Wrap Text
Reviewed provisional condensed consolidated results for the year ended 31 August 2017
Consolidated Infrastructure Group Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2007/004935/06)
JSE share code: CIL
ISIN: ZAE000153888
Reviewed provisional condensed consolidated results for the year ended
31 August 2017 (“the year”)
Salient features
- Loss of R150 million (2016: profit of R393 million)
- Consolidated Power Projects Group Proprietary Limited (“Conco”) loss
of R441 million
- Revenue down 3,6% to R4,369 billion (2016: R4,531 billion)
- Headline loss per share of 77,9 cents per share (2016: HEPS
255,3 cents per share)
- Income from joint arrangement with Angola Environmental Serviços,
Limitada of Angola (“AES”) down by 63% to R51 million (2016:
R136 million)
- Profit from group businesses excluding Conco: R291 million
- Revenue from business ex-South Africa up from 41% to 45% of total
revenue
- Waiver secured from funders in support of CIG
- Successfully closed R850 million Conlog acquisition on
31 October 2016
Business overview
CIG is a Pan African infrastructure-focused group with a diversified
portfolio of operations including services and materials in Power, Oil
and Gas, Building Materials and the Rail Sectors. The group’s footprint
spans South Africa, sub-Saharan Africa and the Middle East.
Introduction
The group realised a loss of R150 million for the year. The loss was
driven by significant losses incurred in the Conco business of
R441 million. The remaining group business, including AES, generated an
aggregate profit of R291 million and performed in line with expectations.
Underperformance on two large scale multi-year projects and a lack of
growth accounted for R344 million of Conco’s losses. Notwithstanding the
aforegoing, technical competence within the group remains of the highest
standard and ensures contract delivery to specifications.
A consequence of this loss is a breach of the EBITDA interest cover
covenant. Following consultation with CIG’s funders, a waiver has been
obtained until 15 February 2018, whilst the group focuses on satisfying
the funders’ further requirements.
Divisional overview
Power
- Revenue down 8% to R3,4 billion
- EBITDA loss of R128 million
- Closing order book of R6,5 billion
The Power Division consists of Conco, Consolidated Power Maintenance,
CIGenCo and Conlog Proprietary Limited (“Conlog”).
Conco supplies substations and delivers high-voltage electrification
work across Africa and the Middle East.
The poor performance for the year ended 31 August 2017 arose primarily
in the Conco business as detailed below:
What went wrong at Conco?
Revenue generated was lower than expected. Confirmed orders for
renewable energy projects for the year ended 31 August 2017 totalled in
excess of R2,4 billion. In the current year, Conco had expected that it
would be able to generate revenue of at least R800 million from work to
be executed in relation to these projects. This did not materialise due
to Round 4 of the renewable energy programme (“Round 4”) being put on
hold. As a consequence, revenue was significantly below expectation and
it is management’s estimate that the consequential loss of profit to the
group was R104 million.
In engineering and construction-related projects of the type in Conco’s
business, a high degree of management estimation and judgement is
necessary (including revenue recognition in terms of stage of completion,
contract variations and claims), with the result that any change in any
such assessment may well result in a material variance in the amount of
earnings or losses to be recognised in respect of individual contracts.
This exercise is further complicated by the diverse scope and
geographies of the projects which Conco undertakes.
While the group’s regional diversification strategy has led to high
growth, the consequent increased complexity of operations has resulted
in delayed recognition of the contractual issues requiring urgent
management intervention.
During commercial negotiation with clients, downward pressure by clients
in contract negotiations eroded margins. Further, in an effort to gain
market share and establish an appropriate international footprint, work
was tendered for across the continent, at the expense of margin. In
South Africa, the need to maintain market share in a contracting market
resulted in the same scenario.
