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RAC
RAC
RAC - Racec Group Limited - Abridged Audited Financial Results For The Year
Ended 30 September 2008 and dividend declaration
RACEC Group Limited
Incorporated in the Republic of South Africa
(Registration Number 1998/006153/06)
Share Code: RAC & ISIN: ZAE000105409
("RACEC" or "the Company" or "the Group")
Abridged Audited Financial Results for the year ended 30 September 2008
- Revenue up 78%
- Operating profit up 67%
- Profit for the year up 32%
- Headline and diluted headline earnings per share up 29% and 84%
respectively
- Net asset value per share up 152%
- Prospectus forecast for headline earnings per share of 15.9 cents was met
ABRIDGED CONDENSED CONSOLIDATED INCOME STATEMENT
Audited
Audited Restated
year ended year ended
30 September 30 September
Figures in R`000 2008 2007
Revenue 388 893 218 147
Cost of sales (307 038) (180 025)
Gross profit 81 855 38 122
Other income 71 4 999
Other expenses (55 352) (27 172)
Net profit before interest 26 574 15 949
received, finance costs and
taxation
Interest received 3 122 3 033
Finance costs (5 700) (2 755)
Profit before taxation 23 996 16 227
Taxation (7 837) (3 993)
Profit for the year 16 159 12 234
Attributable to:
Equity holders of the parent 14 904 12 234
Minority interest 1 255 -
Profit for the year 16 159 12 234
Earnings per share(cents):
Earnings per share 15.0 17.5
Headline earnings per share 16.0 12.4
Diluted earnings per share
(cents):
Diluted earnings per share 15.0 12.2
Diluted headline earnings per 16.0 8.7
share
Weighted average number of shares 99 199 759 70 000 000
ABRIDGED CONDENSED CONSOLIDATED BALANCE SHEET
Audited
Audited Restated
at at
30 September 30 September
Figures in R`000 2008 2007
ASSETS
Non-current assets
Property, plant and equipment 55 984 26 352
Investment property 351 350
Intangible assets 6 957 1 736
Loans to shareholders 39 -
Loans to related parties 111 9 376
Deferred tax asset 342 161
63 784 37 975
Current assets
Inventories 30 234 14 802
Trade and other receivables 83 560 70 093
Cash and cash equivalents 11 994 19 472
125 788 104 367
Total assets 189 572 142 342
EQUITY AND LIABILITIES
Capital and reserves 58 266 15 566
Minority interest 4 391 -
Total equity 62 657 15 566
Non-current liabilities
Other financial liabilities 15 892 8 420
Share based payments 2 875 1 582
Deferred tax 3 657 1 621
22 424 11 623
Current liabilities
Loans from shareholders - 9 152
Loans from related parties 673 676
Trade and other payables 48 679 63 747
Other financial liabilities 6 985 14 738
Taxation 8 611 5 782
Bank overdraft 39 543 21 058
104 491 115 153
Total liabilities 126 915 126 776
Total equity and liabilities 189 572 142 342
Net asset value per share (cents) 56.0 22.2
Net tangible asset value per 49.3 19.8
share (cents)
Number of shares in issue 104 018 088 70 000 000
ABRIDGED CONDENSED STATEMENT OF CHANGES IN EQUITY
Share
capital Share
and share buy Revaluation
Figures in R`000 premium back reserve
Balance at 1 October 2006 1 (3 879) 5 473
Changes in equity
Share buy back * - -
Realised revaluation through - - (3 337)
depreciation
Revaluation of property, - - 803
plant and equipment
Net (expenses)/income - - (2 534)
recognised directly in equity
Net profit for the year - - -
Disposal of subsidiary
Distribution to shareholders - - -
Balance at 1 October 2007 as * (3 879) 2 939
stated previously
Prior year adjustment - - -
Restated balance at 1 October * (3 879) 2 939
2007
Changes in equity
Shares issued 32 528 - -
Share issue expenses (2 231) - -
Share buy-back - - -
Realised revaluation through - - (845)
depreciation
Deferred tax on realised - - 236
revaluation through
depreciation
Revaluation of property, - - 4 063
plant and equipment
Deferred tax on revaluation - - (1 138)
of property, plant and
equipment
Effect of tax rate change on - - 29
revaluation reserve
Net income/(expenses) - - 2 345
recognised directly in equity
Net profit for the year - - -
Disposal of subsidiary
Distribution to shareholders - - -
Balance at 1 October 2008 30 297 (3 879) 5 284
Total
Attributable
to equity
Retained holders of Minority
Figures in R`000 income the group interest
