| Thu 31 Mar 2011, 17:12 | | SFH - SA French - Unaudited Condensed Consolidated Interim Results for the six |
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SFH
SFH
SFH - SA French - Unaudited Condensed Consolidated Interim Results for the six
months ended 31 December 2010
S A FRENCH LIMITED
Incorporated in the Republic of South Africa
(Registration number 1982/009174/06)
Share code: SFH ISIN: ZAE000108890
("SA French" or "the Company")
UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31
DECEMBER 2010
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Audited
six months Unaudited 12 months
ended six ended
31 months 30 June
December ended 2010
2010 31 R`000
R`000 December
2009
R`000
Revenue 51 180 34 196 65 630
Cost of sales (38 677) (18 247) (50 060)
Gross profit 12 503 15 949 15 570
Other income 10 646 7 208 13 601
Operating expenses (19 002) (19 734) (27 655)
Results from operating 4 147 3 423 1 516
activities
Finance cost (2 255) (2 633) (7 354)
Restructuring costs (15 477) (1 306) -
Investment income 277 - 1 712
Loss before taxation (13 308) (516) (4 126)
Taxation - 116 (776)
Loss after taxation (13 308) (400) (4 902)
Other comprehensive - - -
income/(loss) for the period
Total comprehensive loss for (13 308) (400) (4 902)
the period
Comprehensive income
attributable to:
Ordinary shareholders of the (13 308) (400) (4 902)
group
Non-controlling interest - - -
(13 308) (400) (4 902)
Reconciliation of attributable losses to headline losses
Losses attributable to ordinary (13 308) (400) (4 902)
shareholders
(Loss)/Profit on disposal of (197) - -
property, plant and equipment
Tax effect of the disposal of - - -
property, plant and equipment
Fair value adjustment on - - -
financial assets
Headline losses attributable to (13 505) (400) (4 902)
ordinary shareholders
Weighted average number of shares 166 375 166 375 166 375
in issue 689 689 689
Loss per share (cents) (8.00) (0.24) (2.95)
Headline loss per share (cents) (8.12) (0.24) (2.95)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited
Unaudited Unaudited as at
as at as at 30 June
31 31 2010
December December R`000
2010 2009
R`000 R`000
ASSETS
Non-current assets 75 404 92 460 87 751
Property, plant and equipment 2 501 5 356 3 762
Rental fleet 71 541 84 974 82 627
Deferred tax - 892 -
Other financial assets 1 362 1 238 1 362
Current assets 61 668 107 826 99 072
Inventories 55 295 91 747 86 129
Current tax 529 - 529
Trade and other receivables 4 623 11 957 12 380
Cash and cash equivalents 1 221 4 122 34
TOTAL ASSETS 137 072 200 286 186 823
EQUITY AND LIABILITIES
Equity 34 533 52 343 47 841
Share capital 49 330 49 330 49 330
Revaluation reserve 162 162 162
Retained income (14 959) 2 851 (1 651)
Minority interest * * *
Non-current liabilities 11 620 42 189 17 724
Installment sales agreements - 30 980 -
Loans from shareholders 11 620 11 209 11 624
Other financial liabilities - - 6 100
Current liabilities 90 919 105 754 121 258
Current tax payable 165 - 165
Installment sales agreements 32 881 14 721 41 359
Operating lease liability 1 510 1 010 1 285
Trade and other payables 25 099 27 281 13 214
Foreign creditors 21 193 54 026 58 546
Other financial liabilities 5 621 - 496
Shareholders for dividends 786 - 786
Bank overdraft 3 664 8 716 5 407
TOTAL EQUITIES AND LIABILITIES 137 072 200 286 186 823
Number of shares in issue 166 375 166 375 166 375
689 689 689
Net asset value per share in 20.76 31.46 28.76
cents
Net tangible asset value per 20.76 31.46 28.76
share in cents
*Less than R1,000
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Revalua Re-tained Total
capital premiu tion income R`000 R`000
R`000 m reserve
R`000 R`000
Balance as at 1 July 1 664 47 666 162 3 251 52 743
2009
Loss for the period - - - (400) (400)
Balance as at 31 1 664 47 666 162 2 851 52 343
December 2009
Loss for the period - - - (4 502) (4 502)
Balance as at 30 June 1 664 47 666 162 (1 651) 47 841
2010
Loss for the period - - - (13 308) (13 308)
Balance as at 31 1 664 47 666 162 (14 959) 34 533
December 2010
Non- Total
controlli equity
ng R`000
interest
R`000
Balance as at 1 July 2009 * 52 743
Loss for the period - (400)
Balance as at 31 December 2009 * 52 343
Loss for the period - (4 502)
Balance as at 30 June 2010 * 47 841
Loss for the period - (13 308)
Balance as at 31 December 2010 * 34 533
*Less than R1,000
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Audited
Unaudited Unaudited 12 months
six six ended
months months 30 June
ended ended 2010
31 31 R`000
December December
2010 2009
R`000 R`000
1 276 5 064 26 507
CASH FLOW FROM OPERATING
ACTIVITIES
