Wrap Text
SOH - South Ocean - Abridged interim financial results announcement for the six
months ended 30 June 2010
South Ocean Holdings
(Registration number 2007/002381/06)
Incorporated in the Republic of South Africa
("South Ocean", "the Group" or "the company")
Share code: SOH & ISIN: ZAE000092748
ABRIDGED INTERIM FINANCIAL RESULTS ANNOUNCEMENT
for the six months ended 30 June 2010
HIGHLIGHTS
Revenue up 21,8% to R549,7 million
Headline earnings per share up 87,1% to 15,9 cents
Earnings per share up 242,6% to 16,1 cents
Profit for the period up 245,6% to R25,1 million
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
30 June 30 June 31 December
2010 2009 2009
(Unaudited) (Unaudited) (Audited)
Notes R`000 R`000 R`000
Assets
Non-current assets 585 545 583 627 586 929
Property, plant and 4 239 477 235 329 240 499
equipment
Intangible assets 4 346 068 348 298 346 430
Current assets 417 450 381 719 337 250
Inventories 161 124 155 586 146 664
Trade and other 232 563 187 037 124 003
receivables
Taxation receivable 1 049 1 301 1 948
Cash and cash equivalents 22 714 37 795 64 635
Total assets 1 002 995 965 346 924 179
Equity and liabilities
Capital and reserves
attributable to equity
holders of the company
Share capital 5 1 274 1 274 1 274
Share premium 5 440 371 440 371 440 371
Retained earnings 268 569 223 742 248 127
Total equity 710 214 665 387 689 772
Liabilities
Non-current liabilities 114 518 149 024 129 336
Interest bearing 6 87 793 123 362 102 518
borrowings
Deferred taxation 26 725 25 662 26 818
Current liabilities 178 263 150 935 105 071
Trade and other payables 69 635 85 451 58 995
Interest bearing 6 33 968 47 749 35 837
borrowings
Taxation payable 4 404 5 196 4 380
Shareholders for 4 4 4
dividends
Bank overdraft 70 252 12 535 5 855
Total liabilities 292 781 299 959 234 407
Total equity and 1 002 995 965 346 924 179
liabilities
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Year ended
30 June 30 June 31 December
2010 2009 2009
(Unaudited) (Unaudited) Change (Audited)
Note R`000 R`000 % R`000
Revenue 549 725 451 234 21,8 957 972
Cost of sales (431 114) (353 260) (745 756)
Gross profit 118 611 97 974 21,1 212 216
Other operating 1 214 3 567 12 098
income
Administration (31 230) (30 913) (54 953)
expenses
Distribution (12 091) (11 776) (21 410)
expenses
Operating expenses (34 782) (38 519) (87 792)
Operating profit 41 722 20 333 105,2 60 159
Finance income 1 274 1 629 2 843
Finance costs (6 823) (11 141) (18 531)
Profit before 36 173 10 821 234,3 44 471
taxation
Taxation 7 (11 039) (3 549) (12 814)
Profit for the 25 134 7 272 245,6 31 657
period
Other - - -
comprehensive
income
Total 25 134 7 272 245,6 31 657
comprehensive
income
attributable to
equity holders of
the company
Cents Cents Cents
per share per share per share
Earnings per share 16,1 4,7 242,6 20,2
- basic and
diluted
Dividend per share 3,0 - 100,0 -
(cents)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months ended Year ended
30 June 30 June 31 December
2010 2009 2009
(Unaudited) (Unaudited) (Audited)
Notes R`000 R`000 R`000
Share capital
Opening and closing 5 1 274 1 274 1 274
balance
Share premium
Opening and closing 5 440 371 440 371 440 371
balance
Retained earnings
Opening balance 248 127 216 470 216 470
Comprehensive income for 25 134 7 272 31 657
the period
Dividend paid (4 692) - -
Closing balance 268 569 223 742 248 127
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
Six months ended Year ended
30 June 30 June 31 December
2010 2009 2009
(Unaudited) (Unaudited) (Audited)
R`000 R`000 R`000
Cash (utilised in)/generated (82 396) 35 715 115 004
from operating activities
Cash utilised in investing (7 328) (749) (13 130)
activities
Cash utilised in financing (16 594) (3 476) (36 864)
activities
Net (decrease)/increase in cash (106 318) 31 490 65 010
and cash equivalents
Cash and cash equivalents at the 58 780 (6 230) (6 230)
beginning of period
Cash and cash equivalents at the (47 538) 25 260 58 780
end of period
SELECTED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS
1. General information
South Ocean Holdings Limited (`the Company`) and its subsidiaries (together `the
Group`) manufacture and distribute electrical wires, import and distribute light
fittings, lamps, and electrical accessories and rent its properties. The Company
is a public limited company with its principal place of business and registered
address at 12 Botha Street, Alrode, Alberton, 1451. South Ocean Holdings Limited
("SOH") was incorporated in the Republic of South Africa and is listed on the
Johannesburg Stock Exchange ("JSE").
