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RAC
RAC
RAC - RACEC Group Limited - Audited Financial Results for the year ended
30 September 2007
RACEC Group Limited
("RACEC" or "the Company")
Incorporated in the Republic of South Africa
Registration Number 1998/006153/06
Share Code: RAC
ISIN Code: ZAE000105409
Audited Financial Results for the year ended 30 September 2007
- Revenue up 38%
- Profit for the period up 282%
- Headline and diluted headline earnings per share up 148%
- Net asset value per share up 150%
CONDENSED CONSOLIDATED INCOME STATEMENTS
Audited Audited
year ended year ended
30th 30th
September September
Figures in R`000 2007 2006
Revenue 218 147 157 797
Cost of sales (180 025) (132 096)
Gross profit 38 122 25 701
Other income 4 999 755
Other expenses (27 172) (20 859)
Net profit before finance 15 950 5 597
costs and taxation
Interest received 3 033 3 669
Finance costs (2 775) (3 799)
Profit before taxation 16 227 5 467
Taxation (3 993) (2 267)
Profit for the period 12 234 3 200
Attributable to:
Equity holders of the 12 234 3093
parent
Minority interest - 107
Earnings per
share(cents):
Earnings per share 17,5 4,5
Diluted earnings per 12,2 3,2
share
CONDENSED CONSOLIDATED BALANCE SHEETS
Audited Audited
at at
30th September 30th September
Figures in R`000 2007 2006
Assets
Non-current assets
Property, plant and 26 352 13 287
equipment
Investment property 350 -
Intangible asset 1 736 -
28 438 13 287
Current assets
Inventories 14 803 9 279
Loans to shareholders - 15
Loans to related 9 376 5 591
parties
Trade and other 70 093 32 589
receivables
Cash and cash 19 472 3 253
equivalents
113 743 50 727
Total assets 142 181 64 104
EQUITY AND LIABILITIES
Capital and reserves 16 369 6 512
Minority interest - 64
Non-current liabilities
Loans from related 676 -
parties
Other financial 8 420 4 782
liabilities
Share based payments 1 582 628
Deferred tax 656 2 931
11 334 8 341
Current liabilities
Loans from shareholders 9 152 4 562
Trade and other 63 747 30 709
payables
Other financial 14 738 4 460
liabilities
Taxation 5 782 1 572
Bank overdrafts 21 058 7 793
114 477 49 096
Total liabilities 125 812 57 436
Total equity and 142 181 64 014
liabilities
Net asset value per share 23,4 9.4
(cents)
Net tangible asset value 20,9 9.4
per share (cents)
Number of shares in issue 70 000 000 70 000 000
CONDENSED STATEMENT OF CHANGES IN EQUITY
Share
capital Share
and share Buy Revaluation
Figures in R`000 premium Back reserve
Group
Opening balance at 1 October 1 000 (3 879) 3 659
2005 (previously reported)
Adjust: First time adoption - - 1 984
of IFRS
Balance at 1 October 2005 1 000 (3 879) 5 643
Changes in equity
Realised revaluation through - - (825)
depreciation
Revaluation of property, - - 704
plant and equipment
Reversal of property, plant - - (49)
and equipment previously
revalued
Net income (expenses) - - (170)
recognised directly in
equity
Net profit for the period - - -
Distribution to shareholders - - -
Balance at 1 October 2006 1 000 (3 879) 5 473
Changes in equity
Share buy back (300) - -
Realised revaluation through - - (3 337)
depreciation
Revaluation of property, - - 803
plant and equipment
Net income (expenses) - - (2 534)
recognised directly in
equity
Net profit for the period - - -
Disposal of subsidiary
Distribution to shareholders - - -
Balance at 1 October 2007 700 (3 879) 2 939
Total
attributable
to equity
Retained holders of Minority
Figures in R`000 income the group interest
Group
Opening balance at 1 October 5 831 5 612 11
2005 (previously reported)
Adjust: First time adoption (396) 1 588 -
of IFRS
Balance at 1 October 2005 5435 7 200 -
Changes in equity
Realised revaluation through 825 - -
depreciation
Revaluation of property, - 704 -
plant and equipment
Reversal of property, plant - (49) -
and equipment previously
revalued
Net income (expenses) - 655 -
recognised directly in
equity
Net profit for the period 3 093 3 093 108
Distribution to shareholders (4 435) (4 435) (55)
Balance at 1 October 2006 4 918 6 513 64
Changes in equity
Share buy back - (300) -
Realised revaluation through 3 337 - -
depreciation
Revaluation of property, - 803 -
plant and equipment
Net income (expenses) 3 337 803 -
recognised directly in
equity
Net profit for the period 12 234 12 234 26
Disposal of subsidiary - - (90)
Distribution to shareholders (3 181) (3 181) -
