Continental Transfert Technique Limited...Total 10,500.2 100.0 Shareholding and corporate governance...

Nigeria Corporate Analysis | Public Credit Rating

Continental Transfert Technique Limited Nigeria Corporate Analysis August 2018

Financial data:

(USD’m comparative)^

31/12/16 31/12/17

N/USD (avg.) 252.7 305.3

N/USD (close) 304.5 305.5

Total assets 39.8 42.2

Total debt 12.1 9.1

Total capital 24.5 27.7

Cash & equiv. 3.2 1.2

Turnover 46.3 39.5

EBITDA 27.4 22.8

NPAT 19.7 19.7

Op. cash flow 5.8 19.7

Central Bank of Nigeria exchange rate

Continental Transfert Technique Limited

(“CTTL”, “the Company”)

Rating history:

Initial/Last rating (July 2017)

Long term: BBB+(NG)

Short term: A2(NG)

Rating methodologies/research: Global Master Criteria for rating Corporate

entities (updated February, 2018)

Glossary of terms/ratios, February 2018

GCR contacts: Primary Analyst:

Kunle Ogundijo

[email protected]

Committee Chairperson:

Dave King

[email protected]

Analyst location: Lagos, Nigeria

+23 41 904 9462

Website: http://www.globalratings.com.ng

Summary rating rationale

Continental Transfer Technique Limited is a member of the Contec Global

grouping, with a long operational track record, and a broad offering of

product and services. However, pressure to fund related party interest has

been evidenced over the review period, which highlights the weak

corporate governance and lack of independence within the broader group.

CTTL’s revenue and credit risk profile are underpinned by the operation of

the Combined Expatriate Residence Permit and Alien Card (“CERPAC”)

system, which delivers over 90% of inflows. On the back favourable

adjustments to the revenue sharing structure and ongoing uptake of cards,

revenue has quadrupled over the review period. While this income is fairly

predictable, the high concentration exposes the business to a policy change

by the Federal Government (“FG”). Nevertheless, the risk is partly

mitigated by CTTL’s entrenched position and the difficulty in replacing

the operator.

Profitability metrics have remained robust, with the operating margin

registering above 50% since FY15. This has led to strong cash generation.

Notwithstanding the proposed increase in products, margin resilience is

expected over the medium term, especially given the relatively low annual

cost base required to manage the CERPAC production.

Notwithstanding the strong cash generation capacity, liquidity pressure has

emanated from rising related party receivables and directors’ loans

(N19.8bn at 1H FY18), which are unrelated to CTTL’s core operations.

Global Credit Rating Company Limited (“GCR”) considers the arbitrary

nature of the loans to be inconsistent with the business interest of CTTL

and thus prejudicial to creditors of the company.

CTTL entered into a Receivables, Sale and Purchase Agreement with

CERPAC Receivables Funding SPV PLC (“SPV”). Specifically, in return

for proceeds of bonds issued by the SPV, CTTL sold and assigned to the

SPV, its rights, titles, and interest in its future receivables due from the sale

of the CERPAC forms. Nevertheless, CTTL remains the ultimate obligor.

While the security structure aided in securing the financing on more

favourable terms, it has reduced CTTL’s financial flexibility as the

majority of its assets and cash inflows are encumbered to bondholders,

While debt has been maintained at relatively low levels in the last few

years, the impact of successive bond issuances (in 2018) resulted in a spike

in the gross debt to N13.5bn at 1H FY18 (FY17: N2.8bn), with net gearing

and net debt to EBITDA climbing to a high 80% and 198% respectively.

Moreover, the majority of proceeds appear to have been on-lent to related

companies, which GCR considers detrimental to inherent corporate credit

protection

Factors that could trigger a rating action may include

Positive change: An improvement in corporate governance structure, as well

as increased diversification of revenue streams, accompanied by sustained

growth in profitability and credit protection metrics.

