| Mon 31 May 2010, 7:05 | | PKH - Protech Khuthele Holdings Limited - Audited provisional report and |
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PKH
PKH
PKH - Protech Khuthele Holdings Limited - Audited provisional report and
dividend declaration for the year ended 28 February 2010
Protech Khuthele Holdings Limited
Registration number 2000/024352/06
JSE code: PKH & ISIN: ZAE000101986
("Protech" or "the Company" or "the Group")
Audited provisional report and dividend declaration for the year ended 28
February 2010
Revenue up 7%
Operating margin of 16%
Earnings per share down 18%
Net asset value 85,6 cents per share
Maiden dividend 4 cents per share
Commentary
INTRODUCTION
Protech is a bulk earthworks and civil engineering group that offers fast-track
contracting to the mining, public and private sectors, mainly in South Africa.
As indicated at Protech`s 2009 year end results in May 2009 and interim results
in November 2009, the group expected that the historic levels of growth would be
difficult to maintain in increasingly volatile markets. However, the recession`s
negative impact was even more powerful over the last six months.
Results during the second half of the year were affected by three main factors:
50% impact on earnings - Excessive rainfall - many parts of the country
experienced more than double the 60-year average rainfall. This had the largest
impact on results as operations were much more concentrated than usual due to a
strong focus on the coal mining sector.
30% impact on earnings - Worsening market conditions - both private and public
sector spending was decimated, which resulted in increased competition across
the board. The competition in South Africa was also further exacerbated by the
somewhat slower roll out of African mining contracts and the return to home of
large players from international markets due to global pressure.
20% impact on earnings - Public sector infrastructure postponements - the public
sector saw severe spending delays, with bottlenecks in spending.
Against these factors, group revenue held up, but the operating margin declined
to 16%. However, this margin remains higher than the average of our listed
peers. The group`s core business of Contracting, representing 83% of group
revenue, still has a solid 19% margin.
FINANCIAL REVIEW
Statement of comprehensive income
Revenue increased by 7% to R748,8 million (2009: R702,7 million). This was
entirely organic growth. The Contracting division contributed R640,2 million
(2009: R589,2 million), which represents 83% (2009: 83%) of group revenue before
inter-group eliminations.
Operating profit was 24% down at R118,6 million (2009: R156,0 million).
Earnings per share was 18% lower at 20,9 cents per share (2009: 25,6 cents per
share). Headline earnings per share did not differ significantly from the
earnings per share.
Statement of financial position
The group incurred capital expenditure of R109,0 million (2009: R162,1 million)
related to plant and machinery. The bulk of this capital expenditure was
expensed to replace plant and equipment in line with Protech`s plant policy. The
plant sold in the replacement process amounted to R74,7 million (2009: R32,8
million), resulting in net capital expenditure in respect of plant and machinery
of R34,3 million (2009: R129,3 million).
Net asset value per share increased by 32% from 64,7 cents to 85,6 cents per
share.
Interest bearing liabilities decreased by R9,8 million to R264,6 million (2009:
R274,4 million) at the end of the period under review. The net debt equity ratio
of the group improved to 57% (2009: 74%) and is now comfortably close to the
medium term target range set by the group.
Net working capital increased by R44,2 million to R121,2 million from the
previous year`s net working capital of R77,0 million.
Statement of cash flows
Cash generated before working capital changes was 13% down to R153,8 million
(2009: R177,4 million). When comparing cash generated by operations before
working capital changes to EBIDTA, the ratio of cash generated to EBIDTA
improved from 94% in 2009 to 95% in 2010. The group therefore remains confident
of its cash generating ability.
OPERATIONAL REVIEW
Contracting - 83% of group revenue
Revenue for Contracting was up 9% to R640,2 million (2009: R589,2 million)
against the market backdrop of a 50% decline in the total value of contracts
awarded in the civils industry. The increase was achieved due to successfully
winning several new contracts, as well as contract extensions and shifting to
the mining sector where there was still some growth.
