Wrap Text
Provisional Condensed Results
for the year ended 28 February 2019
EFORA ENERGY LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1993/000460/06)
JSE share code: EEL
ISIN: ZAE000248258
("Efora" or "the Company" or together with its subsidiaries and joint venture "the Group")
PROVISIONAL CONDENSED RESULTS
for the year ended 28 February 2019
SALIENT FEATURES
- Revenue of R2.6 billion (2018: R2.6 billion for 9 months post acquisition of Afric Oil),
average monthly sales down by 26%
- R367.1 million raised by way of a right issue
- Settlement of loan from Gemcorp of R187.7 million
- Loss after tax of R579.9 million (2018: R175.9 million), up 225%, impacted primarily by:
- Impairment of Lagia oil and gas properties and intangible assets by R152.2 million;
- Block III net write-off of R95.0 million of the contingent consideration offset by the gains
on de-recognition of the deferred tax and cost carry liabilities;
- Impairments of R66.1 million of the loan receivable from EERNL and R23.2 million pertaining
to the Transcorp refund;
- Impairments totalling R143.5 million attributable to the Afric Oil intangible assets; and
- Inventory loss of R10.5 million.
- Decrease of 21% in recurring cost base
- Award of two year crude trading contract by NNPC in Nigeria, one lifting during the year
- Strategic review of Lagia asset
- Extension of Block III license by 6 months
Damain Matroos, Interim Chief Executive Officer of Efora commented:
"These results are disappointing due to the below par performance at Afric Oil that was impacted by
several challenges, some of which were beyond our control. Unexpected external factors also
negatively impacted our other non-operating assets.
The results are not a reflection of the efforts that have gone into moving the Group forward.
The coming months are absolutely critical and we remain focussed on initiatives to drive sales
volumes growth and cost containment in order to improve the performance of the business to the
levels expected at the time of its acquisition. We are confident that these initiatives will bear
fruit in the coming months."
PERFORMANCE REVIEW
Whilst the Group's upstream assets benefited from the general improvement in oil prices during the
year, this presented significant challenges for the South African market which experienced several
price increases in the second half of the year. This resulted in working capital constraints that
negatively affected volumes from our key business, Afric Oil. Increased competition from heavy
discounting by small entrants into the market, low-cost importers, illegal importation of fuel
products and the currency crisis which resulted in the temporary suspension of our Zimbabwe
operations, further exacerbated the impact on the Group margins. Average monthly volumes from the
Afric Oil business therefore decreased by 26% as the results of the business were included for
9 months post acquisition in the prior year. In this regard, total revenue remained relatively
unchanged at R2.6 billion.
Initiatives are in place to improve the volumes at Afric Oil, however in its impairment assessments
of the business as at 28 February 2019, the Group recognised impairments totalling R143.5 million
attributable to goodwill, brands and customer relationships intangibles that arose on acquisition,
which were adversely affected by lower than expected performance of the business which impacted
future estimated cash flow projections especially at the Forever Fuels division which lost a
number of customers. For more details on these impairments, see note 5.2.
The shift in focus to downstream operations meant that the Group's limited capital was deployed to
the Afric Oil operations as a trade off to the further development of the Lagia oil field. This was
a decision the Board had to make whilst it sought strategic partnership for its Lagia asset,
a process which has not yielded the desired outcome. The intermittent suspension of the Lagia
development programme, amongst other matters, had a negative impact on the valuation of the
Lagia oil field as reflected in the Competent Persons Report completed as at 1 February 2019 which
resulted in an impairment of R152.2 million of the Lagia oil and gas and intangible assets.
Note 5.1 provides more details on the impairment of the Lagia assets.
Total E&P RDC ("Total"), our former partner, decided not to continue as part of the Block III
consortium. As previously reported, with the expectation of further development of Block III,
the Group had recognised a contingent consideration and deferred tax and cost carry liabilities
relating to its farm in agreement with Total. Total's exit from Block III resulted in a net
write-off of R95.0 million of the contingent consideration offset by the gains on de-recognition
of the referred liabilities. The impact of Total's exit on the results of the Group is further
highlighted in notes 6 and 12.
Under very unfortunate circumstances, the Group learnt in February 2019 of the liquidation of
Energy Equity Resources Norway Limited which owes the Group R70.0 million (US$5 million).
In accordance with our accounting policy which recognises this receivable as credit impaired,
the Group has fully provided for the amount pending the outcome of the liquidation process as
indicated in note 6. This resulted in a charge of R66.1 million under other operating costs.
In its interim results for the six months ended 31 August 2018, the Group reported on the loss of
inventory totalling R10.5 million at its Boland subsidiary. Whilst a forensic investigation has
now been completed the results are inconclusive and management is evaluating further interrogation
of the occurrence. This loss is included under other operating costs.
The impact of the Group's cost optimisation initiatives is not immediately visible on the Group's
statement of comprehensive income, however excluding the impact of the developments noted above
and other less material once-off items, the Group's recurring costs decreased by R35.3 million
(excluding depreciation and amortisation) arising primarily from a reduction in business development,
consulting, legal, listing and general overheads.
Excluding the impact of the de-recognition of the Total cost carry liability, the Group's other
income streams increased by R20.0 million as a result of a gain of acquisition of property and
throughput income, primarily.
Whilst finance income has increased by R15.1 million, this is mainly imputed interest on the
Group's financial assets. Finance costs have decreased by R7.5 million following the settlement
of the loans owed to Gemcorp and Turquoise Moon.
The Group is therefore reporting a loss after tax of R579.9 million (2018: R175.9 million) for
the year ended 28 February 2019, a loss per share of 69.91 cents (2018: 42.34 cents) and a
headline loss per share of 45.31 cents (2018: 42.20 cents).
OPERATIONAL REVIEW
Afric Oil, South Africa and Zimbabwe
The challenges already highlighted resulted in a decrease in volumes to 203.7 million litres
(17.0 million litres per month) relative to 222.3 million litres (24.7 million litres per month)
for the nine months post-acquisition in the prior comparative period. The loan of R124.0 million
advanced to Afric Oil in September and October 2018, together with other working capital
facilities totalling R40 million from third parties did result in an increase in volumes albeit
in the latter part of the year.
We continue to streamline the business in order to ensure that we remain competitive. During the
year we reduced our fleet and terminated third-party transportation arrangements with a primary
focus of optimising our internal logistics function. We are pleased to have signed on two large
customers during the year and we remain excited about ongoing engagement with prospective customers,
which we hope will be finalised soon.
Looking ahead, we have a few key priorities:
- improving our BBBEE rating in order to attract new business;
- finalising the strategic interventions for our Zimbabwean operations;
- implementing a sales strategy to drive growth and business retention; and
- adding working capital facilities to ensure the Group's growth plan is adequately funded.
Lagia, Egypt
Volumes from Lagia decreased from 21 152 barrels in the prior comparative period to 15 371 barrels
for the year, a decrease of 27%, as operations were kept on cold flow. In the Group's interim
results for the six months ended 31 August 2018, following a strategic review, part of Lagia's
assets were classified as held for sale as a plan was in place to dispose of part of the asset.