Negative change: Elevated funding constrains emanating from an increase in

related party receivables, as well as earnings underperformance as a result of

contractual shortcomings or other lapses in operation, leading to a

deterioration in gearing and other credit protection metrics could likely lead

to a rating downgrade

Rating class Rating scale Rating Rating Outlook Expiry date Long term National BBB+(NG)

Stable July 2019 Short term National A2(NG)

http://globalratings.net/reports_section/


Background and recent developments

Continental Transfert Technique Limited (“CTTL” or

“the Company”) commenced operations in 1999, it

specialises in secure systems integration, with expertise

in biometric technology. It is part of a larger

combination of companies, affiliated by common

ownership, under the Contec Global grouping. Contec

Global identifies as an integrated systems solutions

provider, with operations in Asia, Africa, Europe and

America, whose offerings have broad application in

energy, hospitality, agriculture/commodity trading,

information technology, and car manufacturing (among

others). Contec Global has a long track record in a

number of developing countries, managing projects from

concept to the implementation stage in identification

solutions, border management and surveillance,

licensing and authentication systems, national security

systems, and e-banking solutions (inter alia).

CTTL manages a number of projects in Nigeria, in

partnership with various departments of the Federal

Government (“FG”). The Company deploys a team of

seasoned professionals to oversee project

implementation and roll-out, in order to ensure

objectives are attained.

The two main projects which provide the bulk of income

to the Company, are:

The Combined Expatriate Residence Permit and

Alien Card (“CERPAC”) was established in 1999, to

provide highly secure documents for the identification of

foreign nationals in Nigeria. Based on agreements

entered into with the Ministry of Interior (“MOI”),

CTTL has established 36 card production centres (one in

each State), 34 zonal centres and two regional head

offices across the country for use by the Nigeria

Immigration Service (“NIS”).

Following the resolution of disagreements (CTTL

obtained favourable arbitration panel decisions) arising

from the execution of the project, a new revenue sharing

formula was agreed in December 2014. This was to

enable CTTL to recoup its investment in the

establishment of new centres. Specifically, revenue from

the sale of CERPAC forms was to be divided in a ratio

of 20:65:5 in favour of the FGN, CTTL and NIS

respectively, with the remainder allocated to operational

costs. The new sharing formula is valid for three years

from the date of the agreement (December 2014), or the

sale of 900,000 forms (whichever is the latter),

subsequent to which the sharing formula would revert to

the initial 45:40:5 ratio in favour of the FGN, CTTL and

NIS respectively. According to management, as at end

June 2018, over 320,000 cards had been sold.

E-PASS was established to strengthen the immigration

system, by automating the extension of duration of stay

for expatriates. The system is used to regulate foreign

nationals on various temporary residence permits/visas,

it has provided an integrated ICT system that interacts

with CERPAC, improving the efficiency of the

immigration system. The E-Move card is specifically

designed for ECOWAS1 nationals in Nigeria.

Risk management/Operation/revenue collection

The revenue collection and distribution process under

CERPAC is handled by Skye Bank PLC, with payment

being made into designated bank accounts for the

purchase of the application forms. Thereafter, Skye Bank

is empowered to distribute the funds in the account to

the various parties, as agreed under the new sharing

formula. Given that the funds are not domiciled or under

the control of the FG, this partially mitigates the

contractual/business risk inherent in the project.

Furthermore, CTTL retains some level of control in the

operation/supervision of activities at the various

CERPAC production centres, including sole ownership

of the software license and some of the physical assets

utilised for production.

Medium Term Note Programme

In January 2018, CTTL entered into a Receivables, Sale

and Purchase Agreement with CERPAC Receivables

Funding SPV PLC (“SPV”). Specifically, CTTL sold

and assigned to the SPV, its rights, titles, and interest in

its future receivables due from the sale of the CERPAC

forms. Subsequent to this, the SPV registered a N25bn

Medium Term Note Programme, in respect of which two

Series 1 Issues of N4.9bn (January 2018) and N12.5bn

(May 2018) have been made. The series 1 bonds have a

legal maturity date of 2025.

In essence, the SPV (the “Issuer”) will use the proceeds

of the Bonds issued under the Programme to purchase by

way of an assignment of rights, the proportionate share

of the future receivables accruing from the CERPAC

Scheme that is due to CTTL (also known as "the Seller”

or “the Servicer”). Accordingly, repayment of the

obligation (principal and interest) is tied to, and secured

by collections from the CERPAC scheme due to CTTL.

