| Fri 2 Mar 2007, 17:10 | | HWN-Howden Africa-Reviewed financial results for t |
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HWN
HWN
HWN-Howden Africa-Reviewed financial results for the year ended 31 December 2006
Howden Africa Holdings Limited
Share code: HWN & ISIN: ZAE000010583
(Incorporated in the Republic of South Africa)
(Registration number 1996/002982/06)
("the Company" or "the Group")
The reviewed financial results for the year ended 31 December 2006
Abridged consolidated income statements
Year ended % Year ended
31 31
December December
2006 2005
(Reviewed) (Audited)
R`000 R`000
Sales 510 942 2,7 497 495
Operating profit 52 154 45,3 35 893
Net financial (1 483) 5 082
(cost)/income
Foreign exchange 2 196 (204)
profit/(losses)
Share of results of 3 056 3 322
associate
Loss on disposal of - (1 182)
portion of associate
Profit before income 55 923 30,3 42 911
tax
Income tax expense (35 349) (13 753)
Net profit for the 20 574 (29,4) 29 158
year
Attributable to:
Equity holders of the 16 542 (35,3) 25 553
Company
Minority interest 4 032 11,8 3 605
20 574 (29,4) 29 158
Number of shares in (000`s) 65 729 65 729
issue
Earnings per share: (cents) 25,17 (35,3) 38,88
Headline earnings per (cents) 25,25 (37,6) 40,46
share:
Dividends per share: (cents) 247,00 10,00
Reconciliation of
headline earnings
attributable to the
equity holders of the
Company
Net profit for the 16 542 25 553
year attributable to
equity holders
Profit on sale of - (95)
subsidiary
Loss/(profit) on sale 52 (49)
of property, plant
and equipment
Loss on disposal of - 1 182
portion of associate
Headline earnings 16 594 (37,6) 26 591
attributable to
equity holders
Abridged consolidated balance sheets
Year ended Year ended
31 December 31 December
2006 2005
(Reviewed) (Audited)
R`000 R`000
ASSETS
Non-current assets 134 380 136 523
Property, plant and equipment 35 181 32 971
Intangible assets 36 972 38 565
Investment in associate 32 593 31 711
Deferred income tax assets 29 634 33 276
Current assets 206 464 222 543
Inventories 32 431 18 656
Receivables and pre-payments 131 379 106 353
Derivative financial instruments 299 8
Cash and cash equivalents 42 355 97 526
Total assets 340 844 359 066
EQUITY
Capital and reserves attributable 26 166 174 015
to equity holders
Minority interest 8 850 10 226
Total equity 35 016 184 241
LIABILITIES
Non-current liabilities
Long-term loan 81 647 -
Deferred income tax liabilities 11 908 15 447
Provisions for other liabilities 2 117 1 733
and charges
95 672 17 180
Current liabilities 210 156 157 645
Trade and other payables 193 142 149 279
Provisions for other liabilities 6 485 1 390
and charges
Derivative financial instruments 25 84
Current income tax liabilities 876 6 892
Borrowings 9 628 -
Total liabilities 305 828 174 825
Total equity and liabilities 340 844 359 066
Abridged consolidated statement of changes in equity
Attributable
to equity
holders of Minority Total
the Company interests equity
R`000 R`000 R`000
Balance at 1 January 2005 153 276 6 771 160 047
Currency translation 750 - 750
differences
Net profit 25 553 3 605 29 158
Minority interest acquired 150 (150) -
Movements on reserves of 859 - 859
associate company
Dividends paid (6 573) - (6 573)
Balance at 31 December 174 015 10 226 184 241
2005
Balance at 1 January 2006 174 015 10 226 184 241
Currency translation (2 448) - (2 448)
differences
Profit for the year 16 542 4 032 20 574
Acquisition of subsidiary 408 (408) -
from minority
Dividends paid (162 351) (5 000) (167 351)
Balance at 31 December 26 166 8 850 35 016
2006
Abridged consolidated cash flow statements
Year ended Year ended
31 December 31 December
2006 2005
(Reviewed) (Audited)
R`000 R`000
Cash flow from operating activities
Cash generated by operations 58 776 39 890
Utilised to decrease/(increase) 10 191 (3 492)
working capital
Cash generated from operating 68 967 36 398
activities
Interest paid (8 021) (14 827)
Tax paid (41 262) (27 910)
19 684 (6 339)
Cash flow from investing activities 3 731 23 958
Cash flow from financing activities (78 642) (6 573)
Net (decrease)/increase in cash and (55 227) 11 046
cash equivalents
Other group salient features
Year ended % Year ended
31 December 31 December
2006 2005
