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HWN
HWN
Howden - The Reviewed Financial Results for the year ended 31 December 2005
Howden Africa Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1996/002982/06)
Share code: HWN & ISIN: ZAE000010583
("HAHL" or "the Company")
The Reviewed Financial Results for the year ended 31 December 2005
Abridged consolidated income statement
Actual Restated
Year ended Year ended
31 December 31 December
2005 Actual 2004
(Reviewed) change (Audited)
R"000 % R"000
Sales 497 495 17.9 422 033
Operating profit 35 893 9.8 32 693
Net financial income 5 082 4 512
Foreign exchange losses (204) (401)
Share of results
of associate 3 322 5 562
Loss on disposal of
portion of associate (1 182) -
Profit before taxation 42 911 1.3 42 366
Taxation (13 753) (13 900)
Profit for the period 29 158 2.4 28 466
Attributable to:
Equity holders
of the Company 25 553 4.9 24 352
Minority interest 3 605 (12.4) 4 114
29 158 2.4 28 466
Number of shares in issue (000") 65 729 65 729
Earnings per share (cents) 38.88 4.9 37.05
Headline earnings
per share (cents) 40.46 6.6 37.94
Dividends per share (cents) 10.00 56.00
Reconciliation of
headline earnings
attributable to the
equity holders of
the Company:
Net profit for the period
attributable to
equity holders 25 553 24 352
(Profit)/Loss on sale of
a division of subsidiary (95) 301
Impairment of assets - 229
(Profit)/Loss on
sale of property,
plant and equipment (49) 56
Loss on disposal of
portion of associate 1 182 -
Headline earnings
attributable to
equity holders 26 591 6.6 24 938
Abridged consolidated balance sheet
Actual Restated
Year ended Year ended
31 December 31 December
2005 2004
(Reviewed) (Audited)
R"000 R"000
ASSETS
Non-current assets 137 106 123 396
Property, plant and equipment 32 971 30 716
Intangible assets 38 565 39 831
Investment in associate 31 711 37 164
Deferred income tax assets 33 276 15 685
Retentions due 583 -
Current assets 221 960 179 049
Inventories 18 656 14 778
Trade and other receivables 105 770 77 791
Derivative financial instruments 8 -
Cash and cash equivalents 97 526 86 480
Total assets 359 066 302 445
equities and liabilities
Capital and reserves attributable
to equity holders 174 015 153 276
Minority interest 10 226 6 771
Total equity 184 241 160 047
LIABILITIES
Non-current liabilities 7 305 1 806
Deferred income tax liabilities 5 572 -
Provisions and other liabilities 1 733 1 806
Current liabilities 167 520 140 592
Trade and other payables 149 279 120 988
Provisions and other liabilities 1 390 703
Derivative financial instruments 84 -
Taxation 16 767 18 901
Total liabilities 174 825 142 398
Total equity and liabilities 359 066 302 445
Other group salient features
Actual Restated
Year ended Year ended
31 December 31 December
2005 Actual 2004
(Reviewed) change (Audited)
R"000 % R"000
Depreciation 2 846 2 081
Capital expenditure 5 878 3 379
Capital commitments
Authorised and contracted 463 1 288
Authorised not contracted - 19
Net asset value per share(cents) 266.17 14.1 233.19
Abridged consolidated statement of changes in equity
Attributable
to equity
holders of the Minority Total
Company interest Equity
R"000 R"000 R"000
Balance at 1 January 2004 119 483 5 289 124 772
IFRS transitional
adjustments 47 655 - 47 655
Currency translation
differences (1 009) - (1 009)
Profit for the period 24 352 4 114 28 466
Minority interest acquired - (2 102) (2 102)
Movements on reserves
of subsidiaries (397) - (397)
Dividends paid (36 808) (530) (37 338)
Balance at 31 December 2004 153 276 6 771 160 047
Balance at 1 January 2005 153 276 6 771 160 047
Currency translation
differences 750 - 750
Movement in reserves
of associate company 859 - 859
Profit for the period 25 553 3 605 29 158
Minority disposal
during period 150 (150) -
Dividends paid (6 573) - (6 573)
Balance at 31 December 2005 174 015 10 226 184 241
Abridged consolidated cash flow statement
Actual Restated
Year ended Year ended
31 December 31 December
2005 2004
(Reviewed) (Audited)
R"000 R"000
Cash flow from operating activities
Cash generated by operations 40 045 36 614
Utilised to (increase)/decrease
working capital (3 492) 29 657
Cash generated from
operating activities 36 553 66 271
Financial income received 5 082 4 512
Dividends paid (6 573) (36 808)