Rising compliance and regulatory costs in South Africa resulted in cost
creep. Significant red tape in relation to contract and construction
management is continuing to erode margin in a poor economic climate in
South Africa which makes it difficult to offset this by increasing
contract values. Conco’s business has also been faced with social
disruption and political and civil unrest amongst elements of the
workforce on some of its existing projects. This has caused additional
disruption and stoppages and consequentially increased costs, which are
not always contractually recoverable from clients.
Conco’s critical need to retain highly skilled key personnel in an
environment where there is insufficient contract work has had a negative
impact on Conco’s business. The over-allocation of resources to
projected contracts, including those of Round 4 which was halted by
government, worsened the impact on margins and necessitated contract
discounts as above. The under-recovery on labour utilisation impacted
margins by as much as 2%.
Whilst the business continued to focus on maintaining excellent working
relationships with its clients, Conco failed in several instances to
recover from clients the additional costs incurred on industry standard
operational issues such as disruptions, delays and scope of work
adjustments.
In spite of this, Conco has not been exposed to liability for damages or
penalties and its client relationships remain solid. This is largely
attributable to the superior technical competence and dedication of its
skilled engineering teams.
How CIG is fixing it
Having identified and isolated the contributing factors as to what went
wrong, the remedial action described below is being taken.
Under the supervision of CIG, a “war room” has been established at Conco
to drive accountability internally and the rapid adoption of key
organisational changes. CIG has appointed experienced senior executive
Jannie Hooman (Head, Building Materials) to chair the “war room”.
Tighter control of approval processes has been imposed. Specifically,
the “war room” now has authority for the following key decisions:
1. advance approval of all new bids in excess of R50 million, with each
bid requiring disclosure of the timing of key cash-flows, returns and
profitability;
2. approval of all major scope and costs changes – before they can be
implemented;
3. approval of all cost saving initiatives; and
4. the assessment of the economic benefits of all current projects.
In conjunction with the “war room”, an assessment is being undertaken of
the economic returns of each business stream and there is a refocus
within Conco on areas that will optimise economic profits. In this
regard, appropriate accountability is being imposed on project teams for
delivery on the financial aspects of each project, including their
profitability and projected cash flows, aimed at increasing the economic
benefits and improvements of the projects that Conco undertakes. To
assist with this exercise, the group has commissioned an independent
business review and analysis (“IBRA”) of all aspects of Conco’s business.
Further, an independent specialist has been appointed to advise
specifically on the achievement of efficiencies in Conco’s processes,
including upgrades to improve accuracy and speed across all systems.
The group is targeting approximately R100 million in annualised savings
through a combination of bonus sacrifice, salary increase sacrifice,
correction of band creep, and overhead and cost reduction in an effort
to make the business operations more efficient and cost effective.
The commencement of Round 4 projects is expected to begin no later than
March 2018 and Conco has significant contracts in the pipeline
(approximately R2,4 billion). Whilst the signs are positive that Round 4
will begin, there is no assurance at this stage that this will in fact
materialise as expected.
The pipeline of confirmed orders is satisfactory, but significant
pressure remains in the short-term and at least until the end of
February 2018 whilst Round 4 projects are suspended. From March 2018,
there is an expectation of an uptick with the result that medium-term
prospects are more positive.
The group is actively increasing its mix of private sector work. Poor
trading conditions as a result of exposure to government contracts is
expected to reduce as private sector work increases.
There is also diversification of Conco’s client base and its regional
footprint to reduce project concentration risk.
General
The board of CIG is of the belief that the remedial action proposed
above is in the best interest of the group and all its stakeholders and
will result in solutions which materially contribute to the resolution
of the numerous challenges, shortcomings and problems identified above
and at the same time restore and regain the confidence of stakeholders.
Rest of group performance
Power Division (excluding Conco)
- Revenue R500 million
- EBITDA R178 million
Consolidated Energy Solutions provides protection and automation schemes,
motor control systems and solar PV projects and performed well, with
growth in revenue and EBITDA. The company continues to make significant
progress in developing new offerings to serve the African power sector.
