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PKH
PKH
PKH - Protech - Reviewed Consolidated Interim Results For The Period Ended
31 August 2008
Protech Khuthele Holdings Limited
Registration number 2000/024352/06
JSE code: PKH & ISIN: ZAE000101986
("Protech" or "the Company" or "the Group")
REVIEWED CONSOLIDATED INTERIM RESULTS FOR THE PERIOD ENDED 31 AUGUST 2008
- Revenue up 78%
- Operating profit up 42%
- HEPS up 31%
- Cash generated from operations up 55%
CONDENSED CONSOLIDATED INCOME STATEMENT
for the 6 months ended 31 August 2008
Reviewed Audited Reviewed
Group Group Group
6 months ended 12 months ended 6 months ended
31 August 29 February 31 August
2008 2008 2007
R`000 R`000 R`000
Revenue 344 235 372 126 193 469
Earnings before 101 987 112 470 68 194
depreciation and
interest
Depreciation (15 342) (15 278) (7 345)
Earnings before 86 645 97 192 60 849
interest and
taxation
Net interest expense (12 979) (8 093) (2 763)
Earnings before 73 666 89 099 58 086
taxation
Taxation (20 673) (26 989) (17 194)
Earnings 52 993 62 110 40 892
attributable to the
shareholders of the
holding company
Earnings per share
(cents)
- Basic 14,6 17,4 11,7
SUPPLEMENTARY INCOME
STATEMENT
INFORMATION
Weighted average
number of shares in
issue:
- Weighted average 362 500 000 357 069 672 350 887 978
number of shares in
issue
Reconciliation of
headline earnings:
Earnings 52 993 62 109 40 892
attributable to
shareholders of the
holding company
Adjusted for 582 (2 085) (1 272)
loss/(profit) on
disposal of assets
Headline earnings 53 575 60 024 39 620
Headline earnings
per share (cents)
- Basic 14,8 16,8 11,3
CONDENSED CONSOLIDATED BALANCE SHEET
at 31 August 2008
Reviewed Audited Reviewed
Group Group Group
6 months 12 months 6 months
31 August 29 February 31 August
2008 2008 2007
R`000 R`000 R`000
ASSETS
Non-current assets 333 699 279 413 133 875
Property, plant and 300 107 256 964 133 875
equipment
Intangible assets 1 768 - -
Goodwill 31 365 16 045 -
Deferred tax 459 6 404 -
Current assets 225 508 213 339 133 070
Inventory 22 642 13 781 6 302
Trade and other 130 963 79 158 96 127
receivables
Retention 35 725 23 067 13 551
receivables
Loans granted 5 197 4 095 2 412
Bank balances and 30 981 93 238 14 678
cash
Total assets 559 207 492 752 266 945
EQUITY AND
LIABILITIES
Total equity 194 696 141 703 120 485
Share capital and 228 598 228 598 228 598
share premium
Common control (122 052) (122 052) (122 052)
reserve
Retained earnings 88 150 35 157 13 939
Total liabilities 364 511 351 049 146 460
Non-current 213 879 120 629 39 132
liabilities
Borrowings - 168 401 95 451 27 191
interest bearing
Deferred tax 45 478 25 178 11 941
Current liabilities 150 632 230 420 107 328
Trade and other 66 980 67 490 31 081
payables
Subcontractor 5 558 8 898 4 051
liabilities
Borrowings - 58 219 69 092 46 115
interest bearing
Vendor liability - 71 356 -
Bank overdraft - - 74
Current tax 19 875 13 584 26 007
liabilities
Total equity and 559 207 492 752 266 945
liabilities
SUPPLEMENTARY
BALANCE SHEET
INFORMATION
Total number of 362 500 000 362 500 000 362 500 000
shares in issue
Net asset value per 53,7 39,1 33,2
share (cents)
Capital expenditure
- Spent 72 192 179 161 70 122
- Commitments - 45 859 43 675 17 041
Authorised but
unspent
Performance 29 383 19 894 -
guarantees issued
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the 6 months ended 31 August 2008
