| Fri 29 Oct 2010, 17:37 | | SFH - SA French Limited - Reviewed condensed results for the financial year |
|
SFH
SFH
SFH - SA French Limited - Reviewed condensed results for the financial year
ended 30 June 2010 and renewal of cautionary announcement
SA 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")
REVIEWED CONDENSED RESULTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2010 AND RENEWAL
OF CAUTIONARY ANNOUNCEMENT
REVIEWED CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
Reviewed Audited
12 months 12 months
ended ended
30 June 30 June
2010 2009
R`000 R`000
Revenue 65 630 139 255
Cost of sales (50 060) (118 871)
Gross profit 15 570 20 384
Other income 13 601 9 875
Operating expenses (27 655) (29 526)
Operating profit 1 516 733
Investment revenue 1 712 1 707
Finance costs (7 354) (15 181)
Loss before taxation (4 126) (12 741)
Taxation (776) 1 783
Loss attributable to ordinary shareholders (4 902) (10 958)
Other comprehensive income - -
Total comprehensive income (4 902) (10 958)
Reconciliation of attributable earnings to
headline earnings
Loss attributable to ordinary shareholders (4 902) (10 958)
Gain on disposal of property, plant and (54) (918)
equipment
Impairment loss 1 362 -
Tax effect of the above adjustments (366) 257
Headline loss attributable to ordinary (3 960) (11 619)
shareholders
Weighted average number of shares in issue 166 375 165 952
689 872
Loss per share (cents) (2.38) (6.60)
Headline loss per share (cents) (2.95) (7.00)
REVIEWED CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
Reviewed Audited
30 June 30 June
2010 2009
R`000 R`000
ASSETS
Non-current assets 87 751 88 659
Property, plant and equipment 86 389 85 159
Other financial assets 1 362 2 724
Deferred tax - 776
Current assets 99 072 124 496
Inventories 86 129 103 656
Current tax receivable 529 529
Trade and other receivables 12 380 20 267
Cash and cash equivalents 34 44
Total assets 186 823 213 155
EQUITY AND LIABILITIES
Capital and reserves 47 841 52 743
Share capital 49 330 49 330
Revaluation reserve 162 162
(Accumulated loss)/Retained income (1 651) 3 251
Minority interest * *
Non-current liabilities 17 211 44 483
Loans from shareholders 11 171 11 118
Instalment sale agreements - 33 365
Other financial liabilities 6 100 -
Deferred tax - -
Current liabilities 121 708 115 929
Loans from shareholders 450 -
Other financial liabilities 496 4 106
Current tax payable 165 165
Instalment sale agreements 41 359 19 369
Operating lease liability 1 285 600
Trade and other payables 71 763 81 536
Dividend payable 786 786
Bank overdraft 5 407 9 367
Total equity and liabilities 186 823 213 155
Number of shares in issue 166 375 166 375
689 689
Net asset value per share - (cents) 28.75 31.70
Net tangible asset value per share - 28.75 31.70
(cents)
* Less than R1 000
REVIEWED CONDENSED STATEMENT OF CASH FLOWS
Reviewed Audited
30 June 30 June
2010 2009
R`000 R`000
Net cash from operating activities 26 507 15 371
Net cash from investing activities (10 077) (51 893)
Net cash from financing activities (12 480) 17 300
Total cash movement for the year 3 950 (19 222)
Cash at the beginning of the year (9 323) 9 899
Total cash at end of the year (5 373) (9 323)
REVIEWED CONDENSED STATEMENT OF CHANGES IN EQUITY
Shar Share Revalua Accumula Minor Total
e premiu tion ted loss ity equit
capi m reserve R`000 inter y
tal R`000 R`000 est R`000
R`00 R`000
0
Audited balance at 1 47 305 162 15 859 * 64
1 July 2008 650 976
Loss for the year - - - (10 958) - (10
958)
Capitalisation of 14 361 - - - 375
dividend
Dividends - - - (1 650) - (1
650)
Total changes 14 361 - (12 608) - (12
233)
Audited balance at 1 47 666 162 3 251 * 52
1 July 2009 664 743
Loss for the year - - - (4 902) - (4
902)
Total changes - - - (4 902) - (4
902)
Reviewed balance at 1 47 666 162 (1 651) * 47
30 June 2010 664 841
* less than R1 000
COMMENTARY
Introduction
The board of directors of SA French ("the directors") presents the reviewed
financial results of SA French for the twelve months ended 30 June 2010 ("the
period") which reflect a net asset value per share of 28.75 cents per share as
at 30 June 2010. This period has seen a number of challenges and in response
thereto, the directors have adhered to the core principle on which the company
was founded, that of providing exemplary service and support to its existing
customers, while winning new customers by providing cost effective lifting
solutions together with tailor made application engineering. As a result the
company can boast a client base that includes multinational joint ventures as
well as blue chip construction and design firms within Southern Africa.