CASH FLOW FROM INVESTING 5 132 6 697 (10 077)
ACTIVITIES
CASH FLOW FROM FINANCING (3 478) (7 032) (12 480)
ACTIVITIES
Total cash generated for the 2 930 4 729 3 950
period
Cash at the beginning of the (5 373) (9 323) (9 323)
period
Total cash at the end of the (2 443) (4 594) (5 373)
period
COMMENTARY
Highlights
49.67% Increase in Revenue
21.15% Increase in Operating Profits
Balance Sheet restructuring on track
Introduction
The board of directors of SA French ("SA French" or "the Company") hereby
presents the interim financial results of the group for the six months ended 31
December 2010 (the "interim period"). These interim financial results reflect a
net asset value per share of 20.76 cents per share at the end of the interim
period. During this interim period the board has focused on the core principle
on which SA French was founded; providing exemplary service and adding value to
its clients.
Group profile
SA French, which was 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 the SA French 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
Review of operations
Internationally the Manitowoc Crane Group has started to see order levels rising
and due to strategic realignment as a result of the global downturn is able to
meet its distributors demand with the lead time for a new unit decreasing from
10-14 months to 2-3 months. With the secondhand market very active due to sales
by distressed firms there are a number of forward looking companies globally
taking advantage of this opportunity to secure deals for the replacement of
older units in anticipation of securing work as the financial situation
improves.
In South Africa the most influential factor for equipment suppliers in the
period under review was that the global economic recession had caused hesitation
on the part of financing institutions that traditionally provide asset backed
finance, to provide these facilities to enable potential clients to purchase
capital equipment. Many companies wanted to keep costs variable due to the
uncertainty of the award of projects in the short and medium term. SA French
Limited took the decision to utilise oversupplied stock units to increase its
rental fleet in order to take advantage of the opportunities that had as a
result been provided to supply those clients with rental units. The users demand
high levels of service performance and product support. The availability of
spare parts and quality of the maintenance and service that is provided are the
key factors in choosing a supplier. In keeping with international trends many
local companies are also taking advantage of opportunities to replace their
older units in anticipation of infrastructure and government projects
progressing as the financial situation improves.
As a result of the factors considered in the South African context the Company
has focused on a diversification strategy and has increased its activities in
rentals and invested in training, as well as contracts that provide for an
option for the rental client to purchase the asset at the end of a longer lease.
The impact of the refocused strategy has been to forgo the short term
profitability of higher margin sales in order to build a more robust revenue
model with a greater portion of annuity income streams with better long term
prospects.
Despite its strong market position, SA French has come under operational
pressures as a result of the shift in focus toward a rental business which,
being capital intensive has placed some strain on the Group`s cash flow and
balance sheet. Working capital has been limited and the board has addressed this
by renegotiating credit arrangements with its asset based financiers in order to
bring the duration of agreements into line with the expected usable life of the
asset. Similarly entering into an agreement with Manitowoc to repurchase
redundant stock has reduced the risk of having a large foreign creditor in trade
and payables. Reducing overhead costs have further reduced the cash flow
requirements of the business. As a result of the successful conclusion of the
proposed rights issue the Group will be in a strong position to take advantage
of opportunities to grow the business and enable any further restructuring that
may be required to be carried out.
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 registered 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 and two registered apprentices for trades were registered. As a
training provider the Company is recognised throughout the industry as the
premier trainer of tower crane operators as well as technicians.
