| Wed 31 Mar 2010, 8:15 | | SFH - S A French Limited - Unaudited condensed consolidated interim results |
|
SFH
SFH
SFH - S A French Limited - Unaudited condensed consolidated interim results
for the six months ended 31 December 2009 and cautionary Announcement
S A FRENCH LIMITED
Incorporated in the Republic of South Africa
(Registration number 1982/009174/06)
Share code: SFH & ISIN: ZAE000108890
("SA French" or "the company" or "the group")
UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31
DECEMBER 2009 AND CAUTIONARY ANNOUNCEMENT
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
six months six 12 months
ended months ended
31 ended 30 June
December 31 2009
2009 December R`000
R`000 2008
R`000
Revenue 34 196 95 464 139 255
Cost of sales (18 247) (81 361) (111 140)
Gross profit 15 949 14 103 28 115
Other income 3 730 672 10 793
Operating expenses (17 222) (11 370) (30 444)
Foreign exchange differences 3 478 (884) (7 731)
Provision for bad debts (2 512) - -
Results from operating 3 423 2 521 (733)
activities
Finance cost (2 633) (6 331) (15 181)
Restructuring costs (1 306) - -
Fair value adjustment on - (1 600) -
financial assets
Investment income - 256 1 708
Loss before taxation (516) (5 154) (12 740)
Taxation 116 210 1 780
Loss after taxation (400) (4 944) (10 957)
Other comprehensive - - -
income/(loss) for the period
Total comprehensive loss for (400) (4 944) (10 957)
the period
Comprehensive income
attributable to:
Ordinary shareholders of the (400) (4 944) (10 957)
group
Non-controlling interest - - -
(400) (4 944) (10 957)
Reconciliation of attributable losses to headline losses
Losses attributable to ordinary (400) (4 944) (10 957)
shareholders
(Loss)/Profit on disposal of - - (918)
property, plant and equipment
Tax effect of the disposal of - - 257
property, plant and equipment
Fair value adjustment on financial - 1 600 -
assets
Headline losses attributable to (400) (3 344) (11 618)
ordinary shareholders
Weighted average number of shares 166 375 165 114 165 952 872
in issue 689 641
Loss per share (cents) (0.24) (2.99) (6.60)
Headline loss per share (cents) (0.24) (2.03) (7.00)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
as at as at as at
31 31 December 30 June
December 2008 2009
2009 R`000 R`000
R`000
ASSETS
Non-current assets 92 461 75 801 88 659
Property, plant and equipment 5 356 4 694 6 005
Rental fleet 84 974 68 411 79 154
Other financial assets 1 238 2 696 2 724
Deferred tax 892 - 776
Current assets 107 826 111 645 124 496
Inventories 91 747 81 959 103 656
Current tax - - 529
Trade and other receivables 11 957 27 052 20 267
Cash and cash equivalents 4 122 2 634 44
TOTAL ASSETS 200 287 187 446 213 155
EQUITY AND LIABILITIES
Equity 52 344 58 757 52 744
Share capital 49 330 49 330 49 330
Revaluation reserve 162 162 162
Retained income 2 852 9 265 3 252
Minority interest * * *
Non-current liabilities 30 980 43 626 33 364
Installment sales agreements 30 980 42 664 33 364
Deferred tax - 962 -
Current liabilities 116 963 85 063 127 047
Shareholders` loans 11 209 12 411 11 118
Current tax payable - 4 385 165
Installment sales agreements 14 721 15 066 19 369
Operating lease liability 1 010 - 600
Trade and other payables 24 598 12 476 24 780
Foreign creditors 54 026 24 521 57 530
Provisions 2 683 544 3 332
Shareholders for dividends - 1 273 786
Bank overdraft 8 716 14 387 9 367
TOTAL EQUITIES AND LIABILITIES 200 287 187 446 213 155
Number of shares in issue 166 375 166 375 689 166 375 689
689
Net asset value per share in 31.46 35.32 31.70
cents
Net tangible asset value per 31.46 35.32 31.70
share in cents
*Less than R1 000
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Revalua Retained Total
capita premiu tion income R`000
l m reserve R`000
R`000 R`000 R`000
Balance as at 1 July 1 650 47 305 162 15 859 64 976
2008
Loss for the period - - - (4 944) (4 994)
Dividends declared - - - (1 650) (1 650)
Dividends capitalised 14 361 - - 375
Balance as at 31 1 664 47 666 162 9 265 58 757
December 2008
Loss for the period - - - (6 013) (6 013)
Balance as at 30 June 1 664 47 666 162 3 252 52 744
2009
