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ENV
ENV
ENV - EnviroServ - Abridged group income statement for the year ended
30 June 2007 and dividend declaration
EnviroServ Holdings Limited
(Registration number 1994/000280/06)
("EnviroServ")
JSE code: ENV & ISIN: ZAE000010989
Audited Results
- Diluted headline earnings per share up 35% to 84,9 cents
- Operating profit up 48% to R137,4 million
- Dividend up 33% to 28 cents
- Cash generated by operations up 28% to R237,9 million
Abridged group income statement for the year ended 30 June 2007
Audited Audited
2007 % 2006
R000 change R000
Revenue 873 840 18 741 744
Operating profit before 146 126 48 98 903
impairment of assets
Impairment of assets (8 689) (5 845)
Operating profit 137 437 48 93 058
Finance income 7 269 831
Finance costs (19 261) (10 472)
Share of profit of associate 1 614 1 357
company
Profit before taxation 127 059 50 84 774
Taxation (33 395) (18 319)
Net profit attributable to 93 664 41 66 455
ordinary shareholders
Diluted headline earnings per 84,9 35 63,1
share (cents)
Headline earnings per share 92,5 38 66,9
(cents)
Diluted earnings per share 83,4 40 59,4
(cents)
Earnings per share (cents) 90,9 44 62,9
Dividend/distribution per 28 33 21
share (cents)
Operating margin (%) 15,7% 12,5%
Weighted average number of
shares in issue during
the year - diluted 112 297 562 111 876 327
Weighted average number of
shares in issue during
the year - net of treasury 103 089,709 105 571 756
shares
Shares in issue at end of the
year - net of
treasury shares 104 665 121 106 306 288
Reconciliation of headline
earnings
Net profit attributable to 93 664 66,455
ordinary shareholders
Adjusted by :
Impairment of goodwill 261 4 281
Impairment of plant and - 1 564
equipment
Loss/(Profit) on disposal of 2 016 (1 719)
property, plant and equipment
95 941 70 581
Taxation on aforementioned (585) 45
adjustments
Headline earnings 95 356 35 70 626
Abridged group cash flow statement for the year ended 30 June 2007
Audited Audited
2007 % 2006
R000 change R000
Cash generated by operations 237 890 28 186 578
Movement in working capital (4 347) (24 941)
Cash flow from operations 233 543 44 161 637
Spent from environmental (8 510) (14 724)
remediation provisions
Net finance costs (9 841) (7 262)
Taxation paid (35 585) (12 016)
Cash retained from operating 179 607 41 127 635
activities
Cash distribution paid to (23 501) 40 (16 775)
shareholders
156 106 110 860
Additions to property, plant and (151 924) 57 (97 003)
equipment
Proceeds on disposal of property, 9 494 1 807
plant and equipment
Dividend received from associate 917 444
Acquisition of subsidiaries and (5 093) (8 000)
operations
9 500 8 108
Proceeds from issue of share 16 536 625
capital
Net financing effect of employee (24 825) (8 479)
share incentive trust
Movement in interest-bearing 33 106 40 089
borrowings
Movement in current portion of 26 349 (6 672)
interest-bearing borrowings
Movement in cash and cash 60 666 33 671
equivalents
Net foreign exchange difference (3 112) 5 573
Balance at the beginning of the 74 524 35 280
year
Balance at the end of the year 132 078 74 524
Abridged group statement of changes in equity for the year ended 30 June 2007
Audited Audited
2007 2006
R000 R000
Share capital
Ordinary share capital 1 096 1 063
At beginning of year 1 237 1 236
Issued during the year 17 1
Treasury shares (158) (174)
Share premium 23 907 22 336
At beginning of the year 27 238 43 389
including treasury shares
Issued during the year 16 519 624
Cash distribution (12 310) (16 775)
31 447 27 238
Treasury shares (3 601) (5 211)
Share-based payment reserve 4 848 4 848
Options acquired on own equity (8 787) (4 539)
25 003 23 399
Foreign currency translation
reserve
At beginning of the year 5 441 (132)
Currency translation (3 112) 5 573
differences during the year
2 329 5 441
Distributable reserves
At beginning of the year 253 770 187 315
Net profit attributable to 93 664 66 455
ordinary shareholders
Dividend paid (11 191) -
336 243 253 770
Abridged group balance sheet as at 30 June 2007
Audited Audited
2007 2006
R000 R000
ASSETS
Non-current assets 448 207 366 900
Property, plant and equipment 413 980 327 542
Intangibles 29 599 27 001
Investment in preference shares and 4 628 12 361
associate
Current assets 390 008 307 274
Inventories 18 198 13 705
Trade and other receivables 202 029 203 544
Share incentive trust loans 37 703 15 501
Cash and cash equivalents 132 078 74 524
Total assets 838 215 674 175
EQUITY AND LIABILITIES
Capital and reserves 363 575 282 610
Ordinary share capital and share 25 003 23 399
premium
Foreign currency translation reserve 2 329 5 441
Distributable reserves 336 243 253 770
Non-current liabilities 296 401 228 624
Deferred taxation 2 062 18 051
Environmental remediation provisions 142 247 122 748
Interest-bearing borrowings 127 358 85 244
Deferred income 24 734 2 581
Current liabilities 178 239 162 944
Trade and other payables 107 034 132 794
Current portion of interest-bearing 49 970 23 621
borrowings
Taxation 21 235 6 529
Total equity and liabilities 838 215 674 175
Net asset value per share (cents) 347 266
Debt/equity ratio 12% 12%
Net interest bearing debt 45 250 34 341
Capital commitments
Approved and contracted for 1 422 9 566
Approved, not yet contracted for 272 906 187 809
Commentary
Overview
The group delivered another year of sustained growth for the 2007 financial
year. These results were largely due to an increase in waste volumes given
strong growth in our customers` key markets and a growing demand for responsible
and value added waste management services.