Balance at 1 October 2007 17 308 16 369 -
Total equity
Figures in R`000
Group
Opening balance at 1 October 5 623
2005 (previously reported)
Adjust: First time adoption 1 588
of IFRS
Balance at 1 October 2005 7 211
Changes in equity
Realised revaluation through -
depreciation
Revaluation of property, 704
plant and equipment
Reversal of property, plant (49)
and equipment previously
revalued
Net income (expenses) 655
recognised directly in
equity
Net profit for the period 3 200
Distribution to shareholders (4 489)
Balance at 1 October 2006 6577
Changes in equity
Share buy back (300)
Realised revaluation through -
depreciation
Revaluation of property, 803
plant and equipment
Net income (expenses) 803
recognised directly in
equity
Net profit for the period 12 260
Disposal of subsidiary (90)
Distribution to shareholders (3 181)
Balance at 1 October 2007 16 369
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
Audited Audited
Year ended year ended
30th September 30th September
Figures in R`000 2007 2006
Cash flows from operating
activities
Cash generated from 15 079 3 705
operations
Interest received 3 033 3 669
Finance costs (2 755) (3 799)
Taxation paid 1 167 (394)
Net cash from operating 14 189 3 181
activities
Cash flows from investing
activities
Purchase of property, (10 957) (3 903)
plant and equipment
Purchase of business (10 870) -
operations
Proceeds from disposal of 225 381
property, plant and
equipment
Proceeds on disposal of 86 -
subsidiary
Net cash used in (21 516) (3 522)
investing activities
Cash flows from financing
activities
(Repayment) of related (3 108) (4 097)
party loans
Advance of other 11 967 1 382
financial liabilities
Advance of shareholder`s 4 604 431
loans
Capital distribution to (3 181) (4 435)
shareholders
Net cash raised/(used) in 10 282 (6 719)
financing activities
Total cash movement for 2 954 (7 060)
the period
Cash at the beginning of (4 540) 2 520
the period
Cash and cash equivalents (1 586) 4 540
at end of the period
NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
The audited consolidated financial results have been prepared in accordance
with International Reporting Standards ("IFRS"), IAS34: "Interim Financial
Reporting", the South African Companies Act, as amended, and the JSE
Listings Requirements. The principal accounting policies used in the
preparation of the financial results for the year ended 30 September 2007
are consistent with those applied for the year ended 30 September 2006.
2. Operating profit
Operating profit includes:
Audited Audited
Year ended year ended
30th 30th September
September
Figures in R`000 2007 2006
Operating lease charges 1 000 835
Loss on sale of property 238 26
plant and equipment
Loss on disposal of 68 -
subsidiary
Impairment on property, - 483
plant and equipment
(Profit) / loss on (52) 37
exchange differences
Negative goodwill (JMB (3 758) -
Electrical Contractors -
refer to note 6.)
Depreciation and 2 767 1 263
amortisation
Directors` emoluments 4 103 2 633
Employee costs 29 329 21 097
3. Share capital
In anticipation of listing on Alt-x on the 18th October 2007 the Company
passed the necessary resolutions to:
- increase the authorised ordinary share capital for 1000 shares with a
par value of R1-00 to 5000 shares with a par value of R1-00;
- split the authorised ordinary share capital into 500,000,000 shares of
0.001 cents; and
- to buy back 30% of the issued ordinary share capital, which amounted
to 30,000,000 shares
4. Reconciliation between profit and headline earnings
Audited Audited
As at As at
30th 30th September
September
Figures in R`000 2007 2006
Profit for the year 12 234 3 200
Adjustments for:
- Loss on disposal of 238 26
property, plant and
equipment
- Negative goodwill (JMB (3 758) -
Electrical Contractors -
refer to note 6.)
- Loss on disposal of 68 -
subsidiary
- Impairment loss - 483
- Tax effects (69) (148)
Headline earnings 8 713 3 562
Earnings per share (cents)
- Headline 12,4 5,0
- Basic 17,5 4,5
Weighted average number of 70 000 000 70 000 000
shares in issue
Diluted earnings per share
Headline 8,7 3,5
Basic 12,2 3,2
Diluted weighted average 100 000 000 100 000 000
number of shares in issue
(after taking in to
account the issue of
30,000,000 shares as part
of the private placement)
5. Cash and cash equivalents
Cash and cash equivalents comprise cash balances with banks and bank
overdrafts.
