| Tue 10 Mar 2009, 7:05 | | SOH - South Ocean Holdings - Audited results for the year ended 31 December 2008 |
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SOH
SOH
SOH - South Ocean Holdings - Audited results for the year ended 31 December 2008
South Ocean Holdings
(Registration number 2007/002381/06)
Incorporated in the Republic of South Africa
("South Ocean", "the group")
Share code: SOH
ISIN: ZAE000092748
Audited results for the year ended 31 December 2008
Salient information
Revenue increases to R1 137 million
Net asset value per share increases to 420,8 cents
Capital expenditure of R76,8 million
Headline earnings return on equity of 15,6%
CONDENSED CONSOLIDATED INCOME STATEMENTS
For the year ended
31 December 31 December
2008 2007
(Audited) Change (Audited)
Notes R`000 % R`000
Revenue 1 136 617 33,3 852 594
Cost of sales (826 061) (611 522)
Gross profit 310 556 28,8 241 072
Other operating income 1 609 4 200
Administration expenses (47 324) (41 375)
Distribution expenses (17 976) (5 315)
Operating expenses (114 128) (13 204)
Operating profit 132 737 (28,4) 185 378
Finance income 2 762 4 317
Finance cost (27 630) (10 028)
Profit before income tax 107 869 (40,0) 179 667
Taxation 5 (46 768) (53 875)
Earnings attributable to 61 101 (51,4) 125 792
ordinary shareholders
Earnings per share - basic 7 39,1 (59,7) 97,0
and diluted (cents)
Dividends per share (cents) 7,0 26,0*
* Includes a dividend of 20 cents declared after year-end.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS` EQUITY
For the year ended
31 December 31 December
2008 2007
(Audited) (Audited)
R`000 R`000
Share capital
Opening balance 1 274 710
Shares issued - 564
Closing balance 1 274 1 274
Share premium
Opening balance 440 371 34 236
Share premium on shares issued - 410 586
Share issue expenses written off - (4 451)
Closing balance 440 371 440 371
Retained earnings
Opening balance 197 591 81 182
Profit for the year 61 101 125 792
Dividend paid (42 222) (9 383)
Closing balance 216 470 197 591
CONDENSED CONSOLIDATED BALANCE SHEETS
As at As at
31 December 31 December
2008 2007
(Audited) (Audited)
Notes R`000 R`000
Assets
Non-current assets 598 035 576 979
Property, plant and equipment 2 248 187 186 990
Intangible assets 2 349 848 388 868
Interest free loans receivable - 1 121
Current assets 389 341 359 981
Inventories 189 806 177 884
Trade and other receivables 175 201 136 020
Interest free loans receivable - 326
Taxation receivable 179 350
Cash resources 24 155 45 401
Total assets 987 376 936 960
Equity and liabilities
Capital and reserves
Share capital 3 1 274 1 274
Share premium 3 440 371 440 371
Retained earnings 216 470 197 591
Total equity 658 115 639 236
Liabilities
Non-current liabilities 168 237 172 549
Interest bearing borrowings 4 138 740 142 712
Deferred taxation 29 497 29 837
Current liabilities 161 024 125 175
Trade and other payables 86 088 76 856
Interest bearing borrowings 4 37 498 34 816
Taxation payable 7 049 13 430
Shareholders for dividends 4 4
Bank overdraft 30 385 69
Total liabilities 329 261 297 724
Total equity and liabilities 987 376 936 960
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
For the year ended
31 December 31 December
2008 2007
(Audited) (Audited)
R`000 R`000
Cash generated from operating activities 27 139 59 739
Cash utilised in investing activities (77 983) (298 900)
Cash (utilised in)/generated from (718) 343 807
financing activities
Net (decrease)/increase in cash and cash (51 562) 104 646
equivalents
Cash and cash equivalents at the 45 332 (59 314)
beginning of year
Cash and cash equivalents at the end of (6 230) 45 332
year
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
1. Basis of preparation
The audited financial statements for the year ended 31 December 2008 have been
prepared in accordance with the accounting policies which fully comply with
International Financial Reporting Standards and IAS 34 Interim Financial
Reporting and are consistent with those applied in the previous year.
