| Mon 22 Apr 2002, 0:00 | | Servest - Annual Results Announcement |
|
SERVEST HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1986/000785/06)
Share code: SRV ISIN number: ZAE000015806
("Servest" or "the company")
- REVENUE GROWTH OF 22%
- OPERATING CASH FLOW PER SHARE 13,3 CENTS
- HEADLINE EARNINGS PER SHARE 5,0 CENTS
AUDITED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2002
GROUPINCOMESTATEMENT
Restated
Audited year Audited year
ended ended
28 February 28 February
2002 2001
R'000 R'000
Revenue 950 781 779 351
EBITDA 57 872 72 571
Operating profit before finance charges
and exceptional items 31 143 49 150
Net finance charges (12 190) (8 475)
Profit before amortisation and
exceptional items 18 953 40 675
Goodwill amortisation 19 448 14 615
Profit before exceptional items (495) 26 060
Goodwill impairment 14 895 0
(Loss)/Profit before tax (15 390) 26 060
Taxation 5 571 12 313
(Loss)/Profit after taxation (20 961) 13 747
Attributable to outside shareholders 2 620 2 885
Net (loss)/profit for the year (23 581) 10 862
Add back: Goodwill amortised and
impairment 34 343 14 615
Less: Profit on sale of assets (1 125) 0
Headline earnings 9 637 25 477
Fully diluted headline earnings
per share (cents) 5,0 13,3
Headline earnings per share (cents) 5,1 13,4
Basic earnings per share (cents) (12,5) 5,7
Weighted average number of shares
in issue (000) 188 161 190 800
Fully diluted weighted average number
of shares in issue (000) 192 061 192 061
GROUP CASH FLOW STATEMENT
Audited year Audited year
ended ended
28 February 28 February
2002 2001
R'000 R'000
Cash generated from operations 49 638 70 814
Net finance charge (12 190) (8 475)
Taxation paid (8 583) (12 106)
Net cash inflow from operating activities 28 865 50 233
Net cash outflow from investing
activities (47 703) (87 391)
Net cash inflow from financing activities 14 870 26 124
Net decrease in cash and cash equivalents (3 968) (11 034)
Cash and cash equivalents at the
beginning of the period (1 304) 9 730
Foreign currency translation (634) 0
Cash and cash equivalents at the end
of the period (5 906) (1 304)
Group balance sheet
Restated
Audited year Audited year
ended ended
28 February 28 February
2002 2001
R'000 R'000
ASSETS
Non-current assets
Property, plant and equipment 102 561 76 899
Long-term debtors 4 491 7 632
Investments 866 0
Goodwill 309 330 277 677
Trademarks 20 259 23 255
Deferred taxation 1 140 5 103
438 647 390 566
Current assets
Inventories 25 514 20 097
Accounts receivable 167 963 126 876
Cash resources 65 280 23 089
258 757 170 062
Total assets 697 404 560 628
EQUITY AND LIABILITIES
Ordinary shareholders' equity 338 039 289 835
Due to vendors 7 951 24 982
345 990 314 817
Outside shareholders' interest (3 204) (3 295)
342 786 311 522
Non-current liabilities
Long-term debt 52 010 68 792
Deferred taxation 7 818 11 867
59 828 80 659
Current liabilities
Interest bearing - bank 71 186 24 393
Interest bearing - other 65 136 17 465
Non-interest bearing 155 962 118 554
Taxation 2 506 8 035
294 790 168 447
Total equity and liabilities 697 404 560 628
Net asset value per share (cents) 180,1 163,9
Net tangible asset value per
share (cents) 8.5 7,2
Shares in issue (000)
(issued share capital plus shares
due to vendors) 192 061 192 061
STATEMENT OF CHANGES IN EQUITY
Non-
Shares distri-
Share Share due to butable Retained
capital premium vendors reserves income Total
R'000 R'000 R'000 R'000 R'000 R'000
Balance at
29 February 2000 192 259 001 0 5 791 18 248 283 232
Changes in
accounting policy 0 0 0 50 (2 188) 2 138)
Balance at
29 February 2000
restated 192 259 001 0 5 841 16 060 281 094
Issue of share
capital 0 520 0 0 0 520
Profit for the
year 0 0 0 0 10 862 10 862
Shares repurchased (8) (10 165)0 0 0 (10 173)
Shares due to
vendors 0 0 24 982 0 0 24 982
Foreign currency
translation
reserve 0 0 0 7 532 0 7 532
Balance at
28 February 2001