(Reviewed) (Audited)
R`000 R`000
Net asset value per share 39,81 (85,0) 264,75
(cents)
Depreciation 2 540 2 625
Amortisation 1 834 1 720
Capital expenditure 5 120 5 878
Capital commitments
Authorised and contracted 286 463
Authorised not contracted 4 787 -
Segmental analysis by operating division
Year ended Year ended
31 December 31 December
2006 2005
(Reviewed) (Audited)
R`000 R`000
Sales
FANS AND HEAT EXCHANGERS 344 934 310 223
ENVIRONMENTAL CONTROL 166 008 187 272
510 942 497 495
Orders received
FANS AND HEAT EXCHANGERS 407 582 316 680
ENVIRONMENTAL CONTROL 130 555 204 737
538 137 521 417
Basis of preparation
Accounting policies
The reviewed financial statements have been prepared and presented in accordance
with International Financial Reporting Standards (IFRS). The accounting
policies applied are consistent with those used in the annual financial
statements for the year ended 31 December 2005.
COMMENTARY
OVERVIEW
It is pleasing to report that 2006 has been another year of progress for the
Group. Whilst sales were up only marginally, operating profits
increased, reflecting a strong performance by the fan and heat exchanger
division coupled with a return to profitability in the environmental
control division.
The Group completed an internal reorganisation during the year to simplify the
company`s holdings in its subsidiaries under a single holding company,
Howden Africa (Pty) Limited, a newly incorporated company which is a
wholly-owned subsidiary of Howden Africa Holdings Limited.
The Group`s net profit was impacted by costs associated with the implementation
of this internal reorganisation and as a consequence the earnings for
the year were below the levels reported in 2005.
RESULTS
n the year ended 31 December 2006 Sales were R510,9 million compared to R497,5
million in 2005, an increase of 2,7%. Operating profit increased by 45%
to R52,2 million (2005: R35,9 million). The write-back in 2006 to net
realisable value of the Cobit Plant which was written off in the
previous year, accounts for 27% of this increase. The remaining improved
profitability was related to the increased activity levels in the mining
sector, and improvement in operational efficiencies in the environmental
control division.
Strong growth in capital expenditure programmes from both government and the
private sector results in continued strength in the markets on which the
Group focuses.
A crucial area for the Group is in supporting Eskom in its drive to build
sufficient electricity reserves over the next five years and in this
regard the group remains active on all three of the power stations being
returned to service.
Profit before taxation of R55,9 million (2005: R42,9 million) is reported. Net
financial costs of R1,5 million compares to income of R5,1 million
reported last year, the draw down of R100 million against facilities
offered by Standard Bank to finance the cash payment to shareholders
largely accounting for the swing.
A tax charge of R35,3 million (2005: R13,8 million) has been accounted for,
equivalent to 63,2% of profit before tax. The STC of R12,2 million paid
in respect of the special dividend of R97,4 million contributed an
additional 21,8% and issues associated with the deductibility of certain
intellectual property expenses another 7,5%. The company has objected to
the disallowance on the grounds of it being incurred in the production
of income, but accounted for it as non-deductible at this stage.
The comparisons below refer to the corresponding twelve-month period to December
2005:
* Order intake amounted to R538,1 million compared to R521,4 million in the
corresponding period
* Turnover was R510,9 million compared to R497,5 million
* Profit before income tax of R55,9 million compared to R42,9 million
* Earnings per share of 25,2 cents compared to 38,9 cents
* At 31 December 2006 the Group had a net positive cash position of R42,3
million compared to R97,5 million
* Net borrowings of R48,9 million compare with net cash of R97,5 million last
year.
REVIEW OF OPERATIONS
FANS AND HEAT EXCHANGERS
Order intake for fans and heat exchangers totalled R407,6 million, which
represents 76% of the total order intake, compared to R316,7 million the
previous year.
