| Tue 9 Oct 2001, 0:00 | | Servest Interim Results For The Six Months Ended 3 |
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Servest Holdings Limited
("Servest" or "the group")
(Incorporated in the Republic of South Africa)
(Registration number 1986/000785/06)
Share code: SRV ISINnumber: ZAE000015806
Despite a difficult trading environment and disappointing results for the
period:
Revenue up 21% to R408,6m
Cash flow per share up 80% to 9,7 cents
Sound cash resources
Group income statement
Unaudited
six Unaudited Audited
months six months year
ended ended ended
31 August 31 August 28 February
R'000 2001 2000 2001
Revenue 408 602 338 624 779 351
Profit before depreciation and
amortisation 27 681 36 764 74 134
Depreciation 12 371 9 527 20 401
Trademark amortisation 1 480 1 480 2 960
Goodwill amortisation 7 770 6 268 14 615
Profit before net finance charge 6 060 19 489 36 158
Net finance charge (6 261) (3 484) (8 475)
(Loss)/Profit before taxation (201) 16 005 27 683
Taxation 2 271 6 681 12 313
(Loss)/Profit after taxation (2 472) 9 324 15 370
Attributable to outside
shareholders 1 165 1 359 2 945
(Loss)/Profit for the period (3 637) 7 965 12 425
Add back: Goodwill amortised 7 770 6 268 14 615
Headline earnings 4 133 14 233 27 040
Fully diluted headline earnings
per share (cents) 2,2 7,4 14,1
Headline earnings per
share (cents) 2,2 7,4 14,2
Basic (loss)/earnings
per share (cents) (1,9) 4,1 6,5
Weighted average number of
shares in issue (000) 192 061 192 061 190 800
Fully diluted weighted average
number of shares in issue (000) 192 061 192 061 192 061
Group cash flow statement
Unaudited
six Unaudited Audited
months six months year
ended ended ended
31 August 31 August 28 February
R'000 2001 2000 2001
Cash generated from operations 29 134 21 026 70 814
Net finance charge (6 261) (3 484) (8 475)
Taxation paid (3 006) (5 826) (12 106)
Net cash inflow from operating
activities 19 867 11 716 50 233
Net cash outflow from investing
activities (25 116) (49 205) (87 391)
Net cash inflow from financing
activities 20 655 18 579 26 124
Net increase (decrease) in cash and
cash equivalents 15 406 (18 910) (11 034)
Cash and cash equivalents at the
beginning of the period (1 304) 9 730 9 730
Cash and cash equivalents at the
end of the period 14 102 (9 180) (1 304)
Group balance sheet
Unaudited at Unaudited at Audited at
31 August 31 August 28 February
R'000 2001 2000 2001
ASSETS
Non current assets
Property, plant and
equipment 81 729 65 758 76 899
Long-term debtors 6 212 8 578 8 402
Goodwill 288 482 242 859 277 677
Trademarks 21 775 24 735 23 255
Deferred taxation 3 653 3 214 3 653
401 851 345 144 389 886
Current assets
Inventories 22 757 17 927 20 097
Accounts receivable 136 481 132 716 126 106
Cash resources 46 226 5 764 23 089
205 464 156 407 169 292
Total assets 607 315 501 551 559 178
EQUITY AND LIABILITIES
Ordinary shareholders'
equity 322 399 285 871 318 847
Outside shareholders'
interest (1 326) (1 637) (2 491)
321 073 284 234 316 356
Non-current liabilities
Long-term debt 89 993 59 862 68 792
Deferred taxation 11 867 8 042 11 867
101 860 67 904 80 659
Current liabilities
Interest-bearing - bank 32 124 14 944 24 393
Short-term portion of
long-term debt 19 476 12 734 17 465
Non-interest bearing 132 782 121 735 120 305
184 382 149 413 162 163
Total equity and liabilities 607 315 501 551 559 178
Net asset value per share
(cents) 167,9 148,8 166,0
Net tangible asset value
per share (cents) 6,3 9,5 9,3
Shares in issue (000)
(Issued share capital
plus shares
due to vendors) 192 061 192 061 192 061
Statement of changes in equity
Non-
Shares distri-
Share Share due to butable Retained
