| Fri 28 Nov 2008, 11:24 | | BIK - Brikor Limited - Reviewed Condensed Interim Financial Results For The Six |
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BIK
BIK
BIK - Brikor Limited - Reviewed Condensed Interim Financial Results For The Six
Months Ended 31 August 2008
BRIKOR LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1998/013247/06)
(JSE code: BIK & ISIN: ZAE000101945)
("Brikor" or "the company" or "the group")
REVIEWED CONDENSED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST
2008
Condensed Group Income Statements
Reviewed Reviewed Audited
6 months 6 months 12 months
August 2008 August 2007 February
R`000 R`000 2008
R`000
Revenue 190 269 176 107 311 908
Cost of sales (133 925) (99 153) (174 070)
Cost of sales depreciation (10 209) (7 228) (13 719)
Gross profit 46 135 69 726 124 119
Other income 396 6 321 7 197
Administration expenses (26 487) (17 727) (38 630)
Profit before interest, and 20 044 58 320 92 686
taxation
Investment revenue 3 273 782 13 005
Loss on disposal of non- - (62) -
current assets
Finance costs (4 764) (174) (6 780)
Profit before taxation 18 553 58 866 98 911
Taxation (6 107) (15 253) (25 869)
Profit attributable to 12 446 43 613 73 042
ordinary shareholders
Reconciliation of headline
earnings:
Profit attributable to 12 446 43 613 73 042
ordinary shareholders
Adjusted for loss on disposal - 44 -
of property, plant and
equipment
Grant received - (6 303) (6 303)
Headline earnings 12 446 37 354 66 739
attributable to ordinary
shareholders
Weighted average shares in 621 194 853 502 136 986 560 227 730
issue on which earnings are
based
Fully diluted weighted 637 094 853 503 226 026 569 244 990
average shares in issue
Earnings per share (cents) 2.0 8.7 13.0
Headline earnings per share 2.0 7.4 11.9
(cents)
Fully diluted earnings per 2.0 8.7 12.8
share (cents)
Fully diluted headline 2.0 7.4 11.7
earnings per share (cents)
Dividend per share (cents) 1.5 - -
Condensed Group Balance Sheets
Reviewed Reviewed Audited
August 2008 August February 2008
R`000 2007 R`000
R`000
ASSETS
Non-current assets 532 536 293 691 327 275
Property, plant and equipment 398 003 266 691 299 832
Goodwill 115 297 27 000 27 237
Intangible assets 18 911 - -
Other financial assets 325 - 206
Current assets 171 469 285 378 198 692
Inventories 87 169 37 258 65 225
Loans receivable - 5 764 -
Trade and other receivables 60 897 31 053 37 768
Cash and cash equivalents 23 403 211 303 95 699
Total assets 704 005 579 069 525 967
EQUITY AND LIABILITIES
Equity 414 924 397 590 412 035
Issued capital 62 64 62
Share premium 225 980 240 962 225 980
Retained earnings 188 882 156 564 185 993
Non-current liabilities 191 821 56 282 57 442
Environmental obligation 7 893 5 782 5 802
Medium-term loans and 129 041 13 650 14 198
instalment sale creditors
Deferred taxation 54 887 36 850 37 442
Current liabilities 97 260 125 197 56 490
Trade and other payables 41 781 24 792 27 400
Current portion of non-current 31 918 10 019 8 977
liabilities
Taxation 18 583 10 163 16 110
Other financial liabilities - - 4 003
Loan from shareholder - 80 223 -
Bank overdraft 4 978 - -
Total equity and liabilities 704 005 579 069 525 967
Capital commitments 11 020
Number of shares in issue at 621 194 853 636 000 621 194 853
period-end (excluding treasury 000
shares)
Net asset value per share 66.8 62.5 66.3
(cents)
Net tangible asset value per 45.2 58.3 61.9
share (cents)
Condensed Group Statements of Changes in Equity
Reviewed Reviewed Audited
6 months 6 months 12 months
August August February
2008 2007 2008
R`000 R`000 R`000
Balance at beginning of period 412 035 216 015 112 951
Issue of share capital - 15 241 942
Share premium - 137 947 (15 900)
Net profit for the period 12 446 43 613 73 043
Dividend declared (9 557) - -
Balance at end of period 414 924 397 590 412 035
Condensed Group Cash Flow Statements
Reviewed Reviewed Audited
6 months 6 months 12 months
August August February
2008 2007 2008
R`000 R`000 R`000
Cash flows from operating 3 270 14 613 25 921
activities
Cash flow from investing (209 182) (33 022) (74 000)
activities
Cash flow from financing 128 638 226 790 140 894
activities
Net increase in cash and cash (77 274) 208 381 92 815
equivalents
Cash and cash equivalents at 95 699 2 922 2 884
beginning of period
Cash and cash equivalents at 18 425 211 303 95 699
end of period
Segmental Reporting
Reviewed Audited
6 months 12 months
August February
2008 2008
R`000 R`000
Revenue
Clay products 64 154 168 139
Concrete products 65 130 58 232
Aggregates and ready-mix 18 447 -
Ancillary products and 42 538 85 537
services
190 269 311 908
Gross profit before
depreciation
Clay products 24 845 66 919
Concrete products 19 397 19 251
Aggregates and ready-mix 9 690 -
Ancillary products and 2 412 51 672
services
56 344 137 842
OVERVIEW
The directors of Brikor present the reviewed interim financial results for the
six months ended 31 August 2008 ("the interim period"), which results were below
expectations having regard to the following:
Brikor is a manufacturer and supplier of building and construction materials to
the building industry, servicing all segments of the market from low cost
housing projects, residential, commercial and construction. The diversification
strategy to expand its concrete division and the acquisition of two quarries has
minimised the inherent risks of a traditional brick-making business and has
ensured a spread of product offerings.
