Trading Update and Appointment of Joint Broker

RNS Number : 0054Y

Cambria Africa PLC

20 January 2014

 



Cambria Africa plc

 ("Cambria" or the "Company")

Trading update for the period ending 31 August 2013,  

strategy update and appointment of Joint Broker

Cambria Africa Plc (AIM:CMB) is pleased to announce a trading update for the period ending 31 August 2013 in advance of its final results, which are expected to be announced in the first half of February, as well as a strategy update to the Company.  All performance figures and comparisons quoted in this statement are unaudited pending completion of the 2013 audit.  All references to continuing operations relate to the Group's Payserve Africa and Milchem Holdings investments and head office activities.  FY2012 and any prior year comparison figures have been restated to reflect this definition of continuing vs discontinued operations.

·      Cambria is continuing the disposal of its remaining non-core assets, completion of which will mark the re-alignment away from multiple investments operating in a single country, to a select number of investments operating regionally.  It is the Board's conviction this strategy marks the best route towards maximising shareholder value and ensuring continued future growth

·      As a result of this strategy, the Company is now solely focused on Payserv Africa (Payserv) and Millchem Holdings (Millchem), growing their scale and scope, and pursuing their regionalization

·      A multi-year, regional and product roll-out strategy for both Millchem and Payserv has been developed and Cambria is excited about the return prospects offered by these two investments

o Initial steps have successfully been made.  Millchem now has a warehouse and offices in Zambia, where it is commencing operations, and is opening the same in in Malawi.  Payserv has received its National Payments Licence in Zambia, signed  it first customers and is processing payments

o Cambria anticipates strong organic growth for both investments and may make smaller acquisitions to accelerate their regionalization strategy

·     During the year ended 31 August 2013, Payserv Africa and Millchem Holdings combined, organically grew revenues and gross profit by 10% and 6% year-on-year, respectively

·     Cambria's central costs were reduced by 54% when compared to the equivalent period last year

·     Cambria's EBITDA loss for the period for continuing operations for the year ended 31 August 2013 was US$ 3.6 million, a 52% reduction when compared to last year

·     The Company expects to report a group loss of approximately $5m for the year ending 31 August 2013 for its continuing operations.  Discontinued operations, including write downs of property and assets, generated a loss of US$ 6.9 million

·     The Company is pleased to announce that it has appointed Peterhouse Corporate Finance Limited as Joint Broker with immediate effect

Contacts
Cambria Africa plc	www.cambriaafrica.com
Ian Perkins	[phone]
Edzo Wisman	[phone]
WH Ireland Limited	www.wh-ireland.co.uk
James Joyce / Nick Field	[phone]
Peterhouse Corporate Finance Limited	www.pcorpfin.com
Charles Goodfellow / Duncan Vasey	[phone]

 

 

Introduction

During the period under review revenues and gross profit of the continuing operations of Cambria, being the Payserv and Millchem investments, were US$ 8.5 million (2012 US$ 7.7 million) and US$ 4.6 million (2012 US$ 4.3 million) respectively, representing corresponding increases of 10% and 6% to the equivalent prior period. 

There was a slowdown in the rate of growth when compared to last year (when, for example, revenues grew 64% year-on-year) which can largely be attributed to a high level of uncertainty in the business environment during the second half of the financial year in Zimbabwe as a result of the elections, which, irrespective of country, always negatively impact economies.  During this election year, Zimbabwe experienced periods of liquidity shortages, resulting in cautious consumer spending which directly contracted growth within our portfolio.  This slowdown continues to impact current performance of our investments.   

Our pursuit of scale for both Payserv and Millchem, together with the prudent strategy to regionalise, has meant Cambria continued to invest for the future throughout this period.  We are confident that the positive impact of regional expansion into Zambia (and subsequent entry into Malawi for Millchem), together with the launch of various new products, will yield results in the coming periods.

Cambria's EBITDA loss for the period for continuing operations for the year ended 2013 was US$ 3.6 million, a 52% reduction when compared to last year.  The Company expects to report a group loss of approximately $5m for the year ending 31 August 2013 for continuing operations.  Discontinued operations, including write downs, generated a loss of US$ 6.9 million.

On 1 October 2012 the Company raised US$ 1.4 million gross by way of a placing with institutions of 8,615,115 new ordinary par value shares of £0.0001 each at 10p per share. 