Table 1: Series 1 Bond

Issue Tenor/Maturity date Rate (%)

4.877bn 15-Jan-25 18.25

12.5bn 7-May-25 15.25

After accounting for a reserve account (N1.7bn) to

service repayment obligations and bond issue cost (of

N281m), net proceeds from the N12.5bn bond are

expected to be utilised in the manner set out in Table 2.

Table 2: Use of proceeds Amount (N'm) %

Refinancing bank loan 1,900.0 18.1

Bio-fertilizer and Pesticide Plant 2,700.0 25.7

Tissue Culture Production Centre 4,040.0 38.5

Cultivation of Banana Plantation 1,360.2 13.0

Trading in agricultural produce 500.0 4.8

Total 10,500.2 100.0

Shareholding and corporate governance

CTTL’s Board comprises two members, being Dr.

Benoy Berry, MD/CEO of Contec Global, and Mr.

Roheen Berry, who serves as the MD of CTTL .Day to

day operations are delegated to the management team,

1Economic Community of West African States


comprising the managing director, chief operating

officer and head of information technology.

While CTTL is in compliance with local regulations of

the Corporate Affairs Commission, it falls short of the

minimum number of Directors. The absence of an

independent non-executive director is also of concern to

Global Credit Rating Co. (“GCR”).

CTTL’s financial statements were compiled in line with

International Financial Reporting Standards (“IFRS”), as

well as the requirements of CAMA and Financial

Reporting Council of Nigeria. Messrs Anjonrin +

Anjonrin & Co. issued unqualified opinions on the

audited financial statements for years 2013 to 2015,

while current auditors, Deloitte & Touche, issued an

unqualified audit opinion for the 2016 financial

statements. The accounts for 2017 are in draft form, and

not yet signed-off. More significantly, the Auditors have

previously highlighted the ongoing transfer of funds to

related parties as being inimical to growth.

Earnings diversification

Revenue from the CERPAC project climbed to a period

high N11bn in FY17, on the back of robust card sales of

c.51,000. With sales already reaching around 29,000 at

the end of June 2018, it appears likely that the revenue

will be surpassed. Whilst much smaller, revenue from E-

PASS crossed the N1bn mark (following increased

patronage) in line with budget. Both projects appear

interwoven, with an increase in CERPAC driving a

future increase in demand for E-PASS. While there is

strong baseline of foreign nationals to the country for

business and tourism, sustainable revenue growth is

dependent on the fortunes of the economy and investors’

perception on the suitability of the country to provide the

avenue to grow investments.

Table 3: Revenue

diversification

2016 2017

N’m % N’m %

CERPAC 10,866 92.8 11,010 91.4

e-PASS 839 7.2 1,041 8.6

Total 11,705 100 12,051 100

Economic context

The Nigerian economy suffered a severe slowdown

through 2016 and much of 2017, owing to sustained low

global crude oil prices. This led to heightened economic

uncertainty, which was worsened by the devaluation of

the Naira. However, the economy has come out of

recession, with the real Gross Domestic Product

(“GDP”) growth rate registered at 0.8% in 2017,

compared to a 1.5% decline in FY16. At the same time,

inflation eased for the sixteenth consecutive month to

11.1% in July 2018 (December 2017: 15.4%), from an

average of 16.5% in 2017. Central Bank of Nigeria

(“CBN”) has left the monetary policy rate unchanged at

14% since July 2016, while the cash reserve and

liquidity ratios have also been maintained at 22.5% and

30% respectively.

The impact of production cuts, and more recently US

sanctions on Iran have supported global crude oil prices

above USD60/barrel since late 2017, which has served

to strengthen the financial and budgetary capacity of the

federal government of Nigeria (“FGN”). This has been

further enhanced by the relative peace in the oil

producing Niger Delta region, enabling crude oil

production to rise above 2 million barrels per day

(“mbpd”). Accordingly, foreign reserves exceeded

USD47bn in early May 2018, from around USD25.8bn

at end 2016. This has enabled CBN to maintain stability

in the foreign exchange market by providing liquidity to

ease pressure on the Naira.

Given the current macroeconomic challenges, prospects

for growth remain mixed over the short to medium term.

