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RAC
RAC
RAC - Racec - Unaudited Interim Results For The Six Months Ended 31 March 2008
and dividend declaration
RACEC Group Limited
Incorporated in the Republic of South Africa
(Registration Number 1998/006153/06)
Share Code: RAC & ISIN Code: ZAE000105409
("RACEC" or "the Company")
Unaudited Interim Results for the six months ended 31 March 2008 and dividend
declaration
- Revenue up 63%
- Profit for the period up 210%
- Interim dividend declared at 2.0 cents per share
- Earnings per share up 71%
- Net asset value per share up 94%
CONDENSED CONSOLIDATED INCOME STATEMENTS
Unaudited Audited
six months six months
ended ended
31 March 31 March
2008 2007
R`000 R`000
Revenue 146 325 89 535
Cost of sales (118 857) (74 302)
Gross profit 27 468 15 233
Other income - 363
Other expenses (17 033) (12 235)
Net profit before finance 10 435 3 361
costs and taxation
Interest received 1 091 3 032
Finance costs (1 832) (2 428)
Profit before taxation 9 694 3 965
Taxation (3 190) (1 320)
Profit for the period 6 504 2 645
Attributable to:
Equity holders of the 6 504 2 619
parent
Minority interest - 26
Earnings per
share(cents):
Earnings per share 6.5 3.8
Headline earnings per 6.6 3.9
share
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited Audited
at at
31 30
March September
2008 2007
R`000 R`000
Assets
Non-current assets
Property, plant and 31 761 26 352
equipment
Investment property 350 350
Intangible asset 1 559 1 736
33 670 28 438
Current assets
Inventories 20 983 14 803
Loans to related - 9 376
parties
Trade and other 86 215 70 092
receivables
Cash and cash 622 19 472
equivalents
107 820 113 743
Total assets 141 490 142 181
EQUITY AND LIABILITIES
Capital and reserves 45 274 16 369
Non-current liabilities
Loans from related 673 676
parties
Other financial 10 639 8 420
liabilities
Share-based payments 1 881 1 582
Deferred tax 1 168 656
14 361 11 334
Current liabilities
Loans from - 9 152
shareholders
Trade and other 54 271 63 747
payables
Other financial 6 331 14 739
liabilities
Taxation 2 341 5 782
Bank overdrafts 18 912 21 058
81 855 114 477
Total liabilities 96 216 125 812
Total equity and 141 490 142 181
liabilities
Net asset value per 45.3 23.4
share (cents)
Net tangible asset 43.7 20.9
value per share (cents)
Number of shares in 100 000 000 70 000 000
issue
CONDENSED STATEMENT OF CHANGES IN EQUITY
Share
capital Share
and share buy Revaluation
premium back reserve
R`000 R`000 R`000
Balance at 1 October 2006 1 (3 879) 5 473
Changes in equity
Realised revaluation through - - (566)
depreciation
Revaluation of property, - - -
plant and equipment
Reversal of property, plant - - -
and equipment previously
revalued
Net income recognised - - (566)
directly in equity
Net profit for the period - - -
Dividends - - -
Balance at 31 March 2007 1 (3 879) 4 907
Changes in equity
Share buy back (0.3) - -
Realised revaluation through - - (2 771)
depreciation
Revaluation of property, - - 803
plant and equipment
Net (expenses) / income - - (1 968)
recognised directly in
equity
Net profit for the period - - -
Disposal of subsidiary
Dividends - - -
Balance at 1 October 2007 0.7 (3 879) 2 939
Changes in equity
Shares issued 27 400 - -
Share issue expenses (2 254) - -
Rate adjustment in respect - - 29
of taxation
Realised revaluation through - - (342)
depreciation
Revaluation of property, - - -
plant and equipment
Reversal of property, plant - - -
and equipment previously
revalued
Net income / (expenses) - - -
recognised directly in
equity
Net profit for the period - - -
Dividends - - -
Balance at 31 March 2008 25 147 (3 879) 2 626
Total
attributable
to equity
Retained holders of Minority
income the group interest
R`000 R`000 R`000
Balance at 1 October 2006 4 918 6 513 64
Changes in equity
Realised revaluation through 566 - -
depreciation