Operational review main investments

Consolidated results

Payserv Africa and Millchem Holdings jointly had a consolidated performance as follows:

(US$ '000)	2013	2012	Growth
Revenues	8,487	7,721	10%
Gross profit	4,581	4,326	6%
Gross margin	54%	56%	-4%
SG&A	(4,209)	(3,194)	32%
EBITDA	372	1,132	-67%
EBITDA margin	4%	15%	-70%

The decrease in EBITDA can be attributed to three factors: (i) Significant investments made by Payserv into new products as well as product upgrades, with the associated costs expensed rather than capitalised; (ii) investments into regional expansion pursued by both Payserv and Millchem; and, (iii) an unforeseeable and unavoidable US$ 294 thousand multi-year VAT liability related to Tradanet, accounting for 40% of the decrease in combined EBITDA for the year.

As Cambria continues to actively pursue scale and scope through regional expansion and development of new products it will continue to expense rather than capitalise these investments.  This will continue to impact EBITDA performance in the coming periods.

Payserv Africa

Payserv provides EDI switching services (Paynet), 'payslip' processing (Autopay), and payroll based microfinance loan processing (Tradanet).

(US$ '000)	2013	2012	Growth
Revenues	4,164	3,951	5%
Gross profit	3,811	3,614	5%
Gross margin	91%	91%	0%
SG&A	(3,369)	(2,274)	48%
EBITDA	442	1,340	-67%
EBITDA margin	11%	34%	-69%

Paynet provided Electronic Data Interchange (EDI) services to all 22 banks and building societies in Zimbabwe, as well as to over 1,500 corporates.  Paynet processed 15.2 million transactions (2012: 12.3 million) during the period under review, a 24% increase.

Autopay, provided payroll services to 150 customers, processed over 303 thousand pay slips (2012: 286k) during the period under review, a 6% increase. 

Tradanet processed approximately 66,000 (2012: 55,000) loans during the period, representing a value of US$ 131 million (2012: US$ 140 million), a 19% increase and a 6% decrease respectively.  At the end of the period the loan book under management stood at US$ 110 million (2012: US$ 100 million), an increase of 10%.

Over the period, Payserv has invested significantly into product upgrades, new offerings, entry into the Zambian market, as well as exploration of other geographic markets.  These investments have not been capitalised and have therefore directly impacted the income statement during the period under review. 

New Paynet products recently launched include, among others, eSchedules and PayZIMRA.  It is also launching PayFT, a joint venture with South African based BankServ.  Geographically, Paynet has established a presence in Zambia, received its Zambian National Payments Licence during December 2013, signed its first customers in that country, and has commenced processing payments.  Moreover, Autopay now has a presence in Zambia as well, processed its first payslips in Uganda, and reached agreement with a trial customer regarding processing payslips in Botswana.

The bottom line effect of these investments should come through in the coming periods through enhanced revenue growth as well as diversification of revenue streams.  

There was an exceptional item of a US$ 294,000 adjustment to Payserv (and group) EBITDA resulting from  a multi-year VAT liability related to Tradanet dating back to March 2010 that was paid in one tranche during 2013.

Millchem Holdings

Millchem is a value-added chemicals distributor with leading market positions in Zimbabwe.  It recently established a presence in Zambia, and is working towards a presence in Malawi. 

US$ '000	2013	2012	Growth
Revenues	4,323	3,770	15%
Gross profit	770	712	8%
Gross margin	18%	19%	-6%
SG&A	(840)	(920)	-9%
EBITDA	(70)	(208)	66%
EBITDA margin	-2%	-6%	71%

In general, chemicals distribution tends to outpace economic growth, on the flipside, it also tends to shrink faster when an economy stagnates. Millchem was thus strongly affected by the uncertain business environment during FY2013.  During some weeks over the period it was generating 50% less gross profit when compared to equivalent weeks during the prior year.  Importantly, despite decreased revenue Millchem did not lose market share or customers over the period, in fact new customers were added as competitors were struggling.

Despite the challenging environment in Zimbabwe, the Millchem team, under new leadership after the appointment of Matthijs Mulder as the CEO of Millchem Holdings, remained focused on the long term and continued to launch new products as intended, opened up a branch in Bulawayo, opened up warehouse space and offices in Zambia, made its first steps towards opening of a warehouse and offices in Malawi, established buying entities in the Netherlands and South Africa, and was able to add relationships with various attractive new suppliers (e.g. BASF, ENI (Cent-Lube), Sasol and others).  Moreover, in addition to the NACD, Millchem Africa is now also a member of the FECC, as it seeks to position itself as a Responsible Distributor in this territory.

