise and experience required
for a profitable and sustainable business.
Risk management
Growth and expansion is a result of diversification. To ensure this is measured
and sustained, the company has implemented and embedded robust risk-based
decision-making processes which will further benefit business optimisation and
planning.
The funding requirements identified in 2016/7 have largely been de-risked and
longer-term debt terms and a new long-term debt funding profile was negotiated
with Nedbank.
A SAP ERP system has been introduced as an integrated management tool for the
group to assist with operational management, risk management and reporting.
The new leadership at Eskom is dealing with the well-publicised challenges
at the parastatal, and continued business with Eskom further secures our
revenue base. Our shareholders understand our risk exposure as the majority
are South African. We believe that the changes in the political environment
will increase opportunities, improve economic climate and aid our
relationship with Eskom.
BEE, transformation and social labour plans
The company's most remarkable achievements are its transformation and
socio-economic development initiatives that have taken place in a short period
over the past three years. We set out to play an exemplary role as a leader in
the space which we occupy, and we believe we have been successful in this regard.
Our HDSA ownership remains class-leading for publicly traded mining companies
at just under 60%. We intend creating an employee ownership scheme in the future
to further augment our HDSA ownership.
Our social labour plans and community projects visibly display our commitment
to socio-economic development. Wescoal has also focused on community and
employee development through education-centric programmes.
We will assess the use of farmland owned by Wescoal to enhance food and water
security in areas adjacent to operations.
Board appointments and governance
Recent board appointments will ensure that the group continues to be well
positioned to take advantage of value-enhancing opportunities in a sustainable
manner.
We welcomed Izak van der Walt to the board as CFO in September 2017.
We also welcomed Cecil Maswanganyi and Eric Mzimela as non-executive
directors in November 2017.
Wescoal continues to adopt best-practice governance principles at all levels
of the organisation.
Dividends and share buy-backs
Considering the financial position and performance, the board resolved to
declare a final dividend of R35 million for the year ended March 2018. This
is the fifth consecutive dividend payment to shareholders as Wescoal
sustains progressive increase of dividends amidst a continued rapid
growth trend.
The total of the interim and final dividend for the year amounts to
R49 million, a pay-out ratio of 24% and a dividend yield of 6.5%. The full
dividend declaration and timetable will be announced on SENS.
During December 2017, Wescoal embarked on a share buy-back programme in line
with the approval by shareholders. The total number of shares bought to
date is 2 million.
Priorities for growth
Wescoal's expanded business platform provides an excellent basis from which
to continue growing the company.
We are managing our enlarged asset base with a view to focusing on core
assets and increasing shareholder value.
Moabsvelden, adjacent to the Vanggatfontein property, represents a significant
organic growth option for the group. It is being considered whether underground
mining or a combination of underground and open-cast might be a better option
for development. With a 47.8-million tonne resource, it has the potential to
be developed into a 1.5 to 2 million tonnes per annum ROM operation. The asset
is fully permitted and there is capacity for the ROM to be processed at the
adjacent Vanggatfontein plant. This is likely to be a low-capex development
similar to Elandspruit, which could be brought into production within a short
period of time, representing a significant value-enhancing opportunity.
Various improvement and efficiency projects identified in the past year
are being implemented in a measured fashion. These projects represent
low-risk, value-enhancement opportunities and support to the group's
philosophy of standardisation and scalability.
Wescoal is strongly positioned to play an active role as a consolidator in the
coal sector and will continue to consider value-enhancing opportunities. The
acquisition strategy is focused on securing additional resources and strategic
interests in coal and key logistics infrastructure.
Appreciation
I would like to thank our dedicated and committed executive team and all
our employees at the 'coal face' for their hard work and loyalty. Additionally,
thank you to our board for their wise counsel and strategic guidance and to
all our advisers.
Management will host a presentation and webcast today at 11:00. The weblink
is http://www.corpcam.com/Wescoal26062018.
Basis of preparation
The condensed consolidated financial information for the year ended
31 March 2018 has been summarised from the audited annual financial statements
which have been prepared in accordance with International Financial Reporting
Standards (IFRS), as issued by the International Accounting Standards Board
(IASB), International Financial Reporting Interpretations Committee (IFRIC),
the Companies Act of South Africa and the SAICA Financial Reporting Guides as
issued by the Accounting Practices Committee and Financial Reporting
pronouncements as issued by the Financial Reporting Council.
