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').
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,
information disseminated through SENS.
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