Uncertainties are expected to linger through 2018, being

a pre-election year, with anticipated increase in

government spending towards the 2019 general

elections. To consolidate growth over the medium term,

the FGN has maintained an expansionary policy with an

approved budget of N9.1tn for 2018 fiscal year (2017:

N7.44tn, 2016: N6.08tn). The estimate is based on a

daily crude oil production output of 2.3mbpd and a

benchmark of USD51/barrel (a potential upside).

Financial performance

A five-year financial synopsis is reflected at the end of

this report, including a six-month account for 2018, and

commentary follows hereafter.

The positive growth trajectory over the review period

has been supported by the execution of a more

favourable revenue sharing formula, increased card sales

and more recently, the 100% increase in the selling price

of application forms for CERPAC to USD1,000.

Accordingly, revenue growth has quadrupled over the

last four years, to register at a new high of N12.1bn in

FY17. Nevertheless this fell short of budget by 21%, as

the anticipated increase in card sales volumes was not

achieved. On an annualised basis, revenue at 1H FY18

remained flat, and was well below the FY18 budget.

While revenue target appears achievable on the back of

the steady growth in the economy over the last 18

months, prospects could be dampened by economic

uncertainties, as general elections are only a few months

away.

The cost structure remained unchanged in FY17, with

over two-thirds of direct cost incurred on the upgrade

and maintenance of existing production centres. Also,

arbitration expenses incurred during the adjudication

process are being expensed on a yearly basis, gulping

N793m and N370m in FY17 and 1HFY18 respectively.

Nevertheless, margins have remained strong over the last

three years, supported by the contractual repricing and

scale economies. Thus, after absorbing a 22% increase in

administrative expenses (attributed mainly to higher

professional fees to consultants), operating profit

registered at a high N6.8bn in FY17 (1H FY18: N3.2bn),

translating to a robust operating margin, well above half

of revenue. Margin resilience is expected to be sustained

over the medium term, especially given the relatively

low annual cost base, as the bulk of cost has been


expended during the initial outlay to set up the

production centres.

Table 4: Income

statement (N'm) FY16 FY17

2017

forecast % achieved

Actual

1H FY18

Revenue 11,700.7 12,050.8 15,248.0 79.0 6,075.6

Gross Profit 8,476.1 8,866.1 2,739.6 323.6 4,487.4

EBITDA 6,922.7 6,946.7 166.5 4,173.2 3,327.0

Depreciation (135.9) (138.5) (122.3) 113.2 (82.7)

Op. Profit 6,786.8 6,808.2 44.2 15,419.0 3,244.2

Net interest (605.4) (604.6) (2,474.5) 24.4 (727.7)

Other (1,135.9) (138.3) 0.0 n.a 0.3

NPBT 5,045.6 6,065.4 (2,430.4) n.a 2,516.9

Key ratios (%)

Gross margin 72.4 73.6 - - 73.9

EBITDA margin 59.2 57.6 - - 54.8

Op. margin 58.0 56.5 - - 53.4

Net int. cover (x) 11.2 11.3 - - 4.5

The net finance charge remained unchanged in FY17,

following a net decrease in debt. However, the finance

charge is expected to increase significantly over the

medium term following the issuance of over N13bn in

bonds in 2018. This was already partly evidenced in the

high N728m reported in 1H FY18. Notwithstanding the

higher interest, the firm operating profit still supported

strong net interest cover of 4.5x in 1H FY18, albeit

much weaker when compared to over 11x cover reported

in FY16 and FY17.

As the sizeable impairment loss was not repeated

(relating to set-up costs on a discontinued project which

was written off in FY16), and with currency variation

losses moderating (on the back of a relatively stable

Naira), pre-tax profit rose 20% to a high N6.1bn in

FY17. Thus, after accounting for a small tax charge2, a

net profit of N6bn was reported in FY17 (FY16: N5bn),

albeit, reducing to N2.5bn at 1H FY18.

Cash flows

As a result of the increase in earnings, cash generated by

operations rose to N6.2bn in FY17 (FY15: N5.2bn).

CTTL has reported working capital absorptions in all

years under review, due to high related party receivables.

