Texaf S.A. — Earnings Release 2017

Feb 23, 2018

PRESS RELEASE REGULATED INFORMATION February, 23rd 2018

TEXAF STABILISED ITS RECURRING OPERATING RESULT AT EUR 7 M AGAINST THE BACKDROP OF DIFFERING PERFORMANCES FOR REAL ESTATE AND QUARRYING ACTIVITIES IN AN INCREASINGLY DIFFICULT CONTEXT

TEXAF's Board of Directors drew up the company's statutory accounts (in accordance with Belgian law on annual accounts) and consolidated accounts (in accordance with the IFRS standards as adopted in the European Union) on 31 December 2017.

The Board of Directors wishes to point out that the company's assets are located in the Democratic Republic of Congo (DRC) and that the specific environment of the country entails certain risks. Accounts were drawn up based on the assumption of stability in the social-economic and regulatory environment.

HIGHLIGHTS

• Political tensions in the DRC are preventing the economy from recovering. The Congolese franc continues to decline against the dollar (-24%) and inflation has accelerated (40% year-on-year). This is currently only impacting the quarrying activity, and not the real estate activity. The Group has observed the withdrawal of several international groups from the DRC but nevertheless intends to continue its investment programme in the country.
• In the REAL ESTATE branch, rental revenues again rose by 10% to EUR 16.7 M. This activity benefitted over the full year from the "Clos des Musiciens" project, that was delivered in autumn 2016. It has returned to an occupancy rate of almost 100%. It was noted that the UTEXAFRICA residential site has greater appeal during difficult times, mainly due to the numerous services offered on site.
• However, the CARRIGRES activity was impacted both by the absence of public investment as well as a shift towards the informal economy. Turnover declined by 51% compared to 2016 to EUR 1.6 M. There are no signs of recovery at this stage. As announced on 30 June, the Board of Directors therefore recorded exceptional depreciation of EUR 3,360 K on the sandstone deposit. With a view to continuing this activity, which was very profitable up to 2015, a crisis plan has been put in place to enable the company to get through this difficult period without impacting its potential for recovery.
• Nevertheless, the Group realised a consolidated recurring operating result of EUR 7,020 K, stable compared to the previous year (+1%).
• After taking non-recurring items into account, mainly the exceptional depreciation on the sandstone deposit (which did not impact cash flow), the operating result declined by 45% to EUR 3,410 K, with the net result (Group's share) falling by 17% to EUR 4,542 K.
• The Group invested EUR 6.4 M in 2017 while maintaining its net financial debt at EUR 5.6 M, which represents 7.1% of consolidated equity and is less than the recurring operating result for the year. For the purpose of continuity and confident of the DRC's potential, this investment policy is being continued in 2018.
• The proposed dividend has increased by 19%.
• The TEXAF Group is continuing to study its ambitious 100-hectare development project in Kinsuka in collaboration with the firm ORG2 URBANISM. With the second phase of the study having enabled the general principles of the project to be formalised (vision, market study, objectives), it has been decided to continue to the next step, which will lead to development of the master plan.

	2013	2014	2015	2016	2017
Recurring operating result	6,457	6,938	6,486	6,953	7,020
As % of turnover	33%	35%	31%	34%	36%

REAL ESTATE ACTIVITIES (excluding costs associated with the holding company)

REAL ESTATE (EUR 000)	2013	2014	2015	2016	2017	Var.
Revenue from ordinary activities	12,165	13,588	14,534	15,268	16,730	9.6%
Recurring operating result	5,741	7,158	6,183	7,884	8,856	12.3%
Operating result	5,693	7,130	5,679	8,032	8,856	10.3%
Net result (Group's share)	4,785	4,043	4,256	6,181	7,599	22.9%

TEXAF SA and its subsidiaries COTEX, UTEXAFRICA and IMMOTEX are developing building leasing activities in Kinshasa: residential housing, industrial buildings and offices.

Rentable surface area [m²]	31/12/2016	31/12/2017
Residential	53,002	53,002
Offices	19,366	19,366
Retail	3,079	3,079
Warehouses	36,076	36,076
Other	1,177	1,177
TOTAL	112,700	112,700

There was no change in leased surface area in 2017. However, the "Clos des Musiciens" project, placed on the market in autumn 2016, was available throughout 2017. It consists of 4 buildings comprising a total of 33 apartments. The first phase of the new "Bois Nobles" project, consisting of 12 houses and 24 apartments, will be placed on the market in summer 2018. It will generate a rental potential of EUR 1.6 M.