Revenue increased in every division resulting in an overall increase in revenue
of 18% to R874 million and a 48% increase in operating profits before
impairments to R146 million. The group has achieved compound growth in revenue
of 18% over the last 5 years, and compound growth in operating profits before
impairments of 28% over the same period.
Cash generated by operations was up 28% over last year to R238 million. The
reason for the growth in cash generation being lower than the growth in profit
was largely a result of lower relative depreciation costs in our vehicle fleet
as we extended their operating lives beyond the anticipated useful hours, and
hiring additional capacity during the year. The savings in depreciation,
however, is offset by the increase maintenance costs of the older vehicles,
which is a cash cost.
Capital expenditure amounted to R152 million for the year, of which
approximately R60 million was for the replacement of plant and vehicles, R70
million was for expansion and R20 million was spent on treatment and disposal
facilities. Gearing levels remained the same as last year with a debt/equity
ratio of 12%. Of the R132 million of cash on our balance sheet at year end, R18
million is offshore , and the balance will be used in the first six months of
the new financial year to fund the dividend payable in October, acquisitions of
new businesses, installation of the landfill gas extraction system at Chloorkop,
and the development of landfill sites. Capital expenditure for next year is
planned at R274 million, of which R118 million will be for the replacement of
assets, and R156 million to facilitate growth.
Review of operations
Industrial
The group`s South African industrial segment improved revenue by 11%. This was a
good performance given a relatively high base from the previous year, which
included a large, once-off clean up which made up 15% of the revenue for this
division in 2006. Effectively the rest of the revenue in industrial waste
increased by 26%. This revenue growth was largely due to an increase in activity
from the large waste generators that make up the backbone of this market,
typically in the chemicals and oils, industrial metals and mining sectors. In
addition to the increased volumes, there has been an increase in demand for more
value added waste management services as our blue chip client base places
additional focus on sustainability and environmental responsibility. Increased
market share and lower than inflation price increases have had a limited impact
on revenue growth in the industrial business.
A significant portion of the costs in the industrial operations is fixed which
results in a gearing effect as revenue increases. As most of the growth came
from the high end of this market, together with the gearing effect of the
additional revenue, margins continued to improve and, despite the high base,
this sector of the business increased operating profits by 26% over the previous
year. Capital expenditure of R80 million was mostly due to the replacement of
vehicles, trailers and bins. The extra capacity required to accommodate the
growth was achieved through working the existing fleet harder and hiring
additional vehicles during peak periods.
Future growth in this division is largely dependent on the macro economic
factors influencing the manufacturing, particularly commodities, sections of the
economy. If these areas of the economy remain buoyant, the increasing importance
within responsible companies of ensuring that they do the "right thing"
environmentally, will ensure a ripe marketplace for EnviroServ`s unique ability
to provide holistic waste management solutions to meet customers needs. To
ensure we maintain the highest standards of service, approximately 50 vehicles
at a cost of around R65 million, will be ordered in the new financial year as
both ongoing replacements and to increase capacity. During the 2008 financial
year we will also be spending about R80 million on constructing new cells within
our existing landfill sites. The "carbon credits" project at Chloorkop has been
approved and installation of the gas extraction and monitoring equipment has
begun. The cash received in advance on the sale of the Certified Emission
Reductions has been reflected under deferred income in the balance sheet. This
project has already received two merit awards in this year`s Mail & Gaurdian
"Greening the Future" awards in the "Energy and Carbon Management" and
"Companies with Innovative Strategies that Improve Business Performance"
categories.
Chargold
Chargold`s local revenue grew by 20% with a significant contribution from the
beneficiation of carbonaceous waste. The beginning of the year saw the disposal
of Chargold`s investment in the Malaysian operation as it was not performing up
to expectations. Although this disposal reduced the overall revenue growth of
Chargold to 10%, it had little impact on the division`s profitability, which
improved in line with local revenue growth. By offering our customers a value
added, non-disposal option for certain waste types, Chargold has been central to
the group`s drive to provide a range of sustainable waste solutions, while
enabling customers to reduce their carbon footprint. Enviroserv has been
selected as a finalist in the BHP Billiton international Health, Safety,
Environment and Community Awards to be held later this year.