2. Capital expenditure
The details of the changes in tangible and intangible assets are as follows:
Tangible Intangible
assets assets
R`000 R`000
Year ended 31 December 2008
Opening net carrying amount 186 990 388 868
Additions 73 171 3 688
Disposals (52) -
Impairment - (39 000)
Depreciation (11 922) (3 708)
Closing net carrying amount 248 187 349 848
Year ended 31 December 2007
Opening net carrying amount 64 308 -
Additions 32 996 1 957
Acquisition of subsidiary 98 302 387 828
Disposals (117) -
Depreciation (8 499) (917)
Closing net carrying amount 186 990 388 868
3. Share capital and share premium
Number Ordinary Share
of shares shares premium Total
R`000 R`000 R`000
Balance at 1 January 156 378 794 1 274 440 371 441 645
2008
Movement - - - -
Balance at 31 December 156 378 794 1 274 440 371 441 645
2008
Balance at 1 January 100 000 000 710 34 236 34 946
2007
Proceeds from shares 31 687 013 317 230 583 230 900
issued
Shares issued to 24 691 781 247 180 003 180 250
vendors for subsidiary
acquired
Share issue expenses - - (4 451) (4 451)
written off
Balance at 31 December 156 378 794 1 274 440 371 441 645
2007
4. Interest bearing borrowings
For the year ended
31 December 31 December
2008 007
Secured loans R`000 R`000
Non-current 138 740 142 712
Current 37 498 34 816
176 238 177 528
The movement in borrowings is analysed
as follows:
Opening balance 177 528 10 257
Acquisition of subsidiary - 48 231
Additional loans raised 38 786 134 839
Finance expense 23 187 7 834
Repayments (63 263) (23 633)
Closing balance 176 238 177 528
5. Income tax expense
The effective tax rate for 2008 has increased to 43,4% (2007: 30,0%) as a result
of the impairment of assets.
6. Reconciliation of headline earnings
For the year ended
31 December 31 December
2008 2007
(Audited) (Audited)
% R`000 R`000
Reconciliation of headline
earnings
Earnings attributable to ordinary 61 101 125 792
shareholders
Impairment of intangible assets 39 000 -
Impairment of investment and loans 2 652 -
receivable
Profit on disposal of property, (29) (429)
plant and equipment
Headline earnings 102 724 125 363
Headline earnings per share (32) 65,7 96,6
7. Weighted average number of shares
For the year ended
31 December 31 December
2008 2007
(Audited) (Audited)
Number of shares in issue 156 378 794 156 378 794
Weighted average number of shares 156 378 794 100 000 000
in issue at beginning of the year
Weighted number of shares issued - 15 583 333
during the period to February 2007
Weighted number of shares issued - 14 129 548
during the period to August 2007
Weighted average number of shares 156 378 794 129 712 881
in issue at end of the year
8. Net asset value
31 December 31 December
2008 2007
(Audited) (Audited)
Net asset value per share (cents) 420,8 408,8
9. Final dividend declaration
Due to the cash flow constraints the directors have agreed not to recommend a
final dividend.
10. Segment reporting
The group`s primary reporting format is business segments, and its secondary
format is geographical segments.
Segment Total
Revenue results assets
R`000 R`000 R`000
31 December 2008
Electric wire manufacturing 747 994 70 013 242 367
Light fittings, lamps and 388 623 *16 503 569 296
electrical accessories
Property investment - (15 843) 175 475
Other - (9 572) 59
1 136 617 61 101 987 197
Deprecia-
Total Capital tion and
liabilities expenditure amortisation
R`000 R`000 R`000
31 December 2008
Electric wire manufacturing 41 158 12 241 7 624
Light fittings, lamps and 150 718 14 058 7 035
electrical accessories
Property investment 98 640 50 560 971
Other 2 199 - -
292 715 76 859 15 630
* Includes goodwill impairment of R39 million.
