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Interim Results
Atlas Development (AIM, NSE: ADSS), the Kenyan headquartered, African focussed support services and logistics company, has provided interim results for the 12 month period ended 30 June 2015.
CHAIRMAN’S STATEMENT (In full)
Atlas Development was established to take advantage of the lack of international standard oil and gas services companies operating in Africa. With a platform put in place to deliver a full spectrum of services, the Company was able to build a business that was generating both revenue and a significant pipeline of opportunities.
However, as investors will be aware the oil and gas market has been through a tumultuous period; as reported, this directly impacted the Company. In light of this the Board implemented initiatives aimed at further diversifying the Company’s offering, identifying new sectors of operation, targeting additional jurisdictions and reducing costs. There has been progress on some of these fronts but the securing of contracts which offer the right margins has been difficult in the short term, particularly in the oil and gas space.
On a positive note, the Company’s business in Ethiopia has been improving. Contracts with major potash project developers have been negotiated and renewed as they look to advance their exploration and mining operations. The Ethiopian business pipeline is also improving in the natural resource and infrastructure spaces. With a positive market dynamic and a growth in requirements for international standard support services the Board is hopeful that the Ethiopian operations will generate positive returns.
With the pick-up in activity in Ethiopia and also ongoing operations in Tanzania much of the Company’s resources have been diverted from Kenya. The reason for this re-allocation of resources is that in Kenya, and particularly in the Turkana region, activity in the oil and gas space has significantly reduced. The Company has agreements in place to provide support services across the delivery spectrum but these are dependent on each client and impacted when they reduce activities. Accordingly, revenue visibility is not easy to predict at this time. Tenders are being offered by a number of parties throughout the East African region but the Board believes that the terms being demanded from service providers are not sustainable. Indeed in a number of recent cases contracts were agreed but terms then adjusted by the clients, causing the work to be unprofitable and therefore unattractive to the Company.
The Company has been successful in expanding its sectoral coverage and has tendered for a number of substantial and transformational infrastructure projects. Given the large scale of these projects, implementation is dependent on a number of national and regional political variables being resolved. These factors have a knock-on effect as regards timing and therefore although the prospects remain exciting it is hard to assess likely delivery schedules. As a result, the Company has conducted a full review of operations in Kenya and dramatically reduced costs and overheads to preserve the balance sheet whilst maintaining a presence to ensure the capabilities are in place to deliver these potentially transformational projects when the time arises or market sentiment changes.
In Tanzania, although the Company has a number of small contracts, the operations are heavily centred on the oil and gas sector where, as in Kenya, the general environment remains challenging. Again, the Board has initiated heavy cost reduction exercises to preserve capital. Operations continue in Western Sahara. The exploration projects of two London listed companies and the potential for engagement in relation to these, as referred to in previous announcements, have unfortunately been shelved due to reallocation of resources in the oil and gas arena. However, if, as and when strategy changes are seen in the wider industry, the Company retains its prime position.
FINANCIAL REVIEW
The Company is reporting revenues for H1 2015 in line with expectations with turnover of US$11.5 million. As a result of the reduced contract base and restructuring costs incurred during the downscale of operations the Company experienced comprehensive losses during H1 2015 of US$2.6 million, which included exchange rate losses of US$0.7 million (resulting from the 9% fall in the USD:KES exchange rate which heavily impacted the USD equivalent cash balances which were held in KES) and non-recurring restructuring costs of US$1.1 million.
At 30 June 2015 the Company had cash and cash equivalents of US$6.1m.
OUTLOOK
With the general economic and operational environment in East Africa being mixed the Board has focused on the preservation of capital through prudent cost cutting and streamlining initiatives. With capital in the bank and a significant asset inventory there remains opportunity; both within Africa and potentially beyond. In this vein, the Board is in discussion with a number of asset financing banks with regards to potential acquisitions and expansion opportunities. The conclusion of any transaction due to market dynamics and the current valuations is more challenging but the Board, as I said, believes there remains opportunity.
Further afield the Company has been approached by a number of parties about potentially forming joint ventures with regard to the provision of wide ranging support services, particularly in the oil and gas space. Additionally there are a number of businesses which require the expertise that we can offer as regards restructuring and delivering an international standard offering. The Board is assessing a number of opportunities in this context in jurisdictions which are newly opening up for oil and gas, where our ability to operate in challenging environments is recognised and valued. Furthermore, with our primary London listing and dual listing in Kenya the Company is seen as having strong credentials and therefore an attractive operational partner.
The Board understands the frustration of shareholders during this period but is working tirelessly to adapt and improve the situation to generate revenue. The pipeline of opportunities remains in place although conversion timings are hard to predict in the current environment. With cash at bank of US$6.1m, a highly experienced proven operational team, a strategic plan in place and prudent cost management, the Company appreciates continued shareholders support as we look to rebuild value.
Ian H. Mann
Non-Executive Chairman
17 September 2015