Given the loose operational structure in place, the bulk

of the outflows have been utilised to establish and fund

activities in other sister companies. The marked

increases in FY15 and FY16 were particularly ascribed

to directors’ loans, utilised to fund projects in other

companies they own. The N794m absorption reported in

FY17 was much smaller compared to previous years,

and mainly comprised of related party receivables, albeit

partly moderated by an increase in sundry creditors and

Withholding Tax payable.

Excluding the related party outflows, CTTL would have

reported significant working capital releases in all years

under review, given the robust cash generation model of

the business. Nevertheless, after accounting for interest

and tax payments, the impact of the strong earnings was

evident, as operating cash flow remained robust, rising

to a period high N6bn (FY15: N1.5bn).

2Minimum tax is charged. Per the agreement executed in October 2011 with the FG,

under section 1(d) of the “Terms of Settlement of Judgment Debt and Release of Claims

Agreement”, revenue accruing to CTTL in respect of the judgment debt accruing from

the CERPAC project is tax free

After two years, a N5bn dividend payment was made in

FY17. Management has indicated that subsequent

dividends to shareholders would be utilised to reduce

outstanding directors’ loans. In this regard, a portion of

dividend declared would be withheld, and utilised to set-

off a portion of directors’ loans. With no major project

undertaken in the last few years, capex has been

relatively modest and directed towards upgrading

existing assets, and acquiring smaller operational items.

Thus, the robust inflow from operations in FY17 was

sufficient to fund working capital, capex, and the large

dividend payment, while also allowing for the settlement

of around N1bn in net debt.

Funding Profile

After incurring significant capital outlays to set up

production centres across the country, the current

operational mode is geared towards the efficient

management of the facilities. As such, in line with the

service-oriented nature of business, the Company

reflects an asset light operating model, with the material

growth in the asset base largely attributed to the related

party receivables (including loans to the directors), thus

accounting for a significant portion of assets over the

review period (FY16: 83%; FY17: 89%).

The receivables are not a direct result of trading

operations, and have not arisen in the ordinary course of

business. Rather, they are loans advanced to companies

with common ownership and control under the Contec

Global grouping, to finance various capex activities.

Some of these projects, include the establishment of a

car manufacturing company (Contec Automotives

SARL), part funding to commence manufacturing

mobile phones (Afrifone Limited), and funding to the

energy company (Contec Global Energy Limited),

among other transfers. While measures being

implemented to reduce the indebtedness are noted, GCR

is not privy to the repayment terms under the agreements

governing the transactions. GCR considers the arbitrary

nature of the loans to be inconsistent with the business

interest of CTTL and thus prejudicial to creditors of the

company. Accordingly, there is a critical need to

strengthen corporate governance procedures and

introduce independent management and directors.

Although, cash trended at nominal levels all through the

review period, it spiked to a high N4.6bn at 1H FY18,

mainly attributed to unspent borrowings. The cash

position is however expected to reduce towards year end,

once funds are deployed to the various projects.

Prior to FY16, borrowings had provided the bulk of

funding, accounting for over 60% of funding. However,

shareholders equity rose substantially between FY15 and

FY16, on the back of strong retained earnings. As a

consequence, CTTL was able to reduce borrowings to

N2.8bn at FY17, whilst shareholders’ equity registered

at N8.5bn at FY17, rising further to a high N11.1bn at

1H FY18.


Table 5: Funding

profile (N’m) FY17 1H FY18

2018

forecast

%

achieved

ST Debt 2,786.4 120.3 150.0 80.2

LT Debt 0.0 13,381.8 15,181.6 88.1

Total Debt 2,786.4 13,502.0 15,331.6 88.1

Cash (369.9) 4,610.4 11,678.4 39.5

Net Debt 2,416.5 8,891.6 3,653.2 243.4

Equity 8,462.9 11,094.6 5,884.3 188.5

Key ratios (%):

Total debt: equity 32.9 121.7 260.6 -

Net debt: equity 28.6 80.1 62.1 -

Total debt: EBITDA 40.2 300.9 282.6 -

Net debt: EBITDA 34.8 198.1 67.3 -

However, the capital structured shifted to a more

balanced debt equity profile at 1H FY18, following the

issuance of the initial two tranches of bonds, with a

combined principal of N17.4bn. A portion of proceeds

was utilised to settle the bulk (N1.9bn) of outstanding

commercial loans, with gross debt rising to N13.4bn at

1H FY18. Although, the substantial increase in

borrowings saw net gearing spike to 80% at 1H FY18 it

remains fairly moderate, given the strong cash flows

generated. Similarly, net debt to EBITDA climbed to a

much higher 134% on an annualised basis at 1H FY18

(FY17: 35%), but remains comfortable. This

notwithstanding, the majority of proceeds appear to have

been on-lent to related companies exacerbating the

aforementioned concerns.