Consolidated Power Maintenance maintains renewable energy sites and
transmission substations. The business generated a profit compared to a
loss incurred in the prior year, with annuity revenue streams more than
doubling.
CIGenCo invests in medium-sized generation projects. In September 2017,
its investments in Namibian IPP’s Ejuva One and Two Solar Energy
(“Ejuva”) reached commercial operation. CIGenCo delivered its maiden
profit contribution to the group in the current financial year. It is
anticipated that the ring-fenced long-term project finance in Ejuva will
be completed by December 2017.
Conlog
With effect from 1 November 2016, CIG acquired the entire issued share
capital of Conlog.
Conlog’s business designs, develops, manufactures, markets and
distributes prepaid and smart electronic metering devices and solutions.
The company provides services to utilities and municipalities such as
revenue management, revenue protection, prepayment with smart load
control and load management. The importance of prepaid meters has been
demonstrated across the African continent with benefits for revenue
certainty for cash-starved utilities.
The purchase consideration comprised an initial payment of R700 million
paid on closing, together with a deferred earn-out consideration of R150
million based on Conlog’s 2016 adjusted EBITDA and working capital
levels.
An amount of R750 million was raised by CIG through a rights offer with
the balance of the consideration being funded from CIG’s existing cash
resources. Conlog met its earnings and working capital targets and in
May 2017 CIG paid the sellers the deferred earn-out consideration to
which they were entitled. Further detail regarding this acquisition
appears later in this announcement.
Conlog performed in line with expectations. Growth in international
markets offset a decline in the South African market.
Building Materials
- Revenue up 10% to R533 million
- EBITDA up 3% to R99 million
Building Materials mines a range of aggregates and manufactures clay
bricks and concrete roof tiles. Notwithstanding a difficult economic
environment in South Africa, the division delivered solid results for
the year.
An expansion in the operational footprint within the quarrying
operations resulted in a temporary increase in inventory levels. In
order to reduce inventory to historic levels, a portion of sales was
concluded at lower margins.
Oil and Gas Services
- Profit attributable to joint venture down 63% to R51 million
AES is a service provider to the oil and gas rigs located off the coast
of Angola. The primary service is to collect, recycle and dispose of
waste generated in the oil drilling process. The number of rigs drilling
in Angola dropped to five rigs in the period under review (average 14 in
the prior period). This has had a negative impact on revenue, which has
dropped by 47%. The impact of falling revenues on profitability was
partially mitigated by corresponding reduction in costs.
Rail
- Revenue up 35% to R394 million
- EBITDA up 91% to R41 million
- Order book down 40% to R330 million
Tension Overhead Electrification Proprietary Limited (“Tractionel”)
specialises in the electrification of railways and the installation of
overhead traction equipment.
The business performed well, largely due to the contribution of the
Majuba Rail Electrification project, the largest project undertaken in
the division’s history. Despite operational challenges beyond the
group’s control, the project continues to be executed to budgeted
timelines. Although the project is working capital intensive, the
division utilised internal overdraft facilities to bridge funding
requirements.
The challenging South African market has impacted the level of order
intake for FY2018.
Prospects
Power
Across the continent, the opportunities for the Power Division are
robust and can be identified in three distinct areas:
- leveraging the established regional presence or market experience of
group companies to geographically expand other group companies’ products
and services;
- growth of renewable energy across the African continent and off-grid
industrial scale opportunities continues on an upward trajectory; and
- financing of grid infrastructure through utilisation of export credit
funding lines.
CIGenCo has built a solid pipeline and will continue to focus on closing
the projects in the pipeline while seeking to develop additional
opportunities across the continent. The group is examining alternative
funding structures to allow CIGenCo to continue to build on the success
of its recent accomplishments in a manner which does not result in it
becoming a drain on capital availability.
The Conlog business has exciting prospects both geographically across
the continent and through innovative new offerings. In anticipation of
new market requirements, a power line communications prototype has been
developed. The launch is targeted for the second half of 2018. The
prospects for the new product are exciting, although it is not expected
to contribute to earnings in 2018.