Taxation paid (27 310) (20 070)
7 752 13 905
Cash flow from
investing activities 3 294 (2 270)
Cash flow from
financing activities - (530)
Net increase in cash
and cash equivalents 11 046 11 105
Segmental analysis by operating division
Actual Restated
Year ended Year ended
31 December 31 December
2005 2004
(Reviewed) (Audited)
R"000 R"000
Sales
Fans and heat exchangers 310 223 240 518
Environmental control 187 272 181 515
497 495 422 033
Orders received
Fans and heat exchangers 316 680 241 298
Environmental control 204 737 195 735
521 417 437 033
Reconciliation of restated income attributable to
equity holders as reported under IFRS:
31 December
2004
Notes R"000
As previously reported under SA GAAP 24 498
Adjustment for:
Depreciation based on fair
values on property,
plant and equipment 1 1 342
Impairment of assets 1 (229)
Amortisation of intangible asset 2 (1 655)
Share of associate company"s
IFRS adjustments 106
Goodwill 3 290
As restated under IFRS 24 352
Reconciliation of restated
statement of changes
in shareholders" equity as
reported under IFRS:
As previously reported
under SA GAAP 105 767
Adjustment for:
Property, plant and equipment 1 6 394
Deferred taxation in respect of
revaluation of property (1 879)
Restatement of intangible
assets - trademarks 2 41 366
Deferred tax provision
on capital gains 1 (29)
Goodwill 3 (581)
Release of negative goodwill
in associate company 2 384
IFRS income statement adjustments (146)
As restated under IFRS 153 276
Basis of preparation
The reviewed financial results for the year ended 31 December 2005 have been
prepared in accordance with the Group"s accounting policies, which comply fully
with International Financial Reporting Standards ("IFRS"). The Group is
reporting under IFRS for the first time for the year ended 31 December 2005 and
has adopted the disclosure requirements by function of expense. Comparative
figureshave accordingly been restated and the disclosure required by IFRS 1:
First-time Adoption of International Reporting Standards concerning the
transitionfrom South African Statements of Generally Accepted Accounting
Practice ("SAGAAP") to IFRS and the requisite changes in accounting policies are
set out inthe reconciliation tables above.
Restated 31 December 2004 figures previously reported in the interim financial
results have been adjusted to take into account changes in IFRS interpretations
(refer to note 2 below).
Material adjustments for IFRS restatements
The basis of the material adjustments, net of the associated tax impact, as
shown in the tables of reconciliation of restated income attributable to equity
shareholders and reconciliation of restated statement of changes in
shareholders" equity are noted below:
Note 1: Property, plant and equipment
Previously property, plant and equipment were measured at cost less accumulated
depreciation and impairment losses. Under IFRS, equipment (principally
computers, machinery, fixtures and furniture), is still stated at cost less
accumulated depreciation and impaired losses. Residual values and useful lives
for all plant and equipment have been re-assessed. Depreciation has been
adjusted as disclosed in the reconciliation of IFRS above. The accounting policy
for owner-occupied property has been changed from the revaluation method to the
cost method. The fair value as deemed cost exemption in IFRS 1 has been applied.
These properties will be stated at cost less accumulated depreciation and
impaired losses. The deemed cost will be depreciated over the remaining useful
life of the property. Land is not depreciated.
Note 2: Trademarks
Trademarks previously written-off against share premium, that are still in use,
have been reinstated. These trademarks have been amortised over their estimated
useful lives of 25 years as from 1 January 2004.
Note 3: Goodwill
Previously the Group recognised acquired goodwill at cost and amortised it on a
straight-line basis over its expected useful life. Goodwill was subject to
review for indications of impairment and any impairment losses were recognised
in the income statement as they arose. IFRS requires that goodwill is not
amortised, but is subject to impairment reviews, both annually and when there
are indications that the carrying value may not be recoverable.
