| Mon 29 Nov 2010, 7:05 | | PKH - Protech - Reviewed consolidated interim results for the period ended 31 |
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PKH
PKH
PKH - Protech - Reviewed consolidated interim results for the period ended 31
August 2010
Protech Khuthele Holdings Limited
Registration number 2000/024352/06
JSE code: PKH
ISIN: ZAE000101986
("Protech" or "the Company" or "the Group")
Revenue up 28%
Net tangible asset value up 13%
Earnings per share down 57%
Reviewed consolidated interim results?for the period ended 31 August 2010
Condensed consolidated statement of financial position for the six months ended
31 August 2010
R`000 Reviewed Reviewed Audited
Group Group Group
31/08/2010 31/08/2009 28/02/2010
ASSETS
Non-current assets 475 759 394 976 412 130
Property, plant and 437 294 355 009 373 659
equipment
Goodwill 33 549 33 549 33 549
Other intangible assets 4 916 2 010 1 762
Other financial assets - 3 029 2 202
Deferred tax - 1 379 958
Current assets 370 192 351 360 315 187
Inventory 8 206 19 962 8 536
Amounts due from 91 856 56 003 90 149
contract customers
Trade and other 153 743 110 810 84 090
receivables
Retention receivables 66 327 39 674 38 093
Other financial assets 6 057 9 036 7 173
Bank balances and cash 44 003 115 875 87 146
Total assets 845 951 746 336 727 317
EQUITY AND LIABILITIES
Share capital and
reserves
Shareholders` equity 316 263 283 235 310 255
Share capital and share 228 598 228 598 228 598
premium
Other reserves (123 932) (122 053) (123 943)
Retained earnings 211 597 176 690 205 600
Equity attributable to 316 263 283 235 310 255
equity holders of the
holding company
Non-controlling - - -
interests
Total liabilities 529 688 463 101 417 062
Non-current liabilities 241 329 239 683 223 113
Borrowings - interest 180 774 176 541 165 481
bearing
Deferred tax 60 555 63 142 57 632
Current liabilities 288 359 223 418 193 949
Borrowings - interest 121 503 103 948 99 100
bearing
Trade and other 118 895 97 992 81 087
payables
Subcontractor 40 727 5 472 6 928
liabilities
Current tax liabilities 7 234 16 006 6 834
Total equity and 845 951 746 336 727 317
liabilities
Supplementary statement
of financial position
information
Total number of shares 362 500 362 500 362 500
in issue (thousands)
Net asset value per 87,2 78,1 85,6
share (cents)
NTAV/Share (cents) 78,0 68,9 76,3
Capital expenditure
-Spent 121 771 64 441 109 025
-Commitments - 45 324 34 862 143 294
Authorised but unspent
Performance guarantees 106 925 48 386 82 432
issued
Operational segmental reporting for the six months ended 31 August 2010
Services within each business segment
For management purposes, the Group is organised into three major operating
divisions - contracting, geotechnical laboratory and readymix. These divisions
are the basis on which the Group reports its primary 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 and segment result
Segment revenue Segment result
R`000 6 months 6 months 6 months 6 months
ended ended ended ended
31/08/2010 31/08/2009 31/08/2010 31/08/2009
Contracting 478 854 366 658 63 412 92 725
Geotechnical 9 454 7 690 2 211 1 234
laboratory
Readymix 66 833 58 659 1 631 386
555 141 433 007 67 254 94 345
Corporate* 4 580 3 258 (2 134) 602
Eliminations (19 800) (10 460) - -
539 921 425 805
Earnings before depreciation, 65 120 94 947
interest and taxation
Depreciation and amortisation (25 775) (21 018)
Earnings before interest and taxation 39 345 73 929
Net interest paid (14 206) (6 912)
Earnings before taxation 25 139 67 017
Taxation (4 642) (18 396)
Earnings for the period 20 497 48 621
Segment revenue reported above represents revenue generated
from external customers and includes other revenue of R1,6
million (2010: R3,8 million). Intersegment sales amounted to
R19,8 million (2010: R10,5 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 liabilities
Segment assets Segment liabilities
R`000 6 months 6 months 6 months 6 months
ended ended ended ended
31/08/2010 31/08/2009 31/08/2010 31/08/2009
Contracting 842 647 578 635 595 393 437 377
Geotechnical 8 908 7 692 2 666 3 306
laboratory
Readymix 77 540 83 108 25 480 23 086
929 095 669 435 623 539 463 769
Corporate* 54 836 130 396 44 129 52 827
Eliminations (137 980) (53 495) (137 980) (53 495)
845 951 746 336 529 688 463 101
Other segment information
Depreciation and Capital expenditure
amortisation
R`000 6 months 6 months 6 months 6 months
ended ended ended ended
31/08/2010 31/08/2009 31/08/2010 31/08/2009
Contracting 23 213 18 277 124 842 61 982
Geotechnical 563 437 175 2 169
laboratory
Readymix 1 999 2 304 110 290
25 775 21 018 125 127 64 441
* Corporate includes the transactions of the holding company.