Group profile
SA French, founded by the current Chief Executive Officer Quentin van Breda, is
the exclusive distributor in sub-equatorial Africa of the Potain brand of tower
cranes; a subsidiary of the NYSE listed Manitowoc Crane Group which is the
largest crane manufacturer in the world. In addition to its 28 year track record
as a distributor and renter of the Potain brand, SA French holds distribution
agreements with Merlo SPA, manufacturers of telescopic handlers and self-loading
concrete mixers, and Saltec, producers of rack and pinion passenger and material
hoists for the sub-equatorial Africa region. This diversification allows the
company to offer complementary lifting solutions to its clients. It is SA
French`s focus to offer high levels of service to its clients and as such a
rental offering of over 50 units is available to its client base. The rental
business model has been developed over a 36 month period to encompass a wide
range of tower crane, telehandler and hoist products
Basis of preparation
The accounting policies applied in the preparation of these reviewed condensed
group financial results for the year ended 30 June 2010, 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.
Auditor`s report
The group`s condensed annual financial statements for the year ended 30 June
2010 have been reviewed by the group`s auditors, RSM Betty & Dickson
(Johannesburg). The auditors` modified review report on the group`s condensed
annual financial statements is available for inspection at the company`s
registered office.
Extracts from auditor`s review report
"Emphasis of Matter
Without qualifying our conclusion, we draw attention to the reviewed condensed
results which indicates that the Company incurred a net loss of R4 902 231
during the year ended 30 June 2010. These conditions, along with other matters
as set forth in the results commentary, indicate the existence of an uncertainty
that may cast doubt about the Company`s ability to continue as a going concern.
Reportable Irregularity
In accordance with our responsibilities in terms of sections 44(2) and 44(3) of
the Auditing Profession Act, we report that in the current year, we identified
certain unlawful acts or omissions by persons responsible for the management of
SA French Limited which constituted a reportable irregularity in terms of the
Auditing Professions Act, and we have reported such matters to the Independent
Regulatory Board for Auditors. The matter pertaining to the reportable
irregularity and the actions taken by management have been described in the
condensed financial information."
Review of operations
As has been widely reported a number of contracts due for award in the public
sector, relating to infrastructural development and in particular power
generation, have been delayed due to issues such as planning and funding. The
company is in the fortunate position to have been awarded a number of contracts
either directly or through the provision of services to existing clients and
looks forward to these contracts being initiated in the early part of 2011. The
order book for this sector in the next 30 months is R50 million. There has been
a consequent effect on the company`s turnover as a result of these delays and
this effect can fortunately be quantified and isolated to the current reporting
period. The company looks forward to seeing the positive impact of its hard won
contracts over the next 36 months.
With reference to the private sector, there has been a change in market dynamic
and in particular an increase in demand for rental as a result of clients
seeking to keep costs at a minimum as their order books and margins have been
put under pressure. The company has been able to offer its clients the option to
hire in and price aggressively in a very competitive tender market. The increase
in rentals, as opposed to sales, has had an impact on SA French`s short term
financial performance. However short-term profitability has been replaced by
longer-term prospective rental revenues, with the average usable life of a well
maintained unit being 20 - 25 years.
The rental business is capital intensive. Working capital is limited and the
board has spent much of 2010 addressing this by renegotiating credit terms with
asset based financiers, returning no- moving stock items to suppliers and
aggressively reducing overhead costs.
