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Argent Industrial Limited - Audited Results for the year ended 31 March 2006
Argent Industrial Limited
Reg no 1993/002054/06
(Incorporated in the Republic of South Africa)
("the group" or "the company")
Share code: ART & ISIN code: ZAE000019188
Audited Results for the year ended 31 March 2006
Financial Highlights
REVENUE UP 33.0%
ATTRIBUTABLE EARNINGS UP 26.4%
ATTRIBUTABLE EARNINGS PER SHARE UP 15.7%
HEADLINE EARNINGS UP 26.8%
HEADLINE EARNINGS PER SHARE UP 16.1%
GEARING 23.2%
Abridged Consolidated Income Statement
for the year ended 31 March 2006 Audited Audited
year ended restated
31 Mar 2006 year ended
R 000 31 Mar 2005
REVENUE 1,000,002 751,858
OPERATING PROFIT before financing costs 162,486 123,705
FINANCING COSTS 17,608 10,731
PROFIT before taxation 144,878 112,974
TAXATION 37,186 27,784
EARNINGS ATTRIBUTABLE to ordinary shareholders 107,692 85,190
Attributable earnings per share (cents) 147.4 127.4
Headline earnings per share (cents) 147.8 127.3
Dividends per share (cents) 25.0 21.0
Supplementary information
Shares in issue (000)
- at end of period 80,462 72,296
- weighted average 73,074 66,894
Interest received (R 000) 7,542 2,789
Cost of sales (R 000) 572,525 440,374
Depreciation (R 000) 13,634 14,919
Net (loss) profit on foreign exchange transactions
(R 000) (446) 1,125
Calculation of headline earnings (R 000)
Earnings attributable to ordinary shareholders 107,692 85,190
Profit on disposal of property, plant and equipment (137) (461)
Profit on disposal of subsidiary (147)
Loss on disposal of property, plant and equipment 461 579
Headline earnings attributable to ordinary shareholders 108,016 85,161
Abridged Consolidated Balance Sheet Audited Audited
for the year ended 31 March 2006 at restated at
R 000 31 Mar 2006 31 Mar 2005
ASSETS
Non-current assets
Property, plant and equipment 357,351 207,970
Intangibles 113,940 31,341
471,291 239,311
Current assets
Inventories 233,324 199,466
Trade and other receivables 210,964 165,448
Bank balance and cash 44,536 45,191
488,824 410,105
TOTAL ASSETS 960,115 649,416
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 229,279 170,738
Reserves 73,196 23,835
Retained earnings 287,071 196,494
Total shareholders" funds 589,546 391,067
Non-current liabilities
Interest-bearing borrowings 91,677 51,927
Deferred tax 42,652 14,530
134,329 66,457
Current liabilities
Trade and other payables 183,977 152,081
Taxation 7,182 11,906
Current portion of interest-bearing borrowings 45,081 27,905
236,240 191,892
TOTAL EQUITY AND LIABILITIES 960,115 649,416
Net asset value per share (cents) 732.7 540.9
Abridged Consolidated Cash Flow Statement Audited Audited
for the year ended 31 March 2006 year ended restated
31 Mar 2006 year ended
R 000 31 Mar 2005
Cash generated from operations 143,946 54,556
Interest paid (17,608) (10,731)
Interest received 7,542 2,789
Dividends paid (17,115) (13,086)
Taxation paid (37,422) (23,967)
Cash flows from operating activities 79,189 9,561
Cash flows from investing activities (185,733) (65,320)
Cash flows from financing activities 105,735 66,230
Net (decrease) increase in cash and cash equivalents (655) 10,471
Cash and cash equivalents at beginning of period 45,191 34,720
Cash and cash equivalents at end of period 44,536 45,191
Statement of Changes in Equity
for the year ended 31 March 2006
Reserve on Reserve on
Re- subsidiary translation
Share Share Treasury valuation acquisi- of foreign Retained
R 000 capital premium shares reserve tion operation earnings
Balance at
31 Mar 2004 3,354 131,667 (17,975) 836 23,209 124,390
Adjustment on
adoption of
IFRS (210)
Balance at
31 Mar 2004
as restated 3,354 131,667 (17,975) 836 23,209 (210) 124,390
Shares
issued 261 49,714
Net treasury
movement 3,717
Net profit for
the period 85,190
Dividends (14,089)
Less treasury
shares 1,003
Balance at
31 Mar 2005
as restated 3,615 181,381 (14,258) 836 23,209 (210) 196,494
Shares issued 408 90,241
Net treasury
movement (32,108)
Foreign currency