However, excessive rainfall, increase competition and certain pre-contract
investments on mining contracts impacted the operating profit, resulting in a
19% decline. Margins remained solid at 19%.
Geotechnical - 2% of group revenue
Although this business is a small contributor to the group, it performed
extremely well. Revenue was up 42% to R16,1 million due to increased capacity
and operating profit was up from R0,8 million last year to R2,8 million this
year, resulting in an 18% margin. The main reason for the strong improvement was
due to higher revenue now being spread over a relatively fixed cost base.
Readymix - 15% of group revenue
Against very tough market dynamics, Readymix managed to sustain its market share
through pro-actively driving sales and further entrenching its first-to-market
reputation. In line with this, volumes during the last three quarters were up
year on year by 6%. However, the first quarter was negatively impacted by the
Easter holidays and the elections, as well as excessive rainfall. Volumes
therefore declined by 5% year on year.
Revenue for the year increased by 5% to R113,0 million. As expected and
indicated at interim time, margin remained under pressure and the business
posted an operating loss of R5,4 million for the year.
Dividend
Although no dividend was declared for the year ended 28 February 2009,
shareholders were advised that the directors would review this position at the
following financial year end. Accordingly, the board has declared a maiden
dividend of 4 cents per share. This is a 5,2 times dividend cover ratio.
OUTLOOK
The cornerstone of the group`s model is its plant policy of only running new
plant. The group`s average fleet age of one year is unprecedented compared to
the industry average of approximately six years. This results in no downtime for
clients, a huge competitive advantage in tough times. Furthermore, due to
Protech`s unique arrangements with equipment suppliers, plant is always under
warranty with no cash flow risk due to plant failure. During the year, the
group`s quality plant was demonstrated by a R3 million profit on sale of
equipment and no impairment charges.
While the group expects the next year to remain extremely challenging, it starts
the 2011 financial year with 99% of F2010 revenue already secured. Although in
the short-term we expect margins to remain under pressure, the group now has
enough business locked in to enable it to be selective in terms of the margin
levels of further business it takes on.
The group also has a solid pipeline of R1,4 billion until 2012. R1,1 billion of
contracts remains to be executed. The majority of contracts is focused on the
mining sector as that is where the group believes most of the growth will be
coming from in the next 12-18 months and where there is more ability to limit
margin erosion.
On behalf of the directors
DA Ackerman GD Chapman CJA WolmaransChairman of the Board Group Chief
Executive Group Financial Director
Lanseria
28 May 2010
Directors: DA Ackerman* (Chairman), GD Chapman (Group Chief Executive), CJA
Wolmarans
(Group Financial Director), MSG Mareletse*+, V Raseroka*, P van Tonder*, M
Vuso*+
*non-executive +independent
Secretary: A van der Merwe
Registered office: Corner R512 and Elandsdrift Road, Bultfontein, Lanseria
(Private Bag X6,
Lanseria, 1748)
(Website: www.pkh.co.za)
Transfer secretary: Link Market Services South Africa (Proprietary) Limited11
Diagonal Street, Johannesburg, 2001. (PO Box 4844, Johannesburg, 2000)
Sponsor: Deloitte & Touche Sponsor Services (Proprietary) Limited
Condensed consolidated statement of comprehensive income
for the year ended 28 February 2010
2010 2009
R`000 R`000
Revenue 748 778 702 745
Earnings before depreciation, amortisation and 162 366 188 172
interest
Depreciation and amortisation of intangible assets (43 812) (32 185)
Earnings before interest and taxation 118 554 155 987
Net interest expense (15 561) (27 869)
Earnings before taxation 102 993 128 118
Taxation (27 407) (35 207)
Earnings for the year 75 586 92 911
Other comprehensive income for the year, net of 55 -
tax
Movement in foreign currency translation reserve 55 -
Total comprehensive income for the year 75 641 92 911
Earnings attributable to: 75 586 92 911
- Equity holders of the holding company 75 586 92 911
- Non-controlling interests - -