The unaudited condensed interim financial information was approved for issue by
the directors on 3 August 2010.
2. Basis of preparation
The condensed consolidated financial information of South Ocean Holdings Limited
has been prepared in accordance with International Financial Reporting Standards
("IFRS"), IFRIC Interpretations, IAS 34 `Interim Financial Reporting` and the
Companies Act, applicable to companies reporting under IFRS and the JSE Listings
Requirements and should be read with the audited annual financial statements for
the year ended 31 December 2009. The condensed consolidated financial statements
have been prepared under the historical cost convention, as modified by the
revaluation of financial assets and financial liabilities (including derivative
instruments) at fair value through profit or loss.
3. Accounting policies
The accounting policies adopted are consistent with those applied in the audited
financial statements for the year ended 31 December 2009, except where
indicated. There were no new standards or amendments that were issued since the
last annual report that are applicable to the Group or that will result in a
material impact in the reported results of the Group.
4. Property, plant and equipment and intangible assets
During the six months, the Group invested a further R5,7 million in capital and
a further R1,9 million in intangible assets relating to the implementation of a
new warehouse management system. The details of changes in tangible and
intangible assets are as follows:
Tangible Intangible
assets assets
(Unaudited) (Unaudited)
R`000 R`000
Six months ended 30 June 2010
Opening net carrying amount 240 499 346 430
Additions 5 749 1 867
Disposals and write-offs (68) -
Depreciation, amortisation and other (6 703) (2 229)
movements
Closing net carrying amount 239 477 346 068
Six months ended 30 June 2009
Opening net carrying amount 248 187 349 848
Additions 13 860 647
Disposals and write-offs (19 760) -
Depreciation, amortisation and other (6 958) (2 197)
movements
Closing net carrying amount 235 329 348 298
(Audited) (Audited)
Year ended 31 December 2009
Opening net carrying amount 248 187 349 848
Additions 27 045 845
Disposals and write-offs (20 839) -
Depreciation, amortisation and other (13 894) (4 263)
movements
Closing net carrying amount 240 499 346 430
5. Share capital and share premium
Number of Ordinary Share
shares shares premium Total
issued (R`000) (R`000) (R`000)
At 30 June 2010 (Unaudited)
Opening and closing balance 156 378 794 1 274 440 371 441 645
At 30 June 2009 (Unaudited)
Opening and closing balance 156 378 794 1 274 440 371 441 645
At 31 December 2009
(Audited)
Opening and closing balance 156 378 794 1 274 440 371 441 645
6. Interest bearing borrowings
As at As at
30 June 30 June 31 December
2010 2009 2009
(Unaudited) (Unaudited) (Audited)
R`000 R`000 R`000
Secured loans
Non-current 87 793 123 362 102 518
Current 33 968 47 749 35 837
121 761 171 111 138 355
The movement in borrowings is
analysed as follows:
Opening balance 138 355 176 238 176 238
Additional loans raised - 17 000 22 565
Finance expense 5 657 9 978 16 788
Repayments (22 250) (32 105) (77 236)
Closing balance 121 761 171 111 138 355
7. Taxation
Income tax expense is recognised based on management`s best estimate of the
weighted average annual income tax rate expected for the full financial year.
The estimated average annual tax rate calculated before taking into account STC
is 29,2% (2009: 29,4%).