Alongside a new CEO, Millchem also appointed two Non-Executive Directors to the Millchem Board. Bernard West and David Edgington, who jointly bring over 80 years of chemicals industry experience, as well as extensive industry relationships.

Investments required for this geographic expansion have not been capitalised and have therefore directly impacted the income statement during the period under review.

Other

Celsys Limited

The Company sold its investment in Blueberry International Ltd on 25 July 2013 for US$ 1.  This sale included, among others, a 60% stake in Celsys Limited.  During the period, Celsys generated $ 1.8 million in sales and negative US$ 2.5 million EBITDA, excluding certain write backs related to intercompany balances.  Excluding write backs Celsys generated 0.5 million of EBITDA losses.

The Leopard Rock Hotel

During the period under review, the Leopard Rock Hotel was classified by Cambria as held for sale.  During the period, the Leopard Rock Hotel generated US$ 2.3 million in sales and negative US$ 671 thousand in EBITDA, before write downs recognised in the Income Statement of US$2.8 million.

LonZim Air (B.V.I.) Limited

Through LonZim Air (BVI) Limited Cambria previously owned three aircraft.  Over the years a number of disputes arose in relation to these aircraft and certain associated contracts.  At this point, in summary, Cambria will pursue recovery of claims related to these disputes that are now estimated to be in excess of US$ 10 million.  These amounts relate to, inter alia, maintenance reserve and lease charges and related contractual interest, payment of insurance proceeds, deterioration in market value of the aircraft, and the significantly lower amount the Company was able to obtain through a sale, due to the poor condition the aircraft were found to be in.  LonZim Air incurred US$ 205 thousand in operating losses for the period under review, largely related to extra-ordinary legal expenses related to the above mentioned claims.

Settlement with Lonrho
On 19 July 2013 Cambria reached final settlement with Lonrho Plc with regards to all on-going disputes, loan assets, and management contracts related to Lonrho, other than claims related to three aircraft previously owned by Cambria and leased to subsidiaries of Lonrho.  As a result of this settlement, Cambria received from Lonrho US$ 2.7 million.  The settlement agreed related to, among others, the Aldeamento Turistico de Macuti, S.A.R.L loan, the Churchill Estates (1995) (Private) Limited loan, the Lonrho Management Services Agreement, and the Hotel Refurbishment and Management Agreement.    

Central costs

Cambria incurred US$ 4.0 million in central EBITDA costs for the period under review, compared to US$ 8.6 million last year, a reduction of 54%.  

Strategy going forward

Cambria is continuing the disposal of its remaining non-core assets, completion of which will mark the re-alignment away from multiple investments operating in a single country, to a select number of investments operating regionally.  It is the Board's conviction this strategy marks the best route towards maximising shareholder value and ensuring continued future growth

As a result of this strategy, the Company is now solely focused on Payserv and Millchem, growing their scale and scope, as well as, importantly, their regionalisation. 

A multi-year, regional and product roll-out strategy for both Millchem and Payserv has been developed and Cambria is excited about the growth and return prospects of the two investments. 

Initial steps in the regional expansion have been made successfully.  For example, Millchem now has warehouse and offices in Zambia, has commenced operations there, and is in the process of opening the same in Malawi.  In Zambia, Payserv has received its National Payment Licence, signed on its first customers, and commenced the processing of payments.

In the coming years, both Millchem and Payserv will continue to expand in additional geographies in a careful and coordinated manner.  Moreover, Cambria anticipates growth for both investments will include smaller acquisitions, which may or may not be made using Cambria shares.

The Company requires funds for the expansion of Millchem and Payserv, as well as for the group's working capital. The Company is reviewing its options regarding funding in this regard and this may include funds realised from the disposal of its non-core operations and assets as well as the raising of additional equity or debt capital.

Appointment of Joint Broker

The Company is pleased to announce that it has appointed Peterhouse Corporate Finance Limited as Joint Broker with immediate effect.

In closing

Cambria has had a year of transition, which has seen the end of ongoing legal disputes and completion of the strategy to focus on companies that can effectively pursue growth and scale through regionalisation.  We have significantly reduced operating costs, including central costs, streamlined our business model, and significantly invested into new products and into new markets.  We close out the financial year with a platform of two very strong companies, which have made significant progress in their product rollout and regional strategy, and which have a clear strategy for the next few years.

Implementing this strategy over the last 18 months came with difficult choices for Cambria's Board.  However, having brought Cambria to where it is now, the Board's conviction is stronger than ever that our current portfolio and focus marks the best route forward towards maximising shareholder value. 

 

END

 

 

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