Total comprehensive income attributable to: 75 641 92 911
- Equity shareholders of the company 75 641 92 911
- Non-controlling interests - -
Earnings per share (cents)
Basic earnings per share 20,9 25,6
Diluted earnings per share 20,9 25,6
SUPPLEMENTARY STATEMENT OF COMPREHENSIVE
INCOME INFORMATION
Reconciliation of weighted average number of
shares in issue:
- Weighted average number of shares in issue 362 500 362 500
(`000)
Reconciliation of headline earnings:
Earnings attributable to shareholders of the 75 586 92 911
holding company
Adjusted for (profit)/loss on disposal (2 239) 1 457
of plant and equipment (net of tax)
Headline earnings 73 347 94 368
Headline earnings per share (cents)
- Basic 20,2 26,0
Condensed consolidated statement of financial position
at 28 February 2010
2010 2009
R`000 R`000
ASSETS
Non-current assets 412 130 393 143
Property, plant and equipment 373 659 354 172
Goodwill 33 549 33 549
Other intangible assets 1 762 1 817
Other financial assets 2 202 3 605
Deferred tax 958 -
Current assets 315 187 298 839
Inventory 8 536 16 946
Amounts due from contract customers 90 149 9 290
Trade and other receivables 122 183 163 088
Other financial assets 7 173 7 927
Bank balances and cash 87 146 101 588
Total assets 727 317 691 982
EQUITY AND LIABILITIES
Total equity 310 255 234 614
Share capital and share premium 228 598 228 598
Reserves (123 943) (122 053)
Retained earnings 205 600 128 069
Equity attributable to equity holders of the 310 255 234 614
holding company
Non-controlling interests - -
Total liabilities 417 062 457 368
Non-current liabilities 223 113 235 566
Interest bearing borrowings 165 481 186 517
Deferred tax 57 632 49 049
Current liabilities 193 949 221 802
Interest bearing borrowings 99 100 87 839
Trade and other payables 81 087 88 629
Subcontractor liabilities 6 928 9 704
Provisions - 5 496
Current tax liabilities 6 834 30 134
Total equity and liabilities 727 317 691 982
SUPPLEMENTARY STATEMENT OF FINANCIAL
POSITION INFORMATION
Total number of shares in issue (`000) 362 500 362 500
Net asset value per share (cents) 85,6 64,7
Capital expenditure (R`000)
- Spent 109 185 162 102
- Commitments - Authorised but unspent 143 294 128 302
Performance guarantees issued (R`000) 82 432 49 210
Condensed consolidated statement of cash flows
for the year ended 28 February 2010
2010 2009
R`000 R`000
Cash flows from operating activities 45 888 114 667
Cash generated by operations 104 531 142 930
Net interest paid (15 561) (27 869)
Income taxes paid (43 082) (394)
Cash flows from investing activities (46 747) (145 655)
Purchase of property, plant and equipment (109 025) (162 102)
- Replacement (86 331) (55 068)
- Additions (22 694) (107 034)
Purchase of intangible assets (160) -
Proceeds on disposal of property, plant and 74 732 32 768
equipment
Assets acquired through acquisition - (7 000)
Movement in loan through acquisition (11 625) -
Increase in loans granted (669) (9 321)
Cash flows from financing activities (13 583) 39 338
Settlement of Vendor liability - (71 356)
Net movement related to bank loans (11 349) 54 054
Net movement related to instalment sale agreements (2 234) 56 640
Net (decrease)/increase in cash and cash (14 442) 8 350
equivalents
Cash and cash equivalents at the beginning of the 101 588 93 238
year
Cash and cash equivalents at the end of the year 87 146 101 588
Cash and cash equivalents comprise of:
Bank balances and cash 87 146 101 588
Notes to the condensed consolidated financial statements
for the year ended 28 February 2010
1. Basis of preparation and accounting policies
This provisional report complies with International Accounting Standard 34 -
Interim Financial Reporting as well as with Schedule 4 of the South African
Companies Act and the disclosure requirements of the JSE Limited`s Listings
Requirements. The provisional report has been prepared using accounting
policies that comply with International Financial Reporting Standards. The
accounting policies are consistent with those applied in the prior financial
year except for the standards noted below which became effective on 1 January
2009: IAS 1 Presentation of Financial Statements (revised) and IFRS 8
Operating Segments. The adoption of these standards has no effect on the
results but required the restatement of the segmental report.