Reviewed Audited Reviewed
Group Group Group
6 months ended 12 months ended 6 months ended
31 August 29 February 31 August
2008 2008 2007
R`000 R`000 R`000
Cash flows from 12 826 81 084 (101)
operating activities
Cash receipts from 279 772 332 977 124 613
customers
Cash paid to (253 819) (234 182) (121 315)
suppliers and
employees
Cash generated by 25 953 98 795 3 298
operations
Net interest paid (12 979) (8 093) (2 762)
Income taxes paid (148) (9 618) (637)
Cash flows from (65 805) (119 752) (28 674)
investing activities
Purchase of (72 192) (179 161) (70 122)
property, plant and
equipment
Proceeds on disposal 16 374 47 937 29 020
of property, plant
and equipment
Assets acquired (7 000) 8 695 -
through acquisition
(Increase)/decrease (2 987) 2 777 12 428
in loans granted
Cash flows from (9 278) 129 462 40 935
financing activities
Share Issue - 12 500 12 500
Decrease in loans - 7 930 -
from shareholders
Settlement of vendor (71 356) - -
liability
Increase in loan 62 200 - -
finance
Payments in terms of (3 949) - -
loan finance
Increase in 66 719 191 394 77 578
borrowings related
to finance leases
Payments in terms of (62 892) (82 362) (49 143)
finance leases
Net (62 257) 90 794 12 160
(decrease)/increase
in cash and cash
equivalents
Cash and cash 93 238 2 444 2 444
equivalents at the
beginning of the
period
Cash and cash 30 981 93 238 14 604
equivalents at the
end of the period
Cash and cash
equivalents
comprise:
Cash and cash 30 981 93 238 14 678
equivalents
Bank overdraft - - (74)
30 981 93 238 14 604
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the 6 months ended 31 August 2008
Common
Share Share control Retained
capital premium reserve earnings Total
R`000 R`000 R`000 R`000 R`000
Balance at 28 - - - - -
February
2007*
Share issues
23 May 2007 - - - - - -
20 000 0003
23 May 2007 - - - - - -
41 869 362?*
Common
control share
issues
28 May 2007 - 1 216 097 - - 216 098
288 130 6381*
Common - - (149 005) - (149 005)
control
reserve
Reviewed pro 1 216 097 (149 005) - 67 093
forma group
Share issues
6 August 2007 - 12 500 - - 12 500
- 12 500 000?
Profit for - - - 62 110 62 110
the year
Transfer - - 26 953 (26 953) -
profit at
acquisition
date to
reserve
Balance at 29 2 228 597 (122 052) 35 157 141 703
February 2008
Profit for 52 993 52 993
the period
Balance at 31 2 228 597 (122 052) 88 150 194 696
August 2008
1 Issued to acquire common control subsidiaries
2 Issued for cash
3 Share split of 200 000 to 1
* Less than R1 000
OPERATIONAL SEGMENTAL REPORTING
for the 6 months ended 31 August 2008
Services within each business segment
For management purposes, the Group is organised into four major operating
divisions - earthworks, plant hire, geotechnical laboratory and readymix. These
divisions are the basis on which the Group reports its primary segment
information. The principal services and products of each of these divisions are
as follows:
Earthworks - bulk earthworks and roads and civil engineering contractors.
Plant hire - plant hire and logistical services.
Geotechnical laboratory - geotechnical laboratory and surveying services.
Readymix - supplier of readymixed concrete and pumping services.
The Group acquired the Readymix business with effect from 29 February 2008 and
the assets and liabilities of the business are included in segment assets and
liabilities reported below.