Information about major customers
Included in revenues arising from contracting income of
R478,9 million (2010: R366,7 million) are revenues of
approximately R253,6 million (2010: R177,8 million) which
arose from contracting income from the two largest customers.
Operating segments
The operating segments reported above form the basis on which
internal reporting is structured for the chief decision
makers. Therefore there are no differences in terms of the
numbers reported to shareholders and management.
Condensed consolidated statement of comprehensive incomefor the six months ended
31 August 2010
R`000 Reviewed Reviewed Audited
Group Group Group
6 months 6 months year
ended ended ended
31/08/2010 31/08/2009 28/02/2010
Revenue 538 330 422 044 748 778
Earnings before 65 120 94 947 162 366
depreciation,
amortisation,interest
and taxation
Depreciation and (25 775) (21 018) (43 812)
amortisation
Earnings before interest 39 345 73 929 118 554
and taxation
Net interest expense (14 206) (6 912) (15 561)
Earnings before taxation 25 139 67 017 102 993
Taxation (4 642) (18 396) (27 407)
Earnings for the period 20 497 48 621 75 586
Other comprehensive 11 - 55
income for the year, net
of tax
Movement in foreign 11 - 55
currency translation
reserve
Total comprehensive 20 508 48 621 75 641
income for the period
Earnings per share
(cents)
- Basic 5,7 13,4 25,6
Supplementary statement
of comprehensive income
information
Weighted average number
of shares in issue:
- Weighted average 362 500 362 500 362 500
number of shares in
issue (thousands)
Reconciliation of
headline earnings:
Profit attributable to 20 497 48 621 75 586
shareholders of the
holding company
Adjusted for 752 (1 448) (2 239)
loss/(profit) on
disposal of assets
Headline earnings 21 249 47 173 73 347
Headline earnings per
share (cents)
- Basic 5,9 13,0 20,2
Consolidated statement of changes in equity for the six months ended 31 August
2010
R`000 Share Share Common Foreign
capital premium control Currency
reserve Trans-
lation
Reserve
Balance at 28 2 228 596 (122 053)
February 2009
Realisation in (1 945)
respect of
deregistered dormant
subsidiaries
Total comprehensive 55
income for the year
Balance at 28 2 228 596 (123 998) 55
February 2010
Dividends paid
Total comprehensive 11
income for the period
Balance at 31 August 2 228 596 (123 998) 66
2010
R`000 Retained Equity Non- Total
earnings Attri- Con- equity
butable trolling
to the interest
share-
holders
of the
company
Balance at 28 February 128 069 234 614 234 614
2009
Realisation in respect 1 945 - -
of deregistered
dormant subsidiaries
Total comprehensive 75 641 75 641
income for the year
Balance at 28 February 205 600 310 255 310 255
2010
Dividends paid (14 500) (14 500) (14 500)
Total comprehensive 20 497 20 508 20 508
income for the period
Balance at 31 August 211 597 316 263 - 316 263
2010
Consolidated statement of cash flows for the six months ended 31 August 2010
R`000 Reviewed Reviewed Audited
Group Group Group
6 months 6 months year
ended ended ended
31/08/2010 31/08/2009 28/02/2010
Cash flows from operating 9 451 28 672 45 888
activities
Cash generated by operations 38 516 55 392 104 531
Net interest paid (14 206) (6 912) (15 561)
Dividends paid (14 500) - -
Income taxes paid (359) (19 808) (43 082)
Cash flows from investing (90 290) (20 518) (46 747)
activities
Purchase of property, plant (121 771) (64 441) (109 025)
and equipment
Replacement (48 127) (51 349) (86 331)
Additions - expansion (73 644) (13 092) (22 694)
Purchase of intangible assets (3 356) - (160)
Proceeds on disposal of 31 519 44 456 74 732
property, plant and equipment
Movement in loan through - - (11 625)
acquisition
Decrease/(increase) in loans 3 318 (533) (669)
granted
Cash flows from financing 37 696 6 133 (13 583)
activities
Net movement related to bank (3 567) (6 797) (11 349)
loans
Net movement related to 41 263 12 930 (2 234)
finance leases
Net (decrease)/increase in (43 143) 14 287 (14 442)
cash and cash equivalents
Cash and cash equivalents at 87 146 101 588 101 588
the beginning of the period
Cash and cash equivalents at 44 003 115 875 87 146
the end of the period
Cash and cash equivalents
comprise of:
Bank balances and cash 44 003 115 875 87 146
Notes to the condensed consolidated financial report
Corporate information
Protech is a limited liability company incorporated and domiciled in South
Africa. Protech is listed on the JSE Limited. The main business of Protech and
its operating subsidiaries is bulk earthworks, plant hire, civil engineering
services and sale and distribution of readymix concrete.