Building Materials
The Building Materials Division anticipates moderate growth in the year
ahead as spending increases in the run-up to the national elections in
mid-2019. Our service, quality and geographic positioning enhances our
ability to sustain growth in revenues and profits. Cashflow will be
enhanced as the investment in inventory in the quarry operations
undertaken in 2017 is realised. Operational plans have been developed to
mitigate any effects of a deterioration in market conditions.
Oil and Gas
The market for oil and gas services in the short term will likely
deteriorate further. The number of rigs is expected to decline and level
out at a minimum of four rigs. The Angolan government is working hard to
stimulate investment in the sector and the group expects increased
activity towards the second half of 2018. The business is debt free and
has substantial cash on hand. We expect the profits of AES to reduce in
the short term, however the business will remain profitable and continue
its cash contribution to the group.
Rail
The division is expected to deliver lower revenues and profits in the
year ahead as we wait in anticipation for clarity on the expansion in
rail infrastructure required to handle the new locomotive programme in
South Africa. The division continues to leverage the Power Division for
opportunities to quote for work outside South Africa.
Covenants, going concern, working capital and liquidity
Covenants
As a condition to obtaining short and long-term funding from banks and
other debt providers, financial covenants to measure company performance
and debt thresholds are stipulated.
At the inception of the Domestic Medium-Term Note Programme (“DMTNP”)
financial covenants were agreed with the noteholders and used for
subsequent notes issued. Thereafter, these covenants were replicated in
the facility arrangements of Conco and CIGenCO which represent the
majority of facilities provided to the group.
The financial covenants are as follows:
Level at
Covenant description Required level 31 August 2017
1. EBITDA interest cover * > 4 times 0,54 times
2. Net debt to equity < 50% 40,1%
3. Residual asset value > 1,85 times 2,97
*For purposes of the above covenant calculation, EBITDA includes income
from joint arrangement with AES and excludes unrealised forex gain or
losses
As a result of a breach of the EBITDA interest cover ratio, the group
entered into negotiations with banks and other debt providers to request
a covenant waiver effective 31 August 2017. A forum was convened
representing the group’s lead bankers and a group of noteholders that
represent a majority of the total notes outstanding relative to notes in
issue. As part of submissions to the forum, a data room was prepared by
management which included, inter alia, group budgets, twelve-month cash
flows, forward-looking covenant calculations and group debt exposures.
In addition to the information provided by management, an initial report
arising from the IBRA in respect of the group was presented to the forum.
The forum has subsequently granted the group a covenant waiver and
provided assurance that all current facilities will remain in place
until 15 February 2018.
Following the grant of the aforementioned waiver, the institutions have
agreed to establish a funders’ committee to review and assess the
process going forward.
In order to procure an extension of the waiver beyond 15 February 2018,
the funders’ committee has prescribed the following conditions which it
will monitor and which require feedback from the group on the
implementation of the recommendations to flow from the IBRA and the
further conditions set out below:
(a) acceptable progress to be made by CIG in implementing the
recommendations arising from the IBRA in respect of:
(i) an amended strategy within Conco which includes an evaluation of
economic returns of all business units, amended risk procedures
specifically around new contract acceptance, (which includes a contract
committee comprising independent members and the institution that will
be required to issue the performance guarantee);
(ii) an independent and detailed review of all material existing and new
contracts, specifically to evaluate, economic performance, costs to
complete, risk review, internal rate of return analysis, project cash
flows and funding requirements; and
(iii) a mitigation strategy to ensure that there is no further contagion
as a result of Conco’s underperformance.
(b) the completion of a debtors’ and work in progress analysis in
respect of Conco, with acceptable results; and
(c) acceptable budgeted cash flow, liquidity and income forecasts in
relation to the group in respect of the 24-month period commencing on
1 September 2017 having been delivered by CIG.
The board is fully supportive of the recommendations and conditions
mentioned above and is working towards their achievement.
