| Wed 12 Aug 2009, 7:05 | | SOH - South Ocean Holdings - Interim financial results announcement for the six |
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SOH
SOH
SOH - South Ocean Holdings - Interim financial results announcement for the six
months ended 30 June 2009
South Ocean Holdings
(Registration number 2007/002381/06)
Incorporated in the Republic of South Africa
("South Ocean", "the Group" or "the company")
Share code: SOH : ZAE000092748
Interim financial results announcement
for the six months ended 30 June 2009
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at As at
30 June 30 June 31 December
2009 2008 2008
(Unaudited) (Unaudited) (Audited)
Notes R`000 R`000 R`000
Assets
Non-current assets 583 627 613 919 598 035
Property, plant and 4 235 329 221 376 248 187
equipment
Intangible assets 4 348 298 391 593 349 848
Interest free loans - 950 -
receivable
Current assets 381 719 419 365 389 341
Inventories 155 586 183 601 189 806
Trade and other 187 037 230 934 175 201
receivables
Interest free loans - 326 -
receivable
Taxation receivable 1 301 1 696 179
Cash resources 37 795 2 808 24 155
Total assets 965 346 1 033 284 987 376
Equity
Capital and reserves
Share capital 5 1 274 1 274 1 274
Share premium 5 440 371 440 371 440 371
Retained earnings 223 742 237 210 216 470
Total equity 665 387 678 855 658 115
Liabilities
Non-current 149 024 168 902 168 237
liabilities
Interest bearing 6 123 362 139 057 138 740
borrowings
Deferred taxation 25 662 29 845 29 497
Current liabilities 150 935 185 527 161 024
Trade and other 85 451 94 273 86 088
payables
Interest bearing 6 47 749 40 161 37 498
borrowings
Taxation payable 5 196 10 963 7 049
Shareholders for 4 4 4
dividends
Bank overdraft 12 535 40 126 30 385
Total liabilities 299 959 354 429 329 261
Total equity and 965 346 1 033 284 987 376
liabilities
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months Year ended
ended ended
30 June 30 June 31 December
2009 2008 2008
(Unaudited) (Unaudited) Change (Audited)
Note R`000 R`000 % R`000
Revenue 451 234 574 876 (21,5) 1 136 617
Cost of sales (353 260) (391 329) (826 061)
Gross profit 97 974 183 547 (46,6) 310 556
Other income 3 567 894 1 609
Administration (23 827) (26 436) (47 324)
expenses
Distribution (9 077) (10 609) (17 976)
expenses
Operating (48 304) (31 934) (114 128)
expenses
Operating 20 333 115 462 (82,4) 132 737
profit
Finance income 1 629 1 800 2 762
Finance (11 141) (14 359) (27 630)
expense
Profit before 10 821 102 903 (89,5) 107 869
taxation
Taxation 7 (3 549) (32 008) (46 768)
Comprehensive 7 272 70 895 (89,7) 61 101
income for the
period
Cents per Cents per Cents per
share share share
Earnings per
share
Earnings per 4,7 45,3 (89,6) 39,1
share - basic
and diluted
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months Six months Year ended
ended ended
30 June 30 June 31
2009 2008 December
2008
(Unaudited) (Unaudited) Change (Audited)
Notes R`000 R`000 % R`000
Share capital
Opening and 5 1 274 1 274 1 274
closing
balance
Share premium
Opening and 5 440 371 440 371 440 371
closing
balance
Retained
earnings
Opening 216 470 197 591 197 591
balance
Comprehensive 7 272 70 895 61 101
income for
the period
Dividend paid - (31 276) (42 222)
Closing 223 742 237 210 216 470
balance
Dividend per - 7,0 (100,0) 7,0
share (cents)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months Six months Year ended
ended ended
30 June 2009 30 June 31 December
2008 2008
(Unaudited) (Unaudited) (Audited)
R`000 R`000 R`000
Cash flows from operating 35 715 (40 593) 27 139
activities
Cash flows from investing (749) (44 421) (77 983)
activities
Cash flows from financing (3 476) 2 364 (718)
activities
Net increase/(decrease) in 31 490 (82 650) (51 562)
cash and cash equivalents
Cash and cash equivalents (6 230) 45 332 45 332
at the beginning of period
Cash and cash equivalents 25 260 (37 318) (6 230)
at the end of period
SELECTED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS
1. General information
The company is a limited liability company with its principal place of business
at 12 Botha Street, Alrode, Alberton, 1451, its registered address. South Ocean
Holdings Limited (SOH) was incorporated in the Republic of South Africa. The
company is listed on the Johannesburg Stock Exchange (JSE).