In 2017, revenues from real estate activities rose by 10% to EUR 16,730 K. After a certain amount of rental vacancies at the end of 2016, the Group returned to an occupancy rate of almost 100%.

The recurring operating result increased by 12% to EUR 8,856 K. In the absence of non-recurring items, the operating result was also EUR 8,856 K EUR (+10%), with the net result (Group's share) at EUR 7,599 K (+ 23%). These amounts do not include expenses of EUR 992 K associated with the holding company, which would previously have been included in the real estate results.

CARRIGRES

CARRIGRES (EUR 000)	2013	2014	2015	2016	2017	Var.
Revenue from ordinary activities	6,260	5,327	5,071	3,266	1,584	-52%
Recurring operating result	1,770	1,105	1,451	154	-894	-681%
Operating result	1,769	863	1,359	74	-4,454	-6,119%
Net result (Group's share)	1,754	935	1,554	614	-2,762	-550%

CARRIGRES operates a crushed sandstone quarry located 10 km from the centre of Kinshasa.

CARRIGRES recorded a very poor year with sales of just 102,000 tonnes (vs 188,000 tonnes in 2016), comparable to the level of sales in the years following the periods of major political turbulence in 1991, 1993 and 1997. Turnover was EUR 1,584 K (- 52%). CARRIGRES is suffering not only from the lack of any road projects but also from competition from informal quarries that do not apply the same quality standards and are not subject to the same labour-law and tax constraints. The company has responded by further reducing its fixed costs base by some EUR 400 K on an annual basis.

Consequently, the recurring operating result turned to a loss of EUR 894 K. This was combined with restructuring expenses of EUR 199 K and the exceptional depreciation on the sandstone deposit of EUR 3,360 K (around one third of its value), such that the operating loss stood at EUR 4,454 K. The net result (Group's share), which benefited from cash revenue and the positive impact of deferred taxes on the depreciation of the sandstone deposit, saw a loss of EUR 2,762 K.

In spite of these losses and thanks to a reduction in working capital requirements, it was possible to limit cash outflow from CARRIGRES to less than EUR 100 K.

Even though it does not foresee any improvement in 2018, the Board of Directors has decided to keep the quarry in operation with reduced fixed costs, counting on a recovery at some point.

HOLDING

HOLDING (EUR 000)	2013	2014	2015	2016	2017	Var.
Revenue from ordinary activities	195	12	43	5	0	-100%
Recurring operating result	-1,055	-1,326	-1,149	-1,085	-942	-13%
Operating result	-1,055	-1,326	-1,149	-1,927	-992	-49%
Net result (Group's share)	-60	-293	-354	-1,341	-295	-78%

For the first time, TEXAF is presenting the expenses of the holding activity separately from the real estate results. This presentation matches that used internally by the Group.

These expenses totalled EUR 992 K, a decrease compared to 2016 which included a write-down of EUR 812 K on the i-FINANCE stake (vs EUR 50 K on the debt in 2017).

CONSOLIDATED RESULTS

The accounts were drawn up in accordance with IFRS standards.

EUR 000	2013	2014	2015	2016	2017
Revenue from ordinary activities	18,619	18,927	19,648	18,392	18,208
Other recurring operating income	960	1,167	1,451	1,844	1,493
Recurring operating expenses	-10,139	-10,075	-11,501	-10,496	-9,663
Recurring EBITDA	9,440	10,019	9,598	9,740	10,038
y-1	25%	6%	-4%	1%	3%
Depreciation allocation	-2,983	-3,081	-3,112	-2,787	-3,018
Recurring operating result	6,457	6,938	6,486	6,953	7,020
y-1	33%	7%	-7%	7%	1%
Other non-recurring operating items	-50	-271	-597	-774	-3,610
Operating result	6,407	6,667	5,889	6,179	3,410
y-1	36%	4%	-12%	5%	-45%
Financial expenses	-194	-593	-470	-754	-1,190
Other non-operating income	2,799	6	4	3	0
Results before tax (for continuing operations)	9,012	6,080	5,423	5,428	2,220
y-1	98%	-33%	-11%	0%	-59%
Current taxes	-2,496	322	-255	-73	75
Deferred taxes	433	-1,610	282	101	2,255
Net result after tax	6,949	4,792	5,450	5,456	4,550
y-1	-8%	-31%	14%	0%	-17%
Consolidated net result (Group's share)	6,479	4,685	5,456	5,454	4,542
y-1	-1%	-28%	16%	0%	-17%
Per share
Operating result in EUR	2.01	1.88	1.66	1.74	0,96
Consolidated net result (Group's share) in EUR	2.03	1.32	1.54	1.54	1.28
Number of outstanding shares	3,189,330	3,543,700	3,543,700	3,543,700	3,543,700

