| Wed 29 Sep 2004, 16:25 | | Audited Results For The Year Ended 30 June 2004 |
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Putco Limited - Audited Results For The Year Ended 30 June 2004
PUTCO LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1945/018672/06)
Share code: PTC
ISIN: ZAE000005716
(`The Company`)
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2004
The following financial statements have been prepared in accordance with the
South African statements of Generally Accepted Accounting Practice.
Income Statements For The Year Ended 30 June 2004
GROUP
R000
Notes 2004 2003
Revenue 1 921 460 899 101
Bus operating 1 916 815 894 067
Cost of operating and trading 2 834 902 827 780
Gross profit before onerous contracts 81 913 66 287
Provision for onerous contracts reversed 16 9 070 17 128
Gross profit after onerous contracts 90 983 83 415
Distributions from trading trusts 1 - -
Other dividends 1 26 20
Interest received 1 4 619 5 014
Operating profit 95 628 88 449
Finance costs 3 20 570 26 684
Profit before taxation 75 058 61 765
Taxation 4 21 353 19 820
Net profit for the year 53 705 41 945
Earnings per share (cents) 5 203,2 158,7
Headline earnings per share (cents) 5 179,1 159,0
Adjusted headline earnings per share (cents) 5 155,1 113,7
Dividends per share (cents) 6 50,0 50,0
Final paid - October 2003 (2002) 30,0 30,0
Interim paid - April 2004 (2003) 20,0 20,0
Final declared - October 2004 (2003) 30,0 30,0
Net Profit for the year 53 705 41 945
(Profit)/Loss on disposal of fixed assets (6 372) 78
Headline Earnings 47 333 42 023
Reversal of provision for onerous contracts (9 070) (17 128)
Deferred tax thereon 2 721 5 138
Adjusted headline earnings 40 894 30 033
COMPANY
R000
2004 2003
Revenue 900 598 873 190
Bus operating 889 773 853 211
Cost of operating and trading 697 318 794 333
Gross profit before onerous contracts 192 455 58 878
Provision for onerous contracts reversed 9 070 17 128
Gross profit after onerous contracts 201 525 76 006
Distributions from trading trusts 4 252 15 345
Other dividends 26 20
Interest received 6 547 4 614
Operating profit 212 350 95 985
Finance costs 20 570 26 684
Profit before taxation 191 780 69 301
Taxation 21 318 24 015
Net profit for the year 170 462 45 286
Earnings per share (cents)
Headline earnings per share (cents)
Adjusted headline earnings per share (cents)
Dividends per share (cents)
Final paid - October 2003 (2002)
Interim paid - April 2004 (2003)
Final declared - October 2004 (2003)
BALANCE SHEETS as at 30 June
GROUP
R000
Notes 2004 2003
Assets
Non-current assets 339 879 327 840
Property,plant and equipment 7 333 156 325 109
Investments 8 6 723 2 731
Investments in subsidiaries 9 - -
Deferred taxation 10 - -
Current assets 193 221 154 168
Inventory 11 42 630 51 794
Trade and other receivables 12 64 157 56 696
Cash on call,at bank and on hand 21 86 434 45 678
Total assets 533 100 482 008
Equity and liabilities
Equity capital and reserves 155 391 122 402
Share capital and share premium 13 10 917 10 917
Non-distributable reserves 14 12 435 20 410
Distributable reserves 132 039 91 075
Ordinary shareholders` interest 155 391 122 402
Non-current liabilities 147 957 145 721
Long-term liabilities 15 89 299 72 644
Deferred taxation 10 4 432 5 852
Provisions 16 54 226 67 225
Current liabilities 229 752 213 885
Short-term liabilities 15 30 003 18 228
Provisions 16 112 348 95 801
Trade and other payables 17 82 777 90 317
Taxation 18 68 4 406
Bank overdraft 21 4 556 5 133
Total equity and liabilities 533 100 482 008
COMPANY
R000
2004 2003
Assets
Non-current assets 477 956 306 658
Property,plant and equipment 208 243 279 401
Investments 10 836 7 822
Investments in subsidiaries 258 225 16 728
Deferred taxation 652 2 707
Current assets 152 505 146 469
Inventory 41 174 50 671
Trade and other receivables 29 749 53 030
Cash on call,at bank and on hand 81 582 42 768