Segment Total
Revenue results assets
R`000 R`000 R`000
31 December 2007
Electrical wire 673 390 97 293 246 631
manufacturing
Light fittings, lamps and 178 785 36 536 567 568
electrical accessories
Property investment 419 (6 044) 122 383
Other - (1 993) 28
852 594 125 792 936 610
Deprecia-
Total Capital tion and
liabilities expenditure amortisation
R`000 R`000 R`000
31 December 2007
Electrical wire 46 767 2 675 6 933
manufacturing
Light fittings, lamps and 84 583 21 975 1 932
electrical accessories
Property investment 121 859 10 303 551
Other 1 248 - -
254 457 34 953 9 416
11. Audit opinion
These results have been extracted from the group`s audited financial statements.
The unqualified report of PricewaterhouseCoopers Inc. on the financial
statements is available for inspection at the registered office of the company.
12. Subsequent events
The directors are not aware of any significant events arising since the end of
the financial year, which would materially affect the operations of the group or
the operating segments.
COMMENTARY
Introduction
South Ocean Holdings Limited (SOH) today announced results for the year ended 31
December 2008.
The group consists of two trading companies, South Ocean Electric Wire Company
(Proprietary) Limited (SOEW), manufacturer of low voltage electrical wire, and
Radiant Group (Proprietary) Limited (Radiant), importer and distributor of light
fittings, lamps and electrical accessories, and a property holding company
Anchor Park Investments 48 (Proprietary) Limited (Anchor Park).
The acquisition of Radiant took effect in August 2007, therefore the results for
the prior year include Radiant for only five months. As a consequence, the
current year`s results are not comparable to the prior year.
The group experienced a year of two halves, where a strong start to the year was
followed by a progressively weaker second half as market conditions grew
tougher. The impact of the global financial crisis filtered through to the local
economy. High interest rates, fuel hikes and inflation all added to the
increased cost of living, declining disposable income and general slowdown in
the infrastructure, construction, building and housing industries.
Financial overview
Earnings
The worsening economic and trading environment had an adverse impact on the
business. In particular, from August 2008, the fluctuation in copper prices
resulted in a 41% decline in the Rand Copper Price (RCP). The decrease during
November and December was 29%, resulting in electric wire manufacturers
decreasing their prices. This also led to wholesalers and distributors
decreasing orders in anticipation of lower prices in the new year.
With the inclusion of Radiant for the full year, revenue increased by 33,3% to
R1,137 billion (2007: R852,6 million). Profit after tax decreased by 51,4% to
R61,1 million (2007: R125,8 million) and headline earnings decreased by 18,1% to
R102,7 million (2007: R125,4 million). Headline earnings per share decreased by
32% from 96,6 cents to 65,7 cents per share, while earnings per share decreased
by 59,7% from 97,0 cents to 39,1 cents per share.
Operating profit decreased by 28,4% from R185,4 million to R132,7 million after
the charge for the impairment amounting to R41,7 million.
Cash flow
The finance expense pertains largely to the financing of machinery and
buildings. The majority of the finance expense relates to the loan of R120
million obtained in 2007 which was utilised to finance the properties acquired
and an additional loan of R33 million to finance the new warehouse, offices, and
showroom for Radiant in Cape Town, the new warehouse in Johannesburg, and
upgrading of the showroom in Johannesburg. The total amount spent on buildings
during the year was R50,5 million.
Inventory holding levels have increased since December 2007. The inventory value
at SOEW decreased by R23 million due to lower inventory holdings and the lower
copper price at year end. Due to the weaker Rand/Dollar exchange rate, product
prices increased which contributed to Radiant`s inventory value increasing by
R35,2 million.
Trade and other receivables increased due to a significant portion of customers
paying after year end. The quality of the debtors` book at year end remains
sound despite the economic pressures.
Operational overview
Electrical wire manufacturing
Revenue increased by 11,1 % to R748 million (2007: R673,4 million) and gross
profit decreased by 25,8% to R120,9 million (2007: R162,9 million) mainly due to
declining sales prices and devaluing inventory. This resulted in a 33,1%
decrease in the average gross profit percentage to 16,2% (2007: 24,2%).