Loss for the period - - - (400) (400)
Balance as at 31 1 664 47 666 162 2 852 52 344
December 2009
Non- Total
controllin equity
g interest R`000
R`000
Balance as at 1 July 2008 * 64 976
Loss for the period - (4 994)
Dividends declared - (1 650)
Dividends capitalised - 375
Balance as at 31 December 2008 * 58 757
Loss for the period - (6 013)
Balance as at 30 June 2009 * 52 774
Loss for the period - (400)
Balance as at 31 December 2009 * 52 344
*Less than R1 000
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
six months six months 12 months
ended ended ended
31 December 31 December 30 June
2009 2008 2009
R`000 R`000 R`000
Loss before taxation (516) (4 270) (12 740)
Depreciation 3 771 3 407 6 005
Investment income - (256) (1 708)
Finance cost 3 454 6 331 7 998
Other non-operational 702 (1 335) 2 145
adjustments
Changes in working capital (1 653) (14 884) 14 161
Taxation paid (694) (490) (490)
CASH FLOW FROM OPERATING 5 064 (11 497) 15 371
ACTIVITIES
CASH FLOW FROM INVESTING
ACTIVITIES
Disposal/(Acquisition) of 6 695 (36 430) (51 893)
property, plant and equipment
CASH FLOW FROM FINANCING (7 032) 27 159 17 300
ACTIVITIES
Total cash generated for the 4 727 (20 768) (19 222)
period
Cash at the beginning of the (9 323) 9 899 9 899
period
Total cash at the end of the (4 594) (10 869) (9 323)
period
SEGMENTAL REPORTING
Rental Sales Total
R`000 R`000 R`000
Six months ended 31 December 2009
Revenue 14 373 19 823 34 196
Cost of sales (3 476) (14 771) (18 247)
Gross profit 10 897 5 052 15 949
Other income - 3 730 3 730
Operating costs (7 239) (9 983) (17 222)
Impairment of trade receivables (1 056) (1 456) (2 512)
Results from operating activities 2 603 (2 658) (55)
Property, plant, equipment and 84 974 5 356 90 330
rental fleet
Year ended 30 June 2009
Revenue 21 247 118 008 139 255
Cost of sales (9 356) (101 784) (111 140)
Gross profit 11 891 16 224 28 115
Other income - 10 793 10 793
Operating costs (4 645) (25 799) (30 444)
Results from operating activities 7 246 1 218 8 464
Property, plant, equipment and 79 154 6 005 85 159
rental fleet
COMMENTARY
Introduction
The board of directors of SA French (the "board") hereby presents the interim
financial results of the group for the six months ended 31 December 2009 (the
"interim period"). These interim financial results reflect a net asset value
per share of 31.46 cents at the end of the interim period. This interim period
has seen the construction industry remain under pressure globally and in
response, the board has focused on the core principle on which SA French was
founded; providing exemplary service and adding value to its clients.
Group profile
SA French, which was founded by the current Chief Executive Officer, Quentin
van Breda, is the sole distributor in sub-equatorial Africa of Potain tower
cranes, the largest tower crane manufacturer in the world. In addition to its
27 year track record as an agent for Potain, SA French also holds distribution
agreements with Merlo (manufacturers of telescopic handlers and self-loading
concrete mixers) and Saltec (producers of passenger and other material hoists)
for the sub-equatorial Africa region, which allows the company to offer
complementary lifting solutions to its clients. Rather than simply being a
supplier providing lifting solutions, SA French continues to focus on offering
high levels of service to its clients.
Review of operations
The broader construction equipment industry is largely dependent on a blend of
business confidence and the size of the order-book of major players within the
mining, construction and industrial sectors. In addition to the decreasing
number of orders from several of these firms during the interim period, SA
French has, as with many of its partners and clients within the industry, felt
the full impact of the tightening of credit facilities by financial
institutions. The lack of business confidence, followed by the retraction of
credit provision facilities, resulted in the period under consideration being
difficult to navigate and saw a fundamental shift in many of the supply chain
methods generally employed within the industry.