translation
adjustment 54
Revaluation of
properties 49,307
Net profit for
the period 107,692
Dividends (18,529)
Less treasury
shares 1,414
Balance at
31 Mar 2006 4,023 271,622 (46,366) 50,143 23,209 (156) 287,071
Adjustment to equity on adoption of IFRS as at 31 March 2005
IFRS 3 Business combinations and IFRS 36 Impairment of assets
-Reversal of
goodwill previously
amortised 1,655
IAS 16 Property, plant and equipment
-Depreciation adjustment
due to changes in
useful life and
residual values 1,222
IAS 21 Effect of changes in foreign exchange rates
-Change in functional currency (210) 100
(210) 2,977
-Deferred tax effect of IFRS adjustments (863)
Adjustment to equity on adoption
of IFRS as at 31 Mar 2005 (210) 2,114
Segment Report for the Revenue Results Revenue Results
year ended 31 March 2006 audited audited audited audited
restated restated
31 Mar 31 Mar 31 Mar 31 Mar
Business segments 2006 2006 2005 2005
R 000
Steel & steel related products 891,672 127,359 663,494 100,295
Non steel related 108,167 17,408 88,247 12,598
Properties 163 111 117 81
Total 1,000,002 144,878 751,858 112,974
COMMENTARY
Chief executive officer"s review
On behalf of the board of directors of Argent Industrial Limited, the audited
results for the year ended 31 March 2006 are hereby presented. Notwithstanding
the depressed steel prices experienced during the year, Argent has had another
impressive year. The past year has been characterised by the successful
integration of Xpanda into the group; the successful acquisition of Toolroom
Services; growth in all of the group"s companies and excellent management of the
steel trading division in light of the depressed steel prices.
Salient Features
Attributable earnings increased by 26.4% to R 107.7 million
(2005 - R 85.2 million)
Headline earnings per share increased by 16.1% to 147.8 cents per share
(2005 - 127.3 cents per share)
Revenue increased by 33% to R 1 billion
(2005 - R 752 million)
Group gearing increased to 23.2%
(2005 - 20.4%)
Acquisitions
With effect from 31 January 2006, the group acquired 100% of the shareholding of
Toolroom Services (Pty) Ltd for R 54.99 million. Toolroom Services is a well
known manufacturer of steel office furniture, steel lockers, tables and
shelving. The company uses five hundred tons of steel a month which will be
almost entirely sourced from the group"s steel companies, which results in ideal
upward vertical integration.
Divisional performance
Steel and steel related products
The group"s steel companies had a good year and have made a number of strategic
capital purchases which will further enhance its capabilities for a number of
years going forward.
Phoenix Steel - Gauteng had a difficult year with steel prices decreasing by
approximately 10% over the period under review. Although the company"s total
turnover for the year increased by 4%, its contribution to the group decreased
by 20%. Steel prices will increase with effect from 1 July 2006 by an average of
12% on plate, 4% on hot-rolled and 25% on galvanised products respectively. The
company will further benefit from its recent acquisition of Toolroom Services
which will increase the group"s steel usage by five hundred tons per month. The
new OTO tube mill that was commissioned in February 2006 is through its teething
problems and will be instrumental in an anticipated large increase in tubing
sales for the company in the 2007 financial year. A new cut-to-length / blanking
line has been ordered from Fagar in Spain at a cost of R 16 million and will be
commissioned in December 2006.
Phoenix Steel - East London had a very good year and will continue its growth
during the 2007 financial year.
Phoenix Steel - Mpumalanga continued to increase its market share and revenue by
28% year on year despite the reduction in selling prices in the market. Demand
for product cut on the high definition plasma machine was so good that another,
larger machine has been commissioned which will further improve revenues going
forward.