Balance at 1 October 2006 4 918 6 513 64
Changes in equity
Share buy back - * -
Realised revaluation through 3 337 - -
depreciation
Revaluation of property, - 803 -
plant and equipment
Net (expenses)/income 3 337 803 -
recognised directly in equity
Net profit for the year 12 234 12 234 26
Disposal of subsidiary - - (90)
Distribution to shareholders (3 181) (3 181) -
Balance at 1 October 2007 as 17 308 16 369 -
stated previously
Prior year adjustment (803) (803) -
Restated balance at 1 October 16 505 15 566 -
2007
Changes in equity
Shares issued - 32 528 -
Share issue expenses - (2 231) -
Share buy-back - - -
Realised revaluation through 845 - -
depreciation
Deferred tax on realised (236) - -
revaluation through
depreciation
Revaluation of property, - 4 063 -
plant and equipment
Deferred tax on revaluation - (1 138) -
of property, plant and
equipment
Minority interest on business - - 3 136
acquisitions
Effect of tax rate change on - 29 -
revaluation reserve
Net income/(expenses) 609 2 954 3 136
recognised directly in equity
Net profit for the year 14 904 14 904 1 255
Disposal of subsidiary - - -
Distribution to shareholders (5 455) (5 455) -
Balance at 1 October 2008 26 563 58 266 4 391
Total equity
Figures in R`000
Group
Balance at 1 October 2006 6 577
Changes in equity
Share buy-back *
Realised revaluation through -
depreciation
Revaluation of property, 803
plant and equipment
Net (expenses)/income 803
recognised directly in equity
Net profit for the year 12 260
Disposal of subsidiary (90)
Distribution to shareholders (3 181)
Balance at 1 October 2007 as 16 369
stated previously
Prior year adjustment (803)
Restated balance at 1 October 15 566
2007
Changes in equity
Shares issued 32 528
Share issue expenses (2 231)
Share buy-back -
Realised revaluation through -
depreciation
Deferred tax on realised -
revaluation through
depreciation
Revaluation of property, 4 063
plant and equipment
Deferred tax on revaluation (1 138)
of property, plant and
equipment
Minority interest on business 3 136
acquisitions
Effect of tax rate change on 29
revaluation reserve
Net income/(expenses) 6 090
recognised directly in equity
Net profit for the year 16 159
Disposal of subsidiary -
Distribution to shareholders (5 455)
Balance at 1 October 2008 62 657
(* less than R1 000)
ABRIDGED CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Audited
Audited Restated
year ended year ended
30 September 30 September
Figures in R`000 2008 2007
Cash flows from operating
activities
Cash generated from operations 5 233 15 079
Interest received 3 122 3 032
Finance costs (5 700) (2 755)
Taxation paid (8 968) (1 167)
Net cash from operating activities (6 313) 14 189
Cash flows from investing
activities
Purchase of property, plant and (22 171) (10 958)
equipment
Purchase of business operations (1 904) (10 870)
Proceeds from disposal of 794 225
property, plant and equipment
Proceeds on disposal of subsidiary - 86
Net cash used in investing (23 281) (21 517)
activities
Cash flows from financing
activities
Repayment /(Advance) of loans to 9 260 (3 108)
related parties
Repayment of other financial (14 998) (3 501)
liabilities
Advance of other financial 8 447 15 568
liabilities
(Repayment)/Advance of loans from (9 192) 4 604
shareholders
Capital distribution to (5 455) (3 181)
shareholders
Proceeds for share capital issued 15 569 -
Net cash raised in financing 3 631 10 282
activities
Total cash movement for the year (25 963) 2 954
Cash at the beginning of the year (1 586) (4 540)
Cash and cash equivalents at end (27 548) (1 586)
of the year
NOTES TO THE AUDITED FINANCIAL STATEMENTS
1. Basis of preparation
The accounting policies applied in the preparation of these condensed
financial statements, which are based on reasonable judgments and estimates,
are in accordance with International Financial Reporting Standards ("IFRS")
and are consistent with those applied in the annual financial statements for
the year ended 30 September 2007. These condensed financial statements as set
out in this report have been prepared in terms of IAS 34 - Interim Financial
Reporting, the Companies Act (Act 61 of 1973), as amended and the Listings
Requirements of JSE Limited.