Revaluation of property, - -
plant and equipment
Reversal of property, plant - - -
and equipment previously
revalued
Net income recognised 566 - -
directly in equity
Net profit for the period 2 618 2 618 26
Dividends (904) (904) -
Balance at 31 March 2007 7 198 8 227 90
Changes in equity
Share buy back - (0.3) -
Realised revaluation through 2 771 - -
depreciation
Revaluation of property, - 803 -
plant and equipment
Net income / (expenses) 2 771 803 -
recognised directly in
equity
Net profit for the period 9 616 9 616 -
Disposal of subsidiary - - (90)
Dividends (2 277) (2 277) -
Balance at 1 October 2007 17 308 16 369 -
Changes in equity
Shares issued - 27 400 -
Share issue expenses - (2 254) -
Rate adjustment in respect - 29 -
of taxation
Realised revaluation through 475 133 -
depreciation
Revaluation of property, - - -
plant and equipment
Reversal of property, plant - - -
and equipment previously
revalued
Net income / (expenses) 475 133 -
recognised directly in
equity
Net profit for the period 6 504 6 504 -
Dividends (2 907) (2 907) -
Balance at 31 March 2008 21 380 45 274 -
Total equity
Figures in R`000 R`000
Balance at 1 October 2006 6 577
Changes in equity
Realised revaluation through -
depreciation
Revaluation of property, -
plant and equipment
Reversal of property, plant -
and equipment previously
revalued
Net income recognised -
directly in equity
Net profit for the period 2 644
Dividends (904)
Balance at 31 March 2007 8 317
Changes in equity
Share buy back (0.3)
Realised revaluation through -
depreciation
Revaluation of property, 803
plant and equipment
Net income / (expenses) 803
recognised directly in
equity
Net profit for the period 9 616
Disposal of subsidiary (90)
Dividends (2 277)
Balance at 1 October 2007 16 369
Changes in equity
Shares issued 27 400
Share issue expenses (2 254)
Rate adjustment in respect 29
of taxation
Realised revaluation through 133
depreciation
Revaluation of property, -
plant and equipment
Reversal of property, plant -
and equipment previously
revalued
Net income / (expenses) 133
recognised directly in
equity
Net profit for the period 6 504
Dividends (2 907)
Balance at 31 March 2008 45 274
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
Unaudited Audited
six months six months
ended ended
31 March 31 March
2008 2007
R`000 R`000
Cash flows from operating
activities
Cash (used) / generated (19 333) 27 582
from operations
Interest received 1 092 3 032
Finance costs (1 832) (2 428)
Taxation paid (5 958) (1 088)
Net cash from operating (26 031) 27 098
activities
Cash flows from investing
activities
Purchase of property, (7 024) (4 605)
plant and equipment
Proceeds from disposal of 81 203
property, plant and
equipment
Net cash used in (6 943) (4 402)
investing activities
Cash flows from financing
activities
Advance of related-party 9 372 2 191
loans
(Repayment) / Advance of (6 188) 4 194
other financial
liabilities
Repayment of (9 153) (1 256)
shareholders` loans
Net proceeds from share 25 146 -
issue
Dividends (2 907) (904)
Net cash raised in 16 270 4 225
financing activities
Total cash movement for (16 704) 26 921
the period
Cash at the beginning of (1 586) (4 541)
the period
Cash and cash equivalents (18 290) 22 380
at end of the period
NOTES TO THE UNAUDITED INTERIM RESULTS
1. Basis of preparation
The consolidated interim results have been prepared in accordance with
International Financial Reporting Standards ("IFRS"), International Accounting
Standards (IAS34: Interim Financial Reporting), the South African Companies Act
(Act 61 of 1973), as amended, and the Listings Requirements of JSE Limited
("JSE"). The principal accounting policies used in the preparation of the
financial results for the six months ended 31 March 2008 are consistent with
those applied in the previous audited annual financial statements for the year
ended 30 September 2007.
