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HWN
HWN
HWN - Howden Africa Holdings Limited - Unaudited Interim financial results
for the six months ended 30 June 2010
Howden Africa Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1996/002982/06)
Share code: HWN
ISIN: ZAE000010583
("the Company" or "the Group")
Unaudited Interim Financial Results for the six months ended 30 June 2010
Condensed consolidated statement of comprehensive income
for the period ended 30 June 2010
Six months Six months Twelve
months
ended ended ended
30 June 30 June 31
2010 2009 December
2009
(Unaudited) (Unaudited) (Audited)
(Restated) Change
R`000 R`000 % R`000
Revenue 423 806 466 785 (9,2) 976 332
Gross profit 102 921 120 812 (14,8) 247 834
Operating 46 820 65 045 (28,0) 129 480
profit
Finance income 5 419 5 524 14 682
Finance costs (2 782) (4 180) (9 460)
Profit before 49 457 66 389 (25,5) 134 702
income tax
Income tax (21 371) (19 782) (34 481)
expense
Profit for the 28 086 46 607 (39,7) 100 221
period
Other
comprehensive
income
Pension fund (397) (2 135) 20 112
plan
(loss)/surplus
Income tax 111 598 (5 631)
relating to
components of
other
comprehensive
income
Other (286) (1 537) 14 481
comprehensive
income for the
period, net of
tax
Total 27 800 45 070 114 702
comprehensive
income for the
period
attributable
to equity
holders of the
Company
Cents Cents Cents
Earnings per
share
attributable
to the equity
holders of the
Company
- basic and 42,73 70,91 (39,7) 152,48
diluted
Condensed consolidated statement of financial position
as at 30 June 2010
Six months Six months Twelve
months
ended ended ended
30 June 30 June 2009 31
2010 December
2009
(Unaudited) (Unaudited) (Audited)
(Restated)
R`000 R`000 R`000
ASSETS
Non-current assets 202 682 172 705 202 109
Property, plant and 120 901 116 512 121 219
equipment and intangible
assets
Pension fund plan 23 000 1 008 25 334
surplus
Cash and cash 18 713 17 724 18 313
equivalents
Other non-current assets 40 068 37 461 37 243
Current assets 628 624 451 865 481 896
Inventories 200 217 118 974 144 701
Trade and other 300 587 252 131 235 780
receivables
Cash and cash 127 820 80 760 101 415
equivalents
Total assets 831 306 624 570 684 005
EQUITY
Capital and reserves
Shareholders` funds 135 531 108 429 170 174
LIABILITIES
Non-current liabilities 297 481 123 281 156 944
Current liabilities 398 294 392 860 356 887
TOTAL LIABILITIES 695 775 516 141 513 831
TOTAL EQUITY AND 831 306 624 570 684 005
LIABILITIES
Condensed consolidated statement of changes in equity
for the period ended 30 June 2010
Six months Six months Twelve months
ended ended ended
30 June 30 June 2009 31 December
2010 2009
(Unaudited) (Unaudited) (Audited)
(Restated)
R`000 R`000 R`000
Share capital and 170 174 73 218 73 218
reserves at the
beginning of the
period
Total comprehensive 27 800 45 070 114 702
income for the period
attributable to the
equity holders of the
Company
Dividends paid (62 443) (9 859) (17 746)
Share capital and 135 531 108 429 170 174
reserves at the end
of the period
Other group salient features
for the period ended 30 June 2010
Six months Six months Twelve
months
ended ended ended
30 June 30 June 31
2010 2009 December
2009
(Unaudited) (Unaudited) (Audited)
(Restated) Change
R`000 R`000 % R`000
Net asset value 206,20 164,96 25,0 258,90
per share (cents)
Depreciation 2 596 2 146 5 423
Amortisation 1 005 1 016 2 150
Capital 3 337 5 088 14 963
expenditure
Capital
commitments
- Authorised and 2 087 2 397 570
contracted
Number of shares 65 729 65 729 65 729
in issue (000`s)
Earnings per share 42,73 70,91 (39,7) 152,48
(cents)
Headline earnings 42,70 70,93 (39,8) 152,50
per share (cents)
Dividends per
share
- dividend paid 20,00 15,00 15,00
(cents)
- special dividend 75,00 - -
paid (cents)
- interim dividend - - 12,00
paid (cents)
Reconciliation of
headline earnings
attributable to
the equity holders
of the Company
Net profit 28 086 46 607 100 221
attributable to
equity holders
(Profit)/loss on (21) 14 19
disposal of
property, plant
and equipment
Headline earnings 28 065 46 621 (39,8) 100 240
