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ART - Argent - Unaudited Interim Results for the six months ended

Release Date: 29/10/2008 13:11
Code(s): ART
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ART - Argent - Unaudited Interim Results for the six months ended 30 September 2008 and dividend declaration Argent Industrial Limited Reg no 1993/002054/06 (Incorporated in the Republic of South Africa) ("Argent" or "The Group") Share code: ART & ISIN code: ZAE000019188 Unaudited Interim Results for the six months ended 30 September 2008 Financial Highlights - REVENUE UP 23.7% - ATTRIBUTABLE EARNINGS UP 12.6% - ATTRIBUTABLE EARNINGS per share UP 4.8% - HEADLINE EARNINGS UP 18.0% - HEADLINE EARNINGS per share UP 9.8% - GEARING 28.6% ABRIDGED CONSOLIDATED Unaudited Unaudited Audited INCOME STATEMENT six months six months year ended for the six months ended 30 Sept 2008 30 Sept 2007 31 Mar 2008 30 September 2008 R 000 Revenue 1,085,427 877,511 1,659,201 -------------------------------------------- Operating profits before financing costs 166,994 145,066 308,634 Financing costs 32,900 23,110 49,782 -------------------------------------------- Profit before taxation 134,094 121,956 258,852 Taxation 38,038 36,411 70,588 -------------------------------------------- Profit after taxation 96,056 85,545 188,264 Minority interest 983 1,129 2,283 --------------------------------------------
Earnings attributable to ordinary shareholders 95,073 84,416 185,981 -------------------------------------------- Attributable earnings per share (cents) 107.1 102.1 218.5 Headline earnings per share (cents) 106.9 97.4 213.5 Dividends per share (cents) 19.0 16.0 33.0 --------------------------------------------
Supplementary information Shares in issue (000) - at end of period 88,798 85,156 88,798 - weighted average 88,798 82,654 85,098 Interest received (R 000) 11,425 15,656 30,089 Cost of sales (R 000) 617,213 510,647 879,482 Depreciation (R 000) 15,635 12,508 23,983 Net profit on foreign exchange transactions (R 000) 712 885 3,753 Calculation of headline earnings (R 000) Earnings attributable to ordinary shareholders 95,073 84,416 185,981 Profit on disposal of property, plant and equipment (134) (3,949) (7,502) Loss on disposal of property, plant and equipment - 16 213 Impairment of property, plant and equipment - - 2,979 --------------------------------------------
Headline earnings attributable to ordinary shareholders 94,939 80,483 181,671 -------------------------------------------- ABRIDGED CONSOLIDATED Unaudited Unaudited Audited BALANCE SHEET at at at as at 30 September 2008 30 Sept 2008 30 Sept 2007 31 Mar 2008 R 000 ASSETS Non-current assets Property, plant and equipment 708,492 507,966 645,632 Intangibles 249,765 207,408 249,975 Long term loan - 28,080 29,897 -------------------------------------------- 958,257 743,454 925,504 -------------------------------------------- Current assets Inventories 672,131 438,873 470,138 Trade and other receivables 421,574 311,997 409,138 Bank balance and cash 307 13,969 383 --------------------------------------------
1,094,012 764,839 879,659 -------------------------------------------- TOTAL ASSETS 2,052,269 1,508,293 1,805,163 --------------------------------------------
EQUITY AND LIABILITIES Capital and reserves Share capital and premium 440,106 391,799 437,336 Reserves 61,688 46,084 47,321 Retained earnings 662,248 513,860 602,997 -------------------------------------------- Ordinary shareholders` funds 1,164,042 951,743 1,087,654 Minority interest - 10,801 11,956 -------------------------------------------- Total shareholders` funds 1,164,042 962,544 1,099,610 -------------------------------------------- Non-current liabilities Interest-bearing borrowings 243,669 138,266 203,050 Deferred tax 67,423 46,048 64,492 -------------------------------------------- 311,092 184,314 267,542
-------------------------------------------- Current liabilities Trade and other payables 343,760 246,423 335,565 Taxation 32,000 34,781 7,583 Bank overdraft 111,937 - 9,912 Current portion of interest-bearing borrowings 89,438 80,231 84,951 --------------------------------------------