Offers received from prospective buyers were highly unfavourable which has led the Board to the
decision to retain full ownership of the asset whilst it investigates further strategic options
pertaining to the asset. As such, the Group no longer holds assets classified as held for sale.
Crude trading, Nigeria
Constraints on the availability of crude oil from the NNPC continued, which resulted in only one
lifting of 950 000 barrels during the year. Our joint venture therefore reported a profit of
R1.1 million (2018: R1.8 million). We are confident of securing additional cargos during the
remaining period of the contract.
Block III, DRC
The Block III licence was extended to July 2019, during which time the remaining partners will
carry out a review of the technical data to determine the area that will be the subject of the
renewal of the licence.
Total E&P RDC, which previously held 66.7% of the working interest in Block III, has indicated
that it will no longer continue as part of the consortium to further explore Block III.
Consequently, Efora will be required to pay its working interest share of forward costs associated
with Block III. In addition, Efora now has the option to increase its working interest in Block III
to 42.5% and is currently evaluating whether it will take up this option.
We remain confident that this block remains an exciting prospect for the Group with an unaudited
recoverable resource estimate of 1,213 MMbbl (best estimate). We will undertake an assessment of
the prospects as part of the process to obtain an extension of the licence after July 2019.
GOING CONCERN
The Board has performed an assessment of the Group's operations relative to available cash
resources and is confident that the Group is able to continue operating for the next 12 months.
The Board remains reasonably confident that it will manage the uncertainties that exist which are
highlighted in note 18 to the condensed provisional consolidated reviewed financial statements.
The condensed provisional consolidated reviewed financial statements presented have therefore been
prepared on a going concern basis.
LITIGATION UPDATE
Shareholders are referred to the SENS announcement dated 5 April 2019 which is available on the
Company's website wherein updates were provided on the status of the Group's claims against
Robin Vela and Transcorp.
On 29 May 2019, judgement was issued wherein the Company's claim against Encha Group Limited was
dismissed. The Company was ordered to pay the costs of the arbitration as well as the costs
incurred by the defendant. These costs are still to be quantified. We are studying the judgment
with our legal counsel to determine the details of thereof. We will assess the prospects and
basis for an appeal relating to the unexpected outcome.
OUTLOOK
Our key focus for the next few months is on achieving a material increase in sales volumes at
Afric Oil as we expect to benefit from the track record of our newly appointed sales personnel,
amongst the many initiatives adopted by the Group in this regard. We will also prioritise cost
optimisation, especially within the management structures across the Group. With respect to our
Lagia asset, we will continue to explore beneficial partnerships on terms that create value
for our shareholders.
CHANGES IN DIRECTORATE
The following directors were appointed during the reporting period:
Mr Vuyo Ngonyama on 19 December 2018
Ms Zanele Radebe on 19 December 2018
Ms Tariro Gadzikwa on 7 February 2019
The following directors resigned during the reporting period:
Mr Ignatius Sehoole on 31 December 2018
Dr Thabo Kgogo on 30 January 2019
ABOUT EFORA
Efora Energy Limited is a South African based independent African oil and gas company, listed on
the JSE. The Company has a diverse portfolio of assets spanning production in Egypt; exploration
and appraisal in the Democratic Republic of Congo; a midstream project relating to crude trading
in Nigeria; and material downstream distribution operations in South Africa. Our focus as a Group
is on delivering energy for the African continent by using Africa's own resources to meet the
significant growth in demand expected over the next decade.
CONDENSED PROVISIONAL CONSOLIDATED REVIEWED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 28 February 2019
2019 2018
Notes R'000 R'000
Revenue 3 2 599 369 2 631 069
Cost of sales (2 530 997) (2 568 287)
Gross income 68 372 62 782
Other income 94 199 7 094
Other operating costs (1) (861 828) (246 338)
Loss from operations (699 257) (176 462)
Share of profit from joint venture net of taxation 1 138 1 878
Finance income 68 230 53 073
Finance costs (47 474) (55 017)
Loss before taxation (677 363) (176 528)
Taxation 97 504 669
Loss for the year (579 859) (175 859)
Other comprehensive income/(loss):
Items that may be reclassified to profit or loss in
subsequent periods:
Exchange differences on translation of foreign operations (2) 84 420 (38 318)
Other comprehensive income/(loss) for the year net of taxation 84 420 (38 318)
Total comprehensive loss for the year (495 439) (214 177)
Loss attributable to:
Equity holders of the Company (538 311) (151 971)
Non-controlling interests (41 548) (23 888)
Loss for the year (579 859) (175 859)
Total comprehensive loss attributable to:
Equity holders of the Company (456 690) (189 892)
Non-controlling interests (38 749) (24 285)
Total comprehensive loss for the year (495 439) (214 177)
Loss per share
Basic (cents) 15 (69.91) (42.34)
Diluted (cents) 15 (69.91) (42.34)
