| Wed 17 Nov 2010, 8:00 | | ATR - Africa Cellular Towers Limited - Reviewed interim results for the six |
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ATR
ATR
ATR - Africa Cellular Towers Limited - Reviewed interim results for the six
months ended 31 August 2010
AFRICA CELLULAR TOWERS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2000/027374/06)
JSE code: ATR ISIN: ZAE000088084
("ACTOWERS" or "the company" or "the Group")
REVIEWED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2010
Condensed Consolidated Statement of Comprehensive Income
Reviewed Reviewed Audited
6 months 6 months 12 months
August August February
2010 2009 2010
R`000 R`000 R`000
Revenue 102 739 149 752 227 390
Gross (loss)/profit (23 368) 19 152 2 951
Other income 3 697 984 7 537
Operating expenses (50 908) (30 879) (74 674)
Trading loss (70 579) (10 743) (64 186)
Loss on foreign exchange (7 256) (19 103) (25 489)
differences
Gain on disposal of fixed assets - 19 174
Income from available for sale - - 278
accounted investment
Impairment of investment - - (5 000)
Impairment of goodwill (1) (7 532) (6 194) (6 194)
Operating loss before interest, (85 367) (36 021) (100 417)
taxation, depreciation and
amortisation
Depreciation and amortisation (3 041) (2 459) (6 038)
Loss before interest and taxation (88 408) (38 480) (106 455)
Net interest received/(paid) 2 111 (7 623) 13 123
Loss before taxation (86 297) (46 103) (93 332)
Taxation 2 681 (2 151) 1 069
Loss attributable to ordinary (83 616) (48 254) (92 263)
shareholders
Other comprehensive income (1 917) (16 561) (16 334)
Exchange differences arising on
translation of
foreign operations
Available for sale financial - 34 (244)
assets
Other comprehensive loss for the
year (1 917) (16 527) (16 578)
(net of tax)
Total comprehensive loss for the (85 533) (64 781) (108 841)
year
Reconciliation of headline
earnings:
Loss attributable to ordinary (83 616) (48 254) (92 263)
shareholders
Adjusted for:
Profit on sale of property, plant - (19) (174)
and equipment
Profit on disposal of other - - (278)
financial instruments
Impairment of goodwill 7 532 6 194 11 194
Headline loss attributable to (76 084) (42 079) (81 521)
ordinary shareholders
Weighted average shares in issue 356 055 356 055 356 055
on which
earnings per share are based
(`000)
Fully diluted weighted average 356 055 357 950 356 055
shares in issue (`000)
Loss per share (cents) (23.5) (13.6) (25,9)
Headline loss per share (cents) (21.4) (11.8) (22,9)
Fully diluted loss per share (23.5)
(cents) (13.5) (25,9)
Fully diluted headline loss per (21.4)
share (cents) (11.8) (22,9)
Notes:
Impairment of goodwill of R7.5 million relating to JK Shelters (Pty) Ltd to
below the net asset value.
Condensed Consolidated Statement of Financial Position
Reviewed Reviewed Audited
August August February
2010 2009 2010
R`000 R`000 R`000
ASSETS
Non-current assets 78 314 84 939 73 667
Property, plant and equipment 54 013 52 402 50 692
Goodwill 14 500 27 032 22 032
Intangible assets 86 214 69
Other financial assets 6 110 - -
Deferred taxation 3 605 5 291 874
Current assets 171 040 336 596 264 544
Inventories 40 977 34 688 47 849
Other financial assets 166 1 019 166
Current tax receivable 6 161 4 218
Construction contracts and 26 284 88 481 63 671
receivables
Trade and other receivables 56 326 123 175 88 141
Cash and cash equivalents 41 126 89 233 60 499
Total assets 249 354 421 535 338 211
EQUITY AND LIABILITIES
Equity and liabilities
Equity and reserves 191 902 320 221 276 999
Share capital 219 589 218 315 219 153
Reserves (26 040) (24 072) (24 123)
Retained earnings (1 647) 125 978 81 969
Non-current liabilities 22 534 29 306 24 286
Instalment sale obligation 15 941 23 385 17 689
Mortgage bond 6 593 5 921 6 597
Current liabilities 34 918 72 008 36 926
Current taxation payable 2 101 9 115 2 761
Current portion of instalment 4 965 3 454 6 111
sale obligation
Trade and other payables 27 848 59 435 28 050
Current portion of mortgage 4 4 4
bond
Total equity and liabilities 249 354 421 535 338 211