2. Acquisitions
During the year the Group acquired an interest in a company in Botswana,
Protech Power Corp (Pty) Ltd. The business was a start up business and
incurred minor losses which the group has funded.
The Group consolidated Protech Khuthele Property Investments (Pty) Ltd as a
subsidiary on 28 February 2010. The Group has no equity stake in the company,
but the directors of major subsidiaries have the power to govern and control
financial and operating policies.
The analysis of net assets acquired is as follows:
2010
R`000
Current assets 1 014
Property 25 681
Interest bearing borrowings (3 808)
Net assets acquired 22 887
Net cash flow in terms of acquisition 22 887
Loan account Protech Khuthele Holdings Limited (company) (435)
Loan account Protech Khuthele (Pty) Ltd (22 452)
Total cash flow -
3. Subsequent events
No material events have occurred subsequent to 28 February 2010 which may
have an impact on the group`s reported financial position at this date.
4. Audit opinion
The auditors, Deloitte & Touche, have issued their unmodified audit opinion
on the Group`s financial statements for the year ended 28 February 2010. The
audit was conducted in accordance with International Standards on Auditing. A
copy of their audit report is available for inspection at the company`s
registered office. These provisional financial statements have been derived
from the Group financial statements and are consistent in all material
respects, with the Group financial statements. Any reference to future
financial performance included in this announcement, has not been reviewed or
reported on by the Company`s auditors.
5. Dividend declaration
Notice is hereby given that the Group has declared its maiden dividend of 4
cents per share. This is in respect of the year ended 28 February 2010 and
was declared on Friday, 28 May 2010.
The timetable for the payment of the dividend is as follows:
Last date to trade cum dividend Friday, 23 July 2010
Commence trading ex dividend Monday, 26 July 2010
Record date Friday, 30 July 2010
Dividend payable Monday, 2 August 2010
Share certificates may not be dematerialised or rematerialised between
Monday, 26 July 2010 and Friday, 30 July 2010, both dates inclusive.
Condensed consolidated statement of changes in equity
for the year ended 28 February 2010
Share Share Common Foreign Retained
capital premium control currency earnings
reserve translation
reserve
R`000 R`000 R`000 R`000 R`000
Balance at 29 2 228 596 (122 053) - 35 158
February 2008
Total - - - - 92 911
comprehensive
income for the
year
Balance at 28 2 228 596 (122 053) - 128 069
February 2009
Realisation in - - (1 945) - 1 945
respect of
deregistered
dormant
subsdidiaries
Total - - - 55 75 586
comprehensive
income for the
year
Balance at 28 2 228 596 (123 998) 55 205 600
February 2010
The adjustment against the common control reserve relates to the
deregistration of the dormant subsidiaries Protech Projects Holding (Pty)
Ltd and Umvundla Investments No.2 (Pty) Ltd subsequent to year end.