restated 184 249 356 24 982 13 373 26 922 314 817
Loss for the year 0 0 0 0 (23 581)(23 581)
Issue of
repurchased shares 5 7 136 0 0 0 7 141
Shares issued to
vendors 0 0 (17 031)0 0 (17 031)
Capital profit on
shares issued
to vendors 0 0 0 9 494 0 9 494
Foreign currency
translation
reserve 0 0 0 55 150 0 55 150
Balance at
28 February 2002 189 256 492 7 951 78 017 3 341 345 990
SEGMENTAL ANALYSIS
2002 2001
Revenue EBIT EBITDA Revenue EBIT EBITDA
R'000 R'000 R'000 R'000 R'000 R'000
Primary Segments
Cleaning Services 460,9 14,0 24,1 361,7 19,3 27,5
Hygiene and Green
Services 216,7 13,4 25,7 174,2 11,4 21,9
Security Services 213,2 1,6 3,6 166,6 14,9 16,3
Support Services 60,0 2,1 4,3 76,9 3,5 6,8
Total 950,8 31,1 57,8 779,4 49,1 72,5
Less: Goodwill
amortised 19,4 14,6
Profit before
finance charges
and exceptional
items 11,7 34,5
Secondary segment
South Africa 479,1 22,1 44,8 452,9 38,6 59,6
International 471,7 9,0 13,0 326,5 10,5 12,9
Total 950,8 31,1 57,8 779,4 49,1 72,5
Less: Goodwill
amortised 19,4 14,6
Profit before
finance charges
and exceptional
items 11,7 34,5
COMMENTS
GROUP OVERVIEW
Servest is a support services group focused on global outsourcing
opportunities. The range of services provided through its four divisions
are:
CLEANING SERVICES
Industrial and commercial contract cleaning, hi-tech industrial cleaning,
environmental cleaning, street sweeping and waste management services.
HYGIENE & GREEN SERVICES
Washroom and janitorial services, pest control, deep cleaning, tropical
plant rental, outdoor landscape installation and maintenance services, sport
and large grounds maintenance services, laundry services, linen and garment
rental and guest laundry services.
SECURITY SERVICES
Electronic surveillance systems and services, including CCTV, access
control, fire detection systems and guarding services.
SUPPORT SERVICES
Office automation systems and global mail logistics services. Launch and
courier services to the marine industry.
FINANCIAL REVIEW
As indicated at the interim stage, the group experienced an extremely tough
and disappointing trading year. Notwithstanding revenue growth of 22%, the
group's operating profit decreased and consequently headline earnings per
share (HEPS) reflected a 62% decline over the comparable period. The decline
in earnings before interest, tax, depreciation and amortisation (EBITDA) was
less pronounced at 20%.
Positively, the group once again demonstrated its strong and sustainable
operating cash generating ability providing operating cash flow per share
after minority interests of 13,3 cents. This dynamic is due to the
substantial historic growth investment made into the group's fixed asset
base and to a continuing determined focus on working capital management.
Encouragingly, the group showed improved performance in the second half of
the financial year.
The primary reasons for the decline in pre-tax profit were:
- An overall reduction in operating margins reflective of an increased
investment in the infrastructure base and reduced gross margins indicative
of industry trends
- An increase in the depreciation charge resulting from continued investment
into fixed and rental assets for sustainable growth
- An increase in finance costs resulting from the financing of these
investments
- A loss experienced by the office automation business and other developing
businesses
- Substantially reduced profits previously derived from large-scale
hospitality and gaming projects
Positive aspects of the group's performance have been:
- Sustained strong cash flow from operations
- The increased use of debt in order to finance growth whilst achieving an
EBITDA to net interest-bearing debt cover ratio of 4,8times
- The turnaround of the substantial loss-making office automation business
unit through rationalization into a break-even situation in the latter part
of the year.