Segment revenue and segment result
Segment revenue Segment result
6 months 6 months 6 months 6 months
ended ended ended ended
31 August 31 August 31 August 31 August
2008 2007 2008 2007
R`000 R`000 R`000 R`000
Earthworks 281 202 188 377 38 606 31 988
Plant hire 88 578 53 973 34 595 25 435
Geotechnical 5 680 2 709 1 178 663
laboratory
Readymix 62 476 - (1 103) -
437 936 245 059 73 276 58 086
Corporate* 6 480 - 390 -
Eliminations (100 181) (51 590) - -
344 235 193 469
Profit before tax 73 666 58 086
Taxation (20 673) (17 194)
Profit for the period 52 993 40 892
Segment assets and liabilities
Segment assets Segment liabilities
6 months 6 months 6 months 6 months
ended ended ended ended
31 August 31 August 31 August 31 August
2008 2007 2008 2007
R`000 R`000 R`000 R`000
Earthworks 174 868 142 945 87 729 83 094
Plant hire 290 781 159 882 229 029 101 181
Geotechnical 3 455 3 225 2 329 1 292
laboratory
Readymix 86 122 - 18 294 -
555 226 306 052 337 381 185 567
Corporate* 39 709 - 62 858 -
Eliminations (35 728) (39 107) (35 728) (39 107)
559 207 266 945 364 511 146 460
Other segment information
Depreciation Additions to non-
current assets
6 months 6 months 6 months 6 months
ended ended ended ended
31 August 31 August 31 August 31 August
2008 2007 2008 2007
R`000 R`000 R`000 R`000
Earthworks 978 284 1 142 1 112
Plant hire 11 758 6 955 69 603 68 408
Geotechnical 209 106 859 602
laboratory
Readymix 2 397 - 588 -
15 342 7 345 72 192 70 122
* Corporate includes the transactions of the holding company.
Segment revenue reported above represents revenue generated from external
customers. Intersegment sales amounted to R100,2 million (2008: R51,6 million).
The accounting policies of the reportable segments are the same as the Group`s
accounting policies. Segment profit represents the profit earned by each segment
after taking into account interest received and interest paid.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL REPORT
for the period ended 31 August 2008
Corporate information
Protech is a limited liability company incorporated and domiciled in South
Africa. Protech is listed on the JSE Limited.
The directors of Protech authorised the issue of the condensed consolidated
financial report for the six months ended 31 August 2008 on 31 October 2008.
Basis of preparation
The condensed consolidated financial report for the six months ended 31 August
2008 has been prepared in compliance with the South African Companies Act No 61
of 1973, as amended, the Listings Requirements of the JSE Limited and
International Accounting Standard 34, Interim Financial Reporting.
The accounting policies and methods of computation applied in the preparation of
the condensed consolidated interim financial report are consistent with those
applied for the period ended 29 February 2008, which comply with International
Financial Reporting Standards (IFRS).
There are no standards that are currently in issue but not effective which would
result in a change in accounting policy.
Acquisition
On 1 June 2008 Protech acquired the assets and related technical drawings of
Impact Compaction (Pty) Limited for R7 million. Included in the purchase price
was an amount of R1,9 million which was allocated to intangible assets. In terms
of the purchase agreement, a further amount of R3 million is payable upon
registration of patents pertaining to the assets acquired.
Goodwill and fair values determined on a provisional basis
The initial accounting for the acquisition of Protech Readymix (Pty) Limited was
determined on a provisional basis on 29 February 2008. In accordance with the
requirements of IFRS 3, the purchase price allocation must be completed within
12 months of the acquisition date. For the interim period, the fair values of
some assets and liabilities have been finalised and the necessary adjustments
have been made against the fair values of these items and goodwill.
Further adjustments to the fair values of assets and liabilities recorded on
acquisition date are anticipated up to 28 February 2009 and will result in
further adjustments being made to the fair values of these items and goodwill.
Post-balance sheet date events
The directors are not aware of any matter or circumstance arising after the end
of the period and up to the date of this report, not otherwise dealt with in
this report.
Independent review opinion
The auditors, Deloitte & Touche, have issued their unmodified review opinion on
the condensed consolidated financial report for the six months ended 31 August
2008. A copy of their unmodified review opinion is available for inspection at
the company`s registered office.
COMMENTARY
INTRODUCTION
Protech Khuthele Holdings is a focused civil engineering group with specific
emphasis on fast-track contracting within the civil engineering and construction
industries.
The group`s activities include bulk earthworks and excavations, civil works,
road building and re-alignments, and infrastructural development for the public,
private and mining and heavy industrial sectors. The group has the ability to
quickly adapt its sectoral focus between different sectors in line with changing
market dynamics.