The unaudited condensed interim financial information was approved for issue by
the directors on 11 August 2009.
2. Basis of preparation
The condensed consolidated interim financial information for the six months
ended 30 June 2009 has been prepared in accordance with IAS 34 "Interim
financial reporting" and in compliance with the listing requirements of the JSE
Limited and the South African Companies Act and should be read in conjunction
with the audited financial statements for the year ended 31 December 2008 which
have been prepared in accordance with IFRS.
3. Accounting policies
The accounting policies adopted are consistent with those applied in the
financial statements for the year ended 31 December 2008, except where
indicated.
The following new standards and amendments to the standards are mandatory for
the first time for the financial year beginning 1 January 2009.
* IAS 1 (revised) "Presentation of financial statements". The revised standard
prohibits the presentation of items of income and expense in the statement of
changes in equity, requiring `non-owner changes in equity` to be presented
separately from owner changes in equity. All `non-owner changes in equity` are
required to be shown in a performance statement. Entities can choose whether to
present one performance statement (statement of comprehensive income) or two
statements (income statement and statement of comprehensive income).
The Group has elected to present a statement of comprehensive income. The
financial statements have been prepared under the revised disclosure
requirements.
* IFRS 8 "Operating segments". The statement replaces IAS 14, `Segment
reporting`. It requires a `management approach` under which segment information
is presented on the same basis as that used for internal reporting purposes.
This has resulted in a decrease in the number of reportable segments presented
as the segment titled "other" in the previous reports does not fit the
description of a segment per the new statement.
Operating segments are reported in a manner consistent with internal reporting
provided to the chief operating decision maker. The chief operating decision
maker has been identified as the corporate office management that makes the
strategic decisions.
Goodwill is allocated by management to groups of cash generating units on a
segment level. Goodwill relating to the acquisition of Radiant Group (Pty)
Limited has as a result been allocated to the light fittings, lamps and
electrical accessories segment. The application of the standard has not affected
the allocation of goodwill.
The following new standards and amendments to standards and interpretations are
mandatory for the first time for the financial year beginning 1 January 2009 but
are not currently relevant for the Group.
* IAS 23 (amendment) `Borrowing costs`.
* IFRS 2 (amendment) `Share based payments`.
* IAS 32 (amendment) `Financial instruments: presentation`.
* IFRC 13 `Customer loyalty programmes`.
* IFRC 15 `Agreements for the construction of real estate`.
* IFRC 16 `Hedges of net investment in a foreign operation`.
* IAS 39 (amendment) `Financial instruments: recognition and measurement`.