R'000 capital premium vendors reserves income Total
Balance at
28 February 2001 184 249 356 24 982 13 652 30 673 318 847
Loss - - - - (3 637) (3 637)
Shares purchased
on behalf of
vendors (1) (545) - - - (546)
Shares issued
to vendors 6 16 669 (16 675) - - -
Foreign currency
translation
reserve - - - 7 735 - 7 735
Balance at
31 August 2001 189 265 480 8 307 21 387 27 036 322 399
Segmental analysis
31 August 2001 Revenue EBIT EBITDA
Rm Rm Rm
Primary segment
Cleaning Services 194,8 6,4 11,8
Hygiene and
Green Services 94,5 4,4 10,2
Security Services 88,8 2,4 3,2
Support Services 30,5 0,7 2,5
Total 408,6 13,9 27,7
Less: Goodwill amortised 7,8
Profit before net finance charge 6,1
Secondary segment
South Africa 230,1 9,1 21,3
International 178,5 4,8 6,4
Total 408,6 13,9 27,7
Less: Goodwill amortised 7,8
Profit before net finance charge 6,1
31 August 2000 Revenue EBIT EBITDA
Rm Rm Rm
Primary segment
Cleaning Services 152,6 8,9 12,5
Hygiene and
Green Services 79,8 6,5 11,1
Security Services 65,4 7,0 8,0
Support Services 40,8 3,4 5,2
Total 338,6 25,8 36,8
Less: Goodwill amortised 6,3
Profit before net finance charge 19,5
Secondary segment
South Africa 204,2 19,6 29,0
International 134,4 6,2 7,8
Total 338,6 25,8 36,8
Less: Goodwill amortised 6,3
Profit before net finance charge 19,5
28 February 2001 Revenue EBIT EBITDA
Rm Rm Rm
Primary segment
Cleaning Services 361,7 20,9 29,1
Hygiene and Green Services 174,2 11,4 21,9
Security Services 166,6 14,9 16,3
Support Services 76,9 3,5 6,8
Total 779,4 50,7 74,1
Less: Goodwill amortised 14,6
Profit before net finance charge 36,1
Secondary segment
South Africa 452,8 38,6 59,6
International 326,6 12,1 14,5
Total 779,4 50,7 74,1
Less: Goodwill amortised 14,6
Profit before net finance charge 36,1
RESULTS
The group experienced particularly tough trading conditions in the interim
period under review. Notwithstanding sound revenue growth, the group's pre-
tax profit decreased and consequently headline earnings per share (HEPS)
reflected a 70% decrease over the comparable period. The decline in earnings
before interest, tax and depreciation (EBITDA) was less pronounced at 25%.
Goodwill increased to R288,5m as a result of acquisitions and a foreign
currency translation reserve.
The primary reasons for the decline in pre-tax profit are as follows:
An overall decrease in the group's gross profit margin, reflecting an
industry trend to larger volumes of business at tighter margins.
An increased depreciation charge resulting from a concerted strategy to
invest in sustainable future growth.
In the comparable interim period, substantial casino and leisure related
contracts were undertaken, which were not repeated in the current period.
The office automation services business produced a loss.
Positive aspects of performance in the period include the following:
The group has again demonstrated its strong cash generating ability by
producing a 80% improvement in cash flow per share to 9,7 cents.
The ability to grow revenue off the existing fixed cost case.
High profile contract gains.
Problem areas identified and dealt with.
The electronic security business has diversified into industrial markets and
reduced reliance on the gaming industry.
Good generation of cash resources.
Long term debt increased to R90m. This debt has been used to fund growth,
however net interest bearing debt to equity remains at a comfortable 30%.
This is prepared in accordance with GAAP.
SEGMENTAL REVIEW
Cleaning Services
The division reported a decline in operating profit from R8,9m to R6,4m. The
reason for the decline was largely due to reduced gross margins and a higher
depreciation charge reflecting investment in fixed assets.