6. Acquisitions
During the period, the Company acquired the business of JMB Electrical
Contractors for R8.4 million. The excess of the net assets acquired over
the purchase consideration has been included in other income.
7. Related party transactions
During the period, the Company and its subsidiaries in the ordinary course
of business, entered into various related party sales, purchases and
investment transaction. These transactions were subject to terms that were
no less favourable than those arranged with third parties.
All related party balances owing to the Company were repaid in full on 1
December 2007.
8. Corporate governance
The RACEC Group complies with the code of Corporate Practice and Conduct
published in the King II report on Corporate Governance.
9. Post-balance sheet events
The RACEC Group listed on Alt-x on 18th October 2007, raising a total of
R27,5 million via private placements of its ordinary shares.
All related party loans owing to the RACEC Group were repaid in full by 1
December 2007.
On 21st October the Group acquired the trade and assets of Sizabantu
Infrastructure Maintenance CC for R1,5 million.
10. Contingent liabilities
Audited Audited
As at As at
30th September 30th September
Figures in R`000 2007 2006
STC on remaining reserves 1 891 546
Performance guarantees 21 834 12 286
The performance guarantees are provided by Lombards Insurance Company and
C&G underwriting Managers for work by subsidiary companies.
11. Dividends per share
Audited Audited
As at As at
30th September 30th September
Figures in R`000 2007 2006
Dividends declared to 1 993 4 030
equity holders of the
parent
Dividends per share 2.8 5.8
(cents)
12. Segmental information
Audited Audited
As at As at
30th September 30th September
Figures in R`000 2007 2006
Business segment:
Revenue
Administrative and plant - -
hire
Electrical reticulation 111 443 101 483
Rail construction 106 705 56 314
Profit before tax:
Administrative and plant (7 763) (3 227)
hire
Electrical reticulation 11 111 6 171
Rail construction 12 879 2 524
Geographic segment:
Revenue
Western Cape 131 386 116 692
KwaZulu-Natal 12 565 7 352
Gauteng 74 198 33 753
Profit before tax:
Western Cape 6 734 4 093
KwaZulu-Natal 720 35
Gauteng 8 773 1 339
COMMENTARY ON AUDITED RESULTS
PROFILE AND STRUCTURE
RACEC has been in existence since 1956 and during this time has built-up an
extremely well trained and experienced group of employees. This places
RACEC in a strong position to take advantage of the current climate of
expansion in both the rail and electrification infrastructure projects.
Although there is a lot of hype around the 2010 FIFA World Cup, the
directors expect the spending on infrastructure to continue way beyond 2010
as there is a tremendous need to reverse the deterioration of the country`s
infrastructure as a result of the lack of investment in this area for over
a decade.
FINANCIAL PERFORMANCE
The RACEC Group increased its revenue for the financial year ending
September 2007 by 38% (2006:40%) to R218,1 million (2006: 157.8 million).
Earnings per share have increased by 281% to 17.5 cents (HEPS 12.4 cents)
for the same period. However, this is based on a weighted number of shares
of 70,0 million. Diluted earnings per share and diluted headline earnings
per share, based on a 100,0 million shares (post listing),are 12,2 cents
and 8,7 cents respectively. This increase can be attributed mainly to
organic growth due to the increased spending on infrastructure projects
which is starting to flow through as well as the acquisition of the JM
Badenhorst Group which has substantially increased the size of the
electrical operation.
There are no significant seasonal fluctuations in the trading results
ACQUISISTIONS
In June 2007 RACEC Electrification acquired the business, assets and staff
of the JM Badenhorst Group which includes JM Badenhorst Electrical
Contractors (Pty) Ltd and Baden Tec (Pty) (Ltd). The JMB Group is a well
established electrical contracting business and has been a competitor of
RACEC for many years. This acquisition has substantially increased the
volume of business of RACEC Electrification as well as bringing a pool of
well trained and experienced staff on board.
RACEC Rail acquired the business of Sizabantu Infrastructure Maintenance
CC, operating out of Cato Ridge in Kwazulu Natal, in October 2007. This
acquisition was after the financial year-end and therefore has had no
impact on the results. RACEC Rail has now acquired the additional skills of
an experienced rail welding business to compliment and strengthen its
position in the rail engineering sector.
OPERATIONAL PERFORMANCE AND PROSPECTS
RACEC Rail (Pty) Ltd
RACEC Rail has had a year of exceptional growth as a result of targeting
long-term annuity type rail maintenance contracts which provide a constant
monthly income as well as an increase in the number of main line upgrade
projects for Spoornet and is also currently busy with the construction of
the rail network on the phase 5 expansion of the Richards Bay Coal
Terminal. RACEC Rail increased its revenue for this reporting period by 82%
(2006:15%) to R106.7 million (2006: R58.7 million).