8. Reconciliation of headline earnings
Six months ended Year ended
30 June 30 June 31 December
2010 2009 2009
(Unaudited) (Unaudited) (Audited)
R`000 R`000 R`000
Reconciliation of headline
earnings
Comprehensive income 25 134 7 272 31 657
attributable to the equity
holders of the Company for the
period
(Surplus)/loss on disposal of (220) 6 001 6 079
property, plant and equipment
Headline earnings for the period 24 914 13 273 37 736
Headline earnings per share 15,9 8,5 24,1
(cents)
9. Weighted average number of shares
Six months ended Year ended
30 June 30 June 31 December
2010 2009 2009
(Unaudited) (Unaudited) (Audited)
Number of shares in issue 156 378 794 156 378 794 156 378 794
Weighted average number of 156 378 794 156 378 794 156 378 794
shares in issue at the beginning
and end of the period
Weighted average number of 156 378 794 156 378 794 156 378 794
shares in issue for diluted
earnings per share
10. Net asset value
As at As at
30 June 30 June 31 December
2010 2009 2009
(Unaudited) (Unaudited) (Audited)
Net asset value per share 454,2 425,5 441,1
(cents)
11. Interim dividend declaration
The board of directors ("board") has changed the dividend policy and will in
future only declare a final dividend when the final results for the year are
available.
12. Segment reporting
The chief operating decision maker reviews the Group`s internal reporting in
order to assess performance and has determined the operating segments based on
these reports.
The chief operating decision maker, who has been identified as the Group
Executive Committee, assessed the business performance of the operating
segments: electrical wire manufacturing, light fittings, lamps and electrical
accessories, and property investments from the market and product performance
perspective.
The assessment of the performance of the operating segments is based on
operating profit before interest, tax, depreciation and amortisation ("EBITDA")
and investment in working capital. This measurement basis excludes the effect of
non-recurring expenditure from the operating segments, such as restructuring
costs, profit on disposal of property, plant and equipment, impairments, etc.
Reportable total assets and liabilities exclude deferred and income tax
liabilities, inter-group balances and available-for-sale financial assets.
The details of the business segments are reported as follows:
Adjusted Segment Segment
Revenue EBITDA assets liabilities
Six months ended (R`000) (R`000) (R`000) (R`000)
(Unaudited)
30 June 2010
Electrical wire 375 632 29 148 317 575 116 451
manufacturing
Light fittings, lamps 174 093 20 299 511 113 63 530
and electrical
accessories
Property investments 8 884 8 048 167 445 76 564
558 609 57 495 996 133 256 545
30 June 2009
Electrical wire 279 401 10 401 247 619 54 446
manufacturing
Light fittings, lamps 171 833 24 131 559 931 121 060
and electrical
accessories
Property investments 8 597 1 706 155 801 89 218
459 831 36 238 963 351 264 724
Year ended (Audited)
31 December 2009
Electrical wire 591 939 35 975 227 059 34 976
manufacturing
Light fittings, lamps 366 033 46 234 530 874 78 261
and electrical
accessories
Property investments 17 213 9 015 162 816 86 153
975 185 91 224 920 749 199 390
Reconciliation of total segment report to the statement of financial position
and statement of comprehensive income is as follows:
Six months ended Year ended
30 June 30 June 31 December
2010 2009 2009
(Unaudited) (Unaudited) (Audited)
R`000 R`000 R`000
Revenue
Reportable segment revenue 558 609 459 831 975 185
Inter-group revenue (property (8 041) (8 000) (16 000)
rentals)
Property revenue reported in (843) (597) (1 213)
other operating income
Revenue per statement of 549 725 451 234 957 972
comprehensive income
Profit before tax
Adjusted EBITDA 57 495 36 238 91 224
Corporate overheads (6 841) (6 750) (12 908)
Depreciation (6 703) (6 958) (13 894)
Amortisation of intangible (2 229) (2 197) (4 263)
assets
Operating profit 41 722 20 333 60 159
Finance income 1 274 1 629 2 843
Finance cost (6 823) (11 141) (18 531)
Profit before income tax 36 173 10 821 44 471
Assets
Reportable segment assets 996 133 963 351 920 749
Corporate assets 5 813 694 1 482
Taxation receivable 1 049 1 301 1 948
Total assets per statement of 1 002 995 965 346 924 179
financial position
Liabilities
Reportable segment liabilities 256 545 264 724 199 390
Corporate liabilities 5 107 4 377 3 819
Deferred taxation 26 725 25 662 26 818
Taxation payable 4 404 5 196 4 380
Total liabilities per 292 781 299 959 234 407
statement of financial
position
13. Director changes
As announced in the 2009 annual report, Ms Melanie Chong was appointed an
independent non-executive director to the board with effect from 1 April 2010
while Ms Jennifer Law resigned at the end of February 2010.
14. Subsequent events
The directors are not aware of any significant events arising since the end of
the financial period, which would materially affect the operations of the Group
or its operating segments, not dealt with in the financial results.