The condensed consolidated financial information must be read in conjunction
with the audited annual financial statements.
Any referance to the future financial performance has not been reviewed or
reported on by the group auditors.
The directors are of the opinion that the group has adequate resources to
continue in operation for the foreseeable future and accordingly the
condensed consolidated financial results have been prepared on a
going-concern basis.
Independent audit
This summarised report is extracted from audited information, but is not
itself audited. The annual financial statements were audited by
PricewaterhouseCoopers Inc., who expressed an unmodified opinion thereon. The
audited annual financial statements and the auditor's report thereon are
available for inspection at the company's registered office. The directors
take full responsibility for the preparation of the abridged report and that
the financial information has been correctly extracted from the underlying
annual financial statements.
By order of the board
MR Ramaite W Sulaiman
Chairman Chief executive officer
26 June 2018
Condensed consolidated statement of financial position as at 31 March 2018
2018 2017
R'000 R'000
Assets
Non-current assets 2 180 001 818 273
Property, plant and equipment 1 949 160 641 198
Investment property 709 709
Investments 41 322 17 909
Goodwill and intangibles 91 513 95 989
Investments in joint venture 7 912 -
Other receivables 63 866 52 935
Deferred taxation 25 519 9 533
Current assets 820 198 773 584
Inventories 99 824 56 861
Prepaid royalty 1 175 1 272
Trade and other receivables 626 112 280 647
Restricted cash - 350 393
Cash and cash equivalents 93 087 84 411
Total assets 3 000 199 1 591 857
Equity and liabilities
Capital and reserves
Share capital 675 346 500 222
Share-based payment reserve 10 320 8 676
Minority interest 10 388 -
Retained income 351 120 175 734
Total equity 1 047 174 684 632
Liabilities
Non-current liabilities 1 063 400 277 918
Interest-bearing borrowings 193 956 60 553
Instalment sale agreements 3 135 552
Other financial liabilities 30 167 6 494
Deferred tax 340 985 62 113
Provisions 495 157 148 206
Current liabilities 889 625 629 307
Trade and other payables 525 992 332 882
Provisions 6 088 9 365
Bank overdraft 56 223 17 098
Taxation payable 39 478 13 486
Instalment sale agreements 5 393 2 355
Interest-bearing borrowings 256 451 254 121
Total liabilities 1 953 025 907 225
Total equity and liabilities 3 000 199 1 591 857
Net asset value per share (cents) 239 196
Tangible net asset value per share (cents) 218 168
Condensed consolidated statement of profit or loss and other comprehensive
income for the year ended 31 March 2018
2018 2017
R'000 R'000
Revenue 3 527 057 2 118 020
Cost of sales (2 962 043) (1 750 562)
Gross profit 565 014 367 458
Other income 24 208 3 845
Gain on bargain purchase 6 638 -
BEE discount - (82 280)
Operating costs (251 459) (166 279)
Operating profit 344 401 122 744
Net finance costs (60 780) (22 850)
Share of net profit of joint venture
accounted for using the equity method 7 912 -
Profit before taxation 291 533 99 894
Taxation (89 519) (69 694)
Profit for the year 202 014 30 200
Other comprehensive income - -
Total comprehensive income 202 014 30 200
Attributable to:
Owners of the parent 201 401 30 200
Non-controlling interest 613 -
202 014 30 200
Headline earnings reconciliation
Net profit for the year 201 401 30 200
Profit on sale of assets (638) (933)
Gain on bargain purchase (6 638) -
Headline earnings for the year 194 125 29 267
Ordinary shares in issue
Total at period-end 437 685 350 025
Weighted average shares in issue 418 606 259 559
Fully diluted weighted average shares in
issue 419 089 260 058
Basic earnings per ordinary share (cents) 48.1 11.6
Fully diluted basic earnings per ordinary
share (cents) 48.1 11.6
Headline earnings per ordinary share (cents) 46.4 11.3
Fully diluted headline earnings per
ordinary share (cents) 46.3 11.3
Condensed consolidated statement of changes in equity