2. Prior period error
The 2007 financial statements contained an error relating to deferred tax
transferred from the deferred tax liability to the revaluation reserve and the
amount transferred from the revaluation reserve to retained income for the
realised revaluation through depreciation. The impact is that the deferred tax
liability was understated in 2007 by R803 445 and retained earnings were
overstated by R803 445.
3. Operating profit
Operating profit includes:
Audited
Audited Restated
year ended year ended
30 September 30 September
Figures in R`000 2008 2007
Operating lease charges 1 635 1 000
Loss on sale of property 412 238
plant and equipment
Loss on disposal of - 68
subsidiary
Impairment of property, 260 -
plant and equipment
Impairment of intangible 571 -
assets
Profit on exchange - (52)
differences
Negative goodwill (JMB - (3 758)
Electrical Contractors)
Depreciation and 5 002 2 767
amortisation
Directors` emoluments 4 911 4 103
Employee costs 60 455 29 329
Audit fees 522 (2)
Share-based payments 240 62
Insurance recoveries - 45
4. Share capital
The RACEC Group listed on AltX on 18 October 2007. To facilitate the listing,
the Company passed the necessary resolutions in the prior year to:
- increase the authorised ordinary share capital for 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 cent; and
- to buy back 30% of the issued ordinary share capital, which amounted to
30 000 000 shares.
5. Reconciliation between profit and headline earnings
Audited
Audited Restated
as at as at
30 September 30 September
Figures in R`000 2008 2007
Profit for the year 14 904 12 234
Adjustments for:
- Loss on disposal of 412 238
property, plant and
equipment
- Negative goodwill (JMB - (3 758)
Electrical Contractors
- Loss on disposal of - 68
subsidiary
- Impairment losses 831 -
- Tax effects (268) (69)
- Minority interest effect - -
Headline earnings 15 879 8 713
Earnings per share (cents)
- Headline 16.0 12.4
- Basic 15.0 17.5
Weighted average number of 99 199 759 70 000 000
shares in issue
Diluted earnings per share
(cents)
Headline 16.0 8.7
Basic 15.0 12.2
Diluted weighted average 99 199 759 100 000 000
number of shares in issue
(after taking in to
account the issue of
30,000,000 shares as part
of the private placement
in the 2007 calculation)
6. Cash and cash equivalents
Cash and cash equivalents comprise cash balances with banks and bank
overdrafts.
7. Acquisitions
During the year, the Group acquired the businesses of Greenbro CC and Northern
Electric (Cape) (Proprietary) Limited ("Northern Electric") for R10.1 million
and R4.5 million respectively. The excess of the purchase price over the net
assets acquired has been recognised as Goodwill.
8. Related party transactions
During the year, 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.
9. Corporate governance
The Group complies with the code of Corporate Practice and Conduct published
in the King II report on Corporate Governance.
10. Post-balance sheet events
The directors are not aware of any material matter or circumstance arising
since the end of the financial year and the date of this report.
11. Contingent liabilities
Audited Audited
Restated
as at as at
30 September 30 September
Figures in R`000 2008 2007
STC on remaining reserves 2 752 1 891
Performance guarantees 32 137 21 834
Contingent liability 1 704 -
The performance guarantees are provided by Lombards Insurance Company Limited
and C&G Underwriting Managers (Proprietary) Limited for work by subsidiary
companies.
The contractor contingency relates to invoices received by the Group for work
performed by a subcontractor. The Group is of the view that there is no
liability to the subcontractor as there are errors on the billings and the
invoices are not valid. The amount is currently under dispute and is being
investigated with the subcontractor.
12. Dividends per share
Audited
Audited Restated
as at as at
30 September 30 September
Figures in R`000 2008 2007
Dividends declared to 4 347 1 993
equity holders of the
parent
Dividends per share 4.2 2.8
(cents)
13. Segmental information
Audited
Audited Restated
as at as at
30 September 30 September
Figures in R`000 2008 2007
Business segment:
Revenue
Administrative and plant - -
hire
Electrical reticulation 217 124 111 443
Rail construction 171 769 106 705
Profit before tax:
Administrative and plant (29 161) (7 763)
hire
Electrical reticulation 25 168 11 111
Rail construction 27 989 12 879
Geographic segment:
Revenue
Western Cape 253 635 131 386
KwaZulu-Natal 15 170 12 565
Gauteng 120 089 74 198
Profit before tax:
Western Cape 17 158 6 734
KwaZulu-Natal (478) 720
Gauteng 7 316 8 773
COMMENTARY ON AUDITED RESULTS
PROFILE AND STRUCTURE
RACEC has been in existence since 1956 and during this time has built an
extremely well trained and experienced group of employees.