Total assets 630 461 453 127
Equity and liabilities
Equity capital and reserves 259 265 102 016
Share capital and share premium 10 917 10 917
Non-distributable reserves - -
Distributable reserves 248 348 91 099
Ordinary shareholders` interest 259 265 102 016
Non-current liabilities 143 525 139 869
Long-term liabilities 89 299 72 644
Deferred taxation - -
Provisions 54 226 67 225
Current liabilities 227 671 211 242
Short-term liabilities 30 003 18 228
Provisions 111 115 94 796
Trade and other payables 81 661 88 046
Taxation 336 4 577
Bank overdraft 4 556 5 595
Total equity and liabilities 630 461 453 127
STATEMENTS OF CHANGES IN EQUITY for the year ended 30 June
GROUP Share Non-
capital and distri-
share butable
Notes premium reserves
Balance at 30 June 2002 10 917 22 954
Net profit for the year
Impairment of properties (1 113)
Deferred tax on revaluation 334
Revaluation reserve realised through
depreciation (1 765)
Dividends paid 19
Balance at 30 June 2003 10 917 20 410
Net profit for the year
Impairment of properties (10 718)
Deferred tax on revaluation 3 215
Revaluation reserve realised through
depreciation (472)
Dividends paid 19
Balance at 30 June 2004 10 917 12 435
GROUP
Distri-
butable
reserves Total
Balance at 30 June 2002 60 578 94 449
Net profit for the year 41 945 41 945
Impairment of properties (1 113)
Deferred tax on revaluation 334
Revaluation reserve realised through depreciation 1 765 -
Dividends paid (13 213) (13 213)
Balance at 30 June 2003 91 075 122 402
Net profit for the year 53 705 53 705
Impairment of properties (10 718)
Deferred tax on revaluation 3 215
Revaluation reserve realised through depreciation 472 -
Dividends paid (13 213) (13 213)
Balance at 30 June 2004 132 039 155 391
COMPANY Share Non-
capital and distri-
share butable
Notes premium reserves
Balance at 30 June 2002 10 917 -
Net profit for the year
Dividends paid 19
Balance at 30 June 2003 10 917 -
Net profit for the year
Dividends paid 19
Balance at 30 June 2004 10 917 -
COMPANY
Distri-
butable
reserves Total
Balance at 30 June 2002 59 026 69 943
Net profit for the year 45 286 45 286
Dividends paid (13 213) (13 213)
Balance at 30 June 2003 91 099 102 016
Net profit for the year 170 462 170 462
Dividends paid (13 213) (13 213)
Balance at 30 June 2004 248 348 259 265
CASH FLOW STATEMENTS for the year ended 30 June
GROUP
R000
Notes 2004 2003
Cash generated by operating activities 71 414 61 215
Net cash generated by operations
(see below) 115 828 99 230
Investment income 4 645 5 034
Finance costs 3 (11 950) (13 180)
Taxation paid 18 (23 896) (16 656)
Dividends paid 19 (13 213) (13 213)
Investing activities (58 511) (99 295)
Replacement of property, plant and
equipment 20 (95 221) (104 733)
Proceeds on disposal of plant and equipment 40 702 3 067
(Increase)/decrease in investments (3 992) 2 371
Proceeds on disposal of
investments/business - -
Financing activities 28 430 47 001
Net long-term liabilities advanced 16 655 36 980
Net short-term liabilities advanced 11 775 10 021
Increase in amounts owing by subsidiaries - -
Cash resources
Net increase in cash and cash equivalents 41 333 8 921
Cash and cash equivalents at beginning of
year 40 545 31 624
Cash and cash equivalents at end of year 21 81 878 40 545
Reconciliation of profit before taxation
with net cash generated by operations
Profit before taxation 75 058 61 765
Adjusted for depreciation 40 832 34 670
Finance costs 20 570 26 684
(Profit)/loss on disposal of property
plant and
equipment (6 372) 78
Investment income (4 645) (5 034)
Changes in working capital 22 (5 837) (14 508)
Non-cash effect of provisions raised (3 778) (4 425)
115 828 99 230
COMPANY
R000
2004 2003
Cash generated by operating activities 96 805 69 279
Net cash generated by operations
(see below) 134 647 92 346
Investment income 10 825 19 979
Finance costs (11 950) (13 180)
Taxation paid (23 504) (16 653)