attributable to
equity holders
Condensed consolidated statement of cash flows
for the period ended 30 June 2010
Six months Six months Twelve
months
ended ended ended
30 June 2010 30 June 2009 31 December
2009
(Unaudited) (Unaudited) (Audited)
(Restated)
R`000 R`000 R`000
Cash flow from
operating
activities
Cash generated from 71 930 73 298 146 060
operations
Interest paid (2 782) (4 180) (9 460)
Income tax paid (16 354) (30 557) (68 943)
Net cash generated 52 794 38 561 67 657
from operating
activities
Cash flow from
investing
activities
Interest received 5 419 5 524 14 682
Purchases of (3 167) (4 999) (14 692)
property, plant and
equipment
Purchases of (170) (89) (271)
intangible assets
Proceeds from 75 7 759
disposal of
property, plant and
equipment
Net cash generated 2 157 443 478
from investing
activities
Cash flow from
financing
activities
Repayment of (15 000) - -
borrowings
Dividends paid (13 146) (9 859) (17 746)
Net cash used in (28 146) (9 859) (17 746)
financing
activities
Net increase in 26 805 29 145 50 389
cash and cash
equivalents
Cash and cash 119 728 69 339 69 339
equivalents at the
beginning of the
period
Cash and cash 146 533 98 484 119 728
equivalents at the
end of the period
Segmental analysis by operating division
for the period ended 30 June 2010
Six months Six months Twelve
months
ended ended ended
30 June 30 June 31
2010 2009 December
2009
(Unaudited) (Unaudited)
(Restated) Change (Audited)
R`000 R`000 % R`000
Revenue
Fans and Heat 346 093 283 045 605 997
Exchangers
Environmental 77 713 183 740 370 335
Control
423 806 466 785 (9,2) 976 332
Orders received
Fans and Heat 376 970 466 421 751 114
Exchangers
Environmental 101 205 193 178 239 337
Control
478 175 659 599 (27,5) 990 451
Operating profit
Fans and Heat 51 939 49 214 103 220
Exchangers
Environmental (2 126) 15 315 32 136
Control
49 813 64 529 135 356
Central (2 993) 516 (5 876)
operations
Total operating 46 820 65 045 (28,0) 129 480
profit
Inter-segmental
sales
Fans and Heat 17 285 39 697 45 375
Exchangers
Environmental 5 255 9 220 20 040
Control
22 540 48 917 (53,9) 65 415
The effect of the restatements on prior year financial statements
(unaudited):
Condensed consolidated statement of financial position
as at 30 June 2009
As Unaudited
previously
reported Restatements Restated
30 June 2009 30 June
2009
Note R`000 R`000 R`000
Amounts due from 2 14 583 (14 583) -
customers for
contract work (non-
current)
Amounts due from 2 84 741 (19 228) 65 513
customers for
contract work
(current)
Inventories 2 54 445 64 529 118 974
Pension fund plan 1 - 1 008 1 008
surplus
Shareholders` 1 & 2 104 699 3 730 108 429
funds
Deferred income 1 & 2 1 244 1 450 2 694
tax liabilities
Amounts due to 2 134 657 (115 076) 19 581
customers for
contract work (non-
current)
Amounts due to 2 73 108 12 872 85 980
customers for
contract work
(current)
Trade and other 2 - 45 256 45 256
payables (non-
current)
Trade and other 2 197 500 83 494 280 994
payables (current)
Condensed consolidated statement of comprehensive income
for the period ended 30 June 2009
As Unaudited
previously
reported Restatements Restated
30 June 2009 30 June
2009
R`000 R`000 R`000
Revenue 2 472 721 (5 936) 466 785
Operating profit 1 & 2 68 163 (3 118) 65 045
Income tax expense 1 & 2 (20 655) 873 (19 782)
Profit for the 1 & 2 48 852 (2 245) 46 607
period
Earnings per share 1 & 2 74,32 (3,41) 70,91
(cents)
Headline earnings 1 & 2 74,34 (3,41) 70,93
per share (cents)
Impact of the restatements (unaudited)
1. Defined benefit pension fund
30 June
2009
R`000
Statement of financial position
Increase in pension fund plan surplus 1 008
Increase in deferred tax liability (282)
Increase in pension fund plan surplus taken to equity (1 229)
Decrease in retained earnings 503
Statement of comprehensive income
Increase in administrative expenses (3 342)
Decrease in income tax expense 936
Decrease in profit for the period (2 406)
Decrease in basic earnings per share (cents) (3,66)
Decrease in headline earnings per share (cents) (3,66)
2. CONSTRUCTION CONTRACTS
30 June
2009