Phoenix Steel - Natal produced another year of strong turnover growth, but
margins were under continual pressure in the face of decreases in the ex-mill
prices of steel during the year. This impacted negatively on the bottom line,
but the company still achieved results in line with expectations. The 2007
financial year has started off well and a highly successful year awaits Phoenix
Steel Natal especially in light of substantial increases in the world steel
prices. Previous attempts to relocate the company into larger premises have been
unsuccessful. However, the group will continue to search for well-positioned,
suitable premises at a market related price.
Phoenix Steel - Port Elizabeth"s infrastructure is now complete having opened
its Xpanda and Jetmaster showroom in March 2006. The company is principally a
steel merchant as well as a distributor of Xpanda, Jetmaster and Excalibur
products. The company commissioned a high definition plasma machine in January
2006 and has placed an order for a bending brake which will be delivered in
August 2006. The company is expected to double its turnover in the 2007
financial year.
While the 2005 financial year was a solid one for Phoenix Steel Richards Bay,
the period under review proved to be an extremely successful one for the
company. Whilst maintaining its overall margin level the company has managed to
grow its turnover by a third. This is commendable in what is considered a small
and very competitive market. Even more pleasing is the quality of turnover with
the operation being very successful in attracting blue-chip and long established
customers. The management of the company is confident that the 2007 financial
year will again show a marked improvement from the previous year"s results.
Giflo Engineering had an exceptional year which saw the company"s turnover
increase by 24% year on year. The company"s level of growth is expected to
continue and Giflo has moved over to a three shift production system with effect
from 1 May 2006. The increased production activity necessitated the purchase of
a Dynamic three pipe bender as well as additional capacity being introduced to
the existing electro polishing plant. The increased demand for filler tube
products has required the purchase of a new BLM end-forming machine which was
successfully commissioned in November 2005. The production line for Toyota
aluminium side-steps was optimised with the installation of a new curing oven
dedicated to Toyota products. Export volumes to the USA have increased
significantly through increased orders from the existing customer base and a new
customer in Denver, Colorado. The outlook for the 2007 financial year is very
positive. A new extension has been initiated to the existing finished goods
building to cater for the increase in production volumes. This building will be
fitted with a new and updated inventory management system, to facilitate more
efficient stock control and production planning. Furthermore, a new welding
robot and press brake were commissioned in May 2006 to increase the output and
availability of stainless steel products. All in all, a very good year is
forecast for Giflo for 2006/7, with increased demand from customers and
increased capacity from 3-shift production and additional equipment.
Excalibur Vehicle Accessories had another good year with growth in both revenue
and profit. The year was characterised by increases in international aluminium
prices and customers, particularly in the OE (Original Equipment) market showed
resistance to price increases from suppliers. In light of this, margins have
been maintained by increasing turnover in after-market products. New product
development has also been focused on the after-market such as a new running
board called the "MK4" and a new range of stainless steel vehicle accessories
have been launched along with a significant marketing campaign. Initial sales
figures have been encouraging and new products are being developed as new
vehicles are being launched.
Hendor Mining Supplies had an excellent year, breaking monthly turnover records
on a continuous basis. This led to a bottom line that easily beat expectations.
The company has been very successful in diversifying its customer base. The
strong gold and platinum prices, allied to a weaker rand bode well for the
company going forward. A second shift has already been implemented to cater for
the tremendous surge in demand currently experienced, which seem sustainable in
every respect. The increase in steel prices will not materially affect Hendor"s
business, as its contracts with the mining houses cater for such increases.
Jetmaster had a good year with the highlight being the successful integration of
Xpanda"s Gauteng operation into the company. The entire period covered by the
2006 financial year was extraordinarily warm which saw a significant growth in
barbeque sales and a drop in fireplace sales. The year also saw the initiation
of tooling development for the first locally designed and manufactured portable
barbeque by Jetmaster which is planned for launch in September 2006. Jetmaster
development has also been successful in the introduction of the first low-cost
D.I.Y. fireplace in South Africa aimed at high volume consumption in the lower
income market. Jetmaster is set for a good year in 2006/7 with an up-turn
expected in sales due to a colder winter and the launch of the new barbeque and
fireplace developments.