Dividends paid (13 213) (13 213)
Investing activities 156 115 (107 960)
Replacement of property, plant and equipment (95 158) (104 674)
Proceeds on disposal of plant and equipment 254 287 3 061
(Increase)/decrease in investments (3 014) (6 408)
Proceeds on disposal of investments/business - 61
Financing activities (213 067) 47 001
Net long-term liabilities advanced 16 655 36 980
Net short-term liabilities advanced 11 775 10 021
Increase in amounts owing by subsidiaries (241 497) -
Cash resources
Net increase in cash and cash equivalents 39 853 8 320
Cash and cash equivalents at beginning of year 37 173 28 853
Cash and cash equivalents at end of year 77 026 37 173
Reconciliation of profit before taxation with
net cash generated by operations
Profit before taxation 191 780 69 301
Adjusted for depreciation 38 118 33 725
Finance costs 20 570 26 684
(Profit)/loss on disposal of property plant and
equipment (126 089) 86
Investment income (10 825) (19 979)
Changes in working capital 26 393 (13 327)
Non-cash effect of provisions raised (5 300) (4 144)
134 647 92 346
AUDITORS
Ernst & Young have audited the information contained herein. Their audit
opinion is available for inspection at the registered office of Putco Limited,
Mimosa Park, Mimosa Way, Gallo Manor, Sandton.
CHAIRMAN`S REPORT
OVERVIEW
The improvements in the financial results for the year resulted predominantly
from the favourable exchange rate, cost reduction/containment and the reduction
in interest rates, with their concomitant positive effect on the cost of fuel
and spares. Our restructuring of the Chassis Shop, Voms (the engine/gearbox
refurbishing facility) and Dubigeon (the body building factory) and our
introduction of a revamped preventative maintenance plan improved our
efficiencies in these areas. A number of our strategic business units achieved
worthwhile results. The Company also experienced improved cash flows.
Future results will depend on fuel price and exchange rate fluctuations as well
as on our ability to achieve empowerment and, consequently, to retain our
current business. Growth within the commuter bus industry is largely dependent
on attaining black economic empowerment (BEE) status.
EMPOWERMENT TRANSACTION
Overview of recent developments
In line with the transformation taking place in South Africa and embracing the
Government policy on BEE, Putco made an offer to all shareholders to purchase
their shares and then to issue new shares to include the BEE structure. It was
further proposed that Putco de-list, as it would no longer meet the JSE
Securities Exchange criteria for being listed.
Putco has, for a number of years, attempted to find a suitable BEE partner/s to
take up an equity share in Putco.
This is fundamental to the future existence of Putco. Failure to introduce
empowerment at equity level will have a material impact on the future of the
Company. If the transformation objectives are not achieved, as a matter of
urgency, Putco will not be able to derive income from its core business, being
Government sources.
The National and the Provincial Departments of Transport have proposed that all
existing interim contracts be placed on tender with 30% of each interim
contract operation being set aside exclusively for small, medium and micro
enterprises (SMME) and/or companies with a minimum of 50% black shareholding,
and that only enterprises with a minimum of 35% black shareholding be eligible
to tender for the remaining 70% of each interim contract operation. Putco`s
recent exclusion from the tender process for certain of the old Northwest Star
operations because of its perceived lack of black empowerment credentials at
equity level, and the withdrawal of the Soweto tender when it should have been
awarded to Putco as the lowest tenderer, are prime examples of loss of business
because of lack of empowerment status.