COMMENTARY
Introduction
South Ocean Holdings Limited ("South Ocean") is pleased to announce its results
for the six months ended 30 June 2010.
South Ocean is an investment holding company, comprising two operating
subsidiaries South Ocean Electric Wire Company (Proprietary) Limited ("SOEW"), a
manufacturer of low voltage electrical wire; Radiant Group (Proprietary) Limited
("Radiant`), an importer and distributor of light fittings, lamps and electrical
accessories; and Anchor Park Investments 48 (Proprietary) Limited (Anchor Park),
a property holding company.
Adverse economic conditions continued to affect the Group, although a slight
recovery was evident by the end of the period. The Group`s operating margin for
the period was 7,6% (2009: 4,5%) an improvement of 68,9% compared to the same
period in the prior year.
SOEW saw a significant improvement in revenue compared to the prior period, with
a resultant positive impact on margins. The Rand Copper Price ("RCP") also
impacted performance, with a decline during May and June resulting in customers
holding back on orders. The lighting and electrical accessories segment on the
other hand managed to maintain its trading position compared to the same period
in the prior year despite difficult trading conditions in the market.
During the period, SOEW was subject to a Competition Commission investigation.
Management is not aware of any alleged contravention of competition regulations
the Commission has alleged in its search warrant and media statements, and will
co-operate fully with the Commission during its investigation.
Financial overview
Earnings
Group revenue for the six month period to June 2010 increased by 21,8% (2009:
21,5% decrease) to R549,7 million (2009: R451,2 million). The Group gross profit
increased 21,1% to R118,6 million (2009: R98,0 million) and operating profit
increased 105,2% to R41,7 million (2009: R20,3 million) compared to the prior
period.
Other operating income reduced from R3,6 million to R1,2 million due to lower
foreign exchange profits recorded during this six month period.
Group profit before tax is 234,3% higher at R36,2 million (2009: R10,8 million)
compared to the prior period. Earnings and headline earnings per share have, as
a result, shown significant improvement compared to the prior period. The basic
earnings per share is up 242,6% to 16,1 cents (2009: 4,7 cents) compared to the
prior year while the headline earnings per share grew 87,1% to 15,9 cents (2009:
8,5 cents) compared to the prior period. Headline earnings is 87,7% up to R24,9
million (2009: R13,3 million) compared to the prior period.
The reduction in interest bearing borrowings balances coupled with lower
interest rates resulted in decreased finance costs compared to the prior period.
Cash flow and working capital management
Despite the improved profitability compared to the prior period, the Group`s
cash flow was negatively affected by a large investment in working capital.
Accordingly, a negative cash flow from operations of R82,1 million (2009: R35,7
million cash generated) was reported in the current period. This large working
capital movement was primarily in accounts receivable as a result of increased
volumes and sales levels compared to 31 December 2009. Cash from some of our
major debtors was received after the end of the period resulting in a marked
improvement in the cash position for the Group after 30 June 2010. Inventory
holdings are at acceptable levels. An increase in stock was experienced as a
result of the import of copper due to supply problems and an increase in light
fittings, lamps, and electrical accessories due to low stock levels at year end.
The Group invested R7,6 million in capital expenditure during this period and
utilised R22,3 million (2009: R32,1 million) to repay its long-term interest
bearing borrowings.
The Group net cash utilised during the period of R106,3 million (2009: R31,5
million generated) resulted in an adverse cash flow position at the end of the
period of R47,5 million overdraft.
Segment results
Electrical wire manufacturing - SOEW
Revenue increased by 34,4% to R375,6 million (2009: R279,4 million). This was
mainly due to the increase in Rand Copper Price ("RCP") resulting in higher
sales prices.
Profit before tax increased 584,8% (2009: 95,4% decrease) to R22,6 million
(2009: R3,3 million) for the six months ended 30 June 2010. This was as a result
of increased volumes coupled with a 46,0% increase in moving average RCP for the
six months compared to the same period in the prior year, which resulted in a
34,4% increase in turnover and an increase in gross margin. Although the gross
profit margin improved compared to prior period, the market remains highly
competitive.
The operating profit for the period is R22,3 million (2009: R2,9 million) while
the operating profit after tax is reported at R16,3 million (2009: R2,4
million). The operating expenses are in line compared to the prior period with a
marginal inflationary increase.
