Citadel Capital releases its FY12 Business Review

The firm reported that EBITDA from its eight core operational platforms rose to EGP111.4m, a sharp improvement from Minus EGP0.1m the previous year on the back of fundamental improvements in underlying businesses as well as a sustained emphasis on cost control.

Citadel Capital's principal investments from its own balance sheet increased to $214.7m in FY12 ($48.2m in the fourth quarter) to close the year at $1,155.0m.

Operational highlights of 2012 include the start of the firm's transformation from a hybrid private equity business model into a leading investment company, a tight focus on risk reduction, and the curbing of OPEX spending at the firm and platform company levels.

"The year just ended was very positive for Citadel Capital: We made progress on three key fronts while simultaneously witnessing a change in macro conditions that has fundamentally validated our investment thesis, which sees us biased toward export sectors, dollar-denominated revenue businesses, industries that stand to benefit from energy deregulation, as well as regional opportunities outside Egypt," said Ahmed Heikal, Chairman and Founder of Citadel Capital.

"On the risk front, we began 2012 with a greenfield pipeline that included one exceptionally large transaction that had not reached financial close — Egyptian Refining Company — and three very large transactions, Djelfa, Mashreq and ASEC Minya," Heikal noted.

"Today, we have reached financial close on the $3.7bn ERC project, begun commissioning at ASEC Minya, our $360mn cement plant in Egypt and made strong progress on the two remaining projects—Djelfa our a 3.5 MTPA greenfield cement in Algeria and Mashreq, a unique fuel bunkering terminal and logistics hub on the Suez Canal—which will be our focus in 2013," he added.

Citadel Capital reached financial close on ERC in June 2012 with what stands as the largest equity raising in Egypt since 2007 and the largest in Africa last year.

As part of its drive to transform into an investment company, Citadel Capital is pursuing majority control of 10 focus platforms in five core industries: energy, agrifoods, transportation, mining, and cement with a view to maximizing shareholder value through long-term holding periods to take full advantage of prevailing macro trends.

The 10 focus platforms by sector are:
1. ENERGY: TAQA Arabia, Tawazon (operational)/ Mashreq, ERC (non-operational)
2. AGRIFOODS: Gozour, Wafra
3. TRANSPORTATION: Nile Logistics, Africa Railways
4. MINING: ASCOM
5. CEMENT: ASEC Holding

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 programme for non-core assets, Management presents in the FY12 business review aggregate revenue and EBITDA figures for the firm's eight core operational platform companies.

"These aggregate figures give a more accurate picture of financial and operational performance than do consolidated results, which will become better indicators of our progress as our transformation process moves forward," said Heikal.

Notably, aggregate revenues eased 4.4% year-on-year to EGP5,146.7m as improvements in the Energy and Agrifoods divisions were masked by a drop in ASEC Holding revenues (currently the largest contributor to aggregate total revenues, EGP1,779.5m).

The decline is largely due to the company's construction segment, which is still suffering a weak backlog of projects and delays in the start of projects due to prevailing conditions in Egypt and in the region.

Significant progress has been made this year in a number of Citadel Capital's core operational platforms.

Energy:
Energy distribution platform, TAQA Arabia's Power Generation and Distribution segments report strong year-on-year growth in volumes in FY12 on the back of the previously reported extension at the South Valley project as well as the start of operations at E-Styrenics, the division's first project in the petrochemicals industry, and rising occupancy rates in Nabq, where TAQA Power began operating a 120 MVA electrical substation. TAQA Arabia recorded a 28% year-on-year rise in total electricity generated in FY12.

TAQA Arabia's gas distribution volumes, the company's strongest stream of cashflow, rose 3.8% in FY12 on the back of better industrial and residential sales.

Solid waste management Platform, Tawazon, reported a 29.9% year-on-year rise in FY revenues and a 55.6% rise in EBITDA on the back of better volumes and biomass revenues from solid-waste-management arm ECARU, and the recognition of revenues at turnkey engineering contractor ENTAG.

Agrifoods:
Gozour, the division's Egypt-based agriculture and consumer foods platform, reported a 1.9% uptick in FY12 revenues, primarily on the back of Rashidi El-Mizan's 7% revenue growth and a moderate 1.2% increase in fresh milk (ICDP) revenues.

Gozour reported a more than 13% improvement in revenues quarter-on-quarter and year-on-year in 4Q12 on the back of a sharp improvement in operations and sales at milk and juice products maker Enjoy.

Transportation:
Nile Logistics took delivery of four new dumb barges and two pushers in the fall 2012, bringing its fleet of custom-designed, fuel-efficient, environmentally friendly river barges up to 45 vessels. The company also completed its first anchorage operation in the Port of Alexandria with new, purpose-built floating cranes.

Rift Valley Railways (RVR) replaced 140 km of unsafe track and completed installation of a state-of-the-art GPS-based central control and signaling system to replace a more than 100-year-old operations and signaling infrastructure. Key turnaround times have improved more than 30%, while accidents per million train kilometers are down more than 30%.

Mining:
Greenfield GlassRock Insulation Company began production and export of green building materials at its $70m facility.

ASCOM for Chemicals and Carbonates Mining increased EBITDA 12-fold and exported 60% of its technical calcium carbonate production and began testing on a new production line to serve global paints, polymers, and petrochemicals industries.

Cement:
ASEC Cement began commissioning of US$ 360 million greenfield plant, ASEC Minya and achieved positive EBITDA of EGP76.8m in FY12 from negative EGP104.3m the previous year.

In Algeria, Zahana Cement Co. reported a 30% rise in EBITDA and a 15% improvement in net income on the back of a 9% rise in revenues, improved operational efficiencies after the most extensive revamp in the plant's history, and an increase in average selling price on a full-year basis.

The firm's standalone net loss for FY12 accordingly stood at $10.6m (EGP66.4m). This compares against a loss of $17.5m (EGP110.1m) in FY11, an improvement of 39.7%. Citadel Capital reports a consolidated net loss of $111.7m (EGP702.4m) as operational improvements in companies held as Associates were muted as a result of non-cash and non-realized foreign exchange losses at Al-Takamol Cement in Sudan. This compares to a loss of $127.5m (EGP800.5m) in FY11, an improvement of 12.4%.

Citadel Capital will continue to place emphasis on operational core platforms by sector, with aggregate revenue and EBITDA figures broken down by industry.

Less emphasis will be on standalone and consolidated financials. After the transformation, consolidated financials will be the benchmark for Citadel Capital's financial performance as an investment company.