It has therefore become critical for Putco to restructure at shareholder level
to enable it to continue, as a going concern, in its current form.
Overview of Previous Scheme and Role Players/Broad Based Structure Involving
Disabled Organisations, Staff, Management and a Lead Empowerment Group
A scheme of arrangement was proposed (proposed scheme) that would lead to a
situation where the black shareholding in Putco was in excess of 50% of the
total issued share capital of Putco. This would have resulted in Putco being
classified a black company as defined by the BEE Commission.
The proposed scheme was based on an empowerment structure involving Safika
Holdings (28%), Disability Empowerment Concerns (DEC) (5%), Putco Employee
Share Trust (16-20%), Management (14%) and existing shareholders (Carleo
Enterprises and minorities) (33-37%).
A new wholly owned subsidiary, Putco Services, would be established. Putco
would sell a substantial portion of its existing unencumbered bus fleet to
Putco Services for the purposes of raising funds to give effect to the scheme.
The disposal did not in any way alienate Putco`s Group assets and was only an
internal group restructuring to facilitate the transaction. The relevant buses
would be leased back to Putco at market-related prices. Putco would continue as
the operating company.
The essence of the proposed scheme was that the shares of the existing Putco
shareholders would be bought back by the Company at R5,50 per share; the
current shareholders would then have the opportunity to elect a cash
consideration of R5,50 per share, or a partial cash consideration with a
reinvestment alternative, subject to certain guarantees. New shares would be
issued to shareholders and Putco would continue as an empowered company.
The offer price, determined by an independent firm of accountants and auditors,
was considered `fair and reasonable` taking into account the amount of money
which could be raised by the company and its solvency position after the
transaction.
The new empowered Putco would be better positioned to secure contracts and
enjoy further growth opportunities.
Non-Approval/Objections to Scheme
Unfortunately, the proposed scheme was not approved at a shareholders` meeting
held on 3 August 2004.
The scheme meeting was therefore abandoned.
Shareholders holding approximately 71% of the shares voted in favour of the
proposed scheme, but this fell short of the 75% support required for the
approval of the scheme. Some institutional investors expressed their
unhappiness with the fact that the Company would have de-listed from the JSE
Securities Exchange as many institutional investors would not be able to
reinvest in an unlisted company. Those opposing the scheme also indicated that
certain of the scheme`s conditions (e.g. the method of providing guarantees)
were too onerous and that they did not accept the fair and reasonable offer of
R5,50 per share if they were effectively precluded from continuing to
participate in the new company in
to the future.
Most of the institutional investors are, in our opinion, under a misconception
that Putco is in a strong position with regard to the Government and that
Government has no real alternative but to award contracts to Putco. This
assumption will prove crucial in the future.
Need to Continue with Black Economic Empowerment
The ability of a potential BEE partner/s to raise the necessary finance, either
directly or indirectly, to be able to participate in a BEE deal is a major
determinant in designing a workable structure. In addition, financial
institutions usually require the existing company and its shareholders to
provide the security to underwrite the transaction and provide the initial
guarantees. The relevant structure in the proposed scheme was influenced to a
large degree by these requirements. The financing of any BEE deal remains a
major issue and is an important factor in designing a workable structure.
The fact that the proposed scheme was not approved is a setback for Putco in
its quest to become a 50% plus `black-owned` company. The failure to become
empowered can have serious consequences for the Company and its shareholders.
The rejection of the proposed BEE scheme unfortunately prolongs the uncertainty
about the future of the Company. Most of our contracts are currently being
extended on a month-to-month basis, which raises a number of questions, not
least of which are the `going-concern` issues.
BEE is a necessity for Putco. The failure to obtain the necessary shareholder
approval has only delayed the inevitable transformation at equity level.
If the Company and its shareholders want to secure its future and comply with
the BEE requirements of the industry, they have to balance the diverse needs of
the various stakeholders -- including our employees and their families -- and
find a mutually acceptable way to transform the Company at ownership level.