Table 6: Credit facilities

(N’m) FY16 FY17 1H FY18

Overdraft 1,124.8 1,004.8 0.0

Term Loans (Naira) 40.1 1,781.6 0.0

Term Loans (foreign currency) 2,515.3 0.0 0.0

Finance lease 66.7 2.0 0.0

Bonds 0.0 0.0 13,381.8

Total 3,746.8 2,788.4 13,381.8

The bond transaction is secured by CTTL’s portion of

receivables from the CERPAC project, with semi-annual

repayments expected throughout the seven-year tenor.

While the security structure aided in securing the

financing on more favorable terms, it has reduced

CTTL’s financial flexibility. This is because over 90%

of its inflows form its core business are encumbered to

bondholders, and to the extent that they are necessary to

service debt, they will not be available to funding

operating requirements. Particularly if income falls

below projections, this could severely constrain core

operations. Such concerns are further exacerbated by the

large proportion of free cash that it on-lent to related

parties.

Furthermore, pursuant to the Receivables Sales and

Purchase Agreement, CTTL has pledged some of its

assets for the benefit of the Issuer under the transaction.

The charged assets have been constituted under a

security trust deed, and include; plants, machinery,

shares and dividend, among others. While there is no

specific covenant preventing CTTL from raising

additional funding, it is prohibited from creating a

security interest in any of the charged assets.

Outlook and Forecasts

The financial forecast has been revised slightly to reflect

the delay in the conclusion of the bond Issue, as well as

the lower amount raised. Notwithstanding this,

projections are premised on the continued enforcement

of the registration and monitoring of activities of foreign

nationals, as well as compliance with the requirements

of the various agreements executed between the FG and

CTTL on the operation and compensation process on the

projects. Furthermore, sustained economic growth across

various sectors would serve to enhance both consumer

and business confidence, thereby supporting an increase

in volumes.

Medium term growth is expected to be underpinned by

the diversification of revenue sources towards the

establishment of tissue culture production and

acquisition of technological equipment and software to

enhance delivery and enable the rollout of bespoke

offerings to clients. This will be achieved via the

deployment of proceeds from the bond issue.

Nevertheless, as revenue from the proposed new

businesses will only accrue over the medium term,

CTTL anticipates revenue growth to remain a factor of

the annual increase of 2,500 in card sales. In addition,

cost efficiencies and other benefits from scale economies

should drive profit enhancement over the forecast

period.

In view of the above, management anticipates 20%

growth in revenue to N14.5bn in FY18, and with

moderate increases expected in subsequent years.

However, FY18 earnings will be impacted by upgrade

and maintenance costs, as well as an arbitration expense

of c.N2.4bn, which will see the operating margin decline

significantly, before recovering to above 50% based on

ongoing operating costs.

Cognisance is taken of CTTL’s role as “Seller/Servicer”

under the bond transaction, with the assignment of its

rights and interest from the sale of CERPAC forms to

CERPAC Receivables Funding SPV PLC. Nevertheless,

the ultimate obligation for the repayment of the

Table 7:

Projections (N'm)

Actual

1HFY18 FY18 FY19 FY20 FY21 FY22

Revenue 6,075.6 14,496.6 15,496.1 16,356.7 17,268.9 18,236.2

Gross profit 4,487.4 5,425.2 9,986.4 11,332.7 11,662.2 11,968.3

EBITDA 3,327.0 3,584.8 7,961.9 9,105.8 9,212.5 9,273.6

Dep./Amort. (82.7) (110.1) (99.1) (89.2) (80.2) (72.2)

Op. profit 3,244.2 3,474.7 7,862.8 9,016.6 9,132.3 9,201.4

Finance charges (727.4) (3,322.5) (2,679.8) (2,037.4) (1,395.2) (753.4)