Koch"s Cut and Supply generated a below-par set of results for the year. The
company has not managed to increase its market share to any great degree.
However, the introduction of a high definition plasma cutting machine has
produced immediate results and the company has placed great emphasis on reaching
new markets and customers not previously serviced by beefing up its sales team.
A vastly improved 2007 financial year is expected and the company will also
benefit from the increase in steel prices.
Xpanda Steel Centre has Jetmaster, Hendor and Giflo as its main clients and as
such will continue to grow in line with their achieved growth. The company
commissioned a high definition plasma machine during the year which will expand
its external turnover levels.
Xpanda Security has proved to be a valuable acquisition for the Argent Group.
Even though the company comfortably attained the turnover and bottom line
expectations set at the time of the group"s acquisition of the company, it took
the better part of the 2006 financial year to incorporate the company fully into
the Argent fold in terms of logistics, properties, marketing and so on. The
company is now in a position to take advantage of this improved infrastructure
as well as innovative and cost effective new products to increase its market
share in the roller shutter and domestic made-to-order security barrier markets.
This is especially true in the Gauteng area where Xpanda has never really had
much of a market share. The D.I.Y. security barrier market showed excellent
growth during the year in line with the increase in consumer spending prevalent
in the retail and building environments. As Argent continues to grow and evolve,
so Xpanda"s opportunities to increase its market coverage will increase
accordingly.
Life "n Leisure Centre - Cape Town, the Milnerton based company had a successful
year. The Xpanda Security regional branch was incorporated into the centre with
effect from 1 January 2006. The company now distributes Jetmaster, Excalibur and
Xpanda products from its Koeberg Road building. This integration has resulted in
reduced overheads and greater exposure for the Xpanda brand. This will result in
an increased market share in the 2006/7 year.
In early August 2006, Argent will open its flagship "Life "n Leisure Centre" in
Umhlanga Ridge, near Durban. This showroom, warehouse, sales and fitment centre
facility will provide the group with a base for its Excalibur and Jetmaster
product ranges in KwaZulu-Natal. In this respect, both distributors and the
general public will have access to the facility. In addition, part of the
showroom will be dedicated to Xpanda and the final consumer will have the
opportunity of inspecting Xpanda"s product range, getting a quote, placing an
order and having the product fitted.
Non steel related products
New Joules Engineering North America had an excellent year and has entered the
new financial year with an order book of USD 1.3 million. The company has
compiled tenders awaiting adjudication to the value of USD 4.2 million. As the
leader in its field the company expects to be successful with all these tenders.
New Joules has purchased a new milling machine at a cost of USD 67,000 which is
needed to expand its production capacity.
Megamix and Villiersdorp Quarries both had a very good year. At Villiersdorp,
both crushing plants operated for most of the year in order to meet demand. The
majority of the production was utilised by Megamix for its production of ready-
mix concrete. Tenders have been submitted for supplying material to road, civil
and housing contracts in the Villiersdorp area which will increase the external
customer base. Megamix increased their truck mixer fleet by acquiring four new
vehicles during the year under review. The fourth batch plant will also come
into operation during the month of July 2006.
NWN Automotive Precision Engineering had a satisfying year and has purchased a
Rottler F88 engine block machining centre at a cost of R 1.5 million to further
increase its client base.
Land and buildings
The revaluation of the group"s properties was completed in March 2006, resulting
in an increased valuation of R 69.4 million bringing the total value of the
properties to R 198 million.
Prospects
It is evident from the divisional performance discussed above that the growth of
the group is expected to continue unabated. The group has very little
information to hand that suggests that any of its companies will not achieve
increased turnover and profit levels for the 2007 financial year.
The group successfully attained its short-term goal of R 1 billion turnover for
the 2006 financial year. Argent will now attempt to double its 2006 turnover by
the 2009 financial year.