1 Impairment charges recognised in other costs are disclosed in notes 5,6 and 8.
2 This component of other comprehensive loss does not attract taxation.
CONDENSED PROVISIONAL CONSOLIDATED REVIEWED STATEMENT OF FINANCIAL POSITION
As at 28 February 2019
2019 2018
Notes R'000 R'000
ASSETS
Non-current assets
Exploration and evaluation assets 99 275 95 860
Oil and gas properties 5.1 76 808 169 243
Investment in joint venture - 5 847
Loans and other non-current receivables 6 230 151 452 086
Property, plant and equipment 72 905 83 286
Intangible assets 5.2 80 364 261 655
Total non-current assets 559 503 1 067 977
Current assets
Loans and other current receivables 6 - -
Inventories 7 13 744 22 454
Derivative asset - 258
Trade and other receivables 8 188 545 146 509
Cash and cash equivalents 9 61 875 72 806
Total current assets 264 164 242 027
Total assets 823 667 1 310 004
EQUITY AND LIABILITIES
Shareholders' equity
Stated capital 10 1 668 354 1 305 911
Reserves 10 102 834 21 072
Accumulated loss (1 333 414) (750 639)
Equity attributable to equity holders of the Company 437 774 576 344
Non-controlling interests (3 813) 1 834
Total shareholders' equity 433 961 578 178
LIABILITIES
Non-current liabilities
Deferred tax liability 12 - 81 360
Borrowings 13 - 5 152
Provisions 12 - 53 271
Finance lease obligations 126 714
Total non-current liabilities 126 140 497
Current liabilities
Borrowings 13 240 720 388 895
Financial liabilities 104 8 603
Finance lease obligations 585 2 183
Loan from joint venture 11 969 7 134
Taxation payable 12 851 13 418
Trade and other payables 14 123 351 171 096
Total current liabilities 389 580 591 329
Total liabilities 389 706 731 826
Total equity and liabilities 823 667 1 310 004
CONDENSED PROVISIONAL CONSOLIDATED REVIEWED STATEMENTS OF CHANGES IN EQUITY
for the year ended 28 February 2019
Foreign Total equity
currency Share-based attributable Non-
Stated translation payment Total to equity controlling
capital reserve reserve reserves Accumulated holders of interest Total
(Note 10) (Note 10) (Note 10) (Note 10) loss the Company ("NCI") equity
R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Balance at 28 February 2017 1 216 504 48 641 9 811 58 452 (598 668) 676 288 - 676 288
Previously reported 1 216 504 48 641 9 811 58 452 (587 075) 687 881 - 687 881
Correction of error - - - - (11 593) (11 593) - (11 593)
Changes in equity:
Loss for the year - - - - (151 971) (151 971) (23 888) (175 859)
Other comprehensive loss for the year - (37 921) - (37 921) - (37 921) (397) (38 318)
Total comprehensive loss for the year - (37 921) - (37 921) (151 971) (189 892) (24 285) (214 177)
Acquisition through business combination 89 487 - - - - 89 487 26 119 115 606
Transaction costs (80) - - - - (80) - (80)
Share-based payments expense - - 541 541 - 541 - 541
Total changes 89 407 (37 921) 541 (37 380) (151 971) (99 944) 1 834 (98 110)
Balance at 28 February 2018 1 305 911 10 720 10 352 21 072 (750 639) 576 344 1 834 578 178
Changes in equity:
Effect of the adoption of IFRS 9 (note 4) - - - - (11 362) (11 362) - (11 362)
Restated balance at 1 March 2018 1 305 911 10 720 10 352 21 072 (762 001) 564 982 1 834 566 816
Loss for the year - - - - (538 311) (538 311) (41 548) (579 859)
Other comprehensive income for the year - 81 621 - 81 621 - 81 621 2 799 84 420
Total comprehensive loss for the year - 81 621 - 81 621 (538 311) (456 690) (38 749) (495 439)
Acquisition of non-controlling interest (note 11) - - - - (33 102) (33 102) 33 102 -
Rights issue 367 052 - - - - 367 052 - 367 052
Transaction costs (4 609) - - - - (4 609) - (4 609)
Share-based payments expense - - 141 141 - 141 - 141
Total changes 362 443 81 621 141 81 762 (571 413) (127 208) (5 647) (132 855)
Balance at 28 February 2019 1 668 354 92 341 10 493 102 834 (1 333 414) 437 774 (3 813) 433 961
CONDENSED PROVISIONAL CONSOLIDATED REVIEWED STATEMENT OF CASH FLOWS
for the year ended 28 February 2019
2019 2018
Notes R'000 R'000
Cash flows from operating activities
Cash used in operations (147 283) (65 641)
Finance income 4 650 5 855
Finance costs (10 938) (25 984)
Tax paid (16) (336)
Net cash used in operating activities (153 587) (86 106)
Cash flows from investing activities
Purchase of property, plant and equipment (39) (863)
Proceeds on disposal of property, plant and equipment 380 -
Purchase of oil and gas properties (2 974) (5 104)
Purchase of intangible assets (1 325) (410)
Acquisition of subsidiary, net of cash acquired - 20 202
Repayments of loans and other receivables 410 892
Advances of loans and other receivables (1 201) -
Net cash (used in)/from investing activities (4 749) 14 717
Cash flows from financing activities
Transaction costs on issue of shares (4 609) (80)
Proceeds from rights issue 367 052 -
Loan received from joint venture 3 505 2 732
Proceeds from borrowings 239 164 467
Repayments of borrowings (210 523) (39 771)
Repayments of financial liabilites (5 815) -
Repayments of finance lease obligations (2 444) (1 877)
Net cash from financing activities 147 405 125 471
Total movement in cash and cash equivalents for the year (10 931) 54 082
Cash and cash equivalents at the beginning of the year 72 806 18 724
Cash and cash equivalents at the end of the year 9 61 875 72 806
NOTES TO THE CONDENSED PROVISIONAL CONSOLIDATED REVIEWED FINANCIAL STATEMENTS
for the year ended 28 February 2019
1 BASIS OF PREPARATION
The condensed provisional consolidated reviewed financial statements have been prepared in
accordance with the framework concepts, the recognition and measurement criteria of
International Financial Reporting Standards (IFRS) and in accordance with and containing the
information required by the International Accounting Standard 34 - Interim Financial Reporting
(IAS 34) as issued by the International Accounting Standards Board (IASB), the Financial
Reporting Guides as issued by the South African Institute of Chartered Accountants' (SAICA)
Accounting Practices Committee, Financial Pronouncements as issued by the Financial Reporting
Standards Council, the JSE Limited (JSE) Listings Requirements and the requirements of the
Companies Act of 2008, as amended. They have been prepared on the historical cost basis,
except for certain financial instruments which are measured at amortised cost, and are
presented in South African Rand, which is the Company's functional and presentation currency.
The significant accounting policies applied in the preparation of the condensed provisional
consolidated reviewed financial statements are in terms of IFRS and are consistent with those
applied in the previous consolidated annual financial statements, except as detailed in note 4.
The significant accounting policies are available for inspection at the Company's registered office.
The Group adopted the new, revised or amended accounting pronouncements as issued by the IASB,
which were effective and applicable to the Group from 1 March 2018. The accounting pronouncement
considered by the Group as significant on adoption is IFRS 9 "Financial Instruments" (IFRS 9)
as set out in note 4. Other IFRS changes adopted on 1 March 2018 have no material impact on the
consolidated results, financial position or cash flows of the Group. Full details on changes in
accounting policies will be disclosed in the Group's consolidated annual financial statements
for the year ended 28 February 2019.
New accounting pronouncements:
IFRS 16 - Leases was issued in January 2016 to replace IAS 17 - Leases. The standard is effective
for accounting periods beginning on or after 1 January 2019 and will be adopted by the Group on
1 March 2019. IFRS 16 will primarily change lease accounting for lessees and will not have a
material impact on the Group's financial statements. Under IFRS 16:
- Lease agreements will give rise to the recognition of an asset representing the right to use
the leased item and a liability for future lease payables.
- Lease costs will be recognised in the form of depreciation of the right of use asset and
interest on the lease liability.
Under IAS 17 operating lease rentals have been expensed on a straight-line basis over the lease
term within operating expenses. Lessee accounting for finance leases will be similar under
IFRS 16 to existing IAS 17 accounting. Lessor accounting under IFRS 16 is also similar to
existing IAS 17 accounting and is expected to be materially the same for the Group. IFRS 16 is
being adopted with the cumulative retrospective impact recorded as an adjustment to equity on
the date of adoption.
These condensed provisional consolidated reviewed financial statements have been prepared on a
going concern basis after taking into account the matters in note 18.
All monetary information is rounded to the nearest thousand (R'000).
2 PREPARATION OF THE CONDENSED PROVISIONAL CONSOLIDATED REVIEWED FINANCIAL STATEMENTS AND
AUDITOR'S REVIEW CONCLUSION
The directors take full responsibility for the preparation of these condensed provisional
consolidated reviewed financial statements. These condensed provisional consolidated reviewed
financial statements for the year ended 28 February 2019 have been prepared under the
supervision of the interim Chief Financial Officer, Tariro Gadzikwa CA (SA).