- Continued substantial investment in the business base in order to ensure
operating growth capacity. Critical mass was achieved in the majority of
historical developmental and start-up businesses
SEGMENTAL REVIEW
CLEANING SERVICES
Operating profit declined from R19,3 million to R14,0 million. The core
South African (SA) and United Kingdom (UK) cleaning businesses performed
steadily. Start-up costs associated with the developing UK Hospital Cleaning
division, a large bad debt arising from the collapse of the IIG Group, and a
poor performance from the Australian business negatively impacted the
division's performance in the amount of R5,5 million.
HYGIENE & GREEN SERVICES
Operating profit showed a pleasing increase to R13,4 million from R11,4
million. This was due to a strong performance from the Landscaping, Interior
Plant and Hygiene Service businesses. The green businesses further
entrenched their market-leading postion and continued to produce good
growth.
SECURITY SERVICES
Operating profit declined from R14,9 million to R1,6 million. Electronic
security services experienced a substantial decrease in profit compared with
the prior year. This was due to the fact that substantial casino projects
that were completed in the prior year did not recur during this period.
Anticipated Industrial and Commercial projects took longer than anticipated
to materialise. The UK and SA guarding businesses improved revenues and the
SA guarding business achieved considerable growth in operating profit. UK
guarding continued in development stage and consequently produced an
operating loss.
SUPPORT SERVICES
Notwithstanding a very good result from marine services, operating profit
declined from R3,5 million to R2,1 million. This was due to a R4,0 million
loss in the office automation business.
INTERNATIONAL OPERATIONS
Despite a favourable benefit due to the rand's devaluation, operating profit
declined from R10,5 million to R9,0 million. Sales growth in constant
exchange rate terms was good.
As highlighted in the Cleaning Services review, certain start-up costs in
our UK Hospital Cleaning division and operating losses within the UK
guarding business, combined with the IIG bad debt caused a drag on operating
profit of approximately R7,6 million.
The Australian business produced an operating loss of approximately
R1,4million.
PROSPECTS
The board and management are disappointed with the financial results for the
year. A substantial amount of time and energy has been expended on
rectifying those areas of the business that required vigorous
reorganization.
Management continues to assess each operating business unit's overhead and
infrastructure costs relative to specific performance dynamics. This has led
to rationalisation in certain business units.
Given a continued tough economic outlook, the board is adopting a cautious
approach with regard to growth prospects. The following aspects are key
drivers to the group's growth prospects:
- The group's status as a leading integrated services player, with strong
brand recognition in SA and the UK.
- Significant operational leverage capacity with the potential for accretive
profit growth off a growing revenue base
- Anticipated sound cash generation leading ultimately to a reduction in
gearing and a commensurate reduction in finance charges
Various value-added initiatives are constantly being evaluated with the
objective of maximising shareholder value.
GENERAL
1. Interest-bearing debt
Included in this amount is R30,0 million (GBP1,9 million) term debt from The
Bank of Scotland. This debt is repayable over a four-year period commencing
after February 2003.
Due to a technical breach of certain of the loan covenants, this portion of
the term loan has been reclassified as a current liability. This breach has
resulted in the auditor's inclusion of a going concern matter of emphasis
paragraph in the audit report.
The Bank of Scotland has agreed not to enforce the early repayment of the
facility as their level of support for the UK business is high and the
business continues to be a significant cash generator. The covenants are
measured and reviewed on a quarterly basis, next due in May 2002.
2. Impairment of goodwill
The impairment of goodwill arises from a requirement to assess the
realisable value of goodwill per business unit. Goodwill has been written
down to reflect anticipated realisable values.
Directors
Martin Sacks has resigned with effect from 23 April 2002. Conan Cole will
be resigning effective 31 May 2002 in order to pursue personal interests. We
thank them both for their past contribution.
DIVIDENDS
No dividend is being declared, as cash is being re-invested for growth.
By order of the board
Kenton J Fine Dennis C Zietsman
Group Chief Executive Group Finance Director
Johannesburg - 23 April 2002
NOTES TO THE FINANCIAL INFORMATION
This financial information has been prepared in accordance with GAAP.
Note 1
CHANGES IN ACCOUNTING POLICIES
The Group has changed its accounting policy to comply with AC 116 (revised)
relating to employee benefits, for the recognition of leave pay provisions.
The change was applied retrospectively and comparative figures have been
restated.