Shares in issue at period end 370 287
(`000) 370 287 370 287
Net asset value per share 74.8
(cents) 51.8 86.5
Net tangible asset value per 68.8
share (cents) 47.9 79.1
Condensed Group Statements of Changes in Equity
Share Foreign Revaluation Retained Total
capital currency reserve earnings equity
and translation R`000 R`000 R`000
premium reserve
R`000 R`000
Balance 1 217 633 (7 788) 244 174 232 384 321
March 2009
Changes in - - - -
equity:
Share capital
issued -
Share-based 682 - - 682
payment
reserve -
Total - (16 562) 34 (48 254) (64 782)
comprehensive
loss for the
year
Balance 31 218 315 (24 350) 278 (125 978) 320 221
August 2009
Balance 1 219 152 (24 122) - 81 969 276 999
March 2010
Changes in - - - -
equity:
Share capital
issued -
Share-based 437 - - 437
payment
reserve -
Total - (1 917) - (83 616) (85 533)
comprehensive
loss for the
year
219 589 (26 040) - (1 647) 191 902
Balance at 31
August 2010
Condensed Group Cash Flow Statements
Reviewed Reviewed Audited
6 months 6 months 12 months
August August February
2010 2009 2010
R`000 R`000 R`000
Cash flows from operating 1 433 (12 184) (35 422)
activities
Cash flows from investing (12 629) (6 432) (3 245)
activities
Cash flows from financing (8 177) (2 016) (10 699)
activities
Change in cash and cash (19 373) (20 632) (49 366)
equivalents
Cash and cash equivalents at 60 499 109 865 109 865
beginning of period
Cash and cash equivalents at 41 126 89 233 60 499
end of period
Note:
Cash and cash equivalents at 31 August 2010 include cash balances of R62.1
million and a bank overdraft of R21.0 million Segmental Reporting
Reviewed Reviewed Audited
6 months 6 months 12 months
August August February
2010 2009 2010
R`000 R`000 R`000
Gross revenue
Cellular Towers 65 364 129 480 192 157
Power Lines 24 471 6 523 4 555
Equipment Shelters 2 879 8 666 13 635
Fibre Optics 10 025 5 083 17 043
Inter segment - -
eliminations
102 739 149 752 227 390
Trading loss
Cellular Towers (49 371) (3 319) (47 245)
Power Lines 1 612 2 234 (3 653)
Equipment Shelters (7 438) (7 406) (9 742)
Fibre Optics (15 382) (2 252) (3 546)
(70 579) (10 743) (64 186)
Loss before interest
and taxation
Cellular Towers (64 727) (21 984) (86 181)
Power Lines 913 1 742 (5 600)
Equipment Shelters (9 152) (15 986) (11 127)
Fibre Optics (15 442) (2 252) (3 547)
(88 408) (38 480) 106 455
Depreciation and
impairment
Cellular Towers (2 055) (1 789) (4 627)
Power Lines (698) (492) (975)
Equipment Shelters (228) (6 372) (436)
Fibre Optics (60) - -
(3 041) (8 653) (6 038)
OVERVIEW
The past six months ended 31 August 2010 ("interim period") was again an
exceptionally difficult and challenging period for ACTOWERS. The major
influences on our business, namely the health of the global and local economy,
the performance of the rand against the US Dollar, the lack of volumes through
our factory and revenue-generating cellular tower installation projects as well
as having to complete historic loss-making cellular tower and fibre optic
contracts, impacted our results negatively during the reported interim period.
The demand for the supply of cellular tower infrastructure has declined and the
cellular market is currently favouring low cost sites and even concluding site
sharing contracts to counter the recessionary effect on this market. A positive
factor is that the anticipated roll-out of Eskom projects has started to
materialise, as seen in the more than satisfactory increase in revenue reported
by the Power Lines Division.
ACTOWERS has been able to reduce its dependence on African-based revenue derived
from exports as the rand continues to remain strong against the US Dollar. The
rand closed at R7.34 to the US Dollar at 31 August 2010 (31 August 2009: Closing
price of R7.79 to the US Dollar).
FINANCIAL RESULTS
Revenue decreased by 31.4% from R149.8 million in 2009 to R102.7 million, mainly
as a result of fewer cellular tower and equipment shelter contracts, the strong
rand against the US Dollar and lower volume through-put in our factory.