577,135 361,435 438,011 -------------------------------------------- -------------------------------------------- TOTAL EQUITY AND LIABILITIES 2,052,269 1,508,293 1,805,163 -------------------------------------------- Net asset value per share (cents) 1,310.9 1,117.6 1,224.9 ABRIDGED CONSOLIDATED Unaudited Unaudited Audited CASH FLOW STATEMENT six months six months year ended for the six months ended 30 Sept 2008 30 Sept 2007 31 Mar 2008 30 September 2008 R 000 Cash generated from operations (32,706) 78,152 220,385 Interest paid (32,900) (23,110) (49,782) Interest received 11,425 15,656 30,089 Dividends paid (16,872) (13,506) (28,125) Taxation paid (10,690) (14,335) (43,451) -------------------------------------------- Cash flows from operating activities (81,743) 42,857 129,116 Cash flows from investing activities (68,234) (210,771) (334,162) Cash flows from financing activities 47,876 167,611 181,245 -------------------------------------------- Net decrease in cash and cash equivalents (102,101) (303) (23,801) Cash and cash equivalents at beginning of period (9,529) 14,272 14,272 -------------------------------------------- Cash and cash equivalents at end of period (111,630) 13,969 (9,529) -------------------------------------------- STATEMENT OF CHANGES IN EQUITY Share Share Treasury Revaluation Reserve on Retained for the six capital premium shares reserve translation earnings months ended of foreign 30 September 2008 operation R 000 Balance at 30 September 2007 4,698 500,110 (113,009) 46,777 (693) 513,860 Shares issued 127 40,708 - - - - Net treasury movement - - 4,702 - - - Foreign currency translation adjustment - - - - (587) - Revaluation of properties - - - 2,986 - - Realisation of revaluation reserve - - - (1,162) - 2,191 Net profit for the period - - - - - 101,565 Dividends - - - - - (15,974) Less dividend on treasury shares - - - - - 1,355 ------------------------------------------------------------ Balance at 31 March 2008 4,825 540,818 (108,307) 48,601 (1,280) 602,997 Net treasury movement - - 2,770 - - - Foreign currency translation adjustment - - - - 29 - Revaluation of properties - - - 15,019 - - Realisation of revaluation reserve - - - (681) - - Buy-back of minority share in subsidiary - - - - - (18,950) Net profit for the period - - - - - 95,073 Dividends - - - - - (18,333) Less dividend on treasury shares - - - - - 1,461 ------------------------------------------------------------
Balance at 30 September 2008 4,825 540,818 (105,537) 62,939 (1,251) 662,248 ------------------------------------------------------------ SEGMENT REPORT Revenue Results Revenue Results for the six months unaudited unaudited unaudited unaudited ended 30 September 2008 6 months 6 months 6 months 6 months Business Segments ended ended ended ended 30 Sept 2008 30 Sept 2008 30 Sept 2007 30 Sept 2007
R 000 Steel trading 472,431 69,816 390,537 43,553 Automotive products 119,871 (1,162) 147,410 10,222 Home and office 309,320 37,966 202,201 26,050 Fabricators 101,615 7,762 84,276 34,517 Non-steel related products 82,190 19,712 53,087 7,614 ---------------------------------------------------- Total 1,085,427 134,094 877,511 121,956 ---------------------------------------------------- Financial Overview Argent has again produced a solid set of results. While the automotive market and to a lesser extent the retail market pulled the results down, this was more than adequately compensated for by the strong performance of the steel trading and steel manufacturing businesses. The automotive businesses are expected to recover in the second half of the year due to new business being secured, particularly exports. Argent will also benefit from increased export margins due to the weaker Rand in the second half of the year. The financial results reflect Argent`s continued delivery of sustainable shareholder value: - Revenue growth of 23.7% to R1.085 billion - Gearing contained to 28.6% - Operating profit increased by 15.1% to R167 million - Operating margin reduced to 15.4% from 16.5% - Headline earnings up by 18% - Headline earnings per share up by 9.8% Operations Review Steel trading The steel division increased turnover by 21% mainly due to higher local steel prices. Earnings also increased substantially, partly due to an improved product sales mix. Sustainable benefits derived from heightened levels of activity in the infrastructure and construction sectors are being experienced. Forecasts for the steel sector remain relatively bullish especially in the medium to long term. Phoenix Steel Natal commissioned the Fagor multi-strand blanking line, enabling it to provide a blanking service