There is an industry wide demand for competent, certified lifting machine
operators. The training facility established under the auspices of the Transport
Education and Training Authority ("TETA") enables the Company to provide
operator training and certification for its own rental fleet, clients as well as
independent 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 Company, 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
Increase in revenue
SA French has followed a strategy of increasing the proportion of rental income
relative to sales income. This strategy will naturally lead to a reduction in
short term revenues but means that the Company is building a base of consistent
recurring revenue. In addition to this base, SA French continues to sell
equipment, and the outlook in this regard is encouraging, with construction
projects that had been curtailed or stalled beginning to be revisited. New deals
have been concluded or are in the process of negotiation at both the Medupi and
Kusile power plants. In terms of an order book pipeline over R 150 000 000.00
has been identified over the next 24 months.
Operating costs
SA French has reduced its operating costs and continues to do so 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 completed its
consolidation its Gauteng, Kwa-Zulu Natal and the Western Cape operations,
reducing premises rental and related costs. This consolidation has resulted in
once-off staff retrenchment and handling costs that are required to move
operations to three key distribution facilities. The company will continue to
scrutinise its operational efficiencies and reduce costs where applicable.
Manitowoc Settlement
In the current reporting period, SA French concluded a settlement agreement with
its major supplier in which it agreed to return a significant number of
unutilized and unsold inventory which it held due to the cancellation of orders
at the height of the economic downturn. It is expected that the full settlement
agreement will be implemented before the financial year end. It must be
highlighted that during the period under review approximately R30m of inventory
was returned for a full settlement of each item against the creditor liability.
The deal removes significant financial risk from the Company through the
reduction of both its inventory holdings and its current liabilities. As a
consequence, and as a result of the material strengthening of the Rand against
the Euro, the offset agreement has resulted in non-cash settlement costs in
excess R15m. This is essentially the reversal of the foreign exchange gains that
were made in the previous 2 financial years. The financial effect of this
agreement does not in any way impair the Company`s operational profitability or
ability to continue as a going concern, merely redressing an entry in the
financial statements created by the fluctuation in exchange rates over an 18 -
24 month period.
Movement in borrowings
The company has begun a process of restructuring its debts and has successfully
concluded deals with its asset backed finance providers to restructure its
current debt facilities over periods ranging from 36 to 48 months. This has
already resulted in a significant benefit to the Company`s monthly cash flows,
removing pressure from management and allowing more time to be focused on
securing new business and the growth in the rental book. In addition to the
restructuring of its banking facilities, the controlling shareholders of SA
French have agreed to write off loan accounts totaling approximately R9.5m.
On the 16th March 2011 SA French announced the terms of a fully underwritten
Rights Issue which, upon completion, will allow the Company to finalise its
balance sheet restructuring through the settlement of certain short-term
liabilities, including the bridging finance provided by AfrAsia Corporate
Finance (Pty) Ltd. The management team will then be able to focus their
attention fully on growth prospects, which are primarily organic, although
certain attractive consolidation opportunities have been identified and will be
rigorously assessed in the coming months.
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 R 800 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 completion and final implementation of the Settlement agreement with
Manitowoc Crane Group will remove additional debt from the balance sheet as the
business moves to reduce its debt, grow its rental book and given the improved
delivery timelines allow the holding of lower levels of inventory.
Subsequent events
The Company is in the process of a rights issue and you are advised to read the
announcement made on the 16th March 2011 which outlined the terms of the rights
issue. The rights issue will provide the Company with permanent capital to
enable it to finalise the restructuring of its balance sheet. The completion of
the restructuring will further reduce cash outflows and position the Company for
growth over the next 3 years.
Dividend policy
No interim dividend has been declared for the period.
Basis of preparation
The accounting policies applied in the preparation of these interim condensed
financial results, 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 2010. 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.
The interim results have not been audited or reviewed by the Company`s auditors.
Directorate
Mr Peter van Zyl was appointed as financial director of SA French with effect
from 22 March 2011.
Appreciation
We thank our employees for their continued loyalty, hard work and commitment to
the vision of the Company. Furthermore, we thank our corporate advisors for the
faith shown in the management team. Shareholders are encouraged to evaluate the
Company`s current position critically and are encouraged to seek clarification
should there be questions pertaining to the corporate actions that are envisaged
over the coming months. 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 Executive Officer Commercial Director
31 March 2011
Directors
QCA van Breda (Chief Executive Officer), W van Breda (Commercial Director), P
van Zyl (Financial 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
PSG Capital (Pty) Limited
Transfer secretaries
Computershare Investor Services (Proprietary) Limited
Ground Floor
70 Marshall Street
Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
Date: 31/03/2011 17:12:03 Produced by the JSE SENS Department.
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