This change in market dynamic, in particular the increase in demand for tower
crane rentals as a result of many clients seeking to keep costs variable until
clarity on the direction of the market is gained, and until an easing of
criteria for the granting of credit by financial institutions, has forced the
board to review the company`s business model. An increase in rentals, as
opposed to sales, has had a severe effect on SA French`s performance, however
short-term profitability has been replaced by longer-term prospective rental
revenues.
The shift in SA French`s focus towards a more capital intensive rental
business, together with the financial crisis and industry pressure has placed
immense strain on the group`s financial performance and balance sheet. Working
capital is limited and the board is addressing this by constantly negotiating
credit arrangements with financiers and suppliers and reducing overhead costs
where possible.
Skills development
SA French is committed to the ongoing training and development of its staff
and this interim period saw the company focusing on practical skills training
for its tower crane and hoist riggers, as well as holding several safety
seminars for those working at extreme heights. In 2006, the Engineering
Council of South Africa ("ECSA") conferred the status of Lifting Machinery
Entity ("LME") on the company and SA French has in turn, under the auspices of
ECSA, assisted its technicians to become registered as Lifting Machinery
Inspectors ("LMI"). SA French is the only LME operating within the industry
and as such takes the lead in tower crane and hoist safety. In addition, SA
French`s Chief Executive Officer is an active member of the steering committee
tasked with establishing a South African standard for the lifting industry.
Five new LMI were certified at SA French during the interim period, making the
group one of the most proficient lifting experts in the country.
Due to industry demand for competent and reliable machine operators, a
decision was taken in 2008 to establish a Transport Education and Training
Authority ("TETA") accredited training facility which will enable SA French to
provide machine operator training and certification requirements for its
clients and third parties. This accreditation was awarded to SA French by TETA
during this interim period, thereby adding another dimension to the group`s
list of competencies and services offerings. This strategy is intended to
create an additional income stream for the group, while ensuring that the
level and competence of the operators passing through the training division is
creditable in terms current and future legislation focused on the safe
operation of lifting machinery.
Financial results
Decrease in revenue
SA French, along with a number of entities in the construction industry, have
experienced recent difficulties. The global recession has resulted in sales at
SA French dropping significantly and clients moving to the rental of cranes
and of other capital equipment as opposed to the purchase thereof. This
resulted in the rental income segment increasing from 15% to just over 40% of
the company`s total revenue. On a positive note, revenue is expected to rise
as 2010 has seen an increase in demand for sales and rentals.
Operating costs
SA French is in a continuous process of reducing its operating costs and
ensuring that operating efficiencies are increased. The company, in
consolidating its Gauteng operations and thereby reducing its rental and other
related costs, is expected to show real benefits from the beginning of 2010.
This consolidation has resulted in once-off staff retrenchment costs and
transport costs required to move all capital equipment to one facility.
The company also experienced an increase of R2.5 million in bad debts as a
result of the global recession.
Increase in borrowings
The company`s non-current liabilities decreased from R43.6 million at 31
December 2008 to R31.0 million as at 31 December 2009, largely due to the
repayment of the rental equipment which was initially financed through
installment sales agreements. The repayment of these installment sales
agreements has also directly resulted in a decrease in the current finance
cost on these agreements.
The increase in current liabilities from R85.1 million as at 31 December 2008
to R117.0 million as at 31 December 2009, is mainly due to the importation of
crane stock to fulfill orders that had been received and that were pending.
However, due to the global economic downturn, some orders were cancelled on a
back to back basis with the cancellation of projects awarded to key clients
and as a result some of this stock has not yet been sold and therefore the
supplier, Manitowoc Crane Group ("Manitowoc") has not been settled as would
normally be the case. Nonetheless, SA French is in the process of negotiating
with Manitowoc who will actively assist SA French in the marketing and selling
of these cranes in South Africa and Sub-Saharan Africa in order to settle the
outstanding liability.
In addition to the above, SA French is in the process of settling its
overdraft facility with First National Bank by reducing the current facility
by R500 000 per month. This repayment is expected to continue uninterrupted
until the facility has been completely settled, or in the alternative the
overdraft is converted into a medium term loan.