Gross profit of R19.2 million for the interim period ended 31 August 2009
decreased to a gross loss position of R23.4 million for the current interim
period. The gross loss can be attributed mainly to the following factors:
* The overall low revenue and factory through-put compared to the fixed
factory cost structures in the Cellular Towers and Equipment Shelters
Divisions;
* The high cost structures of having a presence in the various African
countries compared to the low revenue generated from cellular installation
contracts;
* The strength of the South African currency. Although foreign exchange
losses are reported separately in the Statement of Comprehensive Income,
the strong rand also had an effect on the gross profit. The effect of the
currency fluctuations between the date of quoting and the date of invoicing
is reflected in the gross loss. Furthermore, a big component of the costs
incurred for the cellular installations in Africa is incurred in rand,
while the majority of the income is in US Dollar;
* The Cellular Towers and Fibre Optics Divisions have also completed a number
of loss making contracts in South Africa and various African countries. The
reason for loss-making contracts can be attributed to escalating costs,
overruns on contracts and sign-off procedures with clients.
The trading loss of R70.6 million reported for the interim period is
substantially lower than the trading loss of R10.7 million reported in the
comparative 2009 period. Increased restructuring expenses were incurred. The
operating loss of R85.4 million (31 August 2009: operating loss of R36.0
million) was impacted by a loss on foreign exchange differences totaling R7.3
million and an impairment of goodwill on the JK Shelters investment of R7.5
million. The investment of JK Shelters has been impaired to below its net asset
value.
The net interest received position is R2.1 million compared to a net interest
paid position of R7.6 million for the comparable interim period.
Trade Debtors decreased to R50.1 million at 31 August 2010 (31 August 2009:
R114.7 million). Debtor days have decreased from 128 days at 28 February 2010 to
89 days at 31 August 2010, primarily as a result of lower revenue. A doubtful
debt provision of R16.9 million was raised for the interim period.
The statement of financial position reflects a 30.4% decrease in the net
tangible asset value from 68.8 cents as at 28 February 2010 to 47.9 cents. Total
capital expenditure (capex) for the six months amounted to R6.2 million, the
majority spend related to power line equipment. Future capex spend is dependent
on new power lines projects being awarded. The Group may require funding to
purchase new power line equipment, however, where possible, the Power Lines
Division will factor in the cost of additional equipment in the tender amount.
Should this not be viable, external funding will have to be sourced from our
bankers.
Cash generated by operations, before working capital, was a negative R71.4
million, with a net positive movement in working capital of R72.8 million during
the period. The net cash movement for the six months was an outflow of R19.4
million.
DIVISIONAL REVIEW
Cellular Towers Division
The Cellular Towers Division`s performance was impacted by lower sales volumes,
the strong rand and the completion of loss-making projects in various African
countries. As a result, revenue for this Division decreased by 49.5% to R65.4
million (2009: R129.5 million) and the trading loss position increased to R49.4
million. These results were also impacted by high overhead cost structures in
countries with low revenue and overruns on certain installation projects. We are
addressing all these issues by implementing stricter controls on project
management in Africa. Africa remains a challenging environment and opportunities
are being assessed within the borders of South Africa and other stable countries
in Africa. The steel price had less of an influence on this Division`s results
for the interim period due to the significantly lower volume through-put in the
factory. The steel price closed at R6,460 per ton on 31 August 2010 (31 August
2009: R6,825 per ton), a decline of 5.4%. The below-cost steel imports from
China and India continue to negatively impact the competitiveness of the steel
construction industry. We are also assessing the business model of the Cellular
Towers Division going forward.
Power Lines Division
The significant revenue growth of 275.2% reported by the Power Lines Division to
R24.5 million from R6.5 million in the corresponding 2009 interim period, is a
direct testimony that we have established ourselves in the power lines market. A
trading profit of R1.6 million and a trading profit margin of 6.6% were
reported. The lower profit margin is attributable to the lower than average
margin on the Komati-Ash project and head office expenses allocated to this
Division. Since February 2010, this Division was awarded the Komati-Ash, Camden-
Sol-Zeus 400kV line, Watershed Mmbatho 88kV line and 400kV Medupi Line - Section
H contracts, totaling approximately R112 million. Except for the Komati-Ash
contract that has already been completed, the contract periods for these lines
vary between 6 months and 12 months.
Equipment Shelters Division
This Division again delivered disappointing results for the interim period with
revenue decreasing by 66.8% to R2.9 million (31 August 2009: R8.7 million). The
trading loss was R7.4 million, the same as the prior interim period. The interim
results mirrored the trends experienced by the Cellular Towers Division. The
managerial changes and change in product offerings have not filtered through in
this period`s results.