TRANSPORT POLICY
Changes in the National Department of Transport (NDOT) and the Provincial
Department of Transport (DOT) A number of changes have occurred and others are
expected at the NDOT and DOT. Mr Jeff Radebe was appointed National Minister of
Transport replacing the late Mr Dullah Omar. Mr Ignatius Jacobs has taken over
as MEC for Transport in Gauteng, replacing Mr Kabisi Mosunkutu. Mr M S Motimele
has been appointed as Transport MEC in Limpopo and Mr. Fish Mohlalele as
Transport MEC in Mpumalanga.
South African Bus Operators Association Proposals
SABOA made a proposal to NDOT, late last year, to overcome the impasse
regarding the tendered/negotiated contract system that continues to confront
the South African bus industry. The SABOA proposal was that `the
tender-for-contract system be abolished for the time being and that all
remaining interim contract holders` services be negotiated with the existing
interim contract holder`.
This proposal would address the following issues:
*The impasse regarding the Tripartite Heads of Agreement (HOA) would be
unlocked, particularly as it affects labour;
*The 10% right of first refusal would not be applicable to negotiated
contracts and this would remove a major objection from SMME to the HOA and the
tender system;
*The set-asides of certain operations or parts thereof to accommodate SMME and
minimum tender requirements could be dealt with in the negotiations;
*The further transformation of the bus industry would result as a consequence
of the conditions that would be agreed upon in the conclusion of negotiated
contracts, with the National Land Transport Transition Act (NLTTA) being used
as a base; and
*Negotiated contract prices would probably be more within the control of
Government as service delivery and quality aspects are negotiated by the
parties.
DISCUSSIONS WITH GO VERNMENT ON FUTURE CONTRACTS
Putco`s Transformation Proposal
As previously reported Putco entered into discussions with DOT regarding the
transformation, restructuring and empowerment of the Company. We made a formal
presentation to DOT based on the Government`s macro-policy objectives and the
Company`s strategic objectives. In principle, they accepted and endorsed the
proposal.
DOT appointed a team of consultants to be part of the task team, also involving
DOT and Putco members. A preliminary meeting has taken place and the various
parties are giving attention to a number of matters that were raised at this
meeting and which needed further investigation and study.
The formation in one of our existing operations of a Joint Venture with a
women`s empowerment group, Gauteng Women in Transport (GWIT), formed part of
our proposal to the DOT. We were requested to endeavour to progress this part
of the plan and a number of meetings were held with GWIT. This led to the
signing of a Memorandum of Understanding document to be used as a basis for our
negotiations. DOT was represented in these discussions.
Implication of the Non-Conclusion of Black Economic Empowerment Transaction It
is axiomatic that the concluding of Negotiated Contracts to replace our Interim
Contracts, the extension of our existing Tendered Contracts, and current Joint
Venture Partnerships are strongly dependent on the implementation of BEE into
our Company.
This is an added reason for us to conclude a BEE transaction as soon as
possible.
BLACK ECONOMIC EMPOWERMENT SCORECARD PROCESS
As part of the process of developing an integrated BEE Scorecard for all
sectors in the transport industry, the bus sector, bus operators, NDOT and
organised labour have agreed to a seven-year Bus Sector BEE Scorecard that will
direct and monitor the further orderly transformation of the bus industry,
based on a balanced scorecard approach.
The Bus Sector BEE Scorecard contains 20 different indicators of BEE and is a
method of measuring agreed targets in areas such as ownership (measured by
race, gender, and disability status), control (measured by board
representation, executive management and shareholder voting rights), employment
equity (measured by race, gender and disability status), skills development,
preferential procurement (the number and percentage of BEE suppliers),
enterprise development (number of buses in BEE ventures and BEE enterprise
partners) and social investment.
The compliance of bus operators with the Bus Sector BEE Scorecard will be
measured against the total score achieved by a bus operator across all 20 BEE
indicators. A target for the total BEE score (the sum of the individual scores
on the 20 BEE indicator tables) has been set in the Scorecard which
progressively increases over time.