STATEMENT OF COMPREHENSIVE CONSOLIDATED INCOME

EUR 000		2014	2015	2016	2017
Result for the financial year	6,949	4,792	5,450	5,456	4,550
Variations (after tax) in revaluation reserves				117	0
Variations (after tax) in pension provisions			-126	-16	-52
COMPREHENSIVE INCOME		4,792	5,324	5,557	4,498
Allocated to:
TEXAF shareholders	6,479	4,685	5,330	5,549	4,490
Per share in EUR	2.03	1.32	1.50	1.57	1.27
Minority interests	470	107	-6	8	8

• Revenue from ordinary activities: -1%
• o Rent: EUR 16.7 M (+10%)
• o CARRIGRES turnover: EUR 1.6 M (-51%)
• Other recurring operating income concerns the re-invoicing of expenses and turnover from the compound's restaurant.
• Recurring operating expenses: -4%
  • o Depreciation: EUR 3.0 M (+8%)
  • o Materials (and stock variations): EUR 1.1 M (-17%)
  • o Payroll expenses: EUR 3.5 M (-3%)
  • o Other expenses: EUR 5.4 M (-5%)
• The recurring operating result increased by 1% to EUR 7.0 M.
• The non-recurring operating items concern the exceptional depreciation on the sandstone deposit (EUR 3.36 M), the CARRIGRES restructuring expenses (EUR 0.2 M) and a write-down on a loan to i-FINANCE (EUR 0.05 K).

• Financial expenses include foreign exchange losses totalling EUR 592 K, mainly on VAT credits held in Congolese francs.

• Current taxes include a provision write-back of EUR 1,065 K. Deferred taxes include a reduction in the provision for deferred taxes on the sandstone deposit, following its exceptional depreciation, of EUR 1,176 K and a fall of EUR 1,000 K in the provision for deferred taxes on the buildings to bring them in line with their tax value in Congolese francs.

• The net consolidated result (Group's share) stood at EUR 4.5 M (-17%) or EUR 1.28 per share.

Net financial debt had reached EUR 5.6 M as at 31 December 2017, which represents 7.1% of consolidated equity, compared to EUR 5.4 M at the end of 2016.

EUR 000	31/12/2013	31/12/2014	31/12/2015	31/12/2016	31/12/2017
NON-CURRENT ASSETS	92,749	97,344	103,995	107,866	109,125
Property, plant and equipment	14,216	14,878	14,830	13,728	9,955
Investment properties	77,158	81,644	87,880	93,867	99,100
Intangibles	42	32	43	41	23
Other financial assets	1,333	790	1,242	230	47
CURRENT ASSETS	15,213	13,129	16,395	13,156	11,129
Assets available for sale	-	1,180	1,180	1,180	0
Inventories	4,516	5,026	6,584	4,905	4,769
Receivables	2,171	1,226	1,491	1,114	1,469
Tax assets	634	731	1,190	1,518	919
Cash and cash equivalent	7,216	3,984	5,461	3,911	3,674
Other current assets	676	982	489	528	298
TOTAL ASSETS	107,962	110,473	120,390	121,022	120,254
EQUITY	66,728	70,964	74,587	78,099	80,167
Capital	7,857	21,508	21,508	21,508	21,508
Group's reserves	49,429	49,136	52,765	56,278	58,338
Minority interests	9,442	320	314	313	321
NON-CURRENT LIABILITIES	30,883	31,211	34,531	32,240	30,716
Deferred tax liabilities	22,874	22,215	21,866	21,756	19,810
Other non-current liabilities	8,009	8,996	12,665	10,484	10,906
CURRENT LIABILITIES	10,351	8,298	11,272	10,683	9,371
Liabilities associated with assets available for sale	-	337	337	337	0
Other current liabilities	10,351	7,961	10,935	10,346	9,371
TOTAL LIABILITIES	107,962	110,473	120,390	121,022	120,254

CONSOLIDATED BALANCE SHEET BEFORE APPROPRIATION OF THE RESULT OF TEXAF SA (EUR 000)

CONDENSED CONSOLIDATED CASH-FLOW STATEMENT

EUR 000	2013	2014	2015	2016	2017
Cash and cash equivalents at the beginning of the year	4,465	7,216	3,984	5,461	3,911
Cash flows from operating activities	7,099	6,243	6,819	8,666	8,706
Cash flows from investment activities	-3,275	-7,326	-9,401	-7,149	-6,421
Cash flows from financing activities	-1,081	-1,649	4,061	-3,067	-2,522
Net increase (decrease) of cash and cash equivalents	2,743	-2,732	1,479	-1,550	-237
Fair value adjustment of cash and cash equivalents, currency translation differences and entities entering/leaving the scope
of consolidation	8	-500	-2	0	0
Cash and cash equivalents at year's end	7,216	3,984	5,461	3,911	3,674