Negative goodwill is no longer recognised on the balance sheet, but in the
income statement as it arises. Negative goodwill in the associate company was
released and recognised at 1 January 2004. In line with the impairment reviews,
the 2004 goodwill amortisation previously recognised in the income statement has
been reversed. All goodwill has been tested for impairment at 1 January 2004 and
31 December 2004 in accordance with IFRS, which resulted in the goodwill being
fully impaired on transition. The impairment has been recognised in the income
statement at 1 January 2004.
COMMENTS
OVERVIEW
A general improvement in business levels was experienced over the year
generating orders 19% ahead of the achievement last year. An exception to this
was the flat conditions in the gold mining sector where the lack of prospects
associated with the cooling of deep level mines resulted in resources having to
be trimmed in order to minimise losses.
Order intake in the fan and airheater division improved 31% over 2004 reflecting
improvement in the capital expenditure sector of the economy. The environmental
control division reported an intake similar to levels reported in 2004, the
relative lack of industrial gas cleaning contracts impacting negatively in this
regard.
Operating results achieved over the second half of the year represent a healthy
improvement over the first half of 2005, despite the inclusion of costs
associated with the rationalisation of the Howden Compressor business and
closure of Howden 3Ts International. This reflects positively on Group results
overall.
RESULTS
Group sales from continuing operations at R497.5 million represents an
improvement of 17.9% compared to 2004. A number of large value contracts were
completed during the year in the key petrochemical and power markets.
Profit before taxation of R42.9 million (2004: R42.4 million) is reported.
Improved results in the fans and heat exchanger division making good the
shortfall reported by the environmental control division as a result of
cancellation costs associated with a contract to the Middle East and fewer large
value contracts. Net financial income of R5.1 million compares with R4.5 million
reported last year, reflecting favourably on management efforts to generate
positive cash flows. Share of associate company at R3.3 million was lower than
the R5.6 million reported last year.
A taxation charge of R13.8 million (2004: R13.9 million) has been accrued,
resulting in an effective 32.1% of profit before tax against a 32.8% as reported
last year.
The comparisons below refer to the corresponding twelve-month period to 31
December 2004:
Order intake amounted to R521 million compared to R437 million.
Sales of R497 million compared to R422 million.
Operating profit of R35.9 million compared to R32.7 million.
Earnings per share of 38.9 cents compared to 37.1 cents.
At 31 December 2005 the Group had a net positive cash position of
R97.5 million compared to R86.5 million.
REVIEW OF OPERATIONS
FANS AND HEAT EXCHANGERS
Order intake for fans and heat exchangers totalled R317 million, which
represents 61% of the total order intake, compared to R241 million the previous
year.
A strong opening order book, good first quarter order intake levels and a higher
number of available industrial prospects gave indication early in the year that
the standard fan business could achieve an above average performance. Success in
converting the bids to the Mozal and Hillside aluminium sites valued at a
combined R9.3 million was reported in May, serving to reinforce this view. A
number of larger value contracts were converted through the year in a highly
competitive environment resulting in a further improvement in earnings compared
to 2004. Progress continues to be made in developing niche market areas and
efforts in this regard are expected to generate positive returns in 2006.
A low opening order book gave rise to initial concerns regarding the achievement
of budgeted operating profit levels in the mining focused fan business. At the
half-year mark, results lower than expectation were reported but a solid
performance in the second half of the year resulted in full year earnings being
reported ahead of expectations. The business achieved a high ratio of success in
tender conversion through the year despite tough trading conditions, a feature
being the number of new equipment orders booked which more than doubled the
achievement in 2004. A strong closing order book and reasonable prospects should
result in this business building on successes achieved in 2005.
High activity levels were evident in Howden Power throughout the year with the
renewal of maintenance contracts within Eskom, the tendering of large value
element prospects, increased site work and the return to service ("RTS")
programme at Camden and Grootvlei power stations. Work continues on the third
boiler at Camden in readiness for a return to service and finalisation of the
full scope and contract at Grootvlei is expected early in 2006.
The division continues to build on the platform established in prior years and
remains well-placed to meet challenges and opportunities that may be forthcoming
with the strong GDFI growth forecast over the next three years.
