Qalaa Holdings (formerly Citadel Capital) reported today its financial results for the three months ending 31 March 2014, its first full set of consolidated financials since the closing of a capital increase to EGP 8 billion that marked the decisive step of its transformation into an investment company.
Full subscribed capital increase to EGP 8 billion allowed Qalaa Holdings to take majority stakes in most of its subsidiaries in core industries including energy, cement, agrifoods, transportation & logistics and mining. Accordingly, Citadel Capital's consolidated financial statements are now prepared using a full consolidation method instead of the equity method used in previous years.
The company accordingly reports a 14 per cent year-on-year rise in 1Q14 revenues to EGP 1,366.9 million, up from pro-forma revenues of EGP 1,203.6 million in the same quarter the previous year. Notably, gross profit surged 46 per cent to EGP 238.1 million while EBIDTA was a positive EGP 29.0 million against a negative EGP 125.9 million in 1Q13.
Net losses in 1Q14 widened seven per cent year-on-year to EGP 231.9 million on the back of increased charges related to discontinued operations at portfolio companies including ESACO (a company of ASEC Holdings) as well as El-Aguizy, Elmisrieen, Enjoy and Mom's Foods (all at agrifoods company Gozour) and certain non-core companies. Management believes it possible that these charges could be recovered (in full or in part) upon the exit of the companies in question.
"The release of our first consolidated financials post the asset purchases made possible by our share issuance is a key milestone in our transformation into an investment company," said Qalaa Holdings Chairman and Founder Ahmed Heikal. "Most of our highest-profile companies made very good progress in the first quarter and we expect similarly strong performances in the second quarter, particularly from energy division standout TAQA Arabia and cement division units ASEC Minya and Misr Qena Cement.
"Heading into the second half of the year, Qalaa Holdings will continue to maintain a sharp focus on driving operational improvements across our investments, divesting non-core holdings, and investing in governance systems at the company and portfolio levels. From energy to infrastructure, the macroeconomic outlook that has long informed our investment theses is increasingly being vindicated by developments across our footprint, from Egypt to East Africa."
As part of Qalaa Holdings' program to shed non-core assets, the company exited in April 2014 its full majority stake in a leading Sudan-based bank (Sudanese Egyptian Bank) in a $22 million sale to the Islamic Solidarity Bank of Sudan; Qalaa Holdings remains a large-scale investor in Sudan. In addition, the company expects to complete its divestiture of Sphinx Glass, a leading Egyptian producer of float glass and portfolio company of non-core platform GlassWorks, by the end of August 2014. Qalaa Holdings and Saudi Arabia'sConstruction Products Holding Co. (CPC) signed in June 2014 a sale and purchase agreement for the transaction, execution of which is scheduled for completion by the end of August 2014 upon satisfaction of all conditions precedent and the final transfer of shares.
Among those companies now fully consolidated are:
In Energy: TAQA Arabia, Egyptian Refining Company (ERC, pre-operational) and Mashreq (pre-operational);
In Cement: ASEC Holding;
In Agrifoods: Gozour and Wafra;
In Transportation & Logistics: Nile Logistics and Africa Railways;
Non-core platform companies including United Foundries (Metallurgy), Bonyan (Specialized Real Estate), Tanmeyah (a microfinance company under Finance Unlimited) and Sudanese Egyptian Bank (divested subsequent to 1Q14 on 27 April 2014 and thus fully consolidated this quarter).
Core platforms Tawazon (Energy) and ASCOM (Mining) as well as non-core platforms GlassWorks, Grandview, Pharos and Tanweer continue to be treated using the equity method (Share of Associates) on the basis that Qalaa Holdings does not have management control over them.
Energy division aggregate revenues increased by 25 per cent y-o-y to EGP 364.5 million in 1Q14 and aggregate EBITDA increased by 12 per cent to EGP 35.7 million. Improved results in the quarter are attributable to better performance across platform companies TAQA Arabia and Tawazon.
The Cement sector includes a Cement division and a Construction and Management division. In 1Q14, the rise in aggregate revenues and EBITDA was primarily derived from the Cement division and largely from the inclusion of ASEC Minya for the first time in the consolidated statements.
The Agrifoods sector saw a 26 per cent y-o-y decrease in 1Q14 aggregate revenues and a 46 per cent y-o-y drop in 1Q14 EBITDA. The dip comes mainly on the back of underperformance at Gozour portfolio company Rashidi El Mizan and Enjoy's facility stoppage. Also, Wafra currently faces difficulties in operations ranging from political and civil conflicts in South Sudan to technical problems in Sudan.
The Transportation & Logistics division posted aggregate revenues in 1Q14 of EGP 141.8 million, a 28 per cent increase over the same period last year. Similarly, the sector witnessed a significant surge on the EBITDA level to a positive EGP 0.9 million as compared to a negative EGP 31.3 million in 1Q13. Although Nile Barges in Egypt and South Sudan completely stopped operations in 1Q14, Nile Logistics showed higher revenues y-o-y on the back of its stevedoring operations at sea ports.
In 1Q14, the 13.1 per cent y-o-y growth of ASCOM's consolidated revenues to EGP 149 million and 109 per cent increase in EBITDA to EGP 12.4 million was mainly due to proceeds from Egyptian quarrying operations' new geology contract with Matz Holdings Ltd.