Eqstra Holdings Limited has reported operating profit of R436-million in the six months to end December, a rise of 7.1% underpinned by solid performance of the group’s three business divisions.
Eqstra is an integrated leasing and capital equipment group with value-added services in contract mining, passenger and commercial vehicles and industrial equipment.
Eqstra chief executive officer Jannie Serfontein says the six-month period was a pivotal one for Eqstra as management moved ahead with implementation of several key initiatives. These initiatives are expected to accelerate the transition of Eqstra to a services oriented group. The focus remained on liquidity and working capital management.
“The operating performance was encouraging as it took place in the context of on-going implementation of the group’s 2020 strategy.
“The heart of this strategy is to transform Eqstra into a services-oriented company. Implementing this strategy involves disposing of non-core operations, selling excess assets and re-engineering our funding structure over time,” says Serfontein.
The reported profit from continuing operations before depreciation, amortisation and recoupments was R1 360-million (2014: R1 301-million) for the period.
This loss from continuing operations of R438 (2014: R80-million profit) was attributable to a leasing asset impairment of R736-million in Contract Mining and Plant Rental. The loss for the period of R1 122-million (2014: R152-million profit) was a result of the impairment of the Benga operations in Mozambique, the closure of the Construction Equipment business unit in Industrial Equipment division and the closure of the Commodities business unit in Fleet Management and Logistics division.
The Industrial Equipment division performed well in South Africa where it grew its market share. However, foreign exchange losses of R20-million (2014: R3-million gain) in the period contributed to a decrease in continuing operations operating profit of 5.5% to R154-million (2014: R163-million). Following the exit from the Terex distribution business in July 2015, and as part of implementing Eqstra’s strategy, the division is in the process of closing the Construction Equipment business unit, resulting in a loss of R69-million (2014: R7-million).
During the period, the Fleet Management and Logistics division delivered improved continuing operating profit of R202-million (2014: R192-million). The division’s operating margin improved to 19.2% (2014: 17.0%) mainly as a result of benefits flowing from previous restructuring. The division also consciously decreased its revenue-generating assets as part of its on-going drive to preserve cash. The division is also in the process of closing the Commodity business unit.
The Contract Mining and Plant Rental division improved operating profit by 46.2% to R76-million (2014: R52-million) as a result of improving efficiencies. On 31 December 2015 the contract mining operations at Benga, Mozambique (“Benga”) concluded and the assets were impaired to a fair value on anticipated sale.
Following conclusion of the Benga contract, management intends to sell the assets associated to the operations. The sale is subject to shareholder approval. Assets were valued as assets held for sale at 31 December 2015.
This resulted in a discontinued operations loss of R572-million (2014: R75-million profit). The anticipated sale of the assets was in line with Eqstra’s strategy to decrease exposure to the mining industry and also to improve liquidity.
Further, management responded to the continuing changes in the mining sector by earmarking R1 102-million of mining equipment for sale. This resulted in an impairment of R736-million. The valuation methodology of assets held for sale differs to the valuation-in-use methodology applied in June 2015.
Future outlook
Serfontein says Eqstra’s three business divisions are in good shape and able to continue to produce solid results in spite of economic conditions generally and the depressed mining sector in particular.
“We will continue with the re-financing of maturing debt within Eqstra. In addition to addressing the core short-term funding and liquidity requirements, management continues to explore partnerships and other arrangements that will support Eqstra’s 2020 strategy,” says Serfontein.
“It is critical, however, that we remain able to respond effectively to changing conditions and new realities and that we avoid implementing the strategy in a mechanical way,” he says.
Serfontein says that completing the reorganisation of funding and debt structures will enable Eqstra over time to allocate new capital to the three business divisions where returns remain strong.