2. Operating profit
Operating profit includes:
Unaudited Audited
six months six months
ended ended
31 March 31 March
2008 2007
R`000 R`000
Operating lease charges 546 656
Loss on sale of 126 73
property, plant and
equipment
Loss on exchange - 19
differences
Depreciation and 1 585 1 255
amortisation
Directors` emoluments 2 283 1 861
Employee costs 20 887 12 462
3. Share capital
RACEC listed on AltX on 18 October 2007. The Company passed the following
resolutions to facilitate the listing:
- increase the authorised ordinary share capital of 1 000 shares with a par
value of R1.00 to 5 000 shares with a par value of R1.00;
- split the authorised ordinary share capital into 500 000 000 shares of
0.001 cents; and
- bought back 30% of the issued ordinary share capital, which amounted to 30
000 000 shares.
4. Reconciliation between profit and headline earnings
Unaudited Audited
as at as at
31 March 31 March
2008 2007
R`000 R`000
Profit for the period 6 504 2 645
Adjustments for:
- Loss on disposal of 126 73
property, plant and
equipment
- Tax effects (35) (22)
Headline earnings 6 595 2 696
Earnings per share (cents)
- Headline 6.6 3.9
- Basic 6.5 3.8
Weighted average number of 100 000 000 70 000 000
shares in issue
Diluted earnings per share
Headline 6.6 2.7
Basic 6.5 2.6
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. 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
transactions. These transactions were subject to terms that were no less
favourable than those arranged with third parties.
7. Post-balance sheet events
In line with RACEC`s dividend policy and the fact that RACEC is trading in line
with expectations, it has been decided that a declaration of an interim dividend
of 2.0 cents per share (2007: 0.9 cents) is warranted. The salient features
relating to the dividend declaration are set out later in this report.
8. Contingent liabilities
Unaudited Audited
as at as at
31 March 31 March
2008 2007
R`000 R`000
Secondary Tax on Companies 1 944 800
("STC")
Performance guarantees 30 476 19 558
The performance guarantees are provided by Lombards Insurance Company and C&G
underwriting Managers for work by subsidiary companies.
9. Segmental information
Unaudited Audited
as at as at
31 March 31 March
2008 2007
R`000 R`000
Business segment:
Revenue
Administrative and plant - 6
hire
Electrical reticulation 81 541 38 322
Rail construction 64 784 64 048
Profit before tax:
Administrative and plant (8 775) (3 064)
hire
Electrical reticulation 8 542 2 339
Rail construction 9 927 4 281
Geographic segment:
Revenue
Western Cape 99 860 44 931
KwaZulu-Natal 9 328 5 766
Gauteng 37 137 51 679
Profit before tax:
Western Cape 4 445 2 337
KwaZulu-Natal 801 429
Gauteng 4 448 791
COMMENTARY
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 beyond 2010 as there is a tremendous need to reverse
the deterioration of the country`s infrastructure resulting from the lack of
investment in this area for over a decade.
FINANCIAL PERFORMANCE
RACEC increased its revenue for the six months ended 31 March 2008 by 63% to
R146.3 million (2007: R89.5 million). Earnings per share have increased by 71%
to 6.5 cents (headline earnings per share 6.6 cents) for the same period.
This increase can be attributed mainly to organic growth resulting from the
increased spending on infrastructure projects, as well as the consolidation of
the acquisition of Sizabantu Infrastructure Maintenance and the JM Badenhorst
Group, which includes JM Badenhorst Electrical Contractors (Proprietary) Limited
(JMB Electrical Contractors") and Badentec (Proprietary) Limited ("Badentec").
RACEC is by its nature a working capital intensive business. This, coupled with
the significant growth experienced in the six months to March 2008 has been the
key driver for the additional cash invested in working capital of R22.1 million,
the bulk of which has been utilised to fund inventory and trade debtors. In
addition RACEC invested an additional R7.0 million in the operating asset base.
Given the nature of the industry and the close down periods over the December
and January months, there is a seasonal bias towards the second half of the
year.
EXPANSION
Negotiations for the acquisition of Greenbro CC, a business that manufactures a
range of generators as well as other electrical equipment, have been completed.
The acquisition of an electrical contracting company specialising in electrical
installation and maintenance contracts in the industrial, commercial and
domestic markets was also recently concluded.