FINANCIAL REVIEW
Infrastructure spend by both the public and mining sectors continued unabated in
the six months under review following the tapering off of residential building
activity. Protech`s pro-active shift to take advantage of these market trends
supported strong results in the six months ended 31 August 2008.
Income statement
Group revenue increased by 78% to R344,2 million (2007: R193,5 million). Organic
revenue growth comprised 45%, with acquisitive growth contributing 33%.
During the last six months, 71% of total revenue came from mining infrastructure
and public sector infrastructure development compared to 37% six months ago.
These sectors will remain the group`s focus until there is a sustainable
recovery in the building sector.
Operating profit at R86,6 million was 42% higher (2007: R60,8 million) than the
comparative prior year due to increased project activity. Operating margins have
been maintained at 25% in line with the group`s traditional and sustainable
levels, as achieved for the full year to February 2008. The margin of 31%
achieved during the six months to 31 August 2007 was abnormally high and does
not provide an effective comparison due to two main reasons:
- Abnormally good weather in H1 2008
- The pre-listing operating structure that is not directly comparable with the
group`s current structure. The group was formed in June 2007 and listed in
August 2007
H1 2009 and F2008 therefore provide a truer comparison.
Net interest cost rose to R13,0 million (2007: R2,8 million) due to an increase
in interest bearing debt to R226,6 million (2007: R73,3 million). The full
effect of the interest cost on finance raised during the past 18 months is now
reflected in the interest expense line.
The effective tax rate of 28% (2007: 29%) is in line with statutory corporate
tax rates and is not expected to vary significantly in the future.
Earnings per share increased by 25% from 11,7 cents per share to 14,6 cents per
share. Headline earnings increased by 31% to 14,8 cents per share (2007: 11,3
cents per share) over the comparative prior year period.
Balance sheet
Net debt to equity (excluding common control reserve from equity) increased to
105% from 98% at 29 February 2008 as a result of funding the final portion of
the purchase price of the Readymix businesses (R71,3 million), as well as plant
expansion of R69,6 million. Management believes that although this gearing is
high, it is in line with the group`s business model and policy of running only
new equipment and replacing this equipment on average 30 months after purchase.
Furthermore, interest bearing debt relates almost exclusively to asset finance,
providing sufficient equity in plant and equipment to cover debt. The group also
generates strong cash to comfortably service the debt.
During the last six months, the group expanded its operating capacity through
continued investment in plant and equipment. Plant and equipment therefore
increased by R69,6 million. The group`s average plant utilisation rate remains
leading-edge at 102%.
Project accounts receivable increased by 36% to R131,0 million (2007: R96,1
million). Of this:
- 55% (R74 million) consisted of blue-chip and listed clients
- 18% (R24 million) consisted of work certified, but not yet invoiced
Of the invoiced debtors at 31 August 2008, 77% (R57 million) was collected by
end October 2008.
Retention debtors increased by 163% to R35,7 million (2007: R13,6 million). This
is in line with the industry average of retentions due after 12 months on
completion of contracts. None of the group`s retention debtors are older than 12
months, indicating that retention debtors are collected when they come due.
There have been no significant bad debts or bad debt write-offs during the
period under review. This continues the trend established over the past two
financial years due to strict credit control and customer vetting procedures.
Cash flow
Cash generated by operations before working capital changes increased by a very
satisfactory 55% to R103,0 million (2007: R66,4 million) compared to R109,5
million for the full year to February 2008. In the six months under review, the
cash utilised to fund increased working capital comprised largely the R66
million increase in the aforementioned accounts receivable.
OPERATIONAL REVIEW
Structure
The group is structured along four major operating divisions:
- Civils and Earthworks - bulk earthworks and roads and civil engineering
contractors
- Plant hire and Logistics - plant hire and logistical services
- Geotechnical Laboratory - geotechnical laboratory and surveying services
- Readymix - supplier of readymixed concrete and pumping services
Sector overview
Mining sector (36% of group revenue (2008 full year: 21%))
Activity in this sector increased significantly, especially in coal mining.
Apart from infrastructure construction such as roads, haul roads and storm water
dams, Protech is also increasingly undertaking extensive top soil strip
operations for mining operations.