to the high tech end of the market which at the same time frees up more of Phoenix Steel Gauteng`s space and infrastructure. The Group will also utilise this line to process imported coils, especially stainless steel and aluminium. The warehouse extension at Richards Bay is nearing completion, increasing its size by one third. The integration of Paint and Ladders into Argent Port Elizabeth and Phoenix Steel East London has been concluded successfully, boosting both businesses. Gammid Trading performed steadily with sales up 10% while earnings were under pressure due to lower austenitic stainless steel prices as a result of lower nickel prices. Gammid gained market share in aluminium products to become one of Hulamin`s largest distributors partly as a result of supplying the Group`s aluminium products. Gammid`s growth strategy is to expand on the service centre concept by supplying exact sizes and profiles to customers, allowing them to minimise costs as a result. A further significant development for Gammid is that it has become a national distributor for Columbus Stainless Steel with immediate effect. Home and Office This sector performed strongly mostly due to higher margins being driven through increased prices and operational efficiencies. Turnover through the building and contractors channels were superior to retail and this trend appears to be continuing into the second half of the financial year. Exports are being promoted aggressively and products are being developed exclusively for these markets, securing long term supply. Current levels of profitability can be maintained by containing costs, specifically through careful stock planning by the Group`s in-house steel suppliers. The integration and optimisation of the Paint and Ladders business has proceeded well and synergies have been maximised through better purchasing, manufacturing and distribution. Jetmaster benefited from increased exports as well as R8.5 million additional revenue being realised through the release of the new range of slow combustion stoves. Xpanda Security has similarly increased exports and has launched the new `X` range of security doors and burglar proofing aimed at the lower end of the market, while still offering ease of installation and high security levels. Toolroom Services had an exceptional six months with a significant increase in sales and earnings. The company benefited greatly from its entry into new products and markets, such as significant orders for library equipment, beds for the Angolan army and desks for the Mozambique Government. Its new building is nearing completion and is only being held up by the delay in supply of municipal services. Atomic Office Equipment achieved a 60% increase in turnover and is now performing near its full potential. Paint and Ladders exceeded expected budgeted revenue and earnings projections. Cedar Paint`s decorative product range continues to produce buoyant results while the company is also busy with a rebranding initiative which is already opening doors into additional retail chains. Castor & Ladder`s turnover of products to the construction industry, primarily scaffolding, remains strong, while sales volumes to the heavy industry and retail (primarily ladders and curtain tracks) are under pressure. Fabricators Both Koch`s Cut and Supply and Hendor Mining Supplies achieved substantial improvements in both revenue and earnings and continue to perform strongly in markets that seem to have a tremendous appetite for their products. Automotive products Automotive manufacturers have implemented reduced working hours, resulting in reduced volumes for Argent in the OE market. Margins have come under pressure as some manufacturers have rejected proposed price increases resulting from higher steel prices. On the upside, new contracts have been secured by Giflo Engineering including the supply of the Triton rear step and side steps for Daimler Chrysler. Sentech Industries has commissioned two powder coating plants and an e-coating plant which will not only improve current margins, but will open new markets. Sentech has recently quoted on five new contracts for Toyota and thirty-two for Volkswagen. Excalibur Vehicle Accessories has successfully diversified into non-automotive products, for example screening equipment for the mining industry. The outlook for this sector remains relatively conservative compared to