Going concern
In determining the appropriate basis of preparation of the reviewed
results, the directors are required to consider whether the company can
continue to operate for the foreseeable future in the light of the group
incurring a loss after tax for the 2017 financial year of R150 million
(2016: profit R393 million). Following the grant of the funders’ initial
waiver, coupled with the group’s commitment to implementing the
conditions stipulated for the second waiver to be sought, the directors
are of the opinion, that although there is material uncertainty in
relation to the second waiver to be sought, the going concern assumption
is appropriate in relation to the preparation of the reviewed results
and is supported by the following:
a) the group’s anticipated return to profitability in FY2018;
b) cash flow forecasts indicating that, assuming all current facilities
remain in place, the group will be able to meet its liquidity
obligations for the ensuing 12 month period in the conduct of its
business in the ordinary course;
c) net current assets of R1,35 billion;
d) net asset value of R3,84 billion;
e) net tangible asset value of R2,52 billion;
f) no material deterioration in the value of assets used to generate
cash flows;
g) no loss of key management; and
h) no loss of any major market, material customer or supplier.
In terms of IAS 1.74, when an entity breaches a provision of a long-term
loan arrangement on or before the end of the reporting period with the
effect that the liability becomes payable on demand, it is required to
classify the liability as current, even if the lender agreed, after the
reporting period and before the authorisation of the financial
statements for issue, not to demand payment as a consequence of the
breach. An entity is required to classify the liability as current
because, at the end of the reporting period, it does not have an
unconditional right to defer its settlement for at least twelve months
after that date.
As a consequence, the full value of notes outstanding under the DMTNP,
totalling R924 million, has been reclassified to current liabilities, as
opposed to notes totalling R204 million which mature within FY2018.
Based on the initial waiver received to date and the expected favourable
outcome of the additional waiver request, the table below sets out the
current contractual maturity dates of all outstanding notes.
FY2018 FY2019 FY2020 FY2021
Note maturity R million R million R million R million
CIG04 30 June 2018 134
CIG06 28 August 2018 70
CIG09 7 June 2019 85
CIG05 30 June 2019 135
CIG10 29 July 2019 19
CIG11 29 July 2020 147
CIG07 28 August 2020 155
CIG12 29 July 2021 179
Total 204 239 302 179
Working capital management
By reference to the current circumstances, whilst not neglecting working
capital management in other group companies, stringent working capital
management is being applied to the Conco operations which should result
in an improvement in cash generation mainly through the reduction of
contract receivables. At a project level, procurement and installation
lead times are being revised to avoid troughs in cash management. At the
tender stage, tenders are to be evaluated on a net present value basis
to ensure that only projects generating sufficient economic profit will
be considered.
Liquidity
At year end, cash on hand was R360 million (2016: R596 million). The
decline in cash on hand was attributable mainly to funding used to
settle the Conlog purchase price exceeding the proceeds raised on the
rights offer undertaken to fund the acquisition. After year end, a
R150 million five-year loan, ring-fenced to Conlog, was raised to
replenish the cash on hand.
To assist with short-term funding requirements on two significant
projects in the Rail and Power Division, overdraft facilities were
utilised as a trade finance mechanism, so as to bridge working capital
requirements during the execution phase of these projects. It is
anticipated that the bulk of the project milestones will be reached in
the second quarter of FY2018.
In order to reduce the cost of funding, the group will continue to
pursue alternative sources of funding matching international revenues
with either USD or Euro funding which are intended to lower the current
cost of funding.
Outlook
Whilst the group is optimistic of its ability to restore profitability
for FY2018, the group’s outlook for the first six months is challenging.
This is particularly so in the light of the expectation that renewables
will only commence from March 2018. The current focus on the unwinding
of cash and stringent working capital management will result in Conco
executing approximately 25% of its order book in the first six months,
excluding that relating to Round 4. In the year ahead, reduced
profitability is expected from AES. The remainder of the group is
expected to perform in line with its prospects referred to above.