Public sector (21% of group revenue (2008 full year: 16%))
Protech is actively involved in large-scale infrastructure developments and
improvements being carried out by the various government and local government
agencies. These include:
- Road construction ranging from gravel road upgrades in townships to
provincial roads and national freeway and intersection upgrades
- The Gautrain project
- Airport upgrades
- Waste water treatment facilities
Private and commercial sector (23% of group revenue (2008 full year: 61%))
Although the group scaled back its activities in the retail sector, it
maintained a presence in the commercial and industrial development sector. This
work comprises mainly bulk earthworks projects such as basement excavations and
platform construction. Activity in this sector has slowed somewhat, but has by
no means come to a halt. Protech is currently still involved in a number of
projects in this sector and will maintain a presence in this sector.
Operational overview
Contracting (84% of group revenue)
The Civils and Earthworks and Plant and Logistical services form the Contracting
arm of the group.
In line with its strategy of offering a full spectrum of civil engineering
services, in the period under review, Protech further diversified its operations
by extending its operational capabilities through expansion into crushing and
screening and specialist soil compaction. The business continued its solid
performance due to the effective shift to strong growth sectors, especially the
development and expansion of coal and platinum mines and transport contracts,
such as Gautrain and airports. This business posted strong organic growth from
larger contracts and continued fleet efficiencies, with the average contract
value increasing sizeably in the last six months.
Geotechnical (2% of group revenue)
Geotechnical comprises a geotechnical laboratory and survey services. The
Geotechnical division supports the Contracting division by providing timeous and
high quality geotechnical services. During the year, this business increased its
revenue in line with Contracting and improved profits to R1,2 million.
Readymix (14% of group revenue)
The readymix businesses acquired with effect from 29 February 2008 were
traditionally focused on the residential development market. The current
slowdown in this market has therefore temporarily negatively impacted this
operation with sales volumes 36% down from the prior year`s average volumes.
During the period, Protech pro-actively refocused the target market of this
business to the industrial and construction sectors that better dovetail with
the Protech group activities. Residential activity therefore already reduced
from 95% to 65%, with further diversification underway.
As part of the refocusing of the business, one production plant was relocated to
further increase the business` footprint, with the Gauteng presence already
increasing by 15%. The full effect of the repositioning is expected to manifest
in the results over the next 12 months.
PROSPECTS
Protech has current contracts in progress of R840 million. R633 million will be
completed over the next 18 months.
Protech is well positioned to continue to benefit from the estimated R600
billion government infrastructure spend over the next three years as committed
to in minister Trevor Manuel`s medium-term budget. The line of sight of future
projects, over and above Eskom-related developments, stretches well beyond the
next three years and indicates sustained activity for the industry. The
worldwide energy crises will also place increasing demands on fossil fuels.
Protech`s involvement in the coal mining sector will therefore continue to
produce a profitable revenue stream and already comprises a solid portion of the
forward order book.
The proven ability of the group to anticipate market shifts and to respond
swiftly to these shifts (within ? three months) ensures that the group will be
able to sustain its level of activity and grow profits through times of change
in its markets.
The group expects further strong growth in the second half of 2009, as well as
sustained growth in the long term.
On behalf of the directors
DA Ackerman GD Chapman CJA Wolmarans
Chairman of the Board Group Chief Executive Group Financial
Director
Lanseria
3 November 2008
Directors:
DA Ackerman* (Chairman)
GD Chapman (Group Chief Executive)
CJA Wolmarans (Group Financial Director)
MSG Mareletse*+, C Nkosi*, V Raseroka*
P van Tonder*, M Vuso*+
* non-executive + independent
Secretary:
A van der Merwe
Registered office:
Corner R512 and Elandsdrift Road, Bultfontein, Lanseria
(Private Bag X6, Lanseria, 1748)
(Website: www.protechkhuthele.co.za)
Transfer secretary:
Link Market Services South Africa (Proprietary) Limited
11 Diagonal Street, Johannesburg, 2001.
(PO Box 4844, Johannesburg, 2000)
Sponsor:
Deloitte & Touche Sponsor Services (Proprietary) Limited
www.protechkhuthele.co.za
Date: 03/11/2008 07:05:01 Produced by the JSE SENS Department.
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