the past few years of record growth. The proposed revised MIDP incentives should energise this sector in the medium term. Every effort is being made to secure as many lucrative export contracts as possible. Non-Steel Related Products Megamix enjoyed a strong start to the year but margins came under pressure due to increased competition for construction work in the Western Cape. As at 30 September 2008, the Group terminated its BEE deal which resulted in Argent buying back its 30% stake in Megamix. The transaction resulted in a loss of R2.4 million which is reflected in the above results. This is not an adjustment to headline earnings as it is a reversal of interest previously earned. Allan Maskew showed substantial growth in both revenue and earnings due to new business being secured. New Joules North America`s revenue remained flat while margins and earnings improved markedly. Argent`s property portfolio remains unchanged but it is looking to secure a property in Bloemfontein to house Paint and Ladders and Phoenix Steel. In addition, a property has been purchased in George to house a branch of Gammid. Looking forward to the second half of the 2009 financial year, it can be assumed that the volatility in key market forces will continue. Argent believes that the vast majority of its businesses have the correct strategies in place to ward off the worst of the effects of this volatility. The companies also have the ability to make proactive and inventive decisions to counter changing market conditions. Argent should achieve positive headline earnings growth and exceed its R2 billion turnover target. The incorporation of the Paint and Ladders business into Argent is expected to continue to have a favourable impact on the 2009 results. An agreement has also been concluded for the acquisition of a company that will open up additional export markets into the UK and Europe with a range of manufactured steel products. Only Competition Commission approval is outstanding. Acknowledgements My heartfelt thanks to all our employees for their industrious commitment to the Argent Group over the past half year and in advance for the rest of the year ahead. To the new employees that have joined us through Argent`s acquisitions and through personal choice, we welcome you to the fold. Argent now employs 3,640 staff members and we are proud of our growing family. Conclusion We would like to welcome Investec Bank who has been appointed as the Group`s Corporate Sponsors from 1 October 2008 and we would like to take this opportunity to thank Arcay Moela for their valuable service in the past. Dividend A final dividend of 19 cents per share in respect of the year ended 31 March 2008 was paid during the period. An interim dividend of 19 cents has been declared, subsequent to 30 September 2008, payable on Monday 19 January 2009 to shareholders recorded in the register at close of business on Friday 16 January 2009, being the record date in order to participate in such dividend. The last day to trade cum-div is Friday 9 January 2009. The share will trade ex-div on Monday 12 January 2009. Share certificates may not be dematerialised / rematerialised between Monday 12 January 2009 and Friday 16 January 2009, both days inclusive. Accounting policies and presentation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), IAS 34 - Interim Financial Reporting and in compliance with the Companies Act of South Africa of 1973 and the Listing Requirements of the JSE Limited. The accounting policies are consistent with those of the previous financial period. On behalf of the Board T.R. Hendry CA (SA) Maraisburg, Roodepoort Chief Executive Officer 30 October 2008 Registered office: 1316 Clubhouse Street, Maraisburg, Roodepoort 1724 Tel +27 11 661 5900 Auditors: Grant Thornton Sponsor: Investec Bank Ltd Transfer secretaries: Link Market Services South Africa, 5th floor, 11 Diagonal Street, Johannesburg 2001 (PO Box 4844, Johannesburg 2000) Directors: MP Allen, MJ Antonic, Ms SJ Cox (Financial Director), PA Day (Non Executive), TR Hendry (Chief Executive Officer), PH Lawson (Non Executive), AF Litschka, K Mapasa (Non Executive), T Scharrighuisen (Non Executive Chairman), D Smith, GK Youngman (Alternate). 29 October 2008 Sponsor: Investec Bank Limited Date: 29/10/2008 13:11:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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