AUDITOR'S REPORT ON THE CONSOLIDATED ACCOUNTS

The auditor has confirmed that his work is substantively completed and has not revealed any significant correction that should be included in the consolidated accounting information set out in this press release. However, he draws attention to the management's comments in this press release concerning the risks inherent in the presence of the Group's key assets in the DRC and this country's economic and regulatory environment. The auditor also draws attention to the potential impact of the decline in activity on the quarry's valuation and on the sensitivity of the assumptions used in the value test having led to the recognition of a write-down on the quarry. The auditor also draws attention to the Board of Directors' estimate of the fair value of the portfolio of investment properties as it will be communicated in the notes to the consolidated financial statements. Specifically, this estimate is based on the judgement of the Board of Directors in the absence of comparable transactions, liquidity and transparency in the real estate market in the Democratic Republic of Congo.

OUTLOOK FOR 2018

• The "Bois Nobles" project is only likely to generate rent in the second half of the year. On account of the continuing uncertainty regarding the political situation in the DRC and the resulting international tensions, the Group is expecting results similar to those in 2017 for its real estate activity.
• The same is true for CARRIGRES, which is anticipating turnover and a result in the same order of magnitude as in 2017.
• Overall, the Group is therefore forecasting a stabilisation of the recurring operating result.
• The Group is adopting the necessary measures and has the strengths needed to accelerate its rate of growth once the environment is more propitious.

SOCIAL AND CIVIC RESPONSIBILITY

TEXAF is continuing to support development projects in the DRC that are not necessarily directly connected with the group's corporate purpose and that are non-profit-making.

In particular, TEXAF-BILEMBO is the Group's showcase through the promotion of Congolese artists and educational activities for adolescents in Kinshasa. Four other projects in the areas of health and education are supported: Africa Kids, Chirpa, Comequi and Yema-Yema Sankuru.

Since 2012, financial support to these organisations has been submitted to the approval of the General Shareholders' Meeting.

A proposal will be made at the next Meeting to maintain the budget allocated to social projects supported by the Group at EUR 82 K, which amounted to 1.5% of the Group's profits after tax of last year (EUR 5,456 K).

TEXAF and its reference shareholder have also decided to support the Royal Museum for Central Africa (Tervuren), which will reopen its doors in 2018 after renovation works that will enhance its international standing. The TEXAF Group's contribution will amount to EUR 30 K per year over 3 years and the TEXAF Group will as such become the sponsor of an AfricaTube room, a digital platform run by and for young people highlighting developments in contemporary Africa.

APPROPRIATION OF 2017 EARNINGS

The Board of Directors will propose increasing the dividend to EUR 2,885,599 or EUR 0.81429 (EUR 0.57 net) per share, an increase of 19%. This will be payable from 18 May 2018 subject to submission of coupon no. 7.

FINANCIAL CALENDAR

• Tuesday, 8 May 2018 at 11 a.m.: Annual General Meeting
• Friday, 11 May 2018: Quarterly press release
• Friday, 18 May 2018: Dividend payment
• Friday, 7 September 2018: Publication of half-yearly results
• Friday, 9 November 2018: Quarterly press release
• End of February 2019: Publication of 2018 annual results

N.B. Definition of alternative performance indicators:

• Non-recurring items: income or expenses that are not expected to be repeated in each accounting year, such as:
• gain or loss on disposals of non-current assets;
• allocations or reversals of allocations for write-downs on non-current assets;
• costs relating to major restructuring, purchase or disposal of a business (e.g. redundancy or plant closure costs, commissions paid to third parties to acquire or dispose of an activity, etc.).
• EBITDA: Operating result in which allocations for depreciation are reintegrated

TEXAF, established in 1925, is the only Euronext-listed industrial, real estate and agricultural investment company having all its activities and subsidiaries to date based in the Democratic Republic of Congo.

The listing of Congolese activities on the stock exchange and the resulting obligations in terms of good governance and transparency constitute a major asset of the Group in the promotion of the formal sector in the DRC.

Contact: Philippe Croonenberghs, Chairman: +32 495 24 32 64 Jean-Philippe Waterschoot, CEO: Christophe Evers, CFO: + 32 495 24 32 60