It was also proposed that compliance with this BEE target score be a condition
of any tendered or negotiated contract.
The industry supports Government`s objectives for the transformation of the
economy and the broadening of the base. Putco will continue to play a leading
role, through the SABOA, in implementing the BEE Scorecard for the bus
industry.
INTEGRATED PASSENGER TRANSPORT PLANS (IPTP)
Tshwane/Pretoria
The City of Tshwane Metropolitan Municipality (CTMM) recently approved in
principle a proposed Public Transport Plan, and the final approval is expected
in December 2004. The document addresses public transport services (subsidised
bus and rail, mini-bus taxis) and the successful implementation and operation
of the Gauteng Rapid Rail Link (Gautrain).
Overall, the proposed IPTP is in line with the NDOT`s guidelines and policies.
There are, however, several issues that create both opportunities and some
risks for the Company. Putco`s Strategic Business Unit Management, Regional
Management and Head Office Business Development Management are addressing these
matters as a priority.
Johannesburg
The IPTP for the Johannesburg Metropolitan Council was commented on in the 2003
Financial Report. The IPTP will have an impact on the design and implementation
of future tenders for this area, which will affect some of Putco`s existing
operations. We have attended an informal preliminary meeting with the Metro
Council in order to make contact with the responsible persons, exchange ideas,
clarify uncertainties and set up meetings for further discussion.
OPERATING FLEET
Vehicle Replacement/Refurbishment We introduced 90 new buses into the fleet
during this financial year. As stated in the Interim Report we decided not to
purchase an additional 24 new buses that we had planned. This decision was
linked to the conclusion of our BEE transaction. In addition, we
refurbished/restyled a further 43 buses in our fleet.
Introduction of Train Buses
We have concluded a comprehensive test, in our Tshwane/Mpumalanga (TAM)
operation, of the train bus. This vehicle is designed to transport a seated
load of 104 passengers and 34 standing passengers. It has proven to be highly
suitable for these longer-distance commuter routes. They are also very
revenue/cost effective. Based on our test results we have decided to obtain
another five train buses for introduction into the TAM operation. The
implementation of these additional buses will assist in meeting the needs of
our passengers and is in line with our budget plans.
Bus Testing Programme
We have for a number of years followed a policy of testing new/innovative
products related to our business, including various makes of buses. As a
predominantly in-house manufacturer of bus bodies, we also investigate and
review the bus bodies produced by other manufacturers and endeavour to ensure
that our quality and costs are in line with the market. As a refurbisher of
engines, gearboxes and other major components we also periodically carry out a
similar exercise in these areas. We will continue to follow this policy of
testing new products.
Fuel Price
The volatility of the fuel price continues to create a great deal of
uncertainty. Putco is one of the largest users of diesel fuel in the country
and changes in the fuel price, negatively or positively, impact considerably on
our cost structure. A variation of 1 cent in the price of diesel
increases/decreases our diesel cost by approximately R35 000 per month. We are
continuing to investigate systems/technology whereby we can manage and control
our fuel consumption and usage more effectively. The reduction in the fuel
price, when considered for the past financial year, had a major positive impact
on our costs.
OPERATING RESULTS
Group revenue marginally increased from R899,1 million to R921,5 million, an
increase of 2,5%. The cost of operating increased from R827,8 million to R834,9
million, an increase of 0,9%. Group profit before taxation is R75,1 million
(2003: R61,8 million).
The variance in the cost of operating and trading and the resultant variance in
operating profit for the Company for 2004 is due to the sale of the buses to
Putco Services, a wholly owned subsidiary, as part of the BEE process. It must
be stated that the transaction had no significant effect on the net asset value
of the Group on consolidation.
Passenger levels are down, from 76 million in the previous year to 71 million
this year.
The operating bus fleet at the end of June 2004 was 1 336 compared to 1 402 the
previous year, a 4,7% decrease.