ENVIRONMENTAL CONTROL
The environmental control division recorded an orders received position of R205
million, representing 39% of the total order intake, compared to R196 million in
the previous year.
The loss of the mine cooling bid to AngloAshanti in April and the decision to
write-off R5 million of costs associated with the Cobit project into Libya,
prompted decisions to expedite the consolidation of the Group"s environmental
control businesses. The mine refrigeration business has been absorbed into
existing business units and Howden 3Ts International has been closed. This
reorganisation will have no adverse impact on the ability to respond to local
requests for the respective technologies as sufficient resources have been
retained to positively respond where required. On the trading side, positive
volume variances in the gas cleaning unit and improved margins on furnace and
combustion work assisted in offsetting the aforementioned losses.
Good progress has been made on the fabric filter retrofit programme at Camden
Power Station and this project should result in steady work levels over 2006.
The receipt of an order valued at R24 million for the supply of fabric filter
bags to Majuba Power Station was a highlight in terms of positioning the
business in the aftermarket sector. Alternate technologies continue to be
investigated in order to expand the divisions existing range of gas cleaning and
gas treatment technologies.
Poor results reported by Howden Process Compressors and Howden 3Ts International
business units detract from an otherwise respectable result from the division as
a whole. The year-end order book, however, is still lower than expectation and
all efforts are being directed in converting available prospects into orders.
Given the restructuring reported during the year the division has assumed a
lower risk profile and this should present opportunity to improve on results
achieved over the last two years.
PUMPS
As per the merger agreement completed in 2003, each party to the merger agreed
to dispose of 8% of their holding in Pump Brands (Pty) Limited to a Share
Ownership Trust. This disposal materialised during 2005 and has resulted in a
loss of R1.2 million. The previously announced transaction indicating a sale of
the remaining 42% of Pump Brands (Pty) Limited has not been concluded. The
necessary approval has been obtained from the Competitions Board with regards to
the disposal by the Group of its 42% shareholding to Contralesa Investment
Holdings (Pty) Limited, but the acquirer has not yet settled the purchase
consideration and therefore the transaction will not be effected. The Board
still regards the Pump activity as non-core and will seek to divest, when an
appropriate opportunity arises.
Outlook
A strong commodity price cycle and forecasts that gross domestic fixed
investment should grow strongly over the next five years suggests a favourable
period for the Group over the medium term. This enthusiasm is tempered somewhat
by the strong Rand and the negative impact this has on the export earning
streams in the mining and heavy industrial sectors. Concern has also been
expressed regarding the extent to which the local manufacturing community will
be included in large infrastructural investment programmes announced recently by
Government and the private sector. Against this background the Board confirms a
favourable outlook over the coming year but remains guarded until such time as
the aforementioned programmes begin to take shape.
Directorate
There has been no change to the composition of the Board since the Annual
General Meeting held on 9 June 2005.
Dividend
Notice is hereby given that the Board has declared a final dividend of 6 cents
per share payable to shareholders for the year ended 31 December 2005. The last
date to trade "cum" dividend is Friday, 24 March 2006. Shares start trading ex-
dividend on Monday, 27 March 2006. The record date is Friday, 31 March 2006.
Payment will be Monday, 3 April 2006. No share certificates are to be
dematerialised or rematerialised between Monday, 27 March 2006 and Friday, 31
March 2006, both days inclusive.
Review
The results announcement has been reviewed by the Company"s external auditors,
PricewaterhouseCoopers Inc. A copy of their unqualified review opinion is
available at the Company"s registered office.
For and on behalf of the Board
MG Foster
(Non-Executive Chairman)
7 March 2006
Directors: MG Foster (Non-Executive Chairman,)#**,
S Meyer (Chief Operating Officer, Acting), J Brown #**,
RJ Cleland #**, AB Mashiatshidi**,
(# British ** Non-executive)
Company secretary: MJM Lake
Registered office: 1a Booysens Road, Booysens, 2091
Postal address: PO Box 2239, Johannesburg, 2000
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited,
70 Marshall Street
Johannesburg, 2001
Sponsor: PricewaterhouseCoopers
Corporate Finance (Pty) Limited
Date: 07/03/2006 03:24:11 PM Produced by the JSE SENS Department