The decrease in the Rand Copper Price during the last three months of the year
resulted in customers delaying their purchasing decision. This was exacerbated
by a slowdown in demand, putting selling prices under pressure and contributing
to a reduction in margins. During November and December, the selling prices
dropped to record lows for the year under review. An inventory loss of around R8
million was recorded, a result of the lower RCP in December 2008 of R37 610 per
ton, (2007: R47 479), which was last seen in May 2006.
Production volumes have reduced in response to lower sales volumes, however, the
volumes are marginally higher compared to the previous year. The company
completed its second expansion programme during the year with the acquisition of
machinery valued at R9,3 million. This increased capacity by a further 15% as
reported previously, however the capacity has not been fully utilised during the
year.
Light fittings, lamps and electrical accessories
Radiant reported a 3,6% growth in revenue to R388,6 million (2007: R375,2
million). These results were achieved despite lower volumes, adverse economic
conditions and the worsening exchange rate in the second half of the year
resulting in higher cost of imported goods. We continue to manage exchange rate
fluctuations closely.
The upgrading of Radiant`s computer system which is a crucial element for
effective customer service and sales has been completed and this has been fully
operational since the middle of the year.
The new state of the art showroom in Cape Town was completed. The warehouse in
Johannesburg is nearing completion. Once the warehouse in Johannesburg is
completed improvements are expected with regards to inventory management,
including efficiencies and inventory handling.
Property investment
Anchor Park houses the properties that are used by the operating companies.
During the year, the showroom in Johannesburg was upgraded at a cost of R7
million and the new building in Cape Town housing the offices, warehouse and the
showroom has been completed at a cost in the current year of R25 million. In the
year under review, we began construction of the Radiant warehouse in Wynberg.
This will be completed during the first half of 2009 and currently amounts to
R19 million.
Most of the capital expenditure was financed through the additional loans the
group raised during the year.
Seasonality
The group is affected by seasonality. The second half of the year is
traditionally significantly more profitable for SOH than the first six months.
However, given the adverse trading conditions experienced in the latter part of
the year, the results in the second half are lower then the first half.
Prospects
The group remains steadfast in its strategy of building a solid foundation for
future growth.
The depth and duration of the global economic crisis remains uncertain. Under
such circumstances, the difficult trading conditions that we are experiencing in
both divisions will continue until economic stability returns. The recent cut in
the interest rate will relieve pressure on consumers; however we don`t believe
that a recovery in the industry will occur in the near future.
In light of the above, we expect 2009 to be a challenging year.
Our immediate priority is to look for opportunities to maintain and grow market
share and improve on efficiencies in all the aspects of our businesses. We will
continue to concentrate on effective management of working capital and costs. We
are pleased with the performance of Radiant for the first full year with the
group. This acquisition has bedded down well.
The group remains convinced of the inherent potential of the market and will be
well positioned when market stability returns.
On behalf of the board
JB Magwaza EHT Pan
Chairman Chief Executive Officer
9 March 2009
CORPORATE INFORMATION
Registered office:
12 Botha Street, Alrode 1451 (PO Box 123738, Alrode 1451)
Website: www.southoceanholdings.com
Company secretary:
WT Green, 21 West Street, Houghton, 2198 (PO Box 123738, Alrode, 1451)
Sponsor:
Investec Bank Limited (Registration no: 1969/004763/06) Second floor, 100
Grayston Drive, Sandown, Sandton 2196
Share Transfer Secretaries:
Computershare Investor Services (Pty) Limited
70 Marshall Street, Ground floor, Johannesburg 2001
PO Box 61051, Marshalltown 2107, South Africa,
Telephone: +27 11 370 5000,
Telefax: +27 11 688 5200
Website: www.computershare.com
Directors:
JB Magwaza# (Chairman), EHT Pan* (Chief Executive Officer)
JP Bekker* (Chief Financial Officer), PJM Ferreira* EG Dube#, J Law#, CY Wu+, E
Li+ (Alternate), CH Pan+ H Schwartz*, G Stein*, KH Pon#
* Executive # Independent non-executive + Non-executive
Taiwanese Brazilian
Date: 10/03/2009 07:05:02 Produced by the JSE SENS Department.
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