Condensed consolidated statement of changes in equity
for the year ended 28 February 2010
Equity Non- Total equity
attributable controlling
to the interest
shareholders
of the company
R`000 R`000 R`000
Balance at 29 141 703 - 141 703
February 2008
Total 92 911 - 92 911
comprehensive
income for the
year
Balance at 28 234 614 - 234 614
February 2009
Realisation in - - -
respect of
deregistered
dormant
subsdidiaries
Total 75 641 - 75 641
comprehensive
income for the
year
Balance at 28 310 255 - 310 255
February 2010
The adjustment against the common control reserve relates to
the deregistration of the dormant subsidiaries Protech Projects
Holding (Pty) Ltd and Umvundla Investments No.2 (Pty) Ltd
subsequent to year end.
Operational segmental reporting for the year ended
28 February 2010
Services within each business segment
In the reporting period to February 2009 the group had four major operating
divisions - earthworks, plant hire, geotechnical laboratory and readymix.
During 2010 management decided to combine the earthworks and plant hire
divisions into one division, contracting, as the plant hire division forms an
integral part of the earthworks division. The combination of these two
divisions into one will also provide more meaningful reporting in terms of the
Group`s operating activities. Therefore the three divisions Contracting,
Geotechnical laboratory and Readymix are the basis on which the Group will
report its operating segment information. The principal services and products
of each of these divisions are as follows:
Contracting - bulk earthworks, roads and civil engineering contractors, plant
hire, impact compaction and logistical services.
Geotechnical laboratory - geotechnical laboratory and surveying services.
Readymix - supplier of readymixed concrete and pumping services.
Segment revenue Segment revenue Segment result
and segment result
Year ended Year ended Year ended Year ended
28/02/2010 28/02/2009 28/02/2010 28/02/2009
R`000 R`000 R`000 R`000
Contracting 640 235 589 218 120 138 148 834
Geotechnical laboratory 16 064 11 347 2 847 754
Readymix 113 049 108 127 (5 430) 977
769 348 708 692 117 555 150 565
CorporateSquared 8 960 13 460 1 070 (5)
Intergroup eliminations (29 530) (19 407) (71) 5 427
748 778 702 745
Operating profit 118 554 155 987
Net interest paid (15 561) (27 869)
Earnings before tax 102 993 128 118
Taxation (27 407) (35 207)
Earnings for the year 75 586 92 911
Segment revenue reported above represents revenue generated from external
customers. Intersegment sales amounted to R29,5 million (2009: R19,4 million).
Segment result reported above represents operating profit per segment prior to
taking interest into account.
The accounting policies of the reportable segments are the same as the Group`s
accounting policies.
Segment assets and Segment assets Segment liabilities
liabilities
Year ended Year ended Year ended Year ended
28/02/2010 28/02/2009 28/02/2010 28/02/2009
R`000 R`000 R`000 R`000
Contracting 727 947 625 145 430 273 421 437
Geotechnical laboratory 6 489 5 102 2 036 2 649
Readymix 79 724 82 629 89 990 86 326
814 160 712 876 522 299 510 412
CorporateSquared 388 282 357 719 171 148 112 009
Intergroup eliminations (475 125) (378 613) (276 385) (165 053)
727 317 691 982 417 062 457 368
Other segment information Depreciation Additions to
and amortisation non-current assets
Year ended Year ended Year ended Year ended
28/02/2010 28/02/2009 28/02/2010 28/02/2009
R`000 R`000 R`000 R`000
Contracting 38 405 27 157 106 034 165 967
Geotechnical laboratory 1 007 521 2 686 1 482
Readymix 4 400 4 507 465 1 577
CorporateSquared - - 25 681 -
43 812 32 185 134 866 169 026
1?Restated.
2?Corporate includes the transactions of the holding company and property
companies.
Information about major customers
Included in revenues arising from contracting income of R640,2 million (2009:
R589,2 million) are revenues of approximately R302,8 million (2009: R210,5
million) which arose from contracting income from two of the Group`s largest
customers.
Operating segments
The operating segments reported above form the basis on which internal
reporting are structured for the chief decision makers. Therefore there are no
differences in terms of the numbers reported to shareholders and management.
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