Substantial areas of growth identified for the 2007 financial year are as
follows:
The increase in steel prices will lead to a vastly improved performance
from the group"s steel trading and processing companies;
Giflo"s increased capacity to accommodate the ever increasing demand for
automotive products;
The rolling out of Excalibur"s after-market stainless steel vehicle
accessories ranges;
An improvement in Jetmaster"s performance due to a colder 2006 winter, as
well as the new product developments;
The anticipated vast improvement in Phoenix Steel Port Elizabeth"s revenues
and bottom line;
The establishment of Life `n Leisure Centre Umhlanga;
The continued success of New Joules North America;
An increase in Xpanda"s share of the roller shutter door market, as well as
the continued increase in its share of the Gauteng domestic security
barrier market;
The vast investment in state of the art machinery at Giflo and Phoenix
Steel Gauteng is expected to pay handsome dividends; and
The enhancement of export margins especially at Giflo, Jetmaster and Xpanda
due to the considerable weakening of the rand.
The group is in a position where it operates mostly in markets that are growing
at some pace and where opportunities still exist to increase market share at
existing activity levels. The group"s ability to take advantage of these two
factors will ensure its continued success.
The group has not achieved acquisition capacity yet and is constantly exposed to
and evaluating new acquisition opportunities.
In summary, Argent has a lot of good news and very little bad news for its
shareholders for the 2007 financial year and beyond.
Dividend
An interim dividend of 14 cents per share has been declared, subsequent to
31 March 2006, payable on Monday 24 July 2006 to shareholders recorded in the
register at close of business on Friday 21 July 2006, being the record date in
order to participate in such dividend. The last day to trade cum-div is Friday
14 July 2006. The share will trade ex-div on Monday 17 July 2006.
Share certificates may not be dematerialised / rematerialised between Monday 17
July 2006 and Friday 21 July 2006, both days inclusive.
Accounting policies and presentation
International Financial Reporting Standards (IFRS) were adopted with effect
1 January 2005. The financial statements for the period under review incorporate
Accounting Policies which are consistent with those applied in the preparation
of the audited financial results for the previous period except for changes as a
result of the adoption of IFRS. These changes are set out in the statement of
changes in equity. Comparative figures have been restated where applicable as
required by IFRS.
IFRS adjustments
The basis of adjustments, net of the taxation effect, as shown in the
reconciliation of equity and the income statement are as follows:
IAS 36/IFRS 3 - Goodwill
Following the adoption of IAS 36/IFRS 3 - Business combinations: goodwill is not
amortised but is subject to annual impairment reviews. The 2005 goodwill
amortisation previously recognised in the income statement has been reversed.
IAS 16 - Property, plant and equipment
Following the adoption of IAS 16 - Property, plant and equipment: the useful
lives of property, plant and equipment have been re-assessed resulting in an
increase in retained income with a corresponding increase in property, plant and
equipment.
IAS 21 - Foreign operation
Following the adoption of IAS 21 - Foreign operation: monetary assets and
liabilities designated in foreign currencies are translated at the rate of
exchange ruling at the balance sheet date. Differences arising on monetary
assets and liabilities are taken to equity as reserves on translation of foreign
operation and are not recognised in the income statement.
Audit opinion
Our auditors, Siyabala Inc, have issued their opinion on Argent"s statements for
the year ended 31 March 2006. They have issued an unmodified audit opinion. A
copy of their report is available for inspection at the company"s registered
office. These summarised financial statements have been derived from Argent"s
financial statements and are consistent in all material respects with Argent"s
financial statements.
On behalf of the board
TR Hendry CA(SA) Maraisburg, Roodepoort
Chief executive officer 27 June 2006
Directors: T Scharrighuisen (Non-executive chairman), TR Hendry (Chief executive
officer), Ms SJ Cox (Financial director), PA Day (Non-executive), MJ Antonic,
PH Lawson, GK Youngman (Alternate), D Smith, MP Allen, F Litschka. Company
secretary: Lindsay Grobler.
Registered office: 1316 Clubhouse Street, Maraisburg, Roodepoort 1724.
Tel: +27 11 661-5900.
Transfer secretaries: Ultra Registrars, 5th Floor, 11 Diagonal Street,
Johannesburg 2001. PO Box 4844, Johannesburg 2000.
Auditor: Siyabala Inc. Sponsor: Vunani Corporate Finance
Date: 27/06/2006 01:19:31 PM Supplied by www.sharenet.co.za
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