Despite the current economic turmoil being experienced, the Group is in a
strong position to take advantage of the infrastructure spend both locally and
on the African continent. There is a tremendous need to reverse the
deterioration of South African and other African country`s infrastructure as a
result of the lack of investment for over a decade.
The Group`s primary business is the provision of engineering infrastructure
solutions.
The Group comprises a holding company and a number of subsidiaries, out of
which the business operations are conducted. There are two main focuses to the
Group being the provision of electrical reticulation ("Electrification") and
rail construction which includes both track installation and maintenance
("Rail").
Electrification services are provided by:
- RACEC Electrification (Proprietary) Limited ("RACEC Electrification") and
RACEC Power (Proprietary) Limited, which are both involved in electrical
reticulation and which grew out of RACEC`s desire to have a business
which complemented its rail track insulation business with the
electrification of railway tracks;
- Greenbro (Proprietary) Limited ("Greenbro"), which supplies industrial
generators and electrical enclosures; and
- Northern Electric, which is an electrical contractor focused primarily on
the industrial and commercial markets.
Greenbro and Northern Electric were acquired during the 2008 financial year
and are now an integral part of the Group`s operations.
Rail services are provided by:
- RACEC Rail (Proprietary) Limited ("RACEC Rail") which concentrates mainly
on the construction and maintenance of railway tracks throughout South
and Southern Africa.
In October 2007 the trade, assets and staff of Sizabantu Infrastructure
Maintenance CC ("Sizabantu") were acquired by RACEC Rail, but the financial
effects of which were not considered material to the Rail operations.
There have been no major changes in the nature of the Rail business.
FINANCIAL PERFORMANCE
The Group increased its revenue for the financial year ending September 2008
by 78% (2007:38%) to R388.9 million (2007: R218.1 million).
Headline earnings per share increased by 29% to 16.0 cents (2007: 12.4 cents).
This is based on a weighted average number of shares of 99.2 million (2007:
70.0 million). Diluted headline earnings per share, based on a weighted
average number of share of 99.2 million (2007:100.0 million)shares in issue,
increased by 84% to 16.0 cents (2007: 8.7 cents).
This increase can be attributed to organic growth due to the increased
spending on infrastructure projects which is starting to flow through, the
full year inclusion of the JM Badenhorst Group, which was acquired in the 2007
financial year, as well as the acquisition of the business of Greenbro CC and
acquisition of Northern Electric in the current financial year.
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.
ACQUISITIONS
In April 2008 the Group acquired the business, assets and staff of Greenbro
CC. Greenbro specialises in the supply and manufacture of electrical equipment
and generators. In May 2008 the Group acquired 70% of the shareholding of
Northern Electric. These acquisitions have increased the volume of business of
the Group and brought in a pool of well trained, experienced staff.
In addition to the above, the Group acquired the business of Sizabantu,
operating out of Cato Ridge in Kwazulu Natal, in October 2007. RACEC Rail has
now acquired the additional skills of an experienced rail welding business to
complement and strengthen its position in the rail engineering sector. The
financial contribution of the operations of Sizabantu is not material to the
group.
OPERATIONAL PERFORMANCE AND PROSPECTS
Rail
In 2008 the revenue of Rail amounted to R171.8 million (2007: R106.7 million),
this represents an increase of 61% (2007:89%) year on year.
This has been an exciting year for the rail division as we have not only seen
the full effect of the integration of the Sizabantu acquisition (specialising
in track welding) but also the establishment of an internal civils sub
division.
Rail, together with Electrification, has made the Group one of the only
specialists in the country which can offer complete turnkey rail track
solutions, from concept design recommendations, through to construction and
handover without outsourcing.
One of the challenges that we are currently experiencing is the lengthy
periods that parastatal companies take with adjudication. Certain contracts
can take as long as 18 months to be awarded.