From a market reporting overview, the knock-on effect of the world crisis on
emerging markets was not anticipated in the forecast period with the high
interest rates, more stringent requirements for credit, a dramatic increase in
the fuel price and the economic uncertainty that caused a severe drop in
building activity, which resulted in an unexpected and unprecedented overstocked
situation.
- The effect of the market turmoil on brick-making companies has been "sudden
and dramatic" with some manufacturers willing to liquidate stocks at below
cost in order to raise cash flow, as quoted by one of the brick
manufacturers. This position is the worst in 15 years and not unique to
the performance of Brikor`s brick-making operations
- The brick industry in general and, in particular, the clay brick
manufacturers are faced with serious challenges as surplus stocks force
them to sell stock below cost. In addition, there are reports of lay-offs
and extended annual shutdowns next month. Smaller brick-making factories
have already closed until further notice in an endeavour to limit
production input cost.
On the upside, although the shrinking residential building market negatively
affected the company`s sales, the newly acquired companies detailed below, have
strengthened the traditional business of brick manufacturing. At an early
stage, Brikor identified the challenges and implemented a turn-around strategy
and focused on elements to "right-size" its business for the current climate,
including:
- re-aligning the lower production volumes with reduced operational cost
structures.
- focusing on the commercial building sector and construction segment in
terms of its diversification strategy, which provided a cushion for the
company.
- the recent major acquisitions, Zululand Quarries Group ("Zululand
Quarries") and Donkerhoek Quartzite (Pty) Limited ("Donkerhoek"), have
started to contribute to the critical mass required for the group to remain
sustainable and profitable going forward. The performance of both quarries
has been satisfactory to date and their growth prospects indicate that the
investments complement the group activities and diversification strategy.
The acquisitions of Zululand Quarries and Donkerhoek were completed during
the period and were incorporated into the results with effect from 1 April
2008 and 1 August 2008, respectively.
The rationale for the acquisitions is as follows:
- the acquisition of Zululand Quarries is in line with Brikor`s growth
strategy as well as its geographical expansion plan to have a national
footprint and will be Brikor`s first entry into the coastal regions;
- the products offered by Donkerhoek will increase Brikor`s participation in
infrastructual projects. The Donkerhoek quarry is strategically located in
Pretoria East;
- the product ranges offered by Zululand Quarries and Donkerhoek fall within
the diversification strategy and also strengthen the current Brikor product
offering such as roof tiles, pavers and clay bricks and pipes; and
- the location of Zululand Quarries offers Brikor a strategic entrance and
opportunity to offer clay bricks to the KwaZulu-Natal market.
From an operational reporting overview, Brikor was severely affected by a
strike.
- As a result of serious intimidation and assaults between two unions,
bargaining for majority recognition and the cancellation of a three year
wage agreement (expiring at the end of March 2010), Brikor`s production
came to a complete standstill. Strike action during the negotiation
process necessitated substantial spending on increased safety actions and
precautions and a non-recurring expenditure of approximately R5.2 million
on strike-related costs.