Prospects
There are early indications that the regional stability within the Southern
African Development Community ("SADC") will provide opportunities in both
rentals and sales, particularly in Mozambique and Botswana. SA French will
continue to leverage its long-term relationships with large construction and
mining entities in order to take advantage of upcoming infrastructural and
development projects in the SADC region. Within South Africa, the company`s
national footprint and seamless services capabilities make it the supplier of
choice, and evidence of this can be seen on the skylines of all major cities
in South Africa.
An exciting development of late is the opportunity for SA French to work with
JSE-listed construction and engineering firms on key supply chain
relationships. This is expected to benefit all parties by providing a greater
degree of certainty with reference to key aspects of each party`s procurement
policy and criteria.
One can divide the future prospects of SA French into three distinct sectors,
all of which have started to generate positive enquiries and provide a source
of positive sentiment within their respective industries. Firstly, building
projects that had been curtailed or stalled due to lack of funding are
beginning to be revisited and the opportunity for both rentals and sales in
this area are positive.
Secondly, power generation remains a focal point for large construction
companies and with the awarding of a number of tenders that had been delayed
from as far back as March 2008, the pipeline for the supply of rack and pinion
hoisting systems as well as tower cranes is excellent. SA French has worked
closely with many of the winning bidders and is in a position to directly
benefit from these tender awards.
Thirdly, there is a very clear demand for reliable products and services in
South Africa and neighboring territories. The company is currently
investigating the most cost effective way to supply these regions without
losing focus on its core market.
Despite an improvement in trading results and future prospects, SA French
remains under cash-flow pressure. Positively, the Manitowoc remains supportive
of SA French and negotiations to implement a "consignment stock" type
arrangement, are in advanced stages. If successful, the result of this
arrangement will be a decrease of R54 million to both inventories and trade
payables; providing significant short-term relief to SA French`s liquidity.
The overdraft and VAT repayments total an additional liability of R1 million
per month. SA French is experiencing pressure on its internal funding
reserves. The board is in the process of assessing the most efficient and cost
effective means of raising capital in the short-term. The board estimates that
R10 million is needed over the next 12 months. Both debt and equity funding
are being considered.
However, SA French has a considerable net asset value, most of which is
reflected in its rental fleet, which has a net book value of R39.3 million
(being a carrying value of R85.0 million less related lease funding of R45.7
million).
Cautionary Announcement
Shareholders are advised that the circumstances as detailed in the prospects
section above may have a material effect on the price of the company`s
securities. Accordingly, shareholders are advised to exercise caution when
dealing in the company`s securities until a further announcement is made.
Subsequent events
The board is not aware of any material matter or circumstances arising since
the end of the interim period and up to the date of this report.
Dividend policy
No interim dividend has been declared for the period.
Basis of preparation
The accounting policies applied in the preparation of these interim condensed
financial results, 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 June 2009. These condensed financial statements as set out in
this report have been prepared in terms of IAS - 1 Presentation of Financial
Statements, IAS 34 - Interim Financial Reporting, the Companies Act, 1973 (Act
61 of 1973), as amended, and the Listings Requirements of the JSE.
The interim results have not been audited or reviewed by the group`s auditors.
Directorate
Mr Riaan Erasmus was appointed as financial director of SA French with effect
from 4 January 2010.
Appreciation
We thank our employees for their continued loyalty, hard work and commitment
to the vision of the group. Furthermore, we thank our non-executive directors
and designated advisers for their wise counsel and our stakeholders for their
consistent faith in the group. The authors of this report are also the
majority shareholders in SA French and are confident in the company`s inherent
value, as well as its future prospects.
On behalf of the board
Quentin van Breda Warwick van Breda
Chief Operating Officer Commercial Director
31 March 2010
Directors
QCA van Breda (Chief Executive Officer), W van Breda (Commercial Director), R
Erasmus (Financial Director), MW Mashaba, JM Poluta*, J Fizelle*. *non-
executive
Company secretary
Warwick van Breda (LLB)
Registered office
56-58 Rigger Road
Spartan
Kempton Park
1620
(PO Box 2144, Kempton Park, 1620)
Designated Adviser
Merchantec Capital
2nd Floor, North Block
Hyde Park Office Tower
Corner Sixth Road and Jan Smuts Avenue
Hyde Park, Johannesburg, 2196
(PO Box 41480, Craighall, 2024)
Transfer secretaries
Computershare Investor Services (Proprietary) Limited
Ground Floor
70 Marshall Street
Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
Date: 31/03/2010 08:15:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