4. Capital expenditure
During the six months, the Group invested a further R14,5 million in capital
expenditure, related mainly to plant and machinery, furniture and office
equipment. The details of changes in tangible and intangible assets are as
follows:
Tangible Intangible
assets assets
R`000 R`000
Six months ended 30 June 2009
Opening net carrying amount 248 187 349 848
Additions 13 860 647
Disposals (19 760) -
Depreciation, amortisation and other (6 958) (2 197)
movements
Closing net carrying amount 235 329 348 298
Six months ended 30 June 2008
Opening net carrying amount 186 990 388 868
Additions 40 041 4 380
Depreciation, amortisation and other (5 655) (1 655)
movements
Closing net carrying amount 221 376 391 593
Year ended 31 December 2008
Opening net carrying amount 186 990 388 868
Additions 73 171 3 688
Disposals and write offs (52) -
Depreciation, amortisation and other (11 922) (42 708)
movements
Closing net carrying amount 248 187 349 848
5. Share capital
Number of Ordinary Share Total
shares shares premium
R`000 R`000 R`000
At 30 June 2009
Opening and closing 156 378 794 1 274 440 371 441 645
balance
At 30 June 2008
Opening and closing 156 378 794 1 274 440 371 441 645
balance
At 31 December 2008
Opening and closing 156 378 794 1 274 440 371 441 645
balance
6. Interest bearing borrowings
As at As at As at
30 June 2009 30 June 2008 31 December
2008
Secured loans R`000 R`000 R`000
Non-current 123 362 139 057 138 740
Current 47 749 40 161 37 498
171 111 179 218 176 238
Six months Six months Year ended
ended ended
30 June 2009 30 June 2008 31 December
2008
R`000 R`000 R`000
The movement in
borrowings is analysed as
follows:
Opening balance 176 238 177 528 177 528
Additional loans raised 17 000 20 786 38 786
Finance expense 9 978 11 183 23 187
Repayments (32 105) (30 279) (63 263)
Closing balance 171 111 179 218 176 238
7. Income tax expense
Income tax expense is recognised based on management`s best estimate of the
weighted average annual income tax rate expected for the full financial year.
The estimated average annual tax rate calculated before taking into account STC
is 29,4% (2008: 27,8%).
8. Reconciliation of headline earnings
Six months Six months Year ended
ended ended
30 June 30 June 31 December
2009 2008 2008
(Unaudited) (Unaudited) (Audited)
R`000 R`000 R`000
Reconciliation of headline
earnings
Comprehensive income for the 7 272 70 895 61 101
period
Impairment of intangible - - 39 000
assets
Impairment of available for - - 1 582
sale financial assets
Impairment of interest free - - 1 070
loans receivable
Loss/(surplus) on disposal 6 001 - (29)
of property, plant and
equipment
Headline earnings for the 13 273 70 895 102 724
period
Headline earnings per share 8,5 45,3 65,7
(cents)
9. Weighted average number of shares
Six months Six months Year ended
ended ended
30 June 30 June 31 December
2009 2008 2008
(Unaudited) (Unaudited) (Audited)
Number of shares in issue 156 378 794 156 378 794 156 378 794
Weighted average number of 156 378 794 156 378 794 156 378 794
shares in issue at the
beginning and end of the
period
Weighted average number of 156 378 794 156 378 794 156 378 794
shares in issue for diluted
earnings per share
10. Net asset value
As at As at As at
30 June 30 June 31 December
2009 2008 2008
(Unaudited) (Unaudited) (Audited)
Net asset value per share 425,5 434,1 420,8
(cents)
11. Interim dividend declaration
The board of directors (board) has not recommended a dividend for the first six
month period due to difficult trading conditions experienced since the last half
of 2008.
12. Segment reporting
The Group`s primary reporting format is its business segments, and secondary
format is geographical segments. The chief operating decision maker has been
identified as the corporate office management. Management reviews the Group`s
internal reporting in order to assess performance. Management has determined the
operating segments based on these reports.
Management assesses the business mainly from the market and product perspective.
From this perspective management assesses the performance of the subsidiaries
South Ocean Electric Wire Company (SOEW), Radiant Group (Radiant) and Anchor
Park.
The assessment of the performance of the operating segments is based on the
measure of operating profit before interest, tax, depreciation and amortisation
(EBITDA). This measurement basis excludes the effect of non-recurring
expenditure from the operating segments, such as restructuring costs, profit on
disposal of property, plant and equipment, impairments, etc. Interest income and
expenditure are included in the results of the operating segments that are
reviewed.