The group is firmly of the view, that the current difficulties will lead
to the development of improved disciplines and practices that will
enhance future earnings and cash generation and make them more
sustainable. This improved rigour in addition to the dedication, passion
and technical competence of our staff gives the group confidence that we
will emerge from these challenging trading conditions as a stronger
firm.
Condensed consolidated statements of profit or loss and other
comprehensive income
Reviewed Audited
year ended year ended
31 August 31 August
2017 2016
R’000 R’000
Revenue 4 368 875 4 531 640
Cost of sales (3 772 258) (3 545 385)
Gross profit 596 617 986 255
Other income 74 810 60 268
Operating expenses (628 335) (588 174)
Foreign exchange (loss)/gain (37 728) 17 183
Earnings before interest, taxation,
depreciation and amortisation (“EBITDA”) 5 364 475 532
Depreciation and amortisation (97 678) (72 617)
(Loss)/profit before interest and
taxation (92 314) 402 915
Interest received 34 520 29 117
Interest paid (138 211) (136 963)
Equity-accounted income from joint
arrangement 50 558 135 789
(Loss)/profit before taxation (145 447) 430 858
Taxation (5 009) (37 973)
(Loss)/profit for the year (150 456) 392 885
Total (loss)/profit for the period
attributable to:
Equity holders of the parent (146 787) 395 023
Non-controlling interest (3 669) (2 138)
Other comprehensive income that will
subsequently be classified to profit and
loss:
Exchange rate differences on translating
foreign operations (133 891) 62 982
Remeasurement of defined benefit
liability 1 021 -
Total comprehensive income (283 326) 455 867
Total comprehensive income attributable
to:
Equity holders of company (280 318) 458 733
Non-controlling interest (3 008) (2 866)
Basic earnings per share (cents) (77,5) 255,0
Diluted earnings per share (cents) (77,5) 248,1
Reconciliation of headline earnings:
Profit attributable to ordinary
shareholders (146 787) 395 023
Adjusted for:
Profit on disposal of property, plant
and equipment (1 231) (849)
Impairment of fixed assets - 1 502
Tax effect on adjustments 345 (183)
Headline earnings attributable to
ordinary shareholders (147 673) 395 493
Weighted average number of shares in
issue (000’s) 189 484 154 912
Diluted weighted average number of
shares in issue (000’s) 192 275 159 194
Headline earnings per share (cents) (77,9) 255,3
Diluted headline earnings per share
(cents) (77,9) 248,4
Condensed consolidated statements of financial position
Reviewed Audited
year ended year ended
31 August 31 August
2017 2016
R’000 R’000
Assets
Non-current assets 2 715 276 1 885 690
Property, plant and equipment 513 660 466 802
Goodwill 1 151 969 536 343
Intangible assets 163 373 18 271
Deferred tax 140 293 66 768
Investment in joint arrangement 724 783 782 854
Financial assets 21 198 14 652
Current assets 4 312 699 4 870 408
Inventories 232 208 135 252
Trade and other receivables 539 306 381 452
Amounts due from contract customers 3 107 633 3 734 851
Taxation receivable 73 334 22 702
Cash and cash equivalents 360 218 596 151
Total assets 7 027 975 6 756 098
Equity and liabilities
Equity 3 839 348 3 393 272
Stated capital 2 328 926 1 606 059
Share-based payment reserve 49 410 42 875
Foreign currency translation reserve 44 282 178 834
Accumulated profits 1 418 640 1 564 406
Non-controlling interest (1 910) 1 098
Non-current liabilities 223 339 1 109 866
Other financial liabilities –
interest bearing 111 928 321
Other financial liabilities –
non-interest bearing 87 144 98 183
Provisions 23 092 8 166
Instalment sale liabilities 25 480 19 401
Deferred tax 87 512 55 795
Current liabilities 2 965 288 2 252 960