These condensed provisional consolidated financial statements for the year ended 28 February 2019
have been reviewed by SizweNtsalubaGobodo Grant Thornton Inc. A copy of the auditors' unmodified
review conclusion, which includes a material uncertainty relating to going concern with respect
to the matters detailed in note 18, is available for inspection at the registered office of
the Company.
3 SEGMENTAL REPORTING
The Group has identified reportable segments that are used by the Group Executive Committee
(chief operating decision-maker) to make key operating decisions, allocate resources and assess
performance. For management purposes the Group is organised and analysed by geographical
locations. For the year under review the Group operated in the following locations: South Africa,
Egypt, Nigeria, DRC, Zimbabwe, Zambia and Mauritius. The Group's externally reportable operating
segments are shown below.
Head office activities include the general management, financing and administration of the Group.
The Group's operations in Zambia and Botswana, which were immaterial for the current year, did not
meet the recognition criteria for externally reportable segments and have been aggregated under the
South Africa and head office segment respectively as they meet the aggregation criteria permitted
by IFRS on the basis of the nature of the products. The Botswana segment was separately disclosed
in the prior year but due to the liquidation of Botwana the prior year figures have been aggregated
under the head office segment as it is not considered material.
Egypt Nigeria DRC South Africa Zimbabwe Mauritius Head office Eliminations Consolidated
2019 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Revenue 3 848 - - 2 748 428 18 940 - - (171 847) 2 599 369
Cost of sales (7 333) - - (2 677 134) (18 377) - - 171 847 (2 530 997)
Gross (loss)/profit (3 485) - - 71 294 563 - - - 68 372
Other income - 221 67 148 15 214 11 944 - 6 078 (6 406) 94 199
Impairment of financial assets - (11 678) (270 593) (11 992) - - (80 510) - (374 773)
Depreciation and amortisation (6 113) - - (22 685) - - (445) - (29 243)
Share of profit from joint venture - 1 138 - - - - - - 1 138
Finance income - 11 194 23 862 2 538 - - 36 683 (6 047) 68 230
Finance costs - - (3 676) (41 658) - - (8 187) 6 047 (47 474)
Other operating expenses (10 072) (717) (821) (65 749) (21 813) (213) (60 892) 6 406 (153 871)
Impairment on intangible assets (30 739) - - (143 522) - - - - (174 261)
Impairment of joint venture - (8 142) - - - - - - (8 142)
Impairment of Lagia oil and gas assets
and petroleum reserves (121 538) - - - - - - - (121 538)
Taxation - - 98 921 (1 417) - - - - 97 504
(Loss)/profit for the year (171 947) (7 984) (85 159) (197 977) (9 306) (213) (107 273) - (579 859)
Segment assets - non-current 97 235 115 075 99 275 100 596 32 259 - 468 027 (352 964) 559 503
Segment assets - current 9 732 2 25 256 578 5 695 61 15 111 (23 040) 264 164
Segment liabilities - non-current (143 745) - (81 970) (127 341) - - - 352 930 (126)
Segment liabilities - current (3 392) (540) (294) (379 016) (100) (171) (29 141) 23 074 (389 580)
Egypt Nigeria DRC South Africa Zimbabwe Mauritius Head office Eliminations Consolidated
2018 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Revenue 3 454 - - - 23 079 - - (21 052) 2 631 069
Cost of sales (8 441) - - - (21 052) - - 21 052 (2 568 287)
Gross profit/(loss) (4 987) - - - 2 027 - - - 62 782
Other income - 201 - 5 229 53 - 10 511 (8 865) 7 094
Depreciation and amortisation (5 842) - - (153) - - (768) - (28 673)
Share of profit from joint venture - 1 878 - - - - - - 1 878
Finance income - 10 461 20 927 - - - 20 514 (905) 53 073
Finance costs - - (2 167) - - - (28 337) 905 (55 017)
Other operating expenses (5 245) (231) (1 162) (167) (15 984) (83) (112 008) 8 865 (204 824)
Impairment of financial assets - (6 360) - - - - (6 481) - (12 841)
Taxation - - 626 - 1 065 173 (1 853) - 669
(Loss)/profit for the year (16 074) 5 949 18 224 4 909 (12 839) 90 (118 422) - (175 859)
Segment assets - non-current 217 510 102 930 302 803 - 34 559 9 763 315 108 (207 849) 1 067 977
Segment assets - current 10 385 2 25 24 4 613 56 16 737 - 242 027
Segment liabilities - non-current (114 841) - (211 136) - (35 014) (9 762) - 246 624 (140 497)
Segment liabilities - current (4 097) (30) - - (87 396) (91) (184 929) (38 775) (591 329)
Business segments
The operations of the Group comprise oil and gas exploration and production, crude trading and
the sale of petroleum products.
Revenue
The Group derives revenue from the following sources:
- The sale of crude oil from the Lagia Oil Field to the Egyptian General Petroleum Corporation
("EGPC"). This revenue is included under the Egypt segment.
- Sales of petroleum products to a diversified customer base which includes local government and
mining, construction, transport, manufacturing, retail and agricultural customers. These revenues
are included under the South Africa and Zimbabwe segments.
Inter-segment revenues are eliminated upon consolidation and are reflected in the "eliminations" column.
Revenue from contracts with customers is disaggregated as follows:
2019 2018
R'000 R'000
Sale of crude oil 3 848 3 454
Sale of petroleum products 2 595 521 2 627 615
2 599 369 2 631 069
During the year ended 28 February 2019, R1.0 billion or 40% (2018: no customer with revenue of
10% or more of total revenue) of the Group's revenue depended on the sales of petroleum products
to two customers under the South Africa segment.
Taxation - Egypt
No income or deferred tax has been accrued by Mena International Petroleum Company Limited ("Mena")
as the Concession Agreement between the EGPC, the Ministry of Petroleum and Mena provides that
the EGPC is responsible for the settlement of income tax on behalf of Mena, out of EGPC's share
of petroleum produced. The Group has elected the net presentation approach in accounting for
this deemed income tax. Under this approach Mena's revenue is not grossed up for income tax
payable by EGPC on behalf of Mena. Consequently, no income tax or deferred tax is accrued.
4 ADOPTION OF NEW ACCOUNTING STANDARD
Adoption of IFRS 9
The Group has adopted IFRS 9 and applied the new rules using a modified retrospective approach
from 1 March 2018. Comparatives for the year ended 28 February 2018 have not been restated.
In terms of IFRS 9, the Group has applied the expected credit losses ("ECL") model which replaces
the incurred losses model in determining the impairment provisions for financial assets.
The calculation of ECLs incorporates forward looking variables which include potential risks
in the current economic environment, historic trends and management judgement. The Group has
recognised a transition adjustment to the opening accumulated losses and ECLs for the current
year are recognised in the statement of comprehensive income under "other operating costs".