The directors of Protech authorised the issue of the condensed consolidated
financial report for the six months ended 31 August 2010 on 26 November 2010.
Basis of preparation
The condensed consolidated financial report for the six months ended 31 August
2010 has been prepared in compliance with the South African Companies Act No 61
of 1973, as amended, the Listings Requirements of the JSE Limited and
International Accounting Standard 34, Interim Financial Reporting.
The interim report has been prepared using accounting policies that comply with
International Financial Reporting Standards. The accounting policies are
consistent with those applied in the financial statements for the year ended 28
February 2010, except for the changes which are described in the next paragraph,
New accounting policies adopted.
New accounting policies adopted
During the period under review a number of accounting policies and
interpretations became effective.
The adoption of these accounting policies and interpretations had no material
impact on the financial results of the Group for the period ended 31 August
2010.
Property, plant and equipment
Capital expenditure on property, plant and equipment was R121,8 million for the
six months ended 31 August 2010.
Events after the reporting date
The directors are not aware of any matter or circumstance arising since the end
of the period and up to the date of this report, not otherwise dealt with in
this report.
Corporate governance
The Group recognises the need to conduct its business with integrity,
transparency and equal opportunity and subscribes to the spirit of good
corporate governance as set out in the King 2 report. The Group is currently in
the process of reviewing and evaluating its compliance with King 3 and a
detailed programme has been adopted to ensure optimal compliance.
Independent review opinion
The auditors, Deloitte & Touche have issued their unmodified review opinion on
the condensed consolidated financial report for the six months ended 31 August
2010. A copy of their unmodified review opinion is available for inspection at
the company`s registered office.
Commentary
Introduction
As detailed in the February 2010 year-end results, the group proactively moved
into the mining sector almost two years ago to compensate for the collapse of
its traditional private sector market, as well as the public sector
infrastructure market. This strategy ensured a sustained workflow during this
period despite the further sharp deterioration in private and public sector
margins. Mining margins, although lower than Protech`s traditionally exceptional
margins, remain markedly higher than current margins in the public and private
sectors.
The strong pipeline of mining work secured at year end was expected to allow the
group to be more selective on the margins accepted on new work. Unfortunately,
as markets showed further substantial increases in competition during the six
months to August 2010, this objective could not be realised. The operating
margins achieved in the last six months were also further affected by continued
excessive rainfall in the first three months of the period under review and the
impact on productivity due to stringent mine safety enforcement at some sites.
However, Protech`s project pipeline and work-in-progress remain healthy, with
the value of work still to be executed on current contracts totaling in excess
of R954 million.
Statement of comprehensive income
Revenue increased by 28% to R538,3 million (2010: R422,0 million) due to the
continued awarding of quality contracts and extensions. The Contracting division
remained the largest part of the business, contributing 86% (2010: 85%) to group
revenue and 97% to operating profit.
Group operating profit before interest was 47% down at R39,3 million (2010:
R73,9 million) due to the factors outlined above. Earnings per share was 57%
lower at 5,7 cents per share (2010: 13,4 cents per share). The reported results
include a provision for a non-operating expense of R3,9 million relating to the
retirement package of the group`s previous CEO. Headline earnings per share
therefore decreased 55% to 5,9 cents per share (2010: 13,0 cents per share).
Excluding the provision for non-recurring expenses, normalised headline earnings
per share declined by 48% to 6,9 cents per share.
Operating margin was down to 7,3% (compared to first half of F2010: 17,5%),
mainly due to the margins in coal mining being lower than Protech`s
traditionally exceptional margins, as well as the effect of increased
competition in private and public sectors and continued rainfall. However, as
outlined above, margins achieved in mining remain higher than those currently
experienced in the private or public sectors, indicating the soundness of
management`s strategy of pro-actively moving the majority of its work into the
mining sector.
The current margin was also impacted by the R3,9 million provision for non-
recurring, non-operating expenses. Without this provision, the operating margin
would have been 8,0% compared to the 13,7% in the second half of F2010.
