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ENV
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ENV - EnviroServ Holdings - Interim Announcement for the six-month period
ended 31 December 2007
EnviroServ Holdings Limited
(Registration number 1994/000280/06)
("EnviroServ")
JSE code: ENV & ISIN: ZAE000010989
Interim Announcement for the six-month period ended 31 December 2007
Highlights
- Revenue up 27% to R538,1 million
- Operating profit up 36% to R79,1 million
- Diluted headline earnings per share up 30% to 44,9 cents
- Cash generated by operations up 25% to R142,5 million
Abridged group income statement
Six-month Six-month
period period Year
ended ended ended
31 Dec 31 Dec 30 June
2007 2006 2007
(Unaudited) % (Unaudited) (Audited)
R`000 change R`000 R`000
Revenue 538 074 27 422 540 873 840
Operating profit
before depreciation
and
environmental 141 949 24 114 707 226 390
remediation provisions
Depreciation and
environmental
remediation provisions (62 862) 11 (56 412) (88 953)
Operating profit 79 087 36 58 295 137 437
Finance income 2 574 739 7 269
Finance costs (11 826) (7 652) (19 261)
Share of profit of 128 974 1 614
associate company
Profit before taxation 69 963 34 52 356 127 059
Taxation (19 812) (13 449) (33 395)
Profit for the period 50 151 29 38 907 93 664
Attributable to :
Equity holders of the 50 647 30 38 907 93 664
company
Minority (496) - -
shareholders` interest
Diluted headline 44,9 30 34,5 84,9
earnings per share
(cents)
Diluted earnings per 44,6 28 34,8 83,4
share (cents)
Headline earnings per 48,9 36 36,1 92,5
share (cents)
Earnings per share 48,5 33 36,4 90,9
(cents)
Operating margin 14,7% 13,8% 15,7%
Weighted average
number of shares in
issue during the 113 666 033 111 961 283 112 297 562
period - diluted
Weighted average
number of shares
in issue during the
period - net of
treasury shares 104 392 598 107 002 968 103 089 709
Shares in issue at end
of the period
- net of treasury 105 696 746 107 491 413 104 665 121
shares
Reconciliation of
headline earnings
Net profit
attributable to
ordinary
shareholders 50 647 38 907 93 664
Adjusted by:
Impairment of goodwill - - 261
Impairment of plant - 59 -
and equipment
Loss/(profit) on
disposal of property,
plant and equipment 527 (522) 2 016
51 174 38 444 95 941
Taxation on (153) 134 (585)
aforementioned
adjustments
Headline earnings 51 021 32 38 578 95 356
Abridged group statement of changes in equity
Six-month Six-month
period period Year
ended ended ended
31 Dec 31 Dec 30 June
2007 2006 2007
(Unaudited) % (Unaudited) (Audited)
R`000 change R`000 R`000
Ordinary share
capital and
share premium
Ordinary shares 1 096 1 063 1 096
At beginning of 1 254 1 237 1 237
period
Issued during the - - 17
period
Treasury shares (158) (174) (158)
Share premium
At beginning of 31 447 27 238 27 238
the period
Issued during the - - 16 519
period
Cash distribution - (12 310) (12 310)
31 447 14 928 31 447
Treasury shares (3 601) (5 211) (3 601)
Share-based payment 4 848 4 904 4 848
reserve
Options acquired in (8 787) (4 539) (8 787)
own equity
25 003 11 145 25 003
Foreign currency
translation reserve
At beginning of 2 329 5 441 5 441
period
Currency
translation
differences during
the period (2 441) 1 935 (3 112)
(112) 7 376 2 329
Distributable
Reserves
At beginning of 336 243 253 770 253 770
the period
Dividend paid (31 827) (11 191) (11 191)
Profit 50 647 38 907 93 664
attributable to
ordinary
shareholders
355 063 281 486 336 243
Abridged group balance sheet
31 Dec 31 Dec 30 June
2007 2006 2007
(Unaudited) % (Unaudited) (Audited)
R`000 change R`000 R`000
Assets
Non-current assets 487 865 391 224 448 207
Property, plant and 446 955 349 282 413 980
equipment
Intangible assets 36 154 29 526 29 599
Investment in
preference shares
and associate 4 756 12 416 4 628
Current assets 449 823 325 756 422 724
Inventories 28 450 15 676 18 198
Trade and other 242 837 236 998 202 029
receivables
Employee share 34 363 16 140 37 703
trust
Cash and cash 144 173 56 942 164 794
equivalents
Total assets 937 688 716 980 870 931
Equity and
liabilities
Capital and reserves 379 954 300 007 363 575
Ordinary share 25 003 11 145 25 003
capital and share
premium
Foreign currency (112) 7 376 2 329
translation reserve
Distributable 355 063 281 486 336 243
reserves
Non current 341 667 244 401 296 401