The adoption of IFRS 9 did not change the categorisation of the Group's financial assets as
shown below. The impact of the adoption of IFRS 9 on the carrying amounts of the Group's
financial assets is outlined below.
Carrying amount Carrying amount
Original IAS 39 New IFRS 9 under IAS 39 at Adoption of under IFRS 9 at
category category 28 February 2018 IFRS 9 1 March 2018
Balance sheet (extract) R'000 R'000 R'000
Loans and other current receivables Loans and receivables Amortised cost 452 086 (11 362) 440 724
Trade and other receivables Loans and receivables Amortised cost 146 509 - 146 509
Cash and cash equivalents Loans and receivables Amortised cost 72 806 - 72 806
Impact on the Group's financial assets 671 401 (11 362) 660 039
The adoption of IFRS 9 did not result in a material adjustment to trade and other receivables
and cash and cash equivalents at 1 March 2018.
The adjustment to the Group's accumulated losses as a result of the adoption of IFRS 9 under the
modified retrospective approach is shown below:
Under IAS 39 at Adoption of under IFRS 9 at
28 February 2018 IFRS 9 1 March 2018
R'000 R'000 R'000
Accumulated loss (750 639) (11 362) (762 001)
Impact on equity (750 639) (11 362) (762 001)
The impact of the adoption of IFRS 9 on the Group's impairment provisions is summarised in
notes 6 and 8.
Adoption of IFRS 15
IFRS 15 - Revenue from Contracts with Customers ("IFRS 15") replaces IAS 18 Revenue and related
interpretations. IFRS 15 establishes a five-step model to account for revenue arising from
contracts with customers and requires that revenue be recognised at an amount that reflects the
consideration to which an entity expects to be entitled in exchange for transferring a good or
service. IFRS 15 requires entities to exercise judgement, taking into consideration all the
relevant facts and circumstances when applying each step of the revenue recognition model to
contracts with customers. The standard also specifies the accounting treatment for revenue
recognition costs directly related to obtaining a customer contract.
The Group has adopted IFRS 15 using the cumulative retrospective approach with the date of initial
application being 1 March 2018, and has applied the new accounting policy to all contracts that were
in existence at 1 March 2018. While IFRS 15 represents significant new guidance for revenue
recognition and measurement, the implementation of IFRS 15 did not have a significant impact on
the timing or amount of revenue recognised by the Group in any year.
Under IFRS 15, revenue from contracts with customers is recognised when a performance obligation
is satisfied by transferring a promised good or service to a customer. A good or service is
transferred when the customer obtains control of that good or service. The transfer of control
of Efora's products usually coincides with title passing to the customer and the customer taking
physical possession, with the Group's performance obligations primarily satisfied at that point
in time. Revenue is measured based on the consideration specified in a contract with a customer
and excludes amounts collected on behalf of third parties. Invoices for products transferred are
payable between 15 and 30 days, depending on the credit terms granted to customers. Payments
are otherwise due immediately upon delivery for cash customers.
5 IMPAIRMENTS OF NON-FINANCIAL ASSETS
5.1 Oil and gas assets
Total
Cost R'000
At 1 March 2018 187 532
Additions 2 974
Exchange differences 28 499
At 28 February 2019 219 005
Depletion
At 1 March 2018 (18 289)
Provision for impairment (121 538)
Depletion (2 370)
At 28 February 2019 (142 197)
Net book value
At 28 February 2018 169 243
At 28 February 2019 76 808
A provision for impairment of R152.2 million (US$10.9 million) (2018: Rnil) has been recognised
with respect to the Lagia oil and gas assets (R121.5 million) and other intangible assets
(R30.7 million) (see note 5.2) under other operating costs within the Egypt segment.
The impairment is a result of the reduction in Lagia 2P reserves and therefore the recoverable
amount as reported in the 2019 Competent Persons Report (CPR) relative to the 2018 CPR.
The recoverable amount has been negatively impacted by (a) changes in oil sales price forecast,
(b) changes in the oil production forecast and (c) the effect of rolling the report forward by
one year, while the end of the licence term remains fixed. The 2019 CPR oil sales price forecast
is 12.5% lower on average over the field life. The 2019 CPR 2P production profile is
approximately 89% lower for the calendar year 2019 due to the fact that no new production wells
were drilled in 2018. The assumption in the 2018 CPR was that eight new production wells would be
drilled. The production associated with these wells is therefore not included in the 2019
forecast. This difference continues at a reducing rate up to 2025 when production from the
eight wells would have terminated.
The recoverable amount of the oil and gas assets and petroleum reserves of R101.2 million
(US$7.2 million) was determined using value in use calculations where future cash flows were
estimated and discounted at a weighted average cost of capital of 10%.
Additions and depletion are not significant for the year under review.
5.2 Intangible assets
Lagia
Computer Customer intangible
software Brands relationships Goodwill assets Total
Cost R'000 R'000 R'000 R'000 R'000 R'000
At 28 February 2018 2 513 9 672 79 082 135 443 69 463 296 173
Additions 1 325 - - - - 1 325
Disposal (105) - - (3) - (108)
Write-off of assets (721) - - - - (721)
Exchange differences (18) - - - 9 013 8 995
At 28 February 2019 2 994 9 672 79 082 135 440 78 476 305 664
Accumulated depreciation and impairment
At 28 February 2018 (834) - (12 487) - (21 197) (34 518)
Disposal 105 - - - - 105
Impairment - (719) (7 363) (135 440) (30 739) (174 261)
Amortisation (230) (3 869) (7 135) - (6 113) (17 347)
Write-off of assets 721 - - - - 721
At 28 February 2019 (238) (4 588) (26 985) (135 440) (58 049) (225 300)
At 28 February 2018 1 679 9 672 66 595 135 443 48 266 261 655
At 28 February 2019 2 756 5 084 52 097 - 20 427 80 364
The following impairments have been recognised in the statement of comprehensive income under
other operating costs with respect to the Group's intangible assets:
Afric Oil
The goodwill of R62.8 million allocated to the Afric Oil cash-generating unit (""CGU"") on
acquisition was tested for impairment as at 28 February 2019. The CGU was compared to its
recoverable amount which was determined through value-in-use calculations where future cash flows
were estimated and discounted at the weighted average cost of capital. The recoverable amount
of the Afric Oil CGU as at 28 February 2019 was determined to be R104.4 million excluding the
Group's share of debt. The discount rate applied to the cash flow projections is 12.05%. As a
result of the analysis, management recognised an impairment of R62.8 million for the Afric Oil
CGU which was allocated against goodwill.
Forever Fuels
The goodwill of R68.1 million, customer relationships with a carrying amount of R59.5 million
and brands with a carrying amount of R5.8 million allocated to the Forever Fuels cash-generating
unit ("CGU") on acquisition were tested for impairment as at 28 February 2019. The CGU was
compared to its recoverable amount which was determined through value-in-use calculations where
future cash flows were estimated and discounted at the weighted average cost of capital.