In spite of every effort to meet all monthly liabilities there were instances in
the current reporting period in which priority had to be given to the allocation
of funds to activities focused on the ongoing generation of income. This has
given rise to a situation in which payment of the provident fund contributions
for April, May and June 2010 were deferred with the undertaking that they will
be settled prior to calendar year end. This measure was taken after consultation
with the employee`s trustee representatives of the provident fund as well as the
fund broker. Consequently it has been identified by the auditors as reportable
to the Independent Regulatory Board for Auditors and management will confirm
resolution of this matter with all applicable regulatory bodies within 30 days.
Statement of going concern
The reviewed condensed group financial statements for the year ended 30 June
2010, have been prepared on the going concern basis.
On a review of the group`s balance sheet there are three significant issues that
should be brought to the attention of the users of these results. The company
currently has a computed loss for taxation purposes of R36.3 million. Given the
current circumstances of the company consideration has been made as to the
provisions of IAS 12 Income Taxes and no deferred taxation asset has been raised
on this computed loss in the current period. Secondly due to non compliance with
certain of the contractual provisions current Instalment Sale Agreements have
become potentially voidable. The provisions of IAS 1 Presentation of Financial
Statements and IFRS 7 Financial Instruments Disclosures have been applied
resulting in the full amount outstanding of R41 million being reflected as a
current liability instead of allocated between current and non-current
liabilities in terms of the original contractual undertaking. Management are
currently in the process of renegotiating the terms and conditions of these
contractual arrangements to ensure they are more appropriate to the current
structure of the business. Finally the credit arrangement with Manitowoc Crane
Group has been finalised and the result of this transaction will be that
redundant stock will be exported resulting in a reduction to trade and other
payables and inventory levels. The effect of this transaction will take effect
in the next financial period.
Capital is required by the company and the board is considering a number of
options without resorting to the sale of assets.
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 R20 million
is needed over the next 6 months. Both debt and equity funding are being
considered. At the forefront of these considerations is a rights issue
underwritten predominantly by management and current shareholders. This
transaction would see the remaining 333 624 311 million authorised shares issued
at 6cps which would effectively raise R20 017 382.14. The timing of this rights
issue is dependent on management securing a second underwriter, with
negotiations in final stages.
Reportable Irregularity
The company`s auditors, as detailed above have reported a reportable
irregularity to the Independent Regulatory Board for Auditors. This relates
specifically to the company being in arrears with pension and provident fund
contributions which constitutes a contravention of the Pension Funds Act.
Management are currently resolving this matter with the relevant fund
administrators.
Skills development
SA French has focused on practical skills training for its tower crane and hoist
riggers, operators and technicians. The Engineering Council of South Africa
("ECSA") has conferred the status of Lifting Machinery Entity ("LME") on the
company and SA French continues to, under the auspices of ECSA, assist its
technicians to register as candidate Lifting Machinery Inspectors ("LMI"). SA
French takes the lead in tower crane and hoist safety. The Chief Executive
Officer is an active member of the steering committee tasked with establishing a
South African standard for the crane industry. In the period under review six
candidate LMI`s were put forward. As a training provider the company is
recognised throughout the industry as the premier trainer of tower crane
technicians.
There is an industry wide demand for competent, certified lifting machine
operators. The company training facility established under the auspices of the
Transport Education and Training Authority ("TETA") enables it to provide
operator training and certification for its own rental fleet, it clients as well
as third parties. This accreditation was audited and once again conferred on SA
French by TETA during this reporting period. From early indications and
successes it is envisaged that the investment in training leads to the creation
of an additional income stream for the group, while ensuring that the level and
competence of the trainees passing through the facility proves a
differentiating factor in terms of the clients choice of service provider. The
company has developed, and seeks to maintain, a good reputation for the high
quality of training that it offers.
Financial results
Decrease in revenue
Unit sales have dropped with firms opting to the rental of capital equipment,
including cranes, as opposed to the purchase thereof. The result is that the
company`s rental income segment has increased from 16% to just over 33% of total
revenue. Revenue is expected to increase as 2011 sees the coming on line of
secured long term rentals as well as new opportunities to form strategic
partnerships with long standing clients.
