Qalaa Holdings posted 11% increase in FY2019 revenues

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 ended 31 December 2019 recording total revenue of EGP 14.9 billion, up 11% y-o-y.

Growth for the year was primarily driven by expansion at TAQA Arabia, which recorded a 31% y-o-y increase in revenue to EGP 7.7 billion in FY 2019 on account of strong operational performance across its gas, power and marketing segments and with growing contribution from TAQA Solar. Qalaa’s top-line performance was further bolstered by improved performance at Dina Farms, which showed a healthy increase in revenues and profitability driven by continued implementation of various efficiency measures at the farm and expansions at ICDP. Finally, Nile Logistics also delivered a strong turnaround with revenue growth of 79% y-o-y to EGP 236 million in FY 2019 as the company brought online its new grain storage warehouse and enhanced its stevedoring capacities as well as continued ramp-up of operations at its inland container depot.

“Qalaa’s performance was propelled by our continued focus on growing our businesses and enhancing operations,” said Qalaa Holdings Chairman and Founder Ahmed Heikal. “I am particularly pleased with TAQA Arabia which continues to position itself as a leading player in Egypt’s energy sector. TAQA is successfully capitalizing on the favorable energy market liberalization and is also diversifying its energy portfolio with its recent Benban solar project that is generating strong operational profitability. Meanwhile, we are witnessing a strong turnaround at Nile Logistics where our push to build a comprehensive logistics and storage services provider is delivering strong growth in revenue with positive operational profits.”

“At our flagship greenfield Egyptian Refining Company, utilization is now at 100%. Between August 2019 and mid-March 2020 the company has sold c.3.1 million tons of petroleum products, including 2.8 million tons of refined products to EGPC and approximately 265 thousand tons of pet coke and 40 thousand tons of sulphur to key cement and fertilizer players.”

ERC - which reached full production capacity by August 2019 – is operating smoothly and delivered a strong performance during the fourth quarter of the year with c. USD 160 million in operational profits (sales less feedstock and variable costs), on account of widening heavy fuel oil (HFO) to diesel spreads during the period. However, ERC’s operational profits were not booked on its income statement and instead accounted for as a reduction in the company’s “project under construction” on its balance sheet. Starting 1Q2020, ERC has been classified as an asset with consolidation of profits on Qalaa’s income statement as of January 2020.

Qalaa’s EBITDA remained steady at EGP 1.3 billion in FY 2019 and increased by 17% y-o-y in 4Q 2019 to EGP 325 million. Flat full-year EBITDA was largely the result of a 60% y-o-y decline in ASEC Holding’s EBITDA in FY 2019. The cement segment’s performance was affected by an underperforming cement market in Egypt, and social and political unrest in Sudan which affected Al-Takamol Cement’s performance during the year. However, the performance by cement-related operations was offset by strong EBITDA performance at TAQA Arabia, which recorded an impressive 76% y-o-y increase to EGP 659.2 million in FY 2019. TAQA’s strong performance at the EBITDA level was driven by profitable expansion across the company’s business segments and a growing contribution from its recently inaugurated solar power plant in Benban, Aswan. EBITDA performance was also strong at Nile Logistics as the company turned a positive EBITDA of EGP 51.1 million in FY 2019 versus a negative EGP 30 million last year.

Qalaa Holdings recorded a consolidated net loss after minority interest of EGP 1.1 billion in FY 2019 versus a net profit of EGP 1.3 billion last year. This includes EGP 395.5 million of provisions and EGP 226.7 million of impairments. It should be noted that FY 2018 profitability was driven by non-cash gains of EGP 3.96 billion related to the deconsolidation of Africa railways’ operational liabilities in both Kenya & Uganda.

Covid-19 Implications “Qalaa like all businesses across the world is impacted by the repercussions of the Covid-19 pandemic and is taking all the necessary measures and deploying proactive strategies to help manage associated risks and minimize its impact,” Heikal said. “First and foremost is protecting the health and safety of our more than seventeen thousand employees, ensuring their well-being and empowering management teams across our portfolio to provide support and guidance needed during these critical times. I am pleased to report that, Qalaa continues to employ its full workforce and has not resorted to any layoffs.”

“In the early months of 2020, recessionary fears and ongoing volatility in oil markets have pushed oil prices to record lows, leading to narrowing spreads between HFO and diesel prices. This will adversely impact ERC’s profitability in its first full year of operations. We are also anticipating pressure on our cement and mining activities on account of subdued demand and a slowdown in local construction activity. Meanwhile, border closures and the slowdown in global trade will curtail export volumes and affect our export-driven subsidiaries. However, other Qalaa subsidiaries will prove more resilient with limited pressure on operational performance, namely Dina Farms and National Printing that enjoy more defensive selling prices and will capitalize on lower material and feedstock costs,” Heikal explained.

“Across our organization, we have strengthened our health and safety measures including stringent hygiene and disinfection protocols, particularly at customer-facing and food processing operations, to limit the risk of infection.” Said Hisham El-Khazindar, Qalaa Holdings’ Co-Founder and Managing Director. “We are also limiting the number of in-office and on-site employees to adhere to social distancing guidelines, while also strengthening our IT infrastructure to support higher levels of work-from-home policies should more strict lockdown measures be enforced,” El-Khazindar added.

“At the current juncture, it is difficult to ascertain the full financial impact of Covid-19 on our businesses, particularly in the absence of a timeframe for when the pandemic will run its course. In that regard, we will continue to monitor the situation as it evolves and will update the market on any key developments as they occur,” said El-Khazindar.

“However, Qalaa has time and again weathered challenging environments and remerged a stronger and leaner organization. Our success in navigating external crises in the past has always rested on our team of seasoned professionals, and on a business model anchored by strong, long-term fundamentals that go beyond the current crisis. We are therefore confident in our ability to navigate the current environment and ensure business continuity, while placing the health and safety of all our employees and our stakeholders at the forefront of our responsibilities,” concluded El Khazindar.

Qalaa Holdings’ full business review for FY 2019 and the financial statements on which it is based are now available for download on ir.qalaaholdings.com.