Total assets exclude deferred taxation and available for sale financial assets.
The details of the business segments are reported as follows:
Revenue Adjusted Segment Segment
EBITDA assets liabilities
Six months ended R`000 R`000 R`000 R`000
30 June 2009
Electrical wire 279 401 10 401 247 619 54 446
manufacturing
Light fittings, lamps 171 833 24 131 561 232 121 060
and electrical
accessories
Property investments 8 597 1 706 155 801 89 218
459 831 36 238 964 652 264 724
30 June 2008
Electrical wire 393 161 78 236 305 078 102 046
manufacturing
Light fittings, lamps 181 715 38 485 575 600 100 932
and electrical
accessories
Property investments 8 708 8 352 151 218 108 290
583 584 125 073 1 031 896 311 268
31 December 2008
Electrical wire 747 994 99 633 242 367 41 158
manufacturing
Light fittings, lamps 388 623 77 859 568 675 150 718
and electrical
accessories
Property investments 17 183 16 544 176 275 98 640
1 153 800 194 036 987 317 290 516
Reconciliation of total EBITDA to profit before tax is provided as follows:
Six months Six months Year ended
ended ended
30 June 30 June 31 December
2009 2008 2008
(Unaudited) (Unaudited) (Audited)
R`000 R`000 R`000
Adjusted EBITDA 36 238 125 073 194 036
Corporate overheads (6 750) (2 301) (4 017)
Depreciation (6 958) (5 655) (11 922)
Amortisation of intangible (2 197) (1 655) (3 708)
assets
Impairment of intangible - - (39 000)
assets
Impairment of available for - - (1 582)
sale financial assets
Impairment of interest free - - (1 070)
loans
Operating profit 20 333 115 462 132 737
Finance income 1 629 1 800 2 762
Finance expense (11 141) (14 359) (27 630)
Profit before income tax 10 821 102 903 107 869
Reportable segments are
reconciled to the group
balance as follows:
Reportable segment assets 964 652 1 031 896 987 317
Corporate assets 694 1 388 59
Total assets per statement 965 346 1 033 284 987 376
of financial position
Reportable segment 264 724 311 268 290 516
liabilities
Corporate 4 377 2 353 2 199
Deferred taxation 25 662 29 845 29 497
Taxation payable 5 196 10 963 7 049
Total liabilities per 299 959 354 429 329 261
statement of financial
position
Reportable segment revenue 459 831 583 584 1 153 800
Inter-group revenue (8 000) (8 000) (16 000)
Property Investments (597) (708) (1 183)
revenue disclosed in other
revenue
Revenue per consolidated 451 234 574 876 1 136 617
statement of comprehensive
income
13. Director changes
At the annual general meeting held on 23 June 2009, Messrs PJM Ferreira, G Stein
and H Schwartz did not avail themselves for re-election as directors of South
Ocean Holdings, in line with the executive director reorganisation announced in
the 2008 annual report. Accordingly, they are no longer directors of SOH from
that date. As announced on SENS on 23 July 2009, Mr JB Magwaza, the Group
chairman resigned from the board effective 31 July 2009 for personal reasons. Mr
EG Dube has been appointed as chairman from 31 July 2009.
14. Subsequent events
The directors are not aware of any significant events arising since the end of
the financial period not dealt with in the financial results, which would affect
the operations of the Group or the operating segments.
COMMENTARY
Introduction
South Ocean Holdings Limited (SOH) is an investment holding company, operating
through subsidiaries South Ocean Electric Wire Company (SOEW), manufacturer of
low voltage electrical wire, Radiant Group (Radiant), importer and distributor
of light fittings, lamps and electrical accessories, and Anchor Park, a property
holding company. This report presents the interim financial results to
shareholders for the six months ended 30 June 2009.