NPBT 2,516.9 152.2 5,183.0 6,979.2 7,737.0 8,448.0

Balance Sheet

Total debt 13,502.0 15,331.6 11,536.2 7,740.8 3,945.4 150.0

Cash and bank bal. 4,610.4 11,678.4 10,278.3 10,645.6 13,567.7 19,126.1

Net debt 8,891.6 3,653.2 1,257.9 (2,904.8) (9,622.3) (18,976.1)

Equity 11,094.6 5,884.3 10,982.6 17,874.2 25,518.7 33,868.0

Key Ratios (%)

Gross margin 73.9 37.4 64.4 69.3 67.5 65.6

EBITDA margin 54.8 24.7 51.4 55.7 53.3 50.9

Op. margin 53.4 24.0 50.7 55.1 52.9 50.5

Net int. cover (x) 4.5 1.0 2.9 4.4 6.5 12.2

Total debt: equity 121.7 260.6 105.0 43.3 15.5 0.4

Net debt: equity 80.1 62.1 11.5 neg neg neg

Total debt :EBITDA 300.9 282.6 115.5 68.3 33.8 1.3

Net debt: EBITDA 198.1 67.3 12.6 neg neg neg


obligation lies with CTTL in its capacity to generate the

receivables, as such, around N3.6bn (equates to about

60% of FY17 net profit) would go towards servicing

both interest and principal obligation under the

transaction yearly. Bond service obligations are expected

to be comfortably met covered by the projected robust

cash generation.

With no new debt anticipated over the short term

horizon, gearing metrics are expected to remain

moderate, and would likely strengthen if earnings grow

as anticipated and repayments are made. In this regard,

the gross debt to equity is projected to rise above 200%

by FY18, while net debt to equity would likely register

around 62%.


Continental Transfert Technique Limited (Naira in Millions except as Noted)

Statement of Comprehensive Income- 31 December

2013 2014 2015 2016 2017^ 1H 2018*

Turnover^

2,312.1 2,961.1 7,763.5 11,700.7 12,050.8 6,075.6

EBITDA

400.0 812.9 3,990.5 6,922.7 6,946.7 3,327.0 Depreciation

(59.2) (75.1) (111.9) (135.9) (138.5) (82.7)

Operating income

340.7 737.8 3,878.7 6,786.8 6,808.2 3,244.2 Net finance charges

(223.2) (498.2) (421.8) (605.4) (604.6) (727.7)

Other operating income/(expense)

0.0 0.0 (1,298.3) (1,135.9) (138.3) 0.3 NPBT

117.5 239.6 2,158.6 5,045.6 6,065.4 2,516.9

Taxation paid

(11.8) (11.4) (21.9) (56.4) (59.4) 0.0 Profit from continuing operations

105.7 228.2 2,136.7 4,989.2 6,006.0 2,516.9

Other comprehensive (loss)/gain

0.0 0.0 0.0 0.0 0.0 0.0 Interim dividend paid

0.0 0.0 0.0 0.0 0.0 0.0

Total Comprehensive Income 105.7 228.2 2,136.7 4,989.2 6,006.0 2,516.9

Statement of cash flows

Cash generated by operations

399.3 812.5 3,760.2 5,180.9 6,201.7 n.a Utilised to increase working capital

(137.0) (140.7) (4,653.7) (3,704.2) (793.9) n.a

Finance charges/interest paid

(223.2) (498.2) (421.9) 0.0 649.3 n.a Taxation paid

(5.7) (11.8) 0.0 (21.9) (56.4) n.a

Cash flow from operations

33.5 161.8 (1,315.4) 1,454.8 6,000.7 n.a Maintenance capex‡

(59.2) (75.1) (111.9) 0.0 0.0 n.a

Discretionary cash flow from operations

(25.7) 86.7 (1,427.3) 1,454.8 6,000.7 n.a Dividends paid

(100.0) (200.0) 0.0 0.0 (5,000.0) n.a

Retained cash flow

(125.7) (113.3) (1,427.3) 1,454.8 1,000.7 n.a Net expansionary capex

(412.3) (22.1) (109.4) (112.2) (40.5) n.a

Investments and other

(509.6) (123.7) 0.0 0.0 0.0 n.a Proceeds on sale of assets/investments

0.8 5.0 0.0 420.1 36.2 n.a

Shares issued

0.0 0.0 0.0 0.0 0.0 n.a

Cash movement: (increase)/decrease

(49.5) (38.4) 133.1 (978.3) 611.2 n.a Borrowings: increase/(decrease)