R`000
Statement of financial position
Decrease in amounts due from customers for contract (14 583)
work (non-current)
Decrease in amounts due from customers for contract (19 228)
work (current)
Increase in inventories 64 529
Increase in deferred tax liability (1 168)
Decrease in amounts due to customers for contract 115 076
work (non-current)
Increase in amounts due to customers for contract (12 872)
work (current)
Increase in trade and other payables (non-current) (45 256)
Increase in trade and other payables (current) (83 494)
Increase in retained earnings (3 004)
Statement of comprehensive income
Decrease in revenue (5 936)
Decrease in cost of sales 6 160
Increase in income tax expense (63)
Increase in profit for the period 161
Increase in basic earnings per share (cents) 0,25
Increase in headline earnings per share (cents) 0,25
CHANGE IN ACCOUNTING POLICIES - PRIOR FINANCIAL PERIOD
1. DEFINED BENEFIT PENSION FUND
The Group early adopted AC 504 - IAS 19 (AC 116) The Limit on a Defined
Benefit Asset, Minimum Funding Requirements and their Interaction in the
South African Pension Fund Environment. The effective date for AC 504 is
financial periods starting on or after 1 April 2009, however the Group
elected the early adoption in the prior financial period, as this guidance
was published before the Group`s year-end and seeks to clarify an existing
accounting pronouncement. The early adoption resulted in the Group
recognising its defined benefit surplus as an asset, retrospectively. AC 504
required the Group to assess whether it had an unconditional right to the
surplus. As the Rules of the Fund were amended in 2008 to apportion future
surpluses to the employer, the surplus in the pension fund should be
recognised in the statement of financial position.
In addition the Group changed its accounting policy in the prior financial
period, in accordance with the allowed alternative in IAS 19 - Employee
Benefits to recognise actuarial gains and losses on the Group`s defined
benefit pension fund. As a result of this change in accounting policy, any
adjustments to the surplus or deficit by applying the limit to the asset in
accordance with IAS 19 Employee Benefits will also be recognised in other
comprehensive income. This new policy results in more relevant information
on the Group`s performance by removing the volatility from changes in
actuarial assumptions and reserves.
2. CONSTRUCTION CONTRACTS
IFRIC 15 - Agreements for the Construction of Real Estate, which became
effective during the prior financial period, clarifies how to determine
whether an agreement is within the scope of IAS 11 - Construction Contracts
or IAS 18 - Revenue and when revenue from construction should be recognised.
The Group has reviewed all of its contract classifications and determined
that some contracts previously classified as construction contracts under
IAS 11 in the prior financial period, have now been classified as sale of
goods and services under IAS 18.
Commentary
OVERVIEW
Order intake for the six months to 30 June 2010 was R478,2 million compared
to R659,6 million for the corresponding period last year, a decrease of 28%.
Whereas order intake levels had been boosted by larger value orders over the
successive half year periods beginning 1 January 2008 and ending 30 June
2009, the latest position reflects a normalisation to levels considered more
sustainable in the current economic climate.
RESULTS
In the six months ended 30 June 2010 revenue of R423,8 million compares to
R466,8 million in the corresponding period last year. The decrease in
revenue reflects a reduced order book in the environmental control division,
no larger value contracts having been converted to sales in the period under
review.
Group operating profit from operations of R46,8 million is reported for the
period, against R65,0 million for the six months to June last year. Lower
revenue volumes, and increased investment in strategic initiatives for the
future development of the business, have impacted negatively in the period
under review.