The recoverable amount of the Forever Fuels CGU as at 28 February 2019 was determined to be
R57.2 million. The discount rate applied to the cash flow projections is 12.05%. As a result
of the analysis, management recognised an impairment of R76.7 million for the Forever Fuels
CGU of which R68.1 was allocated against goodwill. The remainder of the impairment charge was
allocated to brands and customer relationships on an apportionment basis as shown in the table above.
Boland
The goodwill of R4.0 million allocated to the Boland cash-generating unit (""CGU"") on
acquisition was tested for impairment as at 28 February 2019. The CGU was compared to its
recoverable amount which was determined through value-in-use calculations where future cash flows
were estimated and discounted at the weighted average cost of capital. The recoverable amount
of the Boland CGU as at 28 February 2019 was determined to be R6.5 million. The discount rate
applied to the cash flow projections is 12.05%. As a result of the analysis, management
recognised an impairment of R4.0 million for the Boland CGU which was allocated against goodwill.
The impairments above were a result of loss-making operations. There were no impairments of
intangible assets in the prior financial year.
6 LOANS AND OTHER RECEIVABLES
2019 2018
R'000 R'000
Non-current
Loan due from EERNL - 50 978
Transcorp Refund 231 203 194 165
Supplier development loans 3 818 2 618
Contingent consideration - 206 943
Deferred consideration on disposal of Greenhills Plant - 521
235 021 455 225
Less: Provision for impairment (4 870) (3 139)
230 151 452 086
Current
Advance payment against future services - 115 825
Loan due from EERNL 69 970 -
Phembani Group Proprietary Limited 827 827
Deferred consideration on disposal of Greenhills Plant 1 805 1 573
72 602 118 225
Less: Provision for impairment (72 602) (118 225)
- -
Advance payment against future services
As previously reported, the Company was claiming R115.8 million from Encha Group Limited.
This amount had historically been fully provided for. As referred to in note 19, the Group's
claim was dismissed by the arbitrator. In this regard the Group has utilised the provision for
impairment of R115.8 million previously recognised to write off this asset as at 28 Februry 2019
as this development is considered to be an adjusting event. This did not impact the Group's
statement of comprehensive income.
Contingent consideration
As previously reported, the Group was entitled to a contingent consideration to be settled by
Total once the Block III operations reached first investment decision date and first oil date.
Given Total's termination of its participation in the block, which extinguishes its indebtedness,
the Group has derecognised this receivable totalling R270.6 million as at 28 February 2019 by
way of a charge to the statement of comprehensive income under other operating expenses. Total's
exit from Block III also resulted in the derecognition of the deferred tax liability attributable
to the contingent consideration and the Group's liability under the cost carry arrangement
which partially off-set the impact of the derecognition of the contingent consideration on the
statement of comprehensive income. Refer to notes 12 and 19 for further details.
Movements in the Group's significant loans and other receivable are as follows:
Gross Net
carrying amount Provision for Specified carrying amount
28 February 2019 (1) impairment impairment (2) Write-down 28 February 2019
R'000 R'000 R'000 R'000 R'000
Advance payment against future services 115 825 - - (115 825) -
Contingent consideration 270 593 (270 593) - - -
Transcorp Refund 254 390 (1 052) (23 187) - 230 151
Loan due from EERNL 66 117 (60 029) (6 088) - -
706 925 (331 674) (29 275) (115 825) 230 151
1 Before impairments and write-downs.
2 Time value adjustments attributable to the deferral of the receipt of expected contractual cash flows.
Credit impaired
financial assets
Lifetime expected (lifetime expected
credit losses credit losses) (1) Total
R'000 R'000 R'000
At 1 March 2018 121 364 - 121 364
Effect of adoption of IFRS 9 (note 4) 11 362 11 362
Balance at 1 March under IFRS 9 132 726 - 132 726
Write-offs (115 825) (115 825)
Transfer to credit impaired (9 941) 9 941 -
Changes in risk parameters 1 369 60 029 61 398
Other (827) - (827)
7 502 69 970 77 472
1 EERNL was placed under liquidation in February 2019 and the recoverability of this receivable
has become doubtful. The Group is engaging with the liquidator regarding the settlement of
this debt and we await finalisation of the liquidation process. As a result of the increase
in provision for impairment, the amount due from EERNL is now provided for in full. The loan
due from EERNL is now classified as short term.
7 INVENTORIES
2019 2018
R'000 R'000
Consumables 6 441 5 794
Petroleum products 7 303 16 660
13 744 22 454
A write-off of R10.5 million was recognised in other operating costs arising from inventory
losses at Boland Diesel Proprietary Limited, a wholly owned subsidiary of the Company.
The preliminary independent investigation has just been completed and the findings thereof are
not conclusive. Management is evaluating the recommendation to further the scope of the investigation.
8 TRADE AND OTHER RECEIVABLES
2019 2018
R'000 R'000
Trade receivables 229 781 175 287
Value-added tax 1 418 1 792
Other receivables 14 764 12 527
245 963 189 606
Less: Provision for impairment (57 418) (43 097)
188 545 146 509
Trade receivables are non-interest bearing (except in the event of default) and are generally
on 30 days' terms. The adoption of IFRS 9 did not result in a material adjustment to the
impairment provision as at 1 March 2018. The provision for impairment of trade and other
receivables is based on lifetime expected credit losses.
The movements in the provision for impairment of trade receivables determined using the ECL model
are outlined below:
2019 2018
R'000 R'000
At 1 March 42 558 -
Acquired through business combination - 53 462
Exchange differences 443 -
Utilisation of provision (618) -
Arising/(reversed) during the year 9 248 (10 904)
At 28 February 51 631 42 558
9 CASH AND CASH EQUIVALENTS
2019 2018
R'000 R'000
Cash and cash equivalents consist of:
Cash at banks and on hand 40 142 45 020
Short-term deposits 6 033 12 086
Total unrestricted cash 46 175 57 106
Restricted cash balances 15 700 15 700
Cash and cash equivalents 61 875 72 806
Cash at banks earns interest at floating rates. Short-term deposits are made for varying periods
depending on the immediate cash requirements of the Group, and earn interest at the respective
short-term deposit rates. The restricted cash balances constitutes cash guarantees issued in
favour of creditors.
A total of R2.4 million (2018: R1.9 million) is denominated in United States Dollar.
At 28 February 2019, the Group had no undrawn committed borrowing facilities.