The total number of employees was 4 006 as compared to 4 020 at the end of the
previous year 0,4% decrease.
CHANGES IN DIRECTORATE AND EXECUTIVE MANAGEMENT
A number of changes will be made to the Putco Board of Directors and Executive
Management in the new financial year. Messrs A Carleo and E M Oldham retire at
the end of September 2004 after many years of valuable contribution to the
Group and we wish them well in their retirement.
The position of CEO will be abolished and the current Deputy Managing Director
Mr. F G Pisapia will take over as Managing Director.
Other changes to the Board are set out in the Directors` Report.
ROAD SAFETY PROGRAMME
Driver Selection -Vienna/Dover System
In line with our focus on giving high attention to road safety measures and
improving our holistic safety plan, we have introduced the Vienna/Dover
selection system to improve our procedures for driver selection. The
Vienna/Dover system is a fair, reliable and culture computerised skills
assessment system used in the evaluation and selection of drivers based on
their skill level and trainability. The system assesses amongst others, a
candidate`s hand-eye-foot co-ordination, auditory discrimination,
sustainability of concentration, visual perception and ability to cope in
stressful situations. The evaluation of drivers is performed by a qualified
team of psychometrists at our Corporate Recruitment and Selection Centre in
Wynberg.
Drive Alive Campaign
In its ongoing support of driver awareness and road safety, the Company has
recently agreed to enter into a partnership with DOT and Comutanet (our
partners in our bus-advertising initiatives) to further support the
government`s `Drive Alive Campaign`.
2004/2005 WAGE NEGOTIATIONS
The South African Road Passenger Bargaining Council (SARPBAC) concluded the
annual negotiations on 21 May 2004. The wage settlement was 8% on the base rate
of pay, plus a few smaller adjustments to certain conditions of employment,
effective from 1 April 2004.
PENSION FUNDS SURPLUS PROCESS
Ownership of the surplus in a pension fund has historically been a contentious
issue, and is being addressed by way of the Pension Funds Second Amendment Act,
more commonly known as the `Surplus Legislation`.
The interim/draft valuation as at 31 December 2003 revealed that the Putco
Pension Fund was in surplus to the extent of R143,17 million in respect of past
service liabilities, with assets representing 167,5% of these past service
liabilities.
The funding levels above do not allow for the full provisions of the Pension
Funds Second Amendment Act. Once the Financial Services Board (FSB) has issued
its PF Circular on valuation bases and contingency reserves, the valuation
report can be finalised. The Trustees` investigation into `improper use by the
employer` of the surplus has been completed and the only area found was in
terms of the Company contributions that were not adjusted to the correct level
because of a delay in finalising the valuation. The contribution level was
corrected with effect from 1 July 2004 as per the draft Valuation Report as at
31 December 2003. Arrear contributions plus interest were also brought into
account for the period 7 December 2001 to 30 June 2004.
The Board of Trustees of the Putco Pension Fund has appointed a former member
representative who is currently busy with the surplus apportionment exercise in
accordance with the provisions of the Pension Funds Second Amendment Act.
It must be clearly stated that the fund will incur significant expenses in the
surplus apportionment exercise. Also despite all the Regulations, Board Notices
and PF Circulars related to the `Surplus Legislation`, considerable legal and
actuarial uncertainty still remains.
For the purpose of the `Surplus Legislation` the apportionment date was 31
December 2003.
PUTCO FOUNDATION AND PROJECTS
The Foundation reported an increase of approximately 30% in the revenue from
the previous year ending July 2003, derived from an increase in advertising
revenue earned for the period. This makes it a bumper year in which all long-
term commitments were completed, including having our 14th medical doctor
graduate from the Medical University of South Africa (MEDUNSA) and achieving 65
matric passes with 49 distinctions from the Star Schools project.
The Directors, Public Relations Officers of Putco and Stakeholders from
Comutanet, Primedia and the community are thanked for their contribution to
these activities in an effort to advance the standard of living of people where
Putco operates through education, job creation and development initiatives as
funded by the Foundation.