Other financial liabilities 948 737 48 311
Trade and other payables 1 466 352 1 952 588
Amounts received in advance 79 325 114 075
Amounts due to contract customers 68 276 75 912
Instalment sale liabilities 25 784 18 747
Bank overdraft 370 774 38 226
Taxation payable 6 040 5 101
Total equity and liabilities 7 027 975 6 756 098
Number of shares in issue (000’s) 196 255 156 966
Net asset value per share (cents) 1 956 2 162
Net tangible asset value per share
(cents) 1 286 1 808
Consolidated statements of cashflow
Reviewed Audited
year ended year ended
31 August 31 August
2017 2016
R’000 R’000
Cash flows from operating activities
Cash used in operations (59 489) (233 935)
Interest income 34 520 29 117
Finance costs (137 180) (133 469)
Tax paid (121 812) (80 226)
Net cash flows from operating activities (283 961) (418 513)
Cash flows from investing activities
Acquisition of property, plant and
equipment (83 309) (73 297)
Proceeds on sale of property, plant and
equipment 3 506 4 132
Purchase of other intangible assets (39 563) (1 083)
Business combinations (824 623) -
Acquisition of financial assets (4 305) (2 459)
Net cash flows from investing activities (948 294) (72 707)
Cash flows from financing activities
Proceeds on share issue 720 947 249 444
Increase in financial liabilities - 340 732
Repayment of financial liabilities (38 822) -
Repayment of instalment sales
liabilities (25 197) (26 251)
Net cash flows from financing activities 656 928 563 925
Total cash and cash equivalents
movements for the year (575 327) 72 705
Cash and cash equivalents at the
beginning of year 557 926 482 477
Effect of foreign currency translation 6 845 2 743
reserve movement on cash balances
Total cash and cash equivalents at end
of the year (10 556) 557 925
Condensed consolidated statements of changes in equity
Reviewed Audited
year ended year ended
31 August 31 August
2017 2016
R’000 R’000
Balance at beginning of the year 3 393 272 2 675 244
Issue of share capital and share issue
expenses 722 867 249 929
Share-based payment reserve 6 535 12 232
Total comprehensive (loss)/income for
the year (280 318) 458 733
Non-controlling interest (3 008) (2 866)
Balance at end of the year 3 839 348 3 393 272
Segmental analysis
Reviewed Audited
31 August 31 August
2017 2016
R’000 R’000
Revenue
Building materials 533 499 485 306
Power 3 441 010 3 754 730
Rail 394 366 291 604
Total 4 368 875 4 531 640
EBITDA
Building materials 99 010 96 214
Power (128 036) 364 301
Rail 41 987 21 930
Corporate (7 597) (6 913)
Total 5 364 475 532
Profit after tax
Building materials 47 189 44 950
Power (305 448) 169 063
Oil and gas 50 558 135 789
Rail 24 073 11 179
Corporate 33 172 31 904
Total (150 456) 392 885
Assets
Building materials 689 374 625 348
Power 2 614 817 3 042 585
Oil and gas 724 783 782 850
Rail 292 316 171 783
Corporate 3 613 744 3 024 872
Total assets including group loan 7 935 034 7 647 438
accounts
Inter-group elimination (907 059) (891 340)
Total 7 027 975 6 756 098
Liabilities
Building materials 471 176 448 749
Power 1 783 035 2 032 872
Oil and gas 89 330 98 183
Rail 193 407 97 028
Corporate 1 000 501 1 028 320
Total liabilities including group loan 3 537 449 3 705 152
accounts
Inter-group elimination (348 822) (342 326)
Total 3 188 627 3 362 826
Dividend
No dividend has been recommended for the year.
Business combination
On 1 November 2016, CIG acquired the entire issued share capital of
Conlog for a total purchase consideration of R850 million. The purchase
consideration comprised an initial payment on the effective date of
R700 million with the balance payable in April 2017. CIG undertook a
R750 million rights offer in relation to the acquisition.