Recent awards include an R18 million extension to the main line sleeper
replacement contract from Spoornet and a R21 million civil and trackwork
contract at Blackhill Mine for Exxaro. There have also been number of other
project awards throughout the country.
RACEC Electrification (Pty) Ltd
In 2007 the revenue of RACEC Electrification, of R111.4 million (2006:
R101.9 million), increased by 8% (2006:72%) year on year. The operations of
JMB Electrical Contractors contributed R20.9 million in revenue and R1.3
million to the Company`s profit before tax for the period between
acquisition and the balance sheet date. The merger of the two businesses
has now been completed and it is anticipated that strong growth will be
achieved during this current year. Virtually all of the JMB employees have
remained in our employ, which has gone a long way in overcoming the skills
shortage plaguing the construction industry at present.
Recent negotiated contracts include a Business Park for R15 million and
residential developments at Atlantic Sands and Atlantic Waves on the West
Coast of R19 million. There have also been successful tenders for R30
million in the Helderberg region and R10 million in the George Area.
Numerous other awards are also pending.
The RACEC Group anticipates revenue growth in excess of 50% for the current
financial year with headline earnings doubling during this period. Our
order book for the current year is already at more than 50% of our sales
forecast.
Both RACEC Rail and Electrification have strengthened their project and
commercial management structures to take advantage of the many turnkey
projects that are presenting themselves as a result of the current
infrastructure spend throughout South Africa.
BEE
A multi-faceted approach to BEE has been adopted which aims to increase the
number of previously disadvantaged individuals that manage, own and control
South Africa`s economy. The three core elements of the BEE Act are direct
control through ownership of an organisation`s equity, human resource
development and employment equity, and indirect empowerment through
preferential procurement policies. RACEC is fully committed to the
principles of BEE, as set out in the BEE Act.
Directors: Of the seven directors within the group, one is a previously
disadvantaged individual.
Shareholding: The BEE ownership within the RACEC Employee Share Trust, as
well as the BEE ownership in RACEC results in RACEC Rail and RACEC
Electrification being 34% BEE owned.
Skills Development: RACEC has made a significant investment of skills and
resources into the development of employees from previously disadvantaged
backgrounds.
SMME`s: The Group has assisted a number of previously disadvantaged
individuals with potential in starting their own businesses, including:
- Sibanye Africa (Proprietary) Limited;
- Cof`e Dongweni Engineering C.C;
- Hlanganani Rail Services C.C;
- Uphondo Electrical (Proprietary) Limited;
- Zomba Construction (Proprietary) Limited; and
- Luxor Electrical (Proprietary) Limited.
Joint Ventures/Partnerships: RACEC has established and built long term
relationships with emerging contractors from previously disadvantaged
backgrounds. This facilitates emerging contractors to be able to bid for
larger contracts and ensures skills transfer.
Joint venture contracts awarded to RACEC include:
- Grand West Casino;
- Sasol Secunda;
- V & A Waterfront;
- Cape Town International Airport; and
- Kei rail refurbishment.
DISTRIBUTION TO SHAREHOLDERS
Subject to working capital requirements and acquisition activities, it is
the policy of the Group to declare up to a maximum of one third of annual
profits after tax to shareholders. The dividends will be declared and paid
in the form of a half year interim and a final dividend, which will be
declared after the annual financial statements have been finalised.
ANNUAL GENERAL MEETING
The Annual General Meeting is set for 10:00am on 27th February 2008 at
Kelvin Grove Club, Newlands, Cape Town.
M Uys C Harrod
Non-Executive Chairman Chief Executive Officer
13 December 2007
Directors:
M Uys* (Chairman), C Harrod (Chief Executive Officer), G Harrod, C Gooden*,
W Ollewagen, G Kleinschmidt, S Wilkins
* Non-executive
Company secretary:
G Kleinschmidt
Registered office:
8 Hawkins Avenue, Epping 1, 7460 (PO Box 61, Eppindust, 7475)
Transfer secretaries:
Computershare Investor Services 2004 (Pty) Limited (PO Box 61051,
Marshalltown, 2107)
Designated Advisor:
BDO QuestCo (Pty) Limited (Private Bag X60500, Houghton, 2041)
Auditors:
BDO Spencer Steward (Cape)Inc. (Docex 158, Cape Town)
These results may be viewed on the internet on http://www.racec.com
Date: 13/12/2007 14:50:01 Produced by the JSE SENS Department.
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