- Normal business operations were hampered throughout the strike period,
resulting in a decrease in business activity as well as the loss of
production. Fortunately, with higher than normal stock levels, the company
was able, under extremely difficult circumstances, to service its major
clients and project commitments. Brick sales decreased by 50% during the
strike period. The strike was resolved in mid October 2008 with a new wage
agreement being reached. Brikor and the unions agreed on a process of
healing and the platform for a long-term relationship with unions has been
set. The workforce, with a more positive attitude, returned to work and
brick sales and production have returned to pre-strike levels.
- The concrete manufacturing facility in Olifantsfontein yielded negative
returns as a result of the late commissioning of two paver plants, which
did not adequately contribute to the forecast and reporting period. These
losses were caused by unforeseen mechanical problems in the commissioning
phase and a lack of production by under-performing manufacturing equipment.
The directors remain positive that the investment in the two paver plants
will result in enhanced earnings for the group. The two plants have now
been fully commissioned and are producing in line with demand and are
expected to break-even before the end of the financial year.
In addition to lower volume demand, the continued increased input costs, such as
energy, fuel and raw material, diluted the net earnings versus volume output
during the interim period. The company was unable to pass these cost increases
onto its customers as a result of price pressure and competition for volume.
This effect of previous fuel price increases on the company has eased
considerably since the period end.
FINANCIAL RESULTS
The group`s consolidated revenue increased by 8% to R190.3 million (2007: R176.1
million), mainly as a result of the inclusion of the Zululand Quarries
acquisition from 1 April 2008. Gross profit decreased by 34% to R46.1 million
(2007: R69.7 million) and gross profit margins decreased to 24% as a result of
the continued increased input costs, such as energy, fuel and raw material. The
reduction in the group gross profit, combined with higher operating expenses,
increased depreciation charges for the larger asset base and finance costs,
resulted in a reduction in headline earnings per share to 2.0 cents for the
period (2007:7.4 cents).
Other income for the year ended 29 February 2008 of R7.2 million includes non-
recurring income of R6.3 million in terms of a grant received from the
Department of Trade and Industry. The investment revenue for the 2008 year
amounted to R13.0 million as a result of the funds received in respect of the
private placement of R140 million in August 2007. These funds have been
utilised subsequent to the 2008 year end to pay for the Zululand Quarries
acquisition, capital projects and to increase the group`s inventory levels.
The increase in fixed assets, goodwill, intangible assets, inventories and trade
and other receivables relate to the acquisitions of Zululand Quarries and
Donkerhoek.
The segmental report reflects a substantial decrease in revenue for the clay
brick division as a result of the factors described above. On the positive
side, despite the decrease in clay brick activity, an increase in revenue was
realised through concrete activity, largely attributable to the acquisition of
Zululand Quarries.
PROSPECTS
Notwithstanding the current market conditions and while the operating results
for the period were not to expectation, the directors believe that the
diversification strategy will bear fruit in view of the Government`s
infrastructure improvement plans. The product lines offered by Brikor will
create many opportunities for the group across market segments (i.e. from low
cost housing development to commercial and construction).
As the South African economy experiences a down cycle, there are still
opportunities for growth in those market segments least affected and in some
case not affected at all. The management of Brikor is motivated and eager to
accelerate the shift of focus from the market`s current centre of gravity to
other segments with specific needs where differentiation can be achieved.
With Brikor`s differentiated strategy and product offering, the company`s
research has identified three main segments for growth and the spreading of risk
over time with its "Value Strategy of Diversification" and expansion to be the
key for sustainability.
These identified market segments are:
1. Non Residential - Construction Industry.
2. Non Residential - Commercial buildings and offices.
3. Residential - Affordable and low cost housing.
The directors are confident that the post-strike turnaround strategy ( to
recover and curb costs) and the effect of the acquisition of Donkerhoek will, in
the second half of the year and going forward, reflect a much improved financial
performance. The new businesses acquired which create critical mass, will
sustain and benefit all stakeholders.
Zululand Quarries has performed well during the period under review, achieving
an above-budget profit for the first five month reporting period.
Major capital expenditure has been expended according to plan, with the
exception of the tunnel kiln upgrade in Vereeniging and the building of a 70
cube per hour ready-mix batching plant at Donkerhoek, which are to be completed
by year end. The group now has sufficient spare capacity in all its businesses
and will focus on exploiting these assets by maximising synergies and economies
of scale.
