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HWN-Howden Africa-Reviewed financial results for the year ended 31 December 2006

Release Date: 02/03/2007 17:10
Code(s): HWN
Wrap Text

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

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