liabilities
Deferred taxation 3 679 16 036 2 062
Environmental 158 845 140 468 142 247
remediation
provisions
Interest-bearing 154 799 85 628 127 358
borrowings
Deferred income 24 344 2 269 24 734
Current liabilities 216 067 172 572 210 955
Accounts payable 126 292 136 154 107 034
and provisions
Current portion of
interest-bearing
borrowings 45 409 28 009 49 970
Bank overdraft 32 709 5 369 32 716
Taxation 11 657 3 040 21 235
Total equity and 937 688 716 980 870 931
liabilities
Net asset value per 359 29 279 347
share (cents)
Debt/equity ratio 23% 21% 12%
Net interest bearing 88 744 43 62 064 45 250
debt
Contingent
liabilities:
Sureties given
i.r.o. Millennium
Waste
Management bank 36 884 37 363 35 267
overdraft
Abridged group cash flow statement
Six-month Six-month
period period Year
ended ended ended
31 Dec 31 Dec 30 June
2007 2006 2007
(Unaudited) % (Unaudited) (Audited)
R`000 change R`000 R`000
Cash generated by 142 511 25 113 988 237 890
operations
Movement in working (30 633) (30 284) (4 347)
capital
Cash flow from 111 878 34 83 704 233 543
operations
Spent from
environmental
remediation
provisions (3 756) (4 026) (8 510)
Net finance costs (6 733) (5 724) (9 841)
Taxation paid (27 773) (18 953) (35 588)
Distribution paid to (31 827) (23 501) (23 501)
shareholders
Cash retained from 41 789 31 500 156 103
operating activities
Additions to property, (75 530) (50 660) (151 923)
plant and equipment
Proceeds on disposal of
property, plant
and equipment 3 148 2 268 9 495
Dividend received from - 919 918
associate
Acquisition of
subsidiaries,
associates
and operations (13 800) (4 820) (5 093)
(44 393) (20 793) 9 500
Proceeds from issue of - - 16 536
share capital
Net financing effects
of employee share
incentive trust 3 340 (639) (20 576)
Options on own equity - - (4 248)
Movement in interest- 27 441 (7 842) 33 106
bearing borrowings
Movement in current
portion of
interest-bearing (4 561) 4 388 26 349
borrowings
Movement in cash and (18 173) (24 886) 60 667
cash equivalents
Net foreign exchange (2 441) 1 935 (3 113)
difference
Balance at the 132 078 74 524 74 524
beginning of the period
Balance at the end of 111 464 51 573 132 078
the period
Commentary
Overview
EnviroServ is a leading provider of waste management solutions. The Group offers
a broad spectrum of specialised waste management expertise and experience. We
employ nearly 3 000 people, and operate a large fleet of sophisticated waste
collection and handling equipment, as well as seven permitted landfill sites and
four permitted bio-hazardous waste destruction facilities.
Summary
The board is pleased to announce another set of results showing significant
increases in revenue and profits. Revenue growth of 27% over last year was
entirely organic. Operating profit increased 36% with an improved operating
margin of 15% from 14% in the prior period. Diluted headline earnings per share
were up 30% to 44,9 cents (2006: 34,5 cents).
All formalities, including regulatory approval, for the acquisition of Brollo
Tailings (EnviroServ Tailings) and Plypak (EnviroServ Polymer Solutions)
announced at the end of the last financial year had been completed by the end of
the period. The financial performance of these businesses will begin to impact
in the second half of the financial year.
Revenue
The strong growth in revenue reflects the increasing volumes of hazardous waste
being managed, transported, treated and disposed of by the Group. Despite the
pressures that the mining and manufacturing industries have recently
experienced, volume increases continue to be driven largely by the intensifying
demands on large companies to manage waste responsibly and remediate historical
waste piles. These demands are coming from a number of areas:
- The public - consumers are becoming increasingly conscious of
the environmental impacts of the products they purchase, both
during production and distribution, and post consumer.
- Shareholders - sustainability reporting has grown in importance
worldwide as the stakeholders of listed companies insist on
greater measurement and disclosure of information relating to
the management of environmental issues.
- Business - to ensure that their own environmental performance
is not compromised, businesses are demanding the same standards
from their suppliers.