The standard fan business continues to build on the turnaround in results first
reported in the second half of 2004. A tight control on overhead costs,
coupled with generally improved sales volumes, has resulted in improved
earnings for the year. Locally, larger value prospects in the industrial
sector were not as apparent as in 2005, but this is expected to recover
in 2007 given the increased tender activity witnessed in the last
quarter of the year. The business is well placed to continue to convert
a large proportion of targeted bids into orders and this should result
in further improvements in operating results over the coming year.
Strong Rand based commodity prices have resulted in improved trading conditions
in the mining sector and this has assisted the fan business focused on
that market to report an improved position both through the year and at
year-end. Downstream mineral processing and manufacturing plants have
also been active offering additional opportunity for business. Heavy
industrial markets and good aftermarket work added to the performance
outcome in this business unit. A strong closing order book and
reasonable prospects should result in this business consolidating at
these higher volumes achieved in 2006.
After the significant increase in 2005 there was an expectation that sales
volumes in Howden Power would not be maintained at similar levels during
the year. Activity levels have, however, remained consistently high due
to higher maintenance and upgrade programmes within Eskom covering
existing power stations and those presently being returned to service.
The company is active on all three stations being returned to service at
Camden, Grootvlei and Komati.
Strong GDFI growth forecast over the next three years should present interesting
challenges and opportunities to the division. The Group is confident
that the necessary skills, technologies and capacity are available to
meet demand.
ENVIRONMENTAL CONTROL
The environmental control division recorded an orders received position of
R130,6 million, representing 24% of the total order intake, compared to
R204,7 million in the previous year.
Further progress has been made on the fabric filter retrofit programme at Camden
Power Station and this project should reach completion by the end of
2007. This will result in spare capacity in the gas cleaning division
but additional prospects are being pursued and the business unit is
confident of restoring order books to fill this gap. Efforts to increase
offerings in the aftermarket have been favourably received on certain of
our larger customer sites and this will continue to roll out in order to
support the life cycle concept. Some success has also been made in
introducing alternate technologies in order to expand the division`s
existing range of gas cleaning and gas treatment technologies.
It is pleasing to report that post the consolidation of the mine refrigeration
business into another of the environmental control business units,
further orders have been received for the installation of this
technology. The biggest in this regard has been an order from Kloof Gold
Mine covering a turnkey installation for an 11 MW refrigeration plant.
Developments in the gold mining sector could lead to an improvement in
deep level mine cooling prospects connected to depth extension
initiatives, and every effort will be made to position the business
favourably to participate in this important programme.
Further consolidation of business units within the division will be considered
in the new year in order to more effectively use Group resources to
focus on selected markets. Despite a lower than expected year-end order
book, bidding activity is at sufficiently high levels to suggest that a
more focused approach to the market will yield a positive outcome.
PUMPS
Shareholders were informed last year that the board regarded the Group`s 42%
shareholding in Pump Brands (Pty) Limited as non-core and would seek to
divest from it, when appropriate opportunity arose.
On 21 February 2007, agreement was reached with Franklin Electric Company Inc
for the Group to dispose of its entire shareholding in the company
subject to certain terms and conditions, typical in transactions of this
nature, including the requirement to obtain approval from the South
African Competition Authority. The consideration, payable in cash on
completion, will be equal to 42% of the net asset value of the company
at that time.
OUTLOOK
Developments within the energy, mining and heavy industrial market sectors
remain important to the Group but to maintain performance in these areas
will require a stable Rand exchange rate, a strong commodity price cycle
and the inclusion of local content in the numerous capital expenditure
programmes recently announced.
DIRECTORATE
Mr. Michael Foster resigned as Chairman and Non-Executive Director of the
Company on 1 August 2006. We thank him for his valued contribution and
wish him well in his new capacity as Chief Executive of Charter plc. Mr.
Bob Cleland, Chief Executive of Howden Global and a non-executive
director since March 2000 has been appointed Non-Executive Chairman in
his stead.
DIVIDEND
The reduction in net asset value, coupled with the increase in the Group`s
gearing ratio, leads the Board to resolve not to declare a final
dividend for the year.
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 of Directors.
RJ Cleland (Non-Executive Chairman)
2 March 2007
RJ Cleland #**, (Non-Executive Chairman)#**,
S Meyer (Chief Operating Officer, Acting),
J Brown #**, 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: 02/03/2007 17:10:01 Produced by the JSE SENS Department.