Adverse economic conditions coupled with a decrease in demand and weaker Rand
exchange rates have resulted in a difficult financial period for the Group. The
Group operating margin for the period was 4,5% compared to 20.1% for the same
period last year, which represents a decrease of 77.6%. The pressure has been
felt mainly at our manufacturing segment SOEW, where operating margins have
continued to be depressed. This is due to highly competitive pricing in the
market, which was only partly compensated by increased volumes. The
strengthening Rand also nullified the increase in the Dollar price of copper.
The incorporation of Radiant, which was acquired in August 2007, contributed
materially to the consolidated earnings for the period.
The corporate expenses of R6,8 million (2008: R2,3 million) compared to the
prior year are as a result of the establishment of the corporate office and
management expenses which were previously carried by SOEW have been classified
as corporate.
Financial overview
Earnings
Group revenue for the six month period to June 2009 decreased by 21,5% to R451,2
million (2008: R574,9 million). The consolidated Group gross profit of R98,0
million (2008: R183,5 million) is 46,6% down and operating profit of R20,3
million (2008: R115,5 million) is 82,4% down compared to the same period in the
previous financial year.
Towards the end of last year the Group increased its staff complement and
management capacity in order to strengthen its operating capacity in preparation
for the anticipated growth. This has resulted in a higher labour cost which is
above the normal inflation increase. In addition, the expansion on
infrastructure that was commissioned last year has resulted in higher
depreciation compared to the prior period.
Group profit before tax of R10,8 million (2008: R102,9 million) is 89,5% lower
than the same period last year. Earnings and headline earnings per share have,
as a result, been negatively affected. The basic earnings per share of 4,7 cents
(2008: 45,3 cents) is 89,7% down compared to the same period last year while the
headline earnings per share of 8,5 cents (2008: 45,3 cents) is 81,2% down
compared to the same period last year. Headline earnings was R13,3 million
(2008: R70,9 million) which is 81,2% down from the same period last year.
The effective tax rate before the charge for STC is 29,4% (2008: 27,8%). The
higher tax rate is due to a taxable profit on the sale of building compared to
an accounting loss.
Cash flow and working capital management
Despite the lower comprehensive income, the cash flow from operations was R57,2
million (2008: R39,1 million) an increase of 46,3% compared to the same period
in the previous year. The effort by management to improve the inventory holding
and trade and other receivables is paying off. The investment in working capital
has been reduced by R21,7 million compared to 31 December 2008 and R63,1 million
compared to 30 June 2008.
The Group invested another R14,5 million in capital expenditure, of which about
R10,0 million related to the infrastructure expansion programme and R4,5 million
to normal capital expenditure related to the operations of the Group. The loss
on sale of property, plant and equipment of R5,9 million was incurred from the
disposal of the Cape Town building previously occupied by Radiant, which was
sold for R13,5 million.
The Group utilised a further R17,0 million (2008: R20,8 million) from its
existing long-term loan facilities during the year. The repayment of loans
inclusive of interest amounted to R32,1 million (2008: R30,3 million).
The Group net cash inflows of R31,5 million (2008: R82,6 million outflow)
resulted in the improvement of the net cash position from an overdraft of R37,3
million at 30 June 2008 and an overdraft of R6,2 million at year end to the
current positive cash balance of R25,3 million.
Segment results
Electrical wire manufacturing - SOEW
Revenue declined by 28,9% to R279,4 million (2008: R393,2 million). This was
mainly due to the competitiveness of the market which resulted in significantly
lower sales prices. Gross profit has, as a result, come under pressure. This
represents a reduction of 82,0% compared to the same period last year.
Profit before tax has declined by 95,4% to R3,3 million (2008: R71,3 million)
for the six months ended 30 June 2009. Although the Rand copper price has
increased by 1,9% from R37 610 in December 2008 to R38 306 in June 2009, the
impact of the lower sales prices due to de-stocking by our competition and
attempts to maintain market share has affected the entire copper wire market.
There was an improvement in cash generated from operations from R18,2 million
for the period to 30 June 2008 to R48,9 million at the end of the current
period. This was achieved through the reduction in inventory holding and trade
and other receivables as management focused on effective cash management.
