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Howden - The Reviewed Financial Results for the year ended 31 December 2005

Release Date: 07/03/2006 15:24
Code(s): HWN
Wrap Text

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 Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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