Operating costs
SA French has reduced its operating costs while ensuring that operating
efficiencies are increased. This has been done with the support and hard work of
its dedicated and skilled staff. The company has consolidated its Gauteng, Kwa
Zulu Natal and Western Cape operations, reducing their premises rental and other
related costs. This consolidation has resulted in once-off staff retrenchment
costs and transport costs required to move all capital equipment to three key
distribution facilities.
The company also experienced an increase in doubtful debts to R3 million as a
result of the financial pressures placed on local firms by the global recession.
The company takes all reasonable precautions to prevent such debt and is in the
process of aggressively collecting these through the legal means at its
disposal.
Movement in borrowings
The company`s non-current liabilities decreased from R44.0 million at 31 June
2009 to R17.0 million as at 30 June 2010. This is due to the reclassification to
current the instalment sale agreements of the company as detailed above.
Current liabilities have increased from R 116 million as at 30 June 2010 to
R121.7 million as at 30 June 2010 due to the reclassification of instalment sale
liabilities as well as shareholder loans. The single largest trade creditor,
Manitowoc Crane Group ("Manitowoc") has finalised negotiations with the company.
The consequences to the balance sheet are that redundant stock is in the process
of being returned and this transaction will see a R61 million decrease in trade
creditors together with a similar decrease in inventories.
In addition to the above, SA French has undertaken to settle its overdraft
facility with First National Bank by reducing the current facility by R250 000
per month. This repayment is expected to continue uninterrupted until the
facility has been completely settled in keeping with the company`s strategy to
reduce finance charges.
Prospects
Within the Southern African Development Community ("SADC") there are a number of
opportunities in both rentals and sales. SA French has tendered on numerous jobs
in this region and is confident of success as well as the opportunity to
regionally diversify its fleet. The company continues 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 services
capabilities and competitive pricing on rentals make it the tower crane supplier
of choice to both listed and unlisted construction firms.
Construction projects that had been curtailed or stalled due to lack of funding
are beginning to be revisited and there is opportunity for both rental and sales
in this area. This source of revenue is dependent on the private sector and
takes issues such as business and consumer confidence, interest rates and the
availability of funding into account.
Power generation remains a focal point for all companies in the construction
sector and it is with anticipation that the company looks to the award of a
number of tenders that had been delayed from as far back as March 2008. SA
French has worked closely with many of the winning tenderers and is in a
position to directly benefit from these tender awards.
The promised government allocation that has been earmarked for infrastructural
development between 2010 and 2014 of R800 billion is a significant incentive to
stay positive. SA French has continued to train and retain skilled staff in
order to be in a position to take maximum benefit from this infrastructure
spending both directly as well as through its clients. There are also new
opportunities that are being investigated and discussions with key role players
in the alternative energy sector are in advance stages.
The Manitowoc Crane Group remains supportive of SA French and negotiations have
been concluded to implement a stock repurchase arrangement, the result of which
will be a decrease of R61 million to both inventories and trade payables.
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 R20 million
is needed over the next 6 months. Both debt and equity funding are being
considered.
SA French has a considerable net asset value, most of which is reflected in its
rental fleet, which has a net value of R44 million (being a carrying value of
R85.0 million less related lease funding of R 41 million).
Renewal of cautionary
Further to the cautionary announcement contained in the SENS announcement dated
22 September 2010, 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
Negotiations have been concluded, the impact of which will only be seen in the
following reporting period, to implement a stock repurchase arrangement with
Manitowoc Crane Group, the result of which will be a decrease of R61 million to
both inventories and trade payables.
Dividend policy
No dividend has been declared for the period.
Segmental reporting
Management has not presented a segmental report for the period under review as
the group only has one operating and geographical segment.
Directorate
Mr Riaan Erasmus resigned as financial director of SA French with effect from 1
June 2010. SA French is actively engaged in a search for a suitable candidate to
take the position of Financial Director, with a view to filling the role with
effect from January 2011. Several candidates are being considered and together
with a professional placement agency, the companies designated advisors as well
as non-executive directors a shortlist has been compiled and follow up
interviews conducted. In the interim the company has engaged the services of a
Registered Chartered Accountant to sign off management accounts and fulfill the
role of the Financial Director until this vacancy is filled.
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
29 October 2010
Directors
QCA van Breda (Chief Executive Officer), W van Breda (Commercial 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: 29/10/2010 17:37:01 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.
