Revenue for the interim period increased to R2.7 billion (2016: R2.1 billion). Gross profit rose to R639.8 million (2016: R484.8 million). Earnings before interest, taxation, depreciation and amortisation (EBITDA) was higher at R328.5 million (2016: R274.3 million). Total profit for the period attributable equity holders of the parent was R203.1 million (2016: R208.5 million). Furthermore, headline earnings per share lowered to 111.1 cents per share (2016: 136.3 cents per share).
Dividends
The group’s policy is for the board to consider a dividend on an annual basis after reviewing the annual results.
Company prospects
Power
Across the continent the opportunities for the Power division are robust and can be identified in three distinct areas:
- Leverage the established geographic presence or market experience of group companies to expand other group companies’ products and services into new markets. For example, the Conco business has an excellent track record in Ghana yet historically Conlog has not supplied product or services to this market. Discussions are in progress to assess the market’s immediate and ongoing requirements
- Growth of renewable energy across the African continent continues on an upward trajectory. To date proposals of USD740 million have been made and the first contract wins have been recorded. Conco’s position in the renewable energy sector is unique in that it has developed a competitive edge as a preferred provider with the capacity and ability to execute to world class standards. The plummeting costs of wind and solar technology have become increasingly independent of government support. The group is dynamically involved in developing, building and owning clean energy projects in industrial rooftop solar installations and utility scale solar projects. These projects are taking place across the continent
- Financing of grid infrastructure through utilisation of credit export funding lines, as successfully implemented in a current Ethiopian project. Current proposals under submission amount to USD600 million. The group has invested dedicated resources to manage the export financing solutions and address the global appetite from development funding institutions to assist with financing infrastructure opportunities
Despite a backlog of R39 billion in the South African transmission market and Eskom’s Build Programme of R165 billion, uncertainty remains relating to the timing of the roll-out of these projects and the resultant impact on the division. The division has signed Round 4 Renewable Energy contracts of R2.3 billion and anticipates work emanating from the programme of between R3 billion and R4 billion over the next three years. The current delay is expected to impact the potential South African revenue for the second half of the financial year. While the roll-out of the commencement dates on the Round 4 projects is disappointing, the announced commitment to the programme is encouraging and we expect that it will contribute significantly to the next three years of work for the South African business.
CIGenCo has built a solid pipeline and will continue focus on closing the projects in the pipeline while seeking to develop other opportunities across the continent.
The change in the broad based black economic empowerment (BBBEE) legislation and the weakness in local manufacturing poses a short-term challenge to the Power division’s traction in South Africa. Management is following the required actions to ensure that the South African businesses maintain their required BBBEE rating.
It is expected that over the medium to longer term, the biggest constraint to growth will remain the availability of suitably qualified engineers to execute on the expected increase in technically complex work. The establishment of the international head office in Mauritius has assisted in attracting new engineering talent whilst retaining existing engineers, mitigating some of the key skills uncertainty. The emphasis placed on strategic workforce planning and the drive to enhance the skill of our project managers and engineers will allow us to have sufficient talent to manage the expected growth.
It is anticipated that the growth outside of South Africa, as a result of the opportunities mentioned above, will contribute positively to the continuous growth of the Power division.
Building Materials
Prior to the change in the economic outlook of South Africa as a result of the credit ratings downgrade, there was a sense of optimism in the market that growth of the Building Materials division would continue.
Oil & Gas
Oil exploration remains at historically low levels. This will continue to negatively impact AES’s volumes during 2017. It is expected that exploration will expand towards 2018.
Rail
The division continues to provide short-term potential as South Africa upgrades its rail infrastructure to manage the roll-out of its new locomotive programme. The business has started to leverage off the Power division for opportunities to quote for work outside South Africa.