10 STATED CAPITAL AND RESERVES 2019 2018
Stated capital
Authorised:
Number of ordinary shares with no par value (000's) 5 000 000 1 000 000
Allotted equity share capital:
Reported at the beginning of the year (R'000) 1 305 911 1 216 504
Non-cash shares issued (R'000) - 89 487
Issued during the year for cash (R'000) 367 052 -
Share issue costs (R'000) (4 609) (80)
As at 28 February (R'000) 1 668 354 1 305 911
Reconciliation of number of shares issued:
Reported at the beginning of the year (000's) 369 733 3 269 836
Non-cash shares issued (000's) - 427 478
Issued during the year for cash (000's) 734 103 -
Share consolidation (000's) - (3 327 581)
As at 28 February (000's) 1 103 836 369 733
Issued during the year for cash:
Number of Issue
Nature of Recipient shares issued price Value
Date transaction (000's) R R'000
13 August 2018 Rights issue Government Employees Pension Fund 728 593 0.50 364 297
13 August 2018 Rights issue Other shareholders 5 510 0.50 2 755
734 103 0.50 367 052
Non-cash shares issued in the prior year comprise:
Number of Issue
Nature of Recipient shares issued price (1) Value
Date transaction (000s) R R000s
31 May 2017 Part consideration for
the acquisition of Afric Oil Gentacure Proprietary Limited 387 459 0.21 81 110
31 May 2017 Part consideration for the Moopong Investment Holdings
acquisition of Afric Oil Proprietary Limited 40 019 0.21 8 377
427 478 0.21 89 487
1 The issue price is rounded to two decimal places.
Foreign
currency
Share-based translation
Reserves payment reserve reserve Total
Group R'000 R'000 R'000
Balance at 28 February 2017 9 811 48 641 58 452
Share based payment expense 541 - 541
Foreign exchange losses arising on translation
of foreign operations - (37 921) (37 921)
Balance at 28 February 2018 10 352 10 720 21 072
Share based payment expense 141 - 141
Foreign exchange gains arising on translation
of foreign operations - 81 621 81 621
Balance at 28 February 2019 10 493 92 341 102 834
11 ACQUISITION OF NCI
Following an arbitration award issued during the year, the Group now owns 100% (2018: 65%) of
Afric Oil Petroleum (Zimbabwe). The increase in ownership was granted for no consideration.
12 DEFERRED TAX LIABILITIES AND PROVISIONS
The termination of Total's participation in Block III as referred to under note 6 resulted in
the derecognition of the following liabilities:
2019
R'000
Deferred tax 108 452
Provision for carried cost reimbursement 67 148
175 600
13 BORROWINGS
The Company settled its loan from Gemcorp in August 2018 through payment of R187.0 million from
the proceeds of the rights issue.
The Company's 71% owned subsidiary Afric Oil Proprietary Limited is in breach of debt covenants
relating to its loan arrangement with the Unemployment Insurance Fund (UIF). Management of
Afric Oil are in discussions with the PIC, manager of the UIF, to address the breaches in the
covenants and to reset the same to the revised payment profile and cash-generation levels of
the business.
14 TRADE AND OTHER PAYABLES
2019 2018
R'000 R'000
Trade payables 98 579 143 111
Accruals 8 735 26 753
Other payables 16 037 1 232
123 351 171 096
The carrying values of trade and other payables approximate their
fair values. The carrying values of the Group's trade and other
receivables are denominated in the following currencies:
US Dollar 4 574 8 827
South African Rand 118 777 162 269
123 351 171 096
The maximum exposure to credit risk at the reporting date is the carrying value of each class
of trade and other payable mentioned above. Trade payables are non-interest bearing and are
generally on 30 to 60 day terms.
15 LOSS PER SHARE
2019 2018
Basic (cents) (69.91) (42.34)
Diluted (cents) (69.91) (42.34)
Both the basic and diluted earnings per share have been calculated
using the loss attributable to shareholders of the Company as the
numerator. No adjustments to profit were necessary in 2019 and 2018.
Loss attributable to equity holders of the Company used
in the calculation of the basic and diluted loss per share (R'000) (538 311) (151 971)
Weighted average number of ordinary shares used in the
calculation of basic loss per share (000's) 769 968 358 956
Issued shares at the beginning of the reporting period (000's) 369 731 3 269 836
Effect of shares issued during the reporting period
(weighted) (000's) 400 237 319 729
Share consolidation (000's) - (3 230 609)
Add: Dilutive share options (000's) - -
Weighted average number of ordinary shares used in the
calculation of diluted loss per share (000's) 769 968 358 956
Headline loss per share
Basic (cents) (45.31) (42.20)
Diluted (cents) (45.31) (42.20)
Reconciliation of headline loss R'000 R'000
Loss attributable to equity holders of the Company (538 311) (151 971)
Adjust for:
Impairment of Lagia oil and gas assets (note 5.1) 121 538 -
Impairment of intangible assets (note 5.2) 174 261 -
Gain on settlement of property purchase price (7 651) -
Impairment of joint venture 8 142 -
Write-off of property, plant and equipment - 535
Loss on disposal of property, plant and equipment 4 920 -
Write-off of exploration and evaluation asset - 307
Adjustments attibutable to NCIs (49 744) (155)
Tax effects of adjustments (62 035) (192)
Headline loss (348 880) (151 476)
16 FAIR VALUE MEASUREMENT
The fair values of cash and cash equivalents, trade and other receivables, trade and other
payables, financial liabilites, borrowings and the loan from the joint venture approximate
carrying values due to the short-term maturities of these instruments. Set out below is a
comparison, by class, of the carrying amounts and fair values of the Group's financial
instruments, other than those with carrying amounts that are reasonable approximations of
fair values:
Carrying value Fair value
2019 2018 2019 2018
R'000 R'000 R'000 R'000
Loans and receivables
Loans and other receivables (note 6) 230 151 452 086 245 783 389 582
Valuation techniques and assumptions applied to measure fair values
When the fair values of financial assets and financial liabilities recorded in the statement of
financial position cannot be measured based on quoted prices in active markets, their fair value
is measured using valuation techniques including the discounted cash flow ("DCF") model. The inputs
to these models are taken from observable markets where possible, but where this is not feasible,
a degree of judgement is required in establishing fair values. Judgements include considerations
of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating
to these factors could affect the reported fair value of financial instruments.
Fair value at
Assets 28 February 2019 Valuation Method Significant inputs
Loans and other receivables 245 783 Income approach Discounted cash flow model Weighted average cost of capital
Fair value hierarchy
The following table presents the Group's assets for which the fair value is disclosed above.
The different levels have been defined as follows:
Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: Other techniques for which all inputs which have a significant effect on the recorded
fair value are observable, either directly or indirectly
Level 3: Techniques which use inputs that have a significant effect on the recorded fair value
that are not based on observable market data
Level 1 Level 2 Level 3 Total
At 28 February 2019
Loans and other receivables - - 245 783 245 783
There were no transfers between any levels during the year.
17 COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
Operating leases: 2019 2018
R'000 R'000
Within one year 2 835 10 110
After one year but not more than five years - 2 376
2 835 12 486
Finance leases:
2019 2018
Present value of minimum lease payments R'000 R'000
- Within one year 585 2 183
- After one year but not more than five years 126 714
711 2 897
Contingent liabilities
Claimed transation fees
Gem Capital issued summons against Afric Oil Proprietary Limited on 11 October 2017.
The claim is twofold:
1. Gem Capital's is claiming outstanding fees for assisting Afric Oil with the procurement of
financing from the Public Investment Corporation to purchase Forever Fuels. The claim is for
an outstanding amount of R0.5 million plus interest at 2% above prime rate from 22 May 2017.
The claim is being opposed by the company's attorneys TGR Attorneys.