ZULULAND QUARRIES AND DONKERHOEK ACQUISITIONS
Growth prospects - KwaZulu-Natal
In summary, the growth possibilities identified in the KwaZulu - Natal market
relate to traditional residential as well as residential low cost housing. This
fast growing segment (specifically low cost housing) of the market will fully
utilise the complete Brikor product offering in precast concrete products and
include:
1. Ready mix concrete for foundations
2. Concrete blocks for top structure
3. Concrete roof tiles
The directors believe that the construction industry in this area is on high
growth levels and the Stanger operation is well positioned to sustain such
growth as well as capitalising the growth in the aggregates and ready mix
business.
Growth prospects - Inland
The growth possibilities identified in respect of the Inland Gauteng market
relate to residential low cost housing as well as Non-Residential and
construction. The Donkerhoek acquisition, with its batch plant installation,
will substantially contribute to the future growth of Brikor. These three
segments will also fully utilise the complete Brikor product offering in precast
concrete products and include:
1. Concrete roof tiles
2. Ready mix concrete used in foundations
3. Aggregates used in construction and infrastructure development
4. Ready mix concrete
5. Construction and infrastructure development.
BUSINESS COMBINATIONS
The Zululand Quarries and Donkerhoek acquisitions became effective on 1 March
2008 and 1 August 2008, respectively. These businesses contributed revenue of
R51.1 million and R4.3 million, and after-tax profits of R8.7 million and R0.2
million, respectively, for the period.
Due to the short time span between the date of acquisition of Zululand Quarries
and Donkerhoek and the date of the half-year interim report, the business
combinations were accounted for using provisional figures, as the company is
currently performing an exercise to determine the fair values of plant and
equipment acquired in the business combinations. In terms of IFRS 3, Brikor is
permitted to update these provisional figures within 12 months of the effective
date of the business combinations.
The excess of the purchase price over the tangible net asset value of Zululand
Quarries of R57.9 million (gross of related deferred taxation of R5.6 million)
includes the indicative value of the acquired market-related intangible assets
of R4.2 million, acquired customer-related intangible assets of R8.7 million and
acquired contracts of R6.9 million and results in goodwill of R38.1 million,
which is not amortised but is tested for impairment on an annual basis.
The excess of the effective purchase price over the tangible net asset value of
Donkerhoek results in goodwill of R50 million, which is not amortised but is
tested for impairment on an annual basis.
The final assessment of intangible assets and goodwill is in the process of
being completed by independent valuation specialists and the required
adjustment, if any, will be reflected in the year-end results.
BASIS OF PREPARATION
The reviewed interim results have been prepared in accordance with International
Financial Reporting Standards ("IFRS"), the Companies Act (Act 61 of 1973), as
amended, International Accounting Standards (IAS 34 : Interim Financial
Reporting), and the JSE Limited Listings Requirements.. The accounting policies
used to prepare these interim financial statements are consistent with those
applied in the prior interim period and at previous year-end.
These consolidated interim financial statements incorporate the financial
statements of the company and its subsidiaries. Results of subsidiaries are
included from the effective date of acquisition or up to the effective date of
disposal. All significant transactions and balances between group enterprises
are eliminated on consolidation.
REVIEWED RESULTS
The auditors, RSM Betty & Dickson (Tshwane), have reviewed these results and
their unmodified review opinion is available for inspection at the company`s
registered office.
POST BALANCE SHEET EVENTS
There are no material events subsequent to the end of the interim period that
have not been reflected in the interim financial statements or that require
further disclosure.
STATEMENT ON GOING CONCERN
The financial statements have been prepared on the going-concern basis since the
directors have every reason to believe that the company has adequate resources
in place to continue in operation for the foreseeable future.
DIVIDEND POLICY
No dividend has been declared for the interim period.
BOARD OF DIRECTORS
Mr KE Mathebula resigned as an executive director of the company with effect
from 25 September 2008.
By order of the Board
28 November 2008
GVN Parkin H Botha
Chief Executive Officer Chief Financial Officer
CORPORATE INFORMATION
Non executive directors: E G Dube; M M Patel
Executive directors: G V N Parkin (Chairman and CEO); A Cronje (MD); H Botha
(CFO); G Parkin (Jnr)
Registration number: 1998/013247/06
Registered address: 1 Marievale Road, Vorsterskroon, Nigel
Postal address: PO Box 884, Nigel, 1490
Company secretary: Hanleu Botha
Telephone: (011) 739 9000
Facsimile: (011) 739 9021
Transfer secretaries: Computershare Investor Services (Pty) Limited
Designated Adviser: Vunani Corporate Finance
These results and an overview of Brikor are available at www.brikor.co.za.
Date: 28/11/2008 11:24:02 Produced by the JSE SENS Department.
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