Earnings per share of 42,73 cents compares with 70,91 cents last year, a
decrease of 40%. Earnings for the period were affected by the secondary tax
on companies charge of R4,9 million (7,5 cents per share) in respect of the
special dividend of 75,0 cents per share declared on 3 June 2010. Excluding
the effect of STC, earnings per share reflect a decrease of 29% compared to
last year.
A net cash position of R110,8 million compares with R68,6 million reported
at the end of December 2009. Cash generated from operations of R71,9 million
is very satisfactory, given current economic conditions and compares to
R73,3 million generated in the period to 30 June 2009.
ACCOUNTING POLICIES
The interim financial results to June 2010 have been prepared in accordance
with International Financial Reporting Standards (IFRS), IAS 34 Interim
Financial Reporting, JSE Listings Requirements and the Companies Act of
South Africa, incorporating the AC 500 series of Accounting Standards. The
accounting policies are consistent with those applied in the prior year,
except for the change in accounting policies as noted in the restatement
section above.
REVIEW OF OPERATIONS
Fans and heat exchangers
Order intake for fans and heat exchangers totalled R377,0 million compared
to R466,4 million in the corresponding period last year. In the period to 30
June 2009 orders totalling R103 million were processed for the supply of
fans and air heater elements to Kusile Power Station. Excluding this, order
intake in the division continued to hold firm under difficult trading
conditions. Despite a decline in work associated with Eskom`s Return to
Service programme, a strong performance in the aftermarket helped to
increase revenue over the period under review. The division has also managed
to increase the size of its order book through the period.
As previously reported, orders have been received for the supply of fans and
air heater components connected to Eskom`s capacity expansion programme
involving the two new coal-fired baseload power stations, Medupi and Kusile.
It is pleasing to report that good progress has been made in meeting supply
deadlines against these contracts.
Environmental control
The environmental control business received orders totalling R101,2 million
compared to R193,2 million last year. Order intake for the period has been
dominated by an order valued at R60 million. Contracts in progress at end
June 2010 remain low. There is, however, a significant amount of tendering
in process which suggests that some recovery in business volumes could be
evident as the year progresses.
OUTLOOK
Despite the reduced order intake compared to prior periods, the order book
still stands at levels slightly ahead of the position at end December 2009.
The outlook for the remainder of this year will, however, be largely
influenced by success in converting prospects in the environmental control
division to orders.
POST BALANCE SHEET EVENT
The Company has been advised of a possible claim for penalties resulting
from supply issues connected to a recently completed contract. The extent of
the claim is difficult to quantify but on the basis of information available
is not deemed to be material to results.
DIVIDENDS
The directors have resolved to declare an interim dividend of 12 cents per
share payable to shareholders. The last date to trade cum dividend is
Friday, 10 September 2010. Shares start trading ex dividend on Monday, 13
September 2010. The record date is Friday, 17 September 2010. Payment will
be on Monday, 20 September 2010. No share certificates are to be
dematerialised or rematerialised between Monday, 13 September 2010 and
Friday, 17 September 2010 both days inclusive.
DIRECTORATE
There were no changes in directorate during the period.
UNAUDITED INTERIM RESULTS
The Company`s auditors, PricewaterhouseCoopers Inc, have not reviewed or
audited these results for the six months ended 30 June 2010, nor the
restatements to 30 June 2009.
For and on behalf of the Board of Directors
RJ Cleland T Barwald
Chairman Chief Executive Officer
27 August 2010
Directors:
RJ Cleland (Chairman)#**
T Barwald (Chief Executive Officer)+
S Meyer
AB Mashiatshidi**
J Brown#**
M Malebye**
(#British +German **Non-executive)
Company secretary:
M Luthuli
Registered office:
1a Booysens Road, Booysens, 2091
Postal address: PO Box 2239, Johannesburg, 2000
Transfer secretaries:
Computershare Investor Services (Pty) Limited70 Marshall Street,
Johannesburg, 2001
Sponsor:
PricewaterhouseCoopers Corporate Finance (Pty) Limited
Date: 27/08/2010 17:49:01 Produced by the JSE SENS Department.
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