In addition to the turnkey solutions, the Group is aligning itself with
companies specialising in locomotive shunting operations. Coupled with its
rail infrastructure maintenance subdivision, the Group will be in the position
to expand its services to offer "Build, Operate and Transfer (BOT)" type
project solutions.
The Company has been involved in a number of cross border opportunities and
plans to actively expand its footprint into Sub Saharan Africa, within the
next three years. This will counteract the frustrating long lead periods being
experienced from the parastatal companies and should help compensate for the
effects of the global economic downturn on the local market.
The Group`s implementation of a ISO 9001 Quality Management System will
further assure our clientele of our commitment to "Excellence in Engineering
Infrastructure".
Electrical Reticulation ("Electrification")
In 2008 the revenue of Electrification amounted to R217.1 million (2007:
R111.4 million), representing an increase of 95% (2007:10%) year on year.
Electrification includes the operations of Greenbro and Northern Electric.
Greenbro contributed R44.2 million in revenue and R632 000 to the Group`s
profit before tax for the 6-month period between acquisition and the balance
sheet date. The operations of Northern Electric contributed R18.2 million in
revenue and R5.4 million to the Group`s profit before tax for the 5-month
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 Greenbro and Northern Electric employees have remained in our employ,
which has gone a long way in overcoming our skills shortage.
Many of the projects identified in 2008 that did not materialise during 2008,
are projects which still need to be undertaken in the near future. These
projects, along with Government`s commitment to continued infrastructure spend
in the future, positions Electrification to achieve growth in the next year.
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 the organisation`s equity, human resource development, employment equity
and indirect empowerment through preferential procurement policies.
The BEE shareholding of most of the operating companies in the Group exceeds
30%.
The RACEC Employee Share Trust ("the Trust") was established in 2004 and has a
30% equity ownership in RACEC Rail and RACEC Electrification. There are
approximately 1 000 beneficiaries of the Trust, most of whom are from the
previously disadvantaged community. All beneficiaries receive monthly
dividends.
The Company also makes a significant investment in skills development of
employees from previously disadvantaged backgrounds who show potential by
assisting them in starting their own businesses and providing them with
administration, management, mentorship and financial support.
RACEC has established and built long-term relationships with emerging
contractors from previously disadvantaged backgrounds. This facilitates
emerging contractors` ability 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 also supports deserving disadvantage learners in their studies with the
aim of equipping them to create a better future for themselves as well as
pursuing their careers within the RACEC Group.
SOCIAL RESPONSIBILITY
Employment equity/Skills development
RACEC has a dedicated manager responsible for handling all issues related to
employment equity and training. As a group, RACEC is committed to creating
opportunities for its staff through training and promotion from within,
wherever possible.
Health and safety
The Group has a dedicated Group Health and Safety manager who reports directly
to the CEO and carries his authority. Health and safety committees are
established at all our branches and all work areas are continuously assessed.
There is a training programme in place and all safety representatives are
trained and regularly monitored.
HIV/AIDS
As a further commitment to our staff we have arranged HIV/AIDS information
sessions and testing of all our staff on a voluntary basis. The results of
these tests are strictly confidential and counselling is arranged for those
requiring further assistance. Information about the HIV/AIDS pandemic is
provided on an ongoing basis.
CASH DIVIDEND 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.
A final cash dividend of 3 cents per share is hereby declared and will be
financed out of free cash flow.
The salient dates for the dividend are as follows:
Last day to trade shares cum dividend Friday, 23 January 2009
Shares trade ex dividend Monday, 26 January 2009
Record date Friday, 30 January 2009
Payment date Monday, 02 February 2009
No share certificates may be dematerialised or rematerialised between Monday,
26 January 2009 and Friday, 30 January 2009, both dates inclusive.
Audit opinion
The annual financial statements for the year have been audited by RACEC`s
auditors, BDO Spencer Steward (Cape) Inc. Their unqualified audit report is
available for inspection at the Company`s registered office.
M Uys C Harrod
Non-Executive Chairman Chief Executive Officer
11 December 2008
Directors:
M Uys* (Chairman), C Harrod (Chief Executive Officer), G Harrod, C Gooden*, W
Ollewagen, S Wilkins (Financial Director), B Petersen*
* Non-executive
Company secretary:
S Wilkins
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 Adviser:
Merchantec (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: 11/12/2008 16:34:18 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
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