RACEC Power (Proprietary) Limited, previously dormant, has started operations in
the Eastern Cape with offices in King Williams Town. Mr Victor Mrawu has been
appointed as managing director and is pursuing opportunities in both the
electrical and rail markets.
All three of these operations have had no effect on RACEC`s performance during
this reporting period. Their contribution to RACEC will be felt during the
second half of the 2008 financial year.
OPERATIONAL PERFORMANCE AND PROSPECTS
RACEC Rail (Proprietary) Limited ("RACEC Rail")
RACEC Rail continues to target 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.
Recent awards include an R18 million extension to the main line sleeper
replacement contract from Spoornet, a R20 million sleeper replacement contract
from RME - Transnet, an R8 million contract for the upgrading of track
infrastructure in the Eastern Cape and a R21 million civil and track work
contract at Blackhill Mine for Exxaro Resources Limited. There have also been a
number of other project awards throughout the country.
RACEC Electrification (Proprietary) Limited ("RACEC Electrification")
For the six months ended 31 March 2008 revenue of RACEC Electrification amounted
to R81.5 million (2007: R38.3 million), which represents growth of 113% (2007:
(13%)on the previous corresponding period. A significant driver of this growth
has been the additional revenue contributed to the operations by JMB Electrical
Contractors, which has now been fully integrated with RACEC Electrification and
has contributed in the region of 30% of revenue for the six months ended 31
March 2008. Virtually all of the JMB Electrical Contractors` employees have
remained in our employ, which has tempered the impacts of the skills shortage
plaguing the construction industry at present.
Recent awards include a R37 million Business Park in the Helderberg region, a
R15 million Airports Company South Africa ("ACSA") lighting subcontract, a R5
million residential development in Laaiplek, as well as approximately R40
million worth of smaller contracts in the Western and Southern Cape.
RACEC Electrification is currently also negotiating a R50 million Western Cape
golf estate, a R12 million West Coast residential estate, a residential
development in the Western Cape worth more than R20 million, as well as numerous
other reticulation and rail electrification projects throughout South Africa and
Mozambique.
Both RACEC Rail and RACEC 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
RACEC. RACEC is fully committed to the principals of direct control through
ownership of an organisation`s equity, human resource development and employment
equity, and indirect empowerment through preferential procurement policies.
- 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 having in excess of 30% BEE ownership.
- Skills Development: RACEC has made a significant investment in skills
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.
- 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. Many major contracts have
been successfully completed to the benefit of RACEC, its BEE Partners and
Clients.
- RACEC is currently pursuing a BEE equity partner at Group level. However,
the final decision will be made after due consideration to the value such a
partner can add to the business.
CASH DIVIDEND
Subject to working capital requirements and acquisition activities, it is the
policy of the Group to declare a dividend up to a maximum of one-third of annual
profits after tax to shareholders. A dividend of 2 cents per share has been
declared and will be paid in the form of a half-year interim dividend.
The salient dates for the dividend are as follows:
Last day to trade shares cum dividend Friday, 27 June 2008
Shares trade ex dividend Monday, 30 June 2008
Record date Friday, 4 July 2008
Payment date Monday, 7 July 2008
No share certificates may be dematerialised or rematerialised between Monday, 30
June 2008 and Friday, 4 July 2008, both dates inclusive.
M Uys C Harrod
Non-Executive Chairman Chief Executive Officer
5 June 2008
Directors:
M Uys* (Chairman), C Harrod (Chief Executive Officer), G Harrod, C Gooden*, W
Ollewagen, S Wilkins (acting Financial Director)
* Non-executive
Company secretary:
S Wilkins (acting)
Registered office:
8 Hawkins Avenue, Epping 1, 7460 (PO Box 61, Eppindust, 7475)
Transfer secretaries:
Computershare Investor Services (Proprietary) Limited (PO Box 61051,
Marshalltown, 2107)
Designated Advisor:
Merchant Sponsors (Proprietary) Limited (PO Box 41480, Craighall, 2024)
Auditors:
BDO Spencer Steward (Cape) Inc. (Docex 158, Cape Town)
These results may be viewed on the internet on http://www.racec.co.za
Date: 05/06/2008 10:10:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
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