Fibre Optics Division
Revenue increased by 97.2% to R10.0 million for the 2010 interim period off a
low base in August 2009. Despite the increase in revenue, a trading loss
amounting to R15.4 million was incurred as a result of higher than expected
installation expenses. Although ACTOWERS identified the fibre optic market as a
potential area of expansion, we found this market highly competitive due to low
barriers to entry. We took a decision to close this Division on 26 August 2010
and are currently completing existing projects. Should the pricing structures
and margins improve on fibre optic contracts, we will reassess the viability of
re-entering the fibre optics market.
PROSPECTS
We do not foresee a marked improvement in trading conditions in the short to
medium term for the Cellular Towers and Equipment Shelters Divisions. In light
of the disappointing results, we have appointed a turnaround strategist to
assist management in assessing new business strategies, existing business models
and the viability of each of the Group`s Divisions in order to return the Group
to profitability.
Since May 2010, we have made significant changes to management, restructured
each Division to improve business operations, implemented cost-cutting
initiatives and improved risk assessment procedures. We are confident that we
will see the benefits of these initiatives in the next 18 months.
We are excited about the prospects and growth of the Power Lines Division as we
are seeing an increase in projects in the power lines industry. This Division is
well structured and equipped to tender for up to 400kV power line projects.
ACTOWERS is facing a variety of challenges and all efforts are being made by
management to find a strategy that will protect shareholder value.
BOARD CHANGES
On 1 June 2010, Nick van der Mescht was appointed as Operations Director of
ACTOWERS. David van Staden, an existing Executive Director, was appointed Sales
and Marketing Director of the Group.
Effective 1 October 2010, Jacques de Villiers, who previously fulfilled the role
of Financial Director, was appointed as Chief Executive Officer ("CEO") of the
Group. Chris Kruger retained his role as Executive Chairman of ACTOWERS.
A candidate for the position of Financial Director is currently being evaluated
and will be announced in due course. Jacques will fulfill the role of CEO and
Financial Director until the appointment of the new Financial Director is
announced. To assist Jacques during this interim period, the Board has appointed
the current Financial Manager, Redik du Toit, as the Interim Chief Financial
Officer of the Group with effect from Friday, 1 October 2010.
BASIS OF PREPARATION OF THE REVIEWED INTERIM RESULTS
Statement of compliance
The reviewed interim results have been prepared in accordance with the
recognition and measurement criteria of International Financial Reporting
Standards ("IFRS") and the presentation and disclosure requirements of IAS 34,
the JSE Limited Listings Requirements and the Companies Act 61 of 1973, as
amended. The auditors have followed the guidance provided in the International
Standard on Review Engagements (ISRE) 2410 and Review Financial Statements of
Interim Financial Information Performed.
Significant accounting policies
The same accounting policies, presentation and methods of computation, which are
in terms of IFRS, have been followed in these reviewed interim results as were
applied in the preparation of the Group`s financial statements for the year
ended 28 February 2010.
Basis of measurement
The condensed financial statements have been prepared on the historical cost
basis except for certain financial instruments measured at fair value.
Review opinion
SAB&T have reviewed the financial results for the six months ended 31 August
2010 and their unqualified review opinion is available for inspection at the
company`s registered office.
DIVIDEND POLICY
In line with Group policy and having regard to the loss incurred, the Group will
not pay a dividend for the interim period ended 31 August 2010. The dividend
policy will be reviewed on a continuous basis.
STATEMENT ON GOING CONCERN
The reviewed financial results for the six months ended 31 August 2010 have been
prepared on the going concern basis. The Group is busy with an aggressive
restructuring process. The directors believe that the Group is technically
solvent, but the Group will need additional funding to perform on current and
future contracts. The directors will explore various options available to secure
necessary funding to ensure that the Group has adequate resources in place.
C J J Kruger J de Villiers
Executive Chairman Chief Executive Officer
17 November 2010
CORPORATE INFORMATION
Independent Non-Executive Director: MM Patel
Non-Executive Directors: V Nkonyeni and MM Potgieter
Executive Directors: CJJ Kruger (Chairman); J de Villiers (Chief Executive
Officer), NWJ van der Mescht; DM van Staden
Registration number: 2000/027374/06
Registered address: 10 Tennyson Drive, Tulisa Park, Johannesburg
Postal address: PO Box 1078, Jukskei Park, 2153
Company Secretary: Premium Corporate Consulting Services (Pty) Limited
Telephone: (011) 907 7364
Facsimile: (011) 869 9107
Transfer Secretaries: Computershare Investor Services (Pty) Limited
Designated Adviser: Vunani Corporate Finance
These results and results presentation are available on the company`s website
www.africacellular.co.za.
Date: 17/11/2010 08:00:01 Produced by the JSE SENS Department.
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