- Government - pressure for compliance with environmental
legislation has increased with the Environmental Management
Inspectorate (or "green scorpions"), actively investigating and
auditing many major waste generating industries in South Africa
and issuing ultimatums to comply with regulations and remediate
legacy waste streams.
Bulk clean ups of waste, including historical stockpiles, have been a feature of
this six-month period, with a significant portion of these mandates coming from
the ferrous metals industry.
The direct impact of electricity supply constraints and power outages on the
Group`s operations has not been significant in the six-month period to December
2007.
The Group`s plant hire division also experienced an increase in demand for the
compaction equipment it specialises in, from the construction and mining
industries.
Margins
Revenue growth outpaced fixed cost growth, creating a leveraging effect and the
resultant higher margins despite higher overheads to accommodate increased
levels of activity, and rising fuel prices. Additions to plant and vehicles,
together with higher volumes of waste into the landfill sites, have increased
depreciation and site amortisation charges, but to a lesser extent than the rate
of growth in revenue. This was achieved by increasing externally contracted
capacity to cater for the increase in volumes of bulk waste transported during
the period.
Cashflows
Cash generated by operations was R142,5 million, up 25% (2006: R114,0 million).
Capital expenditure of R75,5 million comprised of R34,7 million in replacement
assets and R40,8 million invested in expansion. Capital expenditure for the next
six-month period will be higher as the Group has new vehicles to the value of
R51 million on order, and has begun constructing new cells at some of the
Group`s landfill sites at a cost of R38 million and will shortly be ordering
additional plant and equipment for R30 million. Although net interest bearing
debt of R88,7 million at the end of the period was 43% up on December 2006, the
Group`s debt to equity ratio was only marginally higher at 23% from 21% in 2006.
Accolades
- In September 2007 EnviroServ received the BHP Billiton International
Health, Safety, Environment and Community award presented in Santiago,
Chile for one of our waste minimisation projects.
- EnviroServ has been selected as one of the Sunday Times Top 100 companies
of 2007.
- Our 2007 annual report won the "Fledgling" category at the JSE/CIS Annual
Report Awards.
Future
As South Africa becomes more focused on environmental issues EnviroServ has
prioritised the search for alternative ways to treat and re-use waste. It is the
responsibility of our Technology Solutions division to develop and deliver
innovative and viable waste treatment solutions to our customers. We are also
considering some exciting opportunities to expand our service offering, and have
a number of pilot studies underway in diverse waste streams such as waste
plastic beneficiation, metal recovery and organic composting and fertilizers. We
should start to see the benefits of these initiatives in the second half of the
current financial year and into the coming year.
Towards the end of last financial year we entered into negotiations to acquire
majority shareholdings in two companies: Brollo Tailings, which specialises in
managing mines` tailings dams; and Plypak, which manufactures wood replacement
products from waste wood and plastic. The Plypak acquisition was finalised in
August 2007 and the company has been renamed EnviroServ Polymer Solutions. It
has been developing a "green pallet" made from recycled materials, which will go
into production during March 2008. We expect this product to enable EnviroServ
Polymer Solutions to begin contributing to revenue and profits towards the end
of this financial year. Competition Commission approval for the Brollo
acquisition was received at the end of December 2007, and will be consolidated
into Group financial statements from 1 January 2008. Brollo, which has been
renamed EnviroServ Tailings, has performed in line with management`s
expectations during the pre-incorporation period. We are confident that this
acquisition will deliver growth in a market in which the Group was not
previously active.
Our operations in other African countries, which now include Angola, Mozambique,
Botswana, Namibia and Lesotho, continue to contribute positively to our
financial results and growth strategy. Our expansion efforts in the Middle East
continue albeit at a slow pace in a highly competitive and difficult market.
We will continue to expand off our established bases in these regions, and will
seek to grow our presence in areas where demand for the Group`s existing service
offering is experienced.
Appreciation
Thank you to the management and staff of the EnviroServ Group, whose tireless
efforts have again translated into an excellent set of results. The board also
acknowledges the continued support of all of EnviroServ`s customers, suppliers
and associates.
Financial statements
The interim financial statements were prepared in accordance with International
Financial Reporting Standards (IFRS), which is consistent with prior years.
Dividend
In line with the Group`s dividend policy to declare an annual dividend after
publication of its final audited results, no interim dividend has been declared.
Results presentation
A full copy of the results presentation to investors and analysts will be made
available on the Group`s website (www.enviroserv.co.za).
A McLean DK Gordon
Chairman Chief Executive
18 February 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: 18/02/2008 16:00:01 Produced by the JSE SENS Department.
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