The segment invested cash in working capital to finance increased buffer stock.
This was necessary to address supply problems and accounts receivable resulting
from an increase in selling prices due to the increased RCP combined with
delayed payments by some customers.
This trading period has seen SOEW continuing to grow in volumes, utilising the
production capacity that had been added during the previous year. The operating
environment showed some improvement and although there is competition for market
share and pricing is still aggressive, the entity strategy has changed from
survival to positioning it for growth.
Light fittings, lamps and electrical accessories - Radiant
Revenue of R174,1 million (2009: R171,8 million) is 1,3% higher compared to the
same period in the prior year. The operating profit decreased by 28,3% (2009:
48,9% decrease) to R13,4 million (2009: R18,7 million). Margins declined due to
significantly higher foreign exchange gains realised in the prior year compared
to the current period. Radiant anticipated an increase in revenue during the
period and operating costs increased marginally by 3,9%. The segment reports a
profit before tax of R14,1 million (2009: R14,3 million).
Financing costs incurred decreased to R2,0 million (2009: R4,7 million) due to
lower interest rates and lower balances on interest bearing borrowings that were
obtained to finance the capital expansion during the previous year. Although
cash generated from operations of R0,1 million (2009: R4,3 million) is positive,
the net cash flow position from operations after paying taxation, interest and
dividends, was negative. Capital expenditure of R5,1 million was incurred of
which R1,9 million was spent on a new warehouse management system. Interest
bearing borrowings of R5,7 million were repaid during the period. The cash
position of R17,2 million is an improvement on prior period`s R12,0 million
although it does represent a reduction since the beginning of the year.
Property investment - Anchor Park
Anchor Park`s revenue is derived mainly from Group companies, as it leases its
properties to fellow subsidiaries. The reduction in interest expense is due to
the repayment of loan balances and lower effective interest rates.
Seasonality
The Group`s earnings are affected by seasonality as earnings for the second half
of the year are historically higher than the first six months. Management
expects the traditional seasonality trend to continue with an improvement in
performance during the second half of the year.
Prospects
Group earnings for the next six months will be influenced by the copper price,
the performance of the construction and building industry, infrastructure
development, interest rates and the value of the Rand.
The Group will continue to focus on maintaining and growing the market share, by
providing excellent products and service to customers. The Group`s model of
extracting value from operations has been successful and it will continue to
improve operating efficiencies. Further investment in operating capacity will
enhance the Group`s ability to maintain production at optimal levels.
During the reporting period, the Group experienced an increase in export sales
and this trend is expected to continue throughout the second half. Although, the
economy has shown signs of recovery, the outlook for steady improvement in
operating conditions remains less certain. SOEW and Radiant will continue to
pursue opportunities to increase volumes, improve efficiencies, control
expenditure and manage working capital closely.
On behalf of the board
EG Dube Chairman EHT Pan Chief Executive Officer
4 August 2010
Directors:
EG Dube# (Chairman), EHT Pan*@ (Chief Executive Officer)
JP Bekker*(Chief Financial Officer), CY Wuv
KH Pon# , M Chong#, HL Liv, CH Panv (Alternate)
Executive
# Independent Non-Executive
Non-Executive
Taiwanese
@ Brazilian
Company Secretary:
WT Green
Corporate Information
Registered Office:
12 Botha Street, Alrode 1451
PO Box 123738, Alrode, 1451
Telephone: +27(11) 864 1606
Telefax: +27(11) 262 6514
Company Secretary:
Whitney Thomas Green
21 West Street, Houghton, 2198
PO Box 123738, Alrode, 1451
Sponsor:
Investec Bank Limited
(Registration no: 1969/004763/06)
Second floor, 100 Grayston Drive, Sandown, Sandton, 2196
Share Transfer Secretary:
Computershare Investor Services (Pty) Limited
Ground Floor, 70 Marshal Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107, South Africa
Telephone: +27(11) 370 5000
Telefax: +27(11) 688 5200
Website: www.computershare.com
Auditors:
PricewaterhouseCoopers Inc.
2 Eglin Road, Sunninghill, 2157
Telephone: +27(11) 797 4000
Telefax: +27(11) 797 5800
Investor Relations:
Craig Whittle Investor Relations
Postnet suite #52, Private Bag X16, Constantia
Telephone: +27(76) 456 3270
Email: cdwhittle@mweb.co.za
Date: 04/08/2010 07:05:03 Supplied by www.sharenet.co.za
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