Outside Group
Group share- Group net of
gross holders net Tax tax
The effects were as
follows: R'000 R'000 R'000 R'000 R'000
Net income for the
year
Increase in net profit
due to leave pay
provision 2 317 (667) 1 650 (495) 1 155
Opening retained
income:
Before restatement 30 673
February 2000 decrease
in net profit due to
leave pay provision (2 931) 744 (2 187) 0 (2 187)
February 2001 decrease
in net profit due to
leave pay provision (1 624) 60 (1 564) 0 (1 564)
After restatement 26 922
Note 2
DEPRECIATION AND AMORTISATION
Assets have been amortised as follows:
Year end Year end
28 February 28 February
2002 2001
R'000 R'000
Depreciation 23 719 20 401
Trademarks 3 010 2 960
Goodwill 14 895 14 615
41 624 37 976
Note 3
CHANGES IN USEFUL LIVES OF ASSETS
The group has assessed the useful lives of the fixed asset base. It has been
determined that previous estimates were too conservative. The effect on this
year's depreciation charge was a reduction of R1992 million.
Note 4
COMMITMENTS
Contingent liabilties
Lease receivables amounting to R18 million have been discounted with various
banking institutions at 50% recourse. Should the debtor default in future,
the company will be liable for 50% of any outstanding capital amount.
Consequently, the maximum potential liability at 28 February 2002 is R9
million (28 February 2001, R11,5 million). Maximum liability in respect of
litigation within the group amounts to R3 million.
Lease commitments Due within Due within Due
1 year 2 - 5 years thereafter
Rm Rm Rm
Properties 6,4 14,4 1,5
Other 2,3 8,3 -
8,7 22,7 1,5
Capital commitments
Capital expenditure for the year amounted to R50 million.
Capital expenditure authorised, but not committed for the year to 28
February 2003 is R27 million.
Registered Office 34 Fricker Road, Illovo, 2193 PO Box 3082, Saxonwold,
2132 e-mail: info@servest.co.za
Transfer Secretaries Mercantile Registrars Limited, 8th Floor, 11 Diagonal
Street, Johannesburg, 2001 PO Box 1054, Johannesburg, 2000
Directors KJ Fine (Group chief executive), DC Zietsman (Group finance
director), C Cole, GB Liebmann*, RMRead*, MH Sacks* *Non-executive
directors
Company Secretary AR Maggs
www.servest.co.za
SERVEST HOLDINGS LIMITED
(Registration number: 1986/000785/06
(Isin Code: ZAE000015806)
(Share code: "SRV")
Press Release
Annual Results Announcement -Press Release
Feb Aug Feb %
2002 2001 2001 Change
R millions R millions R millions Feb - Feb
Revenue 950.8 408.6 779.4 22.0%
EBITDA 57.8 27.7 74.1 -19.8%
Operating Income 31.1 13.8 49.1 - 36.3%
Headline Earnings 9.6 4.1 25.5 -62.3%
Fully Diluted Headline EPS 5.0c 2.2c 13.3c -62.4%
Servest Holdings Limited (SRV) today announced their results for the year to
28 February 2002. Revenue was up by 22% to R 950 million, but operating
income was down by 39%.
Servest's CEO Kenton Fine says, "despite sound revenue growth, tough trading
conditions combined with the continued investment and development of the
business base caused the group's headline earnings to decline by 62%, and
the decline in earnings before interest, tax, depreciation and amortisation
(EBITDA) was less pronounced at 20%. Encouragingly, the group performed
better in the second half of the financial year, improving HEPS by 27% over
the first half."
A further positive aspect of the group's performance was its continued
strong cash flow generated from operations of some R 50.0 million. Cash flow
per share of 13.3 cents once again substantially exceeded the group's
headline earnings per share (HEPS). This was due to the substantial
historic growth investment in the fixed asset base and a continued strong
focus on working capital management.
Although utilizing debt to partially fund growth, the EBITDA to finance
charge cover ratio remained a comfortable 4.8 times.
The group further consolidated its position as a leading integrated services
provider with strong brand recognition a key feature. Servest possesses
significant operational leverage capacity, with the potential for profit
growth off a growing revenue base.
For further information:
Kenton Fine
Tel: (011) 442 7484
Mobile: 083 250 0967
Dennis Zietsman
Tel: (011) 442 7484
Mobile: 082 450 8152
Issued by:
Lance Rothschild
Tel: 082 443 1530
E-mail: lance@opportunate.co.za
