Shareholders are referred to the trading statements published on SENS on 31 August 2017 and 8 November 2017, the last of which indicated that the Company’s earnings per share (“EPS”) and headline earnings per share (“HEPS”) for the year ended 31 August 2017 were expected to be between 50% and 55% lower (being between 114.75 cents per share and 127.50 cents per share for EPS, and between 114.89 cents per share and 127.65 cents per share for HEPS) compared to the EPS and HEPS per share respectively for the year ended 31 August 2016.
At a board meeting convened on 13 November 2017 to, inter alia, finalise and approve the results for the year ended 31 August 2017 and on review by the board of the risks relating to the profit and loss recognition on work in progress in respect of certain large multi-year engineering contracts, it was determined that under current circumstances profitability on certain projects may deviate negatively from the expected results. As a consequence, the board has required that further investigations be undertaken into three of the large multi-year engineering contracts within Consolidated Power Projects Group (Pty) Ltd. (“Conco”) in order to assess the full impact on earnings prior to the finalisation and approval of the results for the year ended 31 August 2017. Whilst these contracts remain profitable, the margins previously recognised may result in adjustments to the results in the current reporting period.
In addition, Conco has yet to receive compensation for scope of work adjustments raised. These scope adjustments are due to cost overruns incurred and/or changes in engineering. It is expected that the additional revenue for certain of these scope of work adjustments raised may not be recovered in full.
With reference to the further trading statement published on 8 November 2017 the reasons for the change were driven by the following factors which applied to the Conco business:
– lower than expected revenue as result of uncharacteristically poor execution;
– meagre growth in the international business;
– political and civil unrest on existing projects;
– delays in the award of and technical sign off on the commencement of projects; and
– contraction of opportunities in the South African power sector.
Conco, in addition, took on a significantly higher number of overhead lines contracts resulting in higher execution risks and cost overruns having a negative impact of R52 million on the 31 August 2017 results. The 31 August 2017 results will be further impacted by R9 million as a result of a reduction in anticipated profit recognised from Angola Environmental Services, additional amortisation of intangible assets of R12 million and a final adjustment to our foreign exchange loss of R19 million.
Shareholders are accordingly advised that pending the outcome of the further investigations requested by the board in respect of the profit recognition on the larger contracts and compensation for scope of works adjustments, the EPS and HEPS for the year ended 31 August 2017 is expected to be at least 55% lower than the EPS and HEPS per share for the year ended 31 August 2016. Consolidated Infrastructure does not have reasonable certainty to provide a percentage range and numbers or a specific percentage and numbers at this stage and a further trading statement will be released with the EPS and HEPS ranges once the Company obtains reasonable certainty.
As a result of the above, shareholders are advised that the Company expects the financial results for the year ended 31 August 2017 to be published by no later than 30 November 2017.