Statement of financial position
The group incurred capital expenditure of R121,8 million (2010: R109,0 million)
related to plant and equipment. As outlined at the year end, the bulk of this
capital expenditure was expensed to expand the fleet to service signed
contracts. The proceeds on plant sold in the replacement process amounted to
R31,5 million(2010: R74,7 million). The group`s strict replacement plant policy
remains in place.
The net asset value per share at 31 August 2010 was 87,2 cents compared to 85,6
cents at 28 February 2010.
Interest bearing liabilities at the end of August 2010 were R302,3 million
compared to R264,6 million at 28 February 2010.
As outlined and expected at year-end, net interest-bearing debt:equity increased
to 81,7% (2010: 57,2%) in line with capex requirements to service specific
contracts secured in the second half of F2010. The capex budget for the second
half of 2011 is R45 million, which will be replacement capex only.
Interest-bearing debt comprises asset-backed finance for capex. There is
therefore sufficient equity in plant and equipment to cover the debt, with the
carrying value of PPE at R437,3 million versus debt of R302,3 million. The group
has facilities of R406,9 million, of which R302,3 million has been utilised.
Statement of cash flows
Cash generated after working capital changes was 30% down to R38,5 million
(2010: R55,4 million), which reflects the state of the markets. When comparing
cash generated by operations before working capital changes to EBITDA, the ratio
of cash generated to EBITDA is 1,0 times (2010: 0,6). The group therefore
remains confident of its cash generating ability.
Operational review
Contracting - 86% of group revenue
Revenue for Contracting increased by 30% to R473 million (2010: R363 million) on
the back of the continued awarding of new contracts and extensions on existing
contracts in the mining sector. In the last six months, additional work to the
value of R218 million was secured in the form of extensions to existing
contracts and new contracts.
However, the operating profit decreased by 41% to R44,1 million from the
comparative period`s R74,4 million and the R45,7 million in the second half of
2010. As outlined above, margins did come down further, mainly due to continued
exceptional rainfall for the first three months of the period, as well as the
lower than traditional Protech margins in mining and the almost non-existent
margins in the private and public sectors. The operating margin for the
contracting division therefore decreased to 9,3% from 20,5% a year ago and 18,8%
six months ago.
Geotechnical - 2% of group revenue
Revenue increased by 24% to R9,5 million (2010: R7,6 million) due to more inter-
group Contracting business. As the increased revenue was spread over a
relatively fixed cost base, operating profit increased by 107% to R1,6 million
(2010: R0,8 million) with a healthy 17,4% margin (2010: 10,4%). This business
received its SANAS accreditation in November 2010 and is now well placed to
extend its external client base.
Readymix - 12% of group revenue
Revenue was up 12% to R65,4 million (2010: R58,3 million), a very pleasing
performance indicating increased penetration in a declining market. This
business` improved service reputation led to good contract base load, such as
water reticulation works, bridges and culverts for SANRAL and town planning
work. The operating loss therefore decreased from R1,9 million to R368 000, with
margins improving due to the business` service differentiation advantage and by
being more selective on work taken on, despite extremely competitive markets.
Outlook
As outlined above, Protech`s project pipeline and work-in-progress remain
healthy, with the current value of contracts still to be completed standing at
R954 million. This translates to 127% of the F2010 revenue of R748,8 million
being already secured. The focus will remain on the coal sector to limit the
severe downturn seen across the board, with the scope to broaden when other
mining capex increases. As promised at year end, Contracting has secured its
first cross-border contracts, with contracts to the value of R78 million in
Tanzania and Botswana.
The group has a realistic pipeline of work of R1,4 billion, 83% of which is
focused on the mining sector. This pipeline will continue to support revenue
growth. However, as markets are expected to remain weaker for longer, it will
become increasingly difficult to cherry-pick margins. Margins are therefore
expected to remain under pressure in a market that remains intensely
competitive.
The numbers as quoted under the heading "Outlook" in the commentary have not
been reviewed nor audited by the Company`s auditors.
Appreciation
The Board extends its appreciation to the group`s previous CEO, Gerald Chapman,
for his extremely valuable contribution over the last 21 years and wishes him
well into the future.
On behalf of the directors
MSG Mareletse
Acting Chairman of the Board
CJA Wolmarans
Group Financial Director
Lanseria
26 November 2010
Directors: MSG Mareletse*+ (Acting Chairman), CJA Wolmarans (Group Financial
Director), V Raseroka*, MJ 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) Limited,11
Diagonal Street, Johannesburg, 2001. (PO Box 4844, Johannesburg, 2000)
Sponsor: Deloitte & Touche Sponsor Services (Proprietary) Limited
www.pkh.co.za
Date: 29/11/2010 07:05:03 Produced by the JSE SENS Department.
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