TransCentury Limited Revenue Down 13 Percent

TransCentury Ltd (NSE:  TCL) announced their un-audited results for the period ended 31^st December 2014 on Friday 27^th April 2015.

Revenue Down 13.2%; Net Loss of Kes 2.28Bn

The infrastructure firm posted its first loss post-listing whereby PBT edged down to a loss of Kes  2.11Bn from a profit of Kes 0.86Bn reported in 2013 on account of Kes 1.04Bn expense write-off  on RVR, 36% revenue decline in the Engineering division and Kes 0.92Bn  difference in other income. The company posted Kes 2.28Bn net loss in comparison to FY13’s net profit of Kes 0.63Bn shattering hopes of a dividend income for the year vis-à-vis DPS payment of Kes 0.40 paid out in FY13.

Engineering Down 36%; Increases stake in Civicon to 78%

The Engineering division declined by 36% on account of a litigation case in Rwanda that saw a significant portion of Civicon’s equipment held up in that particular project as well as delays in kicking off several projects amongst them the Lake Turkana Wind Power Project. Overall, the division’s revenues have slumped by 50% from 2012 to Kes 3.35Bn owing to delays in flagship projects with the litigation concerns in Rwanda only posing further headwinds. The division has USD 82Mn worth of operational projects with another USD 160Mn worth already signed; up from USD 20Mn (1Q14) positing a strong and positive outlook for the division in the current fiscal year. Of concern to Civicon’s revenues is the company’s exposure to the East African basin oil exploration projects whose operations have significantly contracted in the last year owing to 50% attrition in oil prices- making exploration activities unfeasible with high breakeven costs. Based on management’s guidance of more than 50% of the USD 82Mn pipeline contracts emanate from oil-diversified projects, assuring non-disruption in revenues. TCL’s push to increase its stake in Civicon from 62% to 78% will unlock higher returns from the engineering division.

Assets Down 18.4%; Increases stake in E.A. Cables to 68.4%

Proceeds from the sale of TCL’s 34% shareholding in Rift Valley Railways (RVR) for USD 43.7Mn (Kes 3.8Bn) were redeployed toward debt reduction and growth capital. Total assets declined by 18.4% to Kes 19.46Bn as unquoted investments retreated to Kes 0.54Mn from Kes 5.24Bn greatly impacted by the divestiture in RVR holdings. The Group however sustained its mission towards improving operations efficiencies and building up capacity to meet market demand in its Power division by investing Kes 1.0Bn in Capex up from Kes 0.28Bn(FY13). Movement in share capital and share premium was owed to the completed share swap transaction with Abraaj Capital that took up a 2.26% stake in TCL through the issue of additional shares in exchange of TransCentury increasing its holdings by 4% in East African Cables (NSE: CABL) to 68.4%.

 Strained Cash Position, Imminent Dilution through Rights Issue

TCL is strained in its cash position with a deficit of Kes 0.45Bn in addition to incremental pressure stemming from teeming pipeline projects that draw on weighty working capital needs. Worth noting is the imminent lapse in TCL’s 6% 5-year USD 60Mn (Kes 6.0Bn) convertible Euro bond with a redemption amount at maturity of USD 80Mn. It is unlikely that majority of bond holders will exercise their conversion right given the big difference between the conversion price at about Kes 49.60 and TCL’s current depressed share price of Kes 16.35 (28/04/2015). With 6.91Mn shares having been converted at USD 4Mn, the remainder of USD 56Mn will have to be financed through an equity and debt mix with the infrastructure firm having set aside a total of 150.93Mn shares to accommodate full conversion. Management intimated that the company seeks to raise capital through a cash call to pay off a portion of the bond and fund growth capital for its projects.

Consolidation of Power Division; Ups Stake in E.A. Cables to 68.4%

Despite a notable reduction of 12% in the London Metal Exchange (LME) prices, the Power Division recorded a 7% growth in revenue to Kes 6.9Bn attributed to increased volumes driven by new markets. The Group has embarked on plans to reorganize regional subsidiaries in its cable and transformer companies that have ran independently, to be consolidated under one listing- East African Cables Ltd (NSE: CABL) through transfer of investments via share swaps. Aside from regulation approval, the infrastructure firm would have to await winding up of significant ventures and exit options for the Government of Tanzania, a minority shareholder in Tanelec Ltd