for the year ended 31 March 2018
Share-base
Share payment Retained Total
capital reserve earnings equity
R'000 R'000 R'000 R'000
Balance at 1 April 2016 213 156 7 263 164 642 385 061
General issue of
shares 286 781 - - 286 781
Profit for the year - - 30 200 30 200
Dividends - - (19 108) (19 108)
Employee share
option scheme 285 1 413 - 1 698
Balance at 31 March 2017 500 222 8 676 175 734 684 632
Shares issued for
acquisition of
Keaton Energy
Holdings Limited 176 516 - - 176 516
Profit for the year - - 201 401 201 401
Non-controlling interest
on acquisition of
subsidiary - - - -
Dividends - - (26 015) (26 015)
Share buy-back (3 597) - - (3 597)
Employee share
option scheme 2 205 1 644 - 3 849
Balance at
31 March 2018 675 346 10 320 351 120 1 036 786
Non-
controlling Total
interest equity
R'000 R'000
Balance at 1 April 2016 - 385 061
General issue of shares - 286 781
Profit for the year - 30 200
Dividends - (19 108)
Employee share option scheme - 1 698
Balance at 31 March 2017 - 684 632
Shares issued for acquisition of Keaton
Energy Holdings Limited - 176 516
Profit for the year 613 202 014
Non-controlling interest on acquisition
of subsidiary 9 775 9 975
Dividends - (26 015)
Share buy-back - (3 597)
Employee share option scheme - 3 849
Balance at 31 March 2018 10 388 1 047 174
Condensed consolidated statement of cash flows
for the year ended 31 March 2018
2018 2017
R'000 R'000
Cash flows from operating activities
Cash generated from operations 358 779 253 515
Net finance costs (30 596) (20 327)
Tax paid (114 810) (46 147)
Net cash from operating activities 213 373 187 041
Cash flows from investing activities
Purchase of property, plant and equipment (63 228) (98 924)
Purchase of intangible assets (4 888) -
Proceeds on sale of property, plant and
equipment 1 153 7 243
Rehabilitation investments (15 290) (7 440)
Loan to joint venture (22 496) -
Cash consideration for Keaton
acquisition, net of cash acquired (375 799) -
Transfer from/(to) restricted cash 350 393 (350 393)
Divestment of rehabilitation investments 11 636 11 759
Net cash from investing activities (118 519) (437 755)
Cash flows from financing activities
Movement in interest-bearing borrowings (94 411) 77 999
Dividends paid (26 015) (19 108)
Share buy-back (3 597) -
Shares/rights issued, net of share issue
expenses (1 280) 173 738
Net cash from financing activities (125 303) 232 629
Total cash and cash equivalents movement
for the year (30 449) (18 085)
Cash and cash equivalents at beginning of year 67 313 85 398
Cash and cash equivalents at end of year 36 864 67 313
Segmental report
for the year ended 31 March 2018
Trading Mining Other Total
R'000 R'000 R'000 R'000
31 March 2018
External revenues 1 217 554 2 308 956 547 3 527 057
Intersegment
revenue - 99 956 (99 956) -
Total segment
revenue 1 217 554 2 408 912 (99 409) 3 527 057
EBITDA 71 271 488 111 (20 832) 538 550
Operating
profit/(loss) 60 649 307 435 (23 683) 344 401
31 March 2017
External revenues 1 094 265 1 023 401 354 2 118 020
Intersegment
revenue - 90 444 (90 444) -
Total segment
revenue 1 094 265 1 113 845 (90 090) 2 118 020
EBITDA 41 272 249 304 (86 125) 204 451
Operating
profit/(loss) 29 977 179 032 (86 265) 122 744
Corporate information
Non-executive chairman
MR Ramaite
Lead independent non-executive director
DMT van Gaalen
Independent non-executive directors
HLM Mathe, KM Maroga
Non-executive directors
JG Pansegrouw, C Maswanganyi, ET Mzimela
Executive directors
W Sulaiman, IJ van der Walt, T Tshithavhane
Registered address
1st Floor, Building 10
142 Western Service Road
Woodmead
Postal address
PO Box 1962, Edenvale 1610
Company secretary
Vikesh Dhanooklal
Telephone: +27 11 049 8611
Facsimile: +27 11 570 5848
Transfer secretaries
Computershare Investor Services
Proprietary Limited
Sponsor
Nedbank Corporate and
Investment Banking
IR Adviser
Singular IR
Website
www.wescoal.com
Date: 26/06/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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