A summary of the fair values of assets and liabilities are as follows:
R’000
Property, plant and equipment 7 901
Intangible assets 138 180
Goodwill 2 441
Inventories 51 133
Trade and other receivables 152 376
Cash 25 193
Deferred taxation (liability) (21 026)
Provisions (32 265)
Trade and other payables (77 753)
Tax payable (4 156)
Total net assets acquired 242 024
Goodwill acquired 607 792
Cash acquired (25 193)
Net cash paid 824 623
In terms of IFRS 3: Business Combinations, the allocation of the
purchase consideration to identifiable assets, goodwill acquired
(R607 million) and intangible assets has been raised. As such,
intangibles relating to the brand and product design have been raised to
the value of R92 million (included in the intangible assets above). CIG
will leverage synergies between business units in the Power Division to
positively enhance the group’s performance and believes the goodwill
raised on acquisition is justified.
Basis of preparation
The reviewed provisional consolidated financial statements for the year
ended 31 August 2017 are prepared in accordance with the requirements of
the JSE Listings Requirements for provisional reports and the
requirements of the Companies Act of South Africa. The JSE Listings
Requirements require provisional reports to be prepared in accordance
with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS) and
the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Pronouncements as issued by Financial
Reporting Standards Council and to also, as a minimum, contain the
information required by IAS34 Interim Financial Reporting. The
accounting policies applied in the preparation of the provisional
consolidated financial statements are in terms of IFRS and are
consistent with those applied in the previous consolidated annual
financial statements.
These reviewed provisional results have been prepared under the
supervision of the group financial director, I Klitzner CA(SA).
Auditor’s report
Grant Thornton, the group’s independent auditor, has reviewed the
condensed provisional consolidated financial statements for the year
ended 31 August 2017 and has issued a modified review conclusion. The
auditor’s report contained the following material uncertainty related to
the going concern section: “Without qualifying our review conclusion, we
draw attention to the fact that the group incurred a loss of
R150 million. Due to the loss incurred, the company breached their
EBITDA interest covenant contained within the bond and bank facilities
agreements as at 31 August 2017, as disclosed in the condensed
provisional consolidated financial statements in the covenants, going
concern, working capital and liquidity section. These conditions
indicate the existence of a material uncertainty that may cast doubt
about the group’s ability to continue as a going concern.” The auditor’s
review conclusion does not necessarily cover all of the information
contained in this announcement. Shareholders are therefore advised that
in order to obtain a full understanding of the nature of the reviewer’s
work they should obtain a copy of that conclusion, together with the
accompanying financial information from the registered office of the
group.
The directors take full responsibility for the preparation of these
financial results.
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, advisors, suppliers and our shareholders for their
ongoing support.
By order of the board
Frank Boner Raoul Gamsu
Chairman CEO
30 November 2017
Independent non-executive directors:
F Boner (Chairman), K Bucknor*, A Darko*, AD Dixon, R Horton,
K Kariuki**, J Nwokedi, K Ojah***
Executive directors:
RD Gamsu, IM Klitzner
There were no changes to the board during the period.
*Ghanaian
** Kenyan
***USA
Webcast details: A webcast of the results will be available on Monday 4
December at 10:00 SAST.
http://www.corpcam.com/CIG04122017
Participant telephone numbers (assisted)
Johannesburg (Telkom) 010 201 6800
South Africa (Toll free) 0800 200 648
Johannesburg (Neotel) 011 535 3600
Other Countries (Telkom) +27 10 201 6800
Other Countries (Neotel) +27 11 535 3600
A detailed presentation will be available on the group website
www.ciglimited.co.za on Monday, 4 December 2018.
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
Company secretary: CIS Company Secretaries Proprietary Limited
Transfer secretaries: Computershare Investor Services Proprietary
Limited
Sponsor: Java Capital
Auditors: Grant Thornton Johannesburg Partnership
Investor relations: Singular Systems IR
Visit our website: www.ciglimited.com
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: 30/11/2017 05:32:00 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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indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
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