DISABLED PERSONS
The Company, with the full support and involvement of the relevant Government
departments and organisations for the disabled, recently launched the second of
five planned `access buses`, this time into our Tshwane and Mpumalanga areas of
operation. These buses are designed, developed and built by our engineers and
factory staff at our Dubigeon Body and Coach Plant in Madibeng, which makes the
buses a truly South African product.
This bus will provide disabled persons (including those in wheelchairs) with
purpose-built features to assist them in utilising public transport. Putco is
fully committed to the Government`s objectives in catering for disabled persons
in our society. A further three access buses will be deployed in the next six
months in other areas of our operation.
HIV/AIDS
Top management is committed to the support of the awareness campaign within the
Company. This important campaign is under the direct day-to-day supervision of
our Chief Medical Officer and his team of qualified occupational health
sisters. In addition, over one hundred AIDS Monitors assist with the awareness
campaign education and provide information and guidance.
CORPORATE GOVERNANCE
The directors support the Code of Corporate Practice and Conduct, as set out in
the King II Report, and are implementing the provisions thereof, where
applicable. The directors and management acknowledge the need to manage the
business with integrity and according to accepted corporate practices (refer to
detailed section on corporate governance).
RISK ASSESSMENT
In order to assist management to assess and prioritise the major risks that
need attention to achieve our business objectives and to develop a more focused
risk-based internal audit plan, KPMG Management Assurance Services were engaged
on a co-sourcing basis in March 2001. We have recently introduced an audit plan
that concentrates on priority issues on a `horizontal basis`. This means that a
specific risk issue is audited throughout the Company in order to ensure
consistent and uniform compliance. The previous `vertical approach` performed
the audit on a number of risk areas at the one location. The delay in obtaining
an overall perspective on a specific issue in various locations was very long.
An assessment of the effectiveness of the change will be done in due course.
FUTURE PROSPECTS
Black Economic Empowerment
Putco is fully committed to becoming empowered, despite the fact that the
minority shareholders did not support the recent BEE scheme.
The Company will strive to achieve its objective of becoming empowered at
equity level in the shortest possible time, as well as addressing the diverse
needs of the various parties, including most importantly the Government, in a
balanced manner.
Diversification
Diversification remains one of our Strategic Thrust Areas. We are continuing to
explore opportunities in the bus commuter market in other parts of Africa. We
have conducted a number of exploratory visits and held meetings in order to
progress these initiatives. Our previously stated plans, regarding the
non-subsidised bus sector and the provision of specialised expertise to the
SMME emerging market and other operators, still remain valid as well.
Future Results
The sustainability of the performance of the Company will depend on a number of
factors, such as:
- Changes in the exchange and interest rates,
- Resultant price of diesel fuel,
- Tendered or negotiated contracts being awarded to the Company, and
- Success in empowering the Company.
CONCLUSION
The directors wish to thank the management and staff for their valuable
contribution to the worthwhile results of the Company this year. I look forward
to their positive input over the coming year.
J H DE L OOR
Chairman
14 September 2004
Ordinary Dividend No. 78
The board declared a final dividend of 30 cents per share to all ordinary
shareholders. The dividend was declared out of consolidated current year profits
before tax of R75 058 000.
Notice of the Annual general Meeting
The 58th Annual general Meeting of the company will be held at 12.00 hrs on
Tuesday, 16th November 2004 at the registered office of the company, Mimosa
Park, Mimosa Way, Gallo Manor, Sandton.
Registered Office: Transfer Secretaries:
Mimosa Park Computershare Investor
Mimosa Way Services 2004 (Pty) Limited
Gallo Manor (Registration Number 2004/003647/07)
Sandton, 2199 70 Marshall Street
Johannesburg, 2001
Sponsor:
Ernst & Young Sponsors (Pty) Ltd
(Registration number 2000/031843/07)
52 Corlett Drive
Illovo, 2196
Date: 29/09/2004 04:22:05 PM Produced by the JSE SENS Department
