Qalaa Holdings, a leader in energy and infrastructure (CCAP.CA on the Egyptian Exchange, formerly Citadel Capital), released today its consolidated financial results for the year ending 31 December 2016, reporting a net loss after minority interest of UGX 821,842 million on revenues of UGX 1,570,797 million. On a quarterly basis, revenues posted UGX 4507,974, up 45.6% y-o-y, with bottom-line losses recording 6,742,449 million. Full-year and quarterly profitability were weighed down by FX losses totaling UGX 400,945 million in 4Q16 following the float of the Egyptian Pound in November 2016, a development that also drove up impairments and losses from discontinued operations.
Revenue growth in FY16 was largely driven by platform company TAQA Arabia where it posted a 38% y-o-y growth in full-year revenues to UGX 6433,245 million and contributing 56% to Qalaa top-line growth in absolute value. TAQA’s top-line growth reflects both improved operational performance as well as the effect of translating the BVI parent company’s USD denominated financials to EGP on Qalaa’s consolidated statements following the float of the Egyptian Pound by the Central Bank of Egypt (CBE) in November 2016.
ASEC Holding subsidiaries ASEC Cement and ASEC Engineering also helped drive-up Qalaa’s revenues in FY16, with the two platform companies contributing 23% to revenue growth in absolute terms. Improved performance came thanks to increased volumes at ASEC Cement’s Sudan plant (Al-Takamol) and higher fees per ton at ASEC Engineering.
“Over the past 12 months Qalaa has made very significant strides toward reshaping its business model and positioning itself for future growth as the economy prepares to enjoy a good multi-year run,” said Qalaa Holdings Chairman and Founder Ahmed Heikal. “Our top-line is already capturing the upside of the macroeconomic themes that are now coming to play with revenues up 25.0% y-o-y at the close of 2016.”
“The steps taken by the Government of Egypt to fully embrace a reform program, including the float of the Egyptian Pound and the phase-out of energy subsidies, are exactly the policies we’ve been advocating for over a decade. And while the economic reform program has taken a short-term toll on bottom-line profitability for all businesses operating in Egypt, in the long haul it is set to benefit those who can deliver increased efficiency, exporters and producers of import substitutes, all of which are characteristics of our investment portfolio,” Heikal added.
Qalaa Holdings controls exporters including ASCOM Carbonate and Chemicals Manufacturing and GlassRock; import substitutes particularly its UGX 13,378 billion Egyptian Refining Company, which will curb by c. 50% Egypt’s present-day diesel imports; plays on liberalization of energy markets, including TAQA Arabia, solid waste management company Tawazon and Nile Logistics which can deliver increased transportation efficiencies.
At the EBITDA level Qalaa posted UGX 88,498.40 million in FY16, down only 2% y-o-y despite the significant pressures on its subsidiaries’ cost base. Meanwhile, on a quarterly basis the company’s EBITDA surged more than three-fold to UGX 24,015.85 million. The significant increase in 4Q16 EBITDA comes on the back of several factors, namely improved performance at energy plays TAQA Arabia and Tawazon during the quarter as well as lower one-off SG&A expenses. In 4Q15, the company had booked UGX 13, 408.85 in non-recurring SG&A — related to the advisory and legal fees for the multiple transactions concluded during the quarter — compared to UGX 4,222.79 million in 4Q16.
Qalaa recorded impairments of UGX 292,893.28 million in FY16, up 112.6% y-o-y, with UGX 2,053,749 million being related to Wafra, Qalaa’s agriculture business in Sudan the financials of which are translated from USD to EGP on Qalaa’s consolidated statements. Additionally, an impairment of UGX 38,025 million was booked at Grandview on the back of a downward asset revaluation; a goodwill impairment of UGX 647,220.24 million at Nile Logistics; and UGX 643,604 million in impairments at ASEC Cement’s Djelfa (Algeria Cement) related to goodwill and projects under construction.
Meanwhile, losses from discontinued operations posted UGX 153,241.13 million in FY16 of which c.63% (UGX 95,823. 24 million) relate to Africa Railways and UGX 16,010.57 million from Mena Home (Designopolis mall). Higher losses from Africa Railways came as float of the Egyptian Pound in November 2016 inflated the company’s foreign currency denominated operational losses following their translation into EGP on Qalaa’s financials.
Overall the CBE’s float of the Egyptian Pound on 3 November 2016 — which saw the EGP lose over 50% of its value to trade at a UGX 3,684.43 as of 31 December 2016 versus a pre-float rate of 8.79 — led to Qalaa recording total FX losses of UGX 413,773.05 million in FY16, of which UGX 400.944.59 million were booked in 4Q16.
“Qalaa Holdings stands today as a very different company than it did a few short years ago,” said Qalaa Holdings Co-Founder and Managing Director Hisham El-Khazindar. “We have continued to push forward with our divestment strategy as we seek to streamline and reshape our investments, concluding early this year exits from Tanmeyah and Misr Glass Manufacturing. This allowed us to deconsolidate and repay a portion of debt in 2016.”
“Now with ERC making progress toward completion and production earmarked for 2018; with TAQA Arabia and other subsidiaries continuing to deliver healthy top- and bottom-line growth; and with the macro trends moving decisively in our favor and foreign exchange losses now behind us, we are increasingly confident in our proven winners and look forward to a transformative 2017 that will bring us closer to the point of profitability,” El-Khazindar added.