Compaction plant hire
Conquip, which operates predominantly inland, has benefited from concentrated
marketing efforts and improved plant availability and utilisation. It posted an
impressive 35% growth in revenue and 172% improvement in operating profit, which
is now in line with the group`s margins. Demand for compaction equipment has
enabled Conquip to focus on the large construction groups and to increase market
share. Conquip has spent R43 million on new plant this year, over half of which
was for expansion.
In October 2006, this division acquired a 51% share in Cape based Burma Plant
Hire (Pty) Ltd for R6 million. Burma has already exceeded expectations and has
contributed R11 million to revenue and R2,5 million to operating profit. The
joint venture provides a number of synergies to the group as it increases the
plant hire division`s geographical footprint into an area where it previously
did not operate but where EnviroServ has a strong presence.
Millennium Waste Management (Pty) Ltd
Millennium`s revenue increased by 9% due to volume increases in the Healthcare
risk waste collection and Sediba Water and Sanitation divisions, and
inflationary based price increases. Millennium, however, has yet again failed to
achieve a decent margin as it is not able to gain the critical mass to justify
the overheads required to run this business as a stand alone operation in line
with the high standards demanded by the group. After a brief recovery in the
first half of the financial year, Millennium suffered another loss in the second
half to post a worse result than last year. A board decision has been taken to
rationalise this business, remove the unsustainable overhead burden, absorb the
existing contracts into the rest of the group`s structures and sell some of the
business units. Although each of the business units continues to make a positive
contribution to the group, we do not view the relevant market as attractive in
the foreseeable future.
International
In line with the group`s strategy to grow its operations outside of South
Africa`s borders we have managed to grow international revenue by 41% during the
year under review. Most of this growth has come from our domestic collection
operation in the city of Luanda where our excellent service track record has
lead to the existing contract being expanded to include more areas and
additional services. Operating profit, however, only increased by 18%, due to
some operational difficulties in Angola, and the high costs of establishing a
presence in new areas which reduced the margins of our international division to
be in line with the rest of the group`s divisions. EnviroServ Mozambique LDA
also performed well this year as it increased volumes of hazardous waste
managed. We will be commencing operations in more SADC countries early in the
new financial year. In Qatar we have registered a new company, EnviroServ Qatar
Limited, which started a new contract for Oryx GTL Limited (QSC), a joint
venture between SASOL and Qatar Petroleum to manage industrial waste. Although
our operations in the Gulf are still small we see this area as an opportunity
for future growth and have established a management team in the area to explore
these opportunities.
Prospects
The group will continue to focus on developing long-term mutually beneficial
waste solutions in partnership with clients. Driving operational efficiencies
and improving the group`s cost base will also continue to receive priority.
We will proceed with the orderly exit of the domestic waste management business
in the year ahead and in future only considering new opportunities of
significant size and value, or on behalf of significant industrial clients.
Outside South Africa we expect to continue growing organically by pursuing
opportunities to leverage our existing competencies in areas that make good
business sense.
Assuming no significant slowdown in the South African economy, particularly in
manufacturing and mining sectors, the group`s prospects are positive given the
solid platform for growth we have established.
Changes in directorate
On 30 October 2006, Dr Makaziwe Mandela was appointed to the board as an
independent non-executive director. Lindsay Ralphs resigned from the board as a
non-executive director on 30 October 2006. The members of the board would like
to express their appreciation to Lindsay for his valuable contribution.
Appreciation
Thank you to all the members of the board, and a special thank you to the
management and staff of the EnviroServ Group for your loyalty and enthusiasm as
we strive to reach our business goals. The board would also like to thank our
many valued customers, suppliers and business associates for their continuing
goodwill and support.
Financial statements
The financial statements have been prepared in accordance with International
Financial Reporting Standards, which is consistent with the prior year and have
been audited by Ernst & Young Inc., Registered Auditors. Their unqualified audit
opinion is available for inspection at the company`s registered office.
Dividend
The directors have resolved to declare a dividend of 28 cents per ordinary share
for the year ended 30 June 2007. The last day to trade "CUM" the dividend in
order to participate in the dividend will be Friday, 12 October 2007. The shares
of the company will commence trading "EX" the dividend from the commencement of
business on Monday, 15 October 2007 and the record date will be Friday, 19
October 2007. Share certificates may not be dematerialised or rematerialised
from Monday, 15 October 2007 to Friday, 19 October 2007, both dates inclusive.
Payment will be made to shareholders on Monday, 22 October 2007.
Presentation to investors
A full copy of the presentation to investors and analysts will be placed on the
company`s website www.enviroserv.co.za
A McLean: DK Gordon
Chairman: Chief Executive
22 August 2007
Directors
A McLean (Chairman), DK Gordon (Chief Executive), PF Crowley*, MBN Dube*, E
Gombault, B Joffe*, D Lavarinhas, PM Mandela*, EK Motebang, JL Pamensky*, RP
Rocher, AC Salomon*
*Non-executive
Secretary: O Deftereos (ACIS, CA (SA))
Registered office
Brickfield Road, Meadowdale, Germiston 1401
Sponsor
Investec Bank Limited
100 Grayston Drive, Sandton 2196
PO Box 785700, Sandton 2146
Transfer secretaries
Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street, Johannesburg 2001
Date: 22/08/2007 17:56:34 Produced by the JSE SENS Department.
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