1,096.4 292.5 2,588.2 (2,040.3) (1,650.3) n.a

Net increase/(decrease) in debt

1,046.9 254.1 2,721.4 (3,018.6) (1,039.1) n.a

Statement of financial position

Ordinary shareholders interest

302.9 331.1 2,467.8 7,456.9 8,462.9 11,094.6 Outside shareholders interest

0.0 0.0 0.0 0.0 0.0 0.0

Pref shares and conv debentures

0.0 0.0 0.0 0.0 0.0 0.0 Total shareholders' interest

302.9 331.1 2,467.8 7,456.9 8,462.9 11,094.6

Current debt

194.3 199.9 261.0 3,680.1 2,786.4 120.3 Non-current debt

1,651.1 2,216.6 4,069.7 0.0 0.0 13,381.8

Total interest-bearing debt

1,845.4 2,416.5 4,330.6 3,680.1 2,786.4 13,502.0 Interest-free liabilities

267.6 414.1 375.2 987.9 1,652.8 765.4

Total liabilities

2,415.9 3,161.7 7,173.5 12,124.9 12,902.1 25,362.0 Property, Plant and Equipment

825.9 843.4 952.9 925.0 792.9 773.2

Investments and other non-current assets

1,203.2 1,605.5 3,762.4 6,525.8 4,342.7 7,550.4 Cash and cash equivalent

97.5 135.9 2.8 981.1 369.9 4,610.4

Other current assets

289.3 576.8 2,455.5 3,693.0 7,396.6 12,427.9 Total assets

2,415.9 3,161.7 7,173.5 12,124.9 12,902.1 25,362.0

Ratios

Cash flow:

Operating cash flow : total debt (%)

1.8 6.7 neg 39.5 215.4 0.0 Discretionary cash flow : net debt (%)

neg 3.8 neg 53.9 248.3 0.0

Profitability:

Turnover growth (%)

65.9 28.1 162.2 50.7 3.0 0.8

Gross margin (%) 44.3 47.6 64.9 72.4 73.6 73.9 EBITDA : revenues (%)

17.3 27.5 51.4 59.2 57.6 54.8

Operating profit margin (%)

14.7 24.9 50.0 58.0 56.5 53.4 EBITDA : average total assets (%)

23.7 30.4 78.3 75.6 58.7 40.0

Return on equity (%)

35.2 72.0 152.7 100.5 75.5 0.0

Coverage: Operating income : gross interest (x)

1.5 1.5 9.2 11.2 9.6 4.0

Operating income : net interest (x)

1.5 1.5 9.2 11.2 11.3 4.5

Activity and liquidity:

Trading assets turnover (x)

(26.4) (13.9) 11.4 5.4 2.9 0.0

Days receivable outstanding (days)

0.0 0.0 42.7 83.7 161.5 n.a Current ratio (:1)

0.8 1.2 3.9 1.0 1.7 n.a

Capitalisation:

Net debt : equity (%)

577.1 688.9 175.4 36.2 28.6 80.1

Total debt : equity (%)

609.3 729.9 175.5 49.4 32.9 121.7 Net debt : EBITDA (%) 437.0 280.6 108.5 39.0 34.8 133.6 Total debt : EBITDA (%) 461.4 297.3 108.5 53.2 40.1 202.9

‡ Depreciation used as a proxy for maintenance capex expenditure ^ Audited draft account *Reflects unaudited management accounts as at end 1H FY18


SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the ratings expire in July 2018. Continental Transfert Technique Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The credit ratings have been disclosed to CTTL with no contestation of the ratings The information received from CTTL to accord the credit rating included;

2017 audited draft (plus four years of comparative numbers);

management accounts for the six months ending 30 June 2018;

comprehensive budgets and

a breakdown of facilities available and related counterparties as at year end FY16. The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

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Continental Transfert Technique Limited...Total 10,500.2 100.0 Shareholding and corporate governance...

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