Management has reduced investment in working capital by R41,3 million since
December 2008.
An amount of R8,5 million was spent on acquisition of plant and machinery in the
first half of the year for a new production line and an upgrade to an existing
line, expanding capacity, both of which will be commissioned in the beginning of
the second half of the year. This will help SOEW in its effort to improve
efficiencies and further decrease costs.
Despite the economic constraints, SOEW has managed to increase production
volumes during this period compared to the first six months of 2008. The
investments to increase capacity have enabled the segment to improve efficiency
levels, positioning it to meet an increase in demand.
Light fittings, lamps and electrical accessories - Radiant
Revenue is down marginally by 5,4% to R171,8 million (2008: R181,7 million). The
operating profit decreased by 48,9% to R18,7 million (2008: R36,6 million). In
spite of the economic downturn, Radiant has largely maintained its gross profit
margins. This has been achieved by targeting growth areas and improving its
service levels.
Management has continued to commit itself to the strategic plan that commenced
in 2008, which has resulted in increased employee costs and increased
depreciation due to higher capital expenditure during 2008. Because most of the
products are imported, the volatility in the Rand/Dollar exchange rate had an
effect on both cost and selling prices. The financing costs incurred of R4,7
million (2008: R4,9 million) were mainly due to additional loans taken last year
to finance the capital expansion. The profit before tax of R14,3 million (2008:
R32,2 million) declined by 55,6% compared to the same period last year.
Cash generated from operations amounted to R4,3 million. There has been an
improvement in the inventory holding since the year end which decreased by R16,8
million. The cash position has improved to R11,1 million since the beginning of
the year from R1,4 million.
Radiant`s products continue to deliver acceptable sales levels and growth in
market share is expected in the electrical and export markets.
Property investment - Anchor Park
Anchor Park`s revenue is mainly derived from Group companies as it leases its
properties to fellow subsidiaries. The Cape Town building, which was previously
occupied by Radiant, was disposed of for R13,5 million resulting in a loss of
R5,9 million.
The reduction in interest expense is due to the repayment of loan balances and
lower effective interest rates.
Seasonality
The Group`s earnings are affected by seasonality as earnings for the second half
of the year are historically more than the first six months. The impact of the
global economic crisis in the latter half of last year had a negative impact on
the traditional seasonality of the Group. Management does however expect the
traditional seasonality trend to improve in the second half of the year.
Prospects
The earnings of the Group for the next six months will be influenced by the
copper price, the performance of the construction and building industry,
infrastructure development, interest rates and the value of the Rand.
The Group will maintain its focus on organic growth with SOEW and Radiant
ideally positioned to capitalise on the market upturn. Investments at Radiant
will allow this company to take advantage of increase in demand, while SOEW
continues to produce cost effective and efficient electric copper wire products.
The model of extracting value from the operations has been successful and the
Group will continue to concentrate on improving business efficiencies. The
investment in operating capacity will further increase the ability to operate
at optimal levels. The Group`s focus is to maintain market share.
On behalf of the board
EG Dube EHT Pan
Chairman Chief Executive Officer
12 August 2009
CORPORATE INFORMATION
Registered office:
12 Botha Street, Alrode, 1451
(PO Box 123738 Alrode, 1451)
Telephone: +27 11 864 1606
Telefax: +27 11 864 2925
Website: www.southoceanholdings.com
Company Secretary:
Whitney Thomas 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:
EG Dube# (Chairman), EHT Pan*@ (Chief Executive)
JP Bekker* (Chief Financial Officer)
CY Wuv+ KH Ponv#, HL Liv+
JL Law* (Alternate), CH Panv+ (Alternate)
*Executive
#Independent Non-Executive
vNon-Executive
+Taiwanese
@ Brazilian
Company Secretary:
WT Green
Date: 12/08/2009 07:05:01 Produced by the JSE SENS Department.
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