Hygiene and Green Services
Operating profit declined from R6,5m to R4,4m. The divisional result was
impacted by the slowdown of casino-related activity as compared to the
previous interim period. The exterior landscape maintenance aspects of the
division performed well, with sound new contract wins a strong feature.
Washroom hygiene and janitorial services delivered good growth.
The laundry business grew revenues and continued to consolidate its position
as the leading South African-based healthcare laundry services business.
Security Services
Operating profit declined from R7m to R2,4m. Electronic security services
produced a substantial decrease in profit in comparison with the prior year,
as large-scale casino projects undertaken in the first half of last year
were not repeated. The business experienced delays with regard to the
commencement of this year's industrial, commercial and casino projects.
Guarding services experienced very good growth in revenues over the
comparable period. The South African business produced sound growth in
profits.
Support Services
Operating profit declined from R3,4m to R0,7m due to a disappointing loss
from the office automation business. This business has, at the end of the
interim period, been significantly downscaled and re-organised. We are
confident, in light of a major re-oganisation, that a return to
profitability is imminent for the balance of the year.
Marine services produced a good first result.
Mail logistics produced positive results and has further successfully
developed its range of services.
International Operations
International operations reflected increased sales from R134m to R179m.
Operating profit decreased from R6,2m to R4,8m in spite of a decline in the
exchange rate. A continuing investment was made in the niche healthcare
cleaning sector and in growing in the security services business. These
growth initiatives had a drag on profit of approximately R1,5m.
The Australian business experienced a small loss compared to a marginal
profit in the comparable period. This business is our bridgehead into this
market and we will continue to build on the organic growth potential.
Prospects
Despite management and the board's disappointment with the financial
results, the group has in many ways continued to develop positively in the
period under review.
The group is very well positioned for future sustainable growth, however,
growth in the second half of the year will not be sufficient to make up for
the subdued performance of the first half. Consequently, shareholders are
reminded that HEPS for the
12 months to February 2002 will be substantially less than that produced to
February 2001.
The following points are key drivers in the group's future growth prospects.
Despite industry-wide pressure on gross margins, the group is in a good
position to leverage off the substantial investment made in our business
base. All of our primary operations in South Africa and the United Kingdom
enjoy a national infrastructure and new contract wins are very accretive due
to a marginal income effect.
A large investment has been made in building and developing our businesses
and in acquiring plant, equipment and rental assets commensurate with this
growth requirement. EBITDA and operating margins are expected to grow as
additional operating leverage is gained through revenue growth.
The group's market penetration is growing strongly and is expected to
continue, given the lower base we are moving off. This is further influenced
by our integrated range of services, strong brand recognition and keen
pricing flexibility given the marginal effect of revenue growth. All of the
aforementioned factors afford us a strong competitive advantage in South
Africa and the United Kingdom.
Prospects for our international operations appear sound given the improved
outlook for our United Kingdom businesses and its access to the 10 billion
support services market.
The group will continue to explore opportunities with the Bidvest Group, in
order to positively develop the relationship for mutual benefit.
Share Buy-Back
The group obtained approval at its annual general meeting held on 22 August
2001 to acquire up to 20% of its ordinary shares in issue. Taking into
consideration the current share price, our strong cash holdings and the
investment case to be made for acquiring the group's own shares, it is
likely that the group will embark on a share buy-back programme.
Dividends
It is group policy not to declare a dividend at the interim stage. The
payment of dividends in future periods will be reviewed, taking into
consideration continued sound cash generation and cash requirements for
growth.
By order of the board
Kenton J Fine Dennis C Zietsman
Group Chief Executive Group Finance Director
Johannesburg
9 October 2001
Servest Holdings Limited
Registered office 34 Fricker Road Illovo Johannesburg 2193
PO Box 3082 Saxonwold 2132
e-mail: info@servest.co.za
website: www.servest.co.za
Transfer secretaries Mercantile Registrars Limited
8th Floor 11 Diagonal Street Johannesburg 2001
P O Box 1054 Johannesburg 2000
Directors K J Fine (Group Chief Executive)
D C Zietsman (Group Finance Director)
C Cole (Chief Operating Officer) G B Liebmann*
M H Sacks* R M Read* Non-executive
Company secretary A R Maggs
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