Africa projects help keep strong growth on track

When Consolidated Infrastructure Group (CIG) listed in late 2007 it was a R200m annual revenue quarrying company. Raoul Gamsu, CIG’s dynamic CE, had far bigger plans.

The transformational move by Gamsu came in 2008 when CIG acquired electrical infrastructure project specialist Consolidated Power Projects (Conco). It was the decisive factor in CIG’s exceptional growth, in which annual revenue has soared to over R4bn and headline EPS has risen by an average of 32%/year over the past three years.

Conco’s expansion into markets outside SA, especially in Africa, has been vital to CIG’s growth. Despite economic headwinds in many African countries Gamsu remains bullish on Conco, which generates a third of its annual revenue of around R3.6bn outside SA.

Contracts are rolling in for Conco, which contributes half of CIG’s taxed profit. Gamsu says: “We are busy on projects in 15 African countries.”

Conco’s international order book, at the end of CIG’s half year to February, was R2.2bn, up from R1bn a year earlier.

“They are all firm orders secured by guaranteed funding,” says Gamsu. “Tenders we have submitted awaiting adjudication are up from R6.9bn to R8.5bn.”

In SA, Conco is having mixed fortunes. In its conventional power operations the order book shrank from R1.7bn to R1.3bn in the 12 months to February. Gamsu attributes this primarily to a lower level of contracts being awarded industry-wide by municipalities.

On a positive note, Eskom — after two years of constrained spending on its transmission system — is again calling for tenders. Reflecting this, Conco’s tenders awaiting adjudication jumped from R2.3bn to R4bn in the 12 months to February.

Conco is making progress in SA’s renewable energy (RE) infrastructure space, which accounted for 28% of its revenue in the six months to February.

Conco’s RE order book is also strong, having more than doubled from R1.5bn to R3.3bn. These orders form part of round three of government’s RE programme. Round four is subject to delay but when it goes ahead it will, says Gamsu, “hold huge potential”.

CIG is not all about Conco. In 2012 CIG made a decisive diversification move when it acquired a 30,5% stake in Angola Environmental Serviços (AES), a recycler of lubricant oil used in the oil and gas drilling process.

AES is a big factor in CIG’s performance and contributes almost a third of group taxed profit. Though it has not experienced a profit fall in the wake of the oil price collapse, a key concern is CIG’s ability to

remit dividends to SA, given the US dollar shortage in Angola.

This year, for the first time, CIG becomes eligible under Angolan regulations to receive dividends. “It will be difficult,” concedes Gamsu, “but in our favour, the oil industry is the biggest foreign exchange earner and receives preference.”

He is acutely aware of the need to diversify CIG’s profit base. The first move in this direction came in November 2014 with the acquisition of Tractionel, a specialist in rail electrification projects. Its main clients are Transnet, Passenger Rail SA (Prasa) and Metrorail.

Tractionel contributes 4% of group taxed profit and is not yet a major factor in CIG’s fortunes. Gamsu believes this will change.

“We are still waiting for Transnet to start tendering for depots to be constructed for its new electric locomotives.”

CIG is on the verge of pressing the “go” button of its start-up venture, CIGenCo, which will take big equity stakes in small to medium-size gas and RE power plants. Its current focus is on a pipeline of five projects, three solar and two dual fuel.

CIG is now preparing to enter, as Gamsu puts it, “an organic growth and investment cycle that could transform the group”. It points to the next chapter of the CIG growth story which, while not without risks, is likely to be a rewarding one for investors.