Citadel Capital Sharply Trims Net Loss to EGP82.7 mln in Q3

Citadel Capital reports a more than ten-fold rise in aggregate EBITDA at operational core and non-core platform companies as it seeks majority stakes in most of its investments in five core industries via ongoing EGP 3.64 billion share issuance.

Citadel Capital (CCAP.CA), the leading investment company in Africa and the Middle East with US$ 9.5 billion in investments under control, has disclosed its Business Review for the third quarter of 2013, reporting a continued narrowing of its consolidated net loss to EGP 82.7 million, a 38.3% contraction from the same period last year.

The sharp reduction in the firm’s consolidated net loss was primarily the result of the firm’s continuing emphasis on cost control and operational improvements at its core and non-core investments.

“We are broadly pleased with our consolidated performance in the third quarter and look forward to closing early in the new year our ongoing EGP 3.64 billion share issuance, which we will use to obtain majority control of most of our core platform companies as we transform into an investment company,” said Citadel Capital Chairman and Founder Ahmed Heikal. “The quarter’s results clearly indicate that our emphasis this on delivering operational improvements is bearing fruit.”

The narrowing of the firm’s consolidated net loss was counter-balanced by EGP 30.7 million of net impairments taken in the quarter primarily related to previously written-down upstream oil and gas investments. Also impacting the quarter’s results was the economic impact of events following the 30 June Revolution, including challenges to production, logistics and retail operations as a result of the curfew in effect during August and September.

Citadel Capital’s Business Review focuses primarily on the performance of its eight operational platforms in the core industries of energy, transportation, agrifoods, mining and cement.

Total aggregate revenues at operational core and non-core companies was EGP 1.5 billion in 3Q13, a 15.5% increase over 3Q12. Total EBITDA at operational core and non-core companies, meanwhile, was EGP 127.4 million, a more than ten-fold increase from the same period last year. This performance was primarily driven by standout performers TAQA Arabia (energy), Africa Railways (transport), and Gozour (agrifoods). Non-core company GlassWorks also performed well in the quarter as its contribution to aggregate EBITDA more than doubled.

As consolidated results do not present a complete picture of the performance of core platform companies that will remain part of Citadel Capital’s investments following the winding down of a three-plus year divestment program for non-core assets as part of the ongoing transformation process, Management has focused its quarterly reporting on aggregate revenue and EBITDA figures for the firm’s eight core operational platform companies since its FY12 Business Review. These aggregate figures give a more accurate picture of financial and operational performance than do consolidated results. Consolidated results will become better indicators of the firm’s performance as the transformation process moves forward.

As part of that transformation process, the firm’s shareholders gathered for an extraordinary general meeting on 23 October 2013 at which they approved the launch of an EGP 3.64 billion share issuance at par (EGP 5) that would see the firm’s paid-in capital rise to EGP 8.09 billion from EGP 4.36 billion. The share issuance is part of the firm’s transformation from the largest private equity firm in Africa into the leading investment company in the region. Citadel Capital will use the share issuance to reach majority ownership in most of its platform companies, in particular the firm’s subsidiaries in its five core industries.

Highlights of the 3Q13 performance of the firm’s investments in each of the five core industries follow.

Energy

Aggregate revenues for operational core platform companies in the Energy Division rose 9.5% year-on-year in 3Q13 to EGP 342.1 million, while EBITDA increased 40.3% to EGP 57.3 million in the same period on the back of better performance in the quarter at TAQA Arabia, with a strong contribution from the Power Generation sector. Egyptian Refining Company (ERC) has received renewal of its comfort letter from the Government of Egypt, while overall progress on the project stood at 20.2% in September 2013 against a planned 21.9%. Meanwhile, Citadel Capital remains in non-exclusive negotiations regarding potential partnerships to build an operate Mashreq Petroleum’s storage and bunkering terminal.

Transportation

The division posted aggregate revenues in 3Q13 of EGP 143.7 million, a 32.8% year-on-year rise. EBITDA improved 92.0% year-on-year in 3Q13 to negative EGP 2.4 million, approaching break-even on the back of better performance of Africa Railways portfolio company Rift Valley Railways (RVR), which posted its first-ever profitable quarter at the EBITDA level and clear improvements across all metrics. Nile Logistics, although recording some improvement in 3Q12, continues to account for the majority of the Transportation segment’s losses at the EBITDA level, as delays in the lifting of diesel subsidies — the macro theme backing this investment — offset the improved performance of Nile Barges (South Sudan) and revenues from stevedoring operations.

Agrifoods

The Agrifoods division saw a 15.5% year-on-year rise in aggregate revenues in 3Q13 to EGP 275.8 million, while EBITDA swung to a positive EGP 9.3 million on the back of continued progress at Gozour (Egypt) and lower losses at Wafra (newly operational greenfield in Sudan and South Sudan). This came despite the impact of a nationwide curfew in Egypt during August and September that impacted production and logistics while sharply curtailing traditional peak shopping hours.

Mining

In the third quarter, Mining division platform company ASCOM reported a 6.1% dip in consolidated revenue to EGP 120.5 million, while EBITDA came in at negative EGP 8.4 million, down from a positive EGP 2.7 million in 3Q12. The sharp drop in profitability was primarily due to losses in the quarry management operations in the UAE and Sudan.

Cement

Cement and Construction sector revenues rose 23.3% year-on-year to EGP 478.7 million from EGP 388.3 in 3Q12, as the Cement division (distinct from the Construction arm) has recovered from record low revenues in 3Q12. Aggregate cement sector revenues were down 10.3% from 2Q13 on slower construction activity in Egypt and shortages in heavy fuel oil in Sudan, which affected production and sales at Takamol Cement. Aggregate EBITDA for the sector as a whole (Cement and Construction together) rose from negative EGP 25.0 million in 3Q12 to positive EGP 13.3 million in 3Q13, mainly as a result of improved performance at the Construction division.

Principal Investments

Citadel Capital principal investments from its own balance sheet were stable at US$ 1,136.8 million (EGP 6,966.1 million) in 3Q13.