2. Gem Capital is claiming success fees for providing advice and assistance with the "SacOil"
(now Efora) transaction, being the acquisition of Afric Oil by Efora for R200 million
(correct purchase price is R130.7 million). The claim is for R6.8 million plus interest at
2% above prime rate from 31 May 2018. The claim is being opposed by the company's attorneys,
TGR Attorneys.
Noble Company Proprietary Limited issued summons against Afric Oil Proprietary Limited
claiming R1.4 million in capital raising fees. The claim is being opposed by the company's
attorneys, TGR Attorneys.
The outcome of these matters cannot be estimated at this point in time and accordingly,
no provision was recognised at 28 February 2019.
18 GOING CONCERN
The Group incurred a net loss for the year ended 28 February 2019 of R579.9 million
(2018: R175.9 million). The results of the Group for the year then ended are a manifestation
of the continued underperformance of its key subsidiaries, Afric Oil and Mena, and further
reflect the impact of consequential impairment losses coupled with further impairment charges
arising from the adoption of IFRS 9 and developments relating to some of our non-operating
assets. The challenges experienced at Afric Oil which include working capital constraints,
loss of customers and increased competition had a significant impact on the profitability and
cash generation of the business. As a result, the Group is reporting a cash out flow of
R153.6 million for the year ended 28 February 2019 (2018: R86.1 million) from operations.
Whilst the Group cash flow forecasts ("Forecast") to 28 February 2021 ("Forecast Period")
indicate that the Group will be adequately funded based on the funds available and the plans
in place to remedy the challenges which affected the Group during the year, there are
uncertainties that exist with respect to the materialisation of these plans and therefore the
ability of the Group to remain a going concern.
Management has put in place the following plans in order to improve the performance and
financial position of the Group:
- Management has implemented an aggressive sales strategy to drive sales growth targeting key
sectors where the Group has a competitive advantage.
- Management has recently recruited additional experienced sales with an impeccable track
record to drive volumes growth in its various business units.
- Additional working capital facilities have been secured.
- Initiatives are in place to improve the working capital management of the Group.
- Further cost optimisation and other synergies are expected from the merging of the Afric Oil
and Efora offices expected from June 2019.
The Board is reasonably confident that these plans will have a positive impact on the performance
and financial position of the Group. Given the degree of judgement and assumptions used to
determine the Forecast, one cannot establish with certainty the extent to which management's
plan will materialise. The following uncertainties therefore exist with respect to the Group's
ability to remain a going concern as it may not be able to realise its assets and discharge
its liabilities in the normal course of business:
Operational performance of the Group
Whilst management has explored further opportunities for cost optimisation, an improvement in
performance of the Group is expected from an increase in the gross margin contribution
underpinned by volumes growth, primarily driven by the Afric Oil business. Management is
projecting an increase of at least 25% in sales volumes from the current levels. It is difficult
to establish with certainty the extent to which this growth target will be achieved.
Availability of funding for the Group's activities
Afric Oil is due to settle R92.9 million, inclusive of interest, of the loan owed to the UIF
during the Assessment Period. Afric Oil's performance as outlined above will determine its
ability to repay this loan. As highlighted in note 12, Afric Oil is in breach of debt covenants
pertaining to this loan. Management are in discussions with the PIC, manager of the UIF,
to address the breach and to agree restructuring of the outstanding shareholder loan.
Discussions in this regard are ongoing. It is uncertain the extent to which the shareholder
loan will be restructured as any immediate repayment of the loan due to the breach with result
in the Group not being able to discharge its liabilities in the normal course of business.
The gearing ratio for the Group is around 58% that has significantly increased due to the number
of impairments at year-end. This is above the target range of the Group of around 30% to 40%.
The Group will focus on improving the performance of the underlying business to address the concerns
that resulted in the number of impairments that negatively impacted the equity position of the Group.
Conclusion
Should the Group not achieve its sales targets and as a minimum only maintain its current
volumes, a cash deficit of R89.8 million will exist for the Assessment Period, starting from
July 2020.
19 EVENTS AFTER THE REPORTING PERIOD
The following events took place from the period 1 March 2019 to the date of this report.
Developments with litigation
R Vela
The Supreme Court of Appeal ("SCA") in a written judgment issued on 29 March 2019 dismissed
Mr Vela's appeals, but allowed his appeal in respect of the leave pay claim in part. It granted
Efora's cross-appeal, with costs and interest. The SCA ordered Robin Vela to pay Efora:
- R3 324 524.36 with respect to PAYE taxes;
- interest on the above amount at the prescribed mora rate from 26 March 2014 to date of payment; and
- Efora's legal costs (to be determined in due course, but estimated to be in the region of at
least R300 000).
The SCA has ordered the Company to pay Robin Vela R103 661.28 as leave pay. Practically speaking,
this amount falls to be deducted from the amounts the SCA ordered Robin Vela to pay Efora.
Robin Vela is requesting a payment plan over 12 months with respect to amounts owed.
Discussions regarding this are ongoing.
Claim against Encha Group Limited
Arbitration commenced on 26 March 2019 and has been completed. Judgement was issued on 29 May 2019
wherein the Company's claim against Encha Group Limited was dismissed. The Company was ordered
to pay the cost of the arbitration as well as the costs incurred by the defendant. These costs
are still to be quantified. Management is studying the judgement with senior counsel in order
to assess the basis and prospects to appeal the judgement.
Block III
Efora obtained a licence extension for Block III in the DRC that extends the licence until
July 2019, during which time the remaining partners will carry out a review of the technical
data to determine the area that will be the subject of the renewal of the licence in July 2019.
Total E&P RDC, which previously held 66.7% of the working interest in Block III, has indicated
that it will no longer continue as part of the consortium to further explore Block III.
Consequently, Efora will be required to pay its working interest share of forward costs
(still to be determined) associated with Block III. In addition, Efora now has the option to
increase its working interest in Block III to 42.5% and is currently evaluating whether it
will take up this option.
On behalf of the Board
`
Boars Seruwe Damain Matroos Tariro Gadzikwa
Chairman Chief Executive Officer (Interim) Chief Financial Officer (Interim)
Johannesburg
31 May 2019
SPONSOR
PSG Capital
CORPORATE INFORMATION
Registered office and physical address:
1st Floor, 12 Culross Road, Bryanston, 2021
Postal address:
PostNet Suite 211
Private Bag X75, Bryanston, 2021
Contact details:
Tel: +27 (0) 10 591 2260
Fax: +27 (0) 10 591 2268
E-mail: info@eforaenergy.com
Website: www.eforaenergy.com
Directors
Damain Matroos (Interim Chief Executive Officer), Tariro Gadzikwa (Interim Chief Financial Officer),
Boas Seruwe (Chairman), Thuto Masasa*#, Patrick Mngconkola, Vuyo Ngonyama*, Zanele Radebe*
* Independent non-executive directors
# Lead independent non-executive director
Advisers
Company Secretary: Fusion Corporate Secretarial Services Proprietary Limited
Transfer Secretaries: Link Market Services South Africa
Date: 03/06/2019 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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