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MZR - Mazor Group Limited - Unaudited Condensed Consolidated interim results for
the six months ended 31 August 2010
Mazor Group Limited
(`Mazor` or `the company` or `the group`)
(Incorporated in the Republic of South Africa)
Registration number: 2007/017221/06
Share code: MZR
ISIN: ZAE000109823
UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS for the six months ended 31
August 2010
HIGHLIGHTS
* Successful acquisition of 50% of Hulamin Building Systems (`HBS`)
* Expansion of Glass division in Eastern Cape
Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2010 2009 2010
R R R
Revenue 83 404 055 180 238 891 273 514 257
Cost of sales (70 456 459) (119 080 658) (196 040 703)
Gross profit 12 947 596 61 158 233 77 473 554
Other income 10 031 111 606 804 816 481
Operating expenses (17 431 930) (13 451 201) (32 300 113)
Operating profit for the
period 5 546 777 48 313 836 45 989 922
Share-based payment expense - (3 132 604) (3 378 299)
Profit before investment
revenue and finance costs 5 546 777 45 181 232 42 611 623
Investment revenue 3 390 149 3 953 348 8 742 701
Income from equity-accounted
investments 603 000 - 944
Finance costs (227 139) (282 522) (464 707)
Profit before tax 9 312 787 48 852 058 50 890 561
Taxation (2 194 720) (16 633 935) (17 122 634)
Total comprehensive income 7 118 067 32 218 123 33 767 927
Ordinary shares in issue 121 114 053 121 045 817 121 014 053
Weighted average number of
shares 121 085 792 110 473 097 113 652 302
Basic and diluted earnings
per share (cents) 5.88 29.16 29.71
Basic and diluted headline
earnings per share (cents) 5.87 29.19 29.77
Reconciliation between
earnings and headline
earnings
Earnings attributable to
ordinary shareholders 7 118 067 32 218 123 33 767 927
Adjusted for:
(Loss)/profit on disposal
of property, plant and
equipment (13 445) 47 664 91 372
Tax effect thereof 3 765 (13 346) (25 584)
Headline earnings 7 108 387 32 252 441 33 833 715
Consolidated Statement of Financial Position
Unaudited Unaudited Audited
as at as at as at
31 August 31 August 28 February
2010 2009 2010
R R R
ASSETS
Non-current assets
Property, plant and equipment 56 945 684 56 887 664 54 612 261
Goodwill 8 396 200 8 141 200 8 141 200
Deferred tax asset 5 989 539 3 339 156 5 216 068
Other financial assets 3 937 658 - -
Equity-accounted investments 23 219 939 - 944
98 489 020 68 368 020 67 970 473
Current assets
Inventories 23 224 525 17 084 772 21 946 757
Other financial assets 10 000 27 333 506 10 547
Construction contracts and
receivables 34 524 249 44 026 641 28 357 180
Trade and other receivables 26 833 825 23 044 521 21 357 763
Current tax receivables 235 163 - -
Cash and cash equivalents 66 070 164 115 390 139 129 541 251
150 897 926 226 879 579 201 213 498
Total assets 249 386 946 295 247 599 269 183 971
Equity and liabilities
Equity
Share capital 1 210 1 088 1 210
Share premium 80 278 738 80 106 248 80 023 738
Retained income 139 457 929 151 135 709 154 261 505
219 737 877 231 243 045 234 286 453
Liabilities
Non-current liabilities
Other financial liabilities 476 574 3 156 787 1 452 081
Deferred tax liability 428 191 514 477 1 180 299
904 765 3 671 264 2 632 380
Current liabilities
Other financial liabilities 1 801 725 1 541 345 2 064 367
Current tax payable 142 226 30 160 939 9 143 440
Trade and other payables 25 354 007 28 631 006 21 057 331
Bank overdraft 1 446 346 - -
28 744 304 60 333 290 32 265 138
Total liabilities 29 649 069 64 004 554 34 897 518
Total equity and liabilities 249 386 946 295 247 599 269 183 971
Condensed Consolidated Statement of Cash flows
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2010 2009 2010
R R R
Cash flow from operating
activities
Cash generated from
operations (10 208 707) 39 321 797 45 170 989
Investment revenue 3 390 149 3 953 348 8 742 701
Finance costs (227 139) (282 522) (464 707)
Tax paid (12 956 676) (9 092 213) (29 148 906)
Dividends paid (21 921 643) (19 033 192) (19 033 192)
Net cash flow from
operating activities (41 924 016) 14 867 218 5 266 885
Cash flows from investing
activities
Purchase of property, plant
and equipment (5 365 905) (6 477 074) (7 204 387)
Proceeds on disposal of
plant and equipment 163 743 634 875 650 432
Acquisition of treasury
shares - (3 185 305) (3 267 693)
Proceeds on disposal of
treasury shares - - 25 738 764
Investment in joint venture (12 615 995) - (944)
Increase in other financial
assets (3 937 111) - (10 547)
Net cash flow from investing
activities (21 755 268 (9 027 504) 15 905 625
Cash flows from financing
activities
Increase/(repayment) of
other financial liabilities (1 238 149) (1 156 982) (2 338 666)
Net cash flow from
financing activities (1 238 149) (1 156 982) (2 338 666)
(Decrease)/increase in cash
and cash equivalents for
the period (64 917 433) 4 682 732 18 833 844
Cash and cash equivalents
at beginning of period 129 541 251 110 707 407 110 707 407
Cash and cash equivalents
at end of period 64 623 818 115 390 139 129 541 251
Condensed Consolidated Statement of Changes in Equity
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2010 2009 2010
R R R
Total equity at the
beginning of the period 234 286 453 193 702 348 193 702 348
Total comprehensive income
for the period 7 118 067 32 218 123 33 767 927
Issue of shares 255 000 - -
Treasury shares acquired - (807 823) (890 211)
Treasury shares cancelled - (2 377 482) (2 377 482)
Treasury shares sold - 24 408 467 25 738 764
Dividends paid* (21 921 643) (19 033 192) (19 033 192)
Share-based payment expense - 3 132 604 3 378 299
Total equity at the end of
the period 219 737 877 231 243 045 234 286 453
* A dividend of 18.1 cents per share was paid on 14 June 2010.
Condensed Segment Report
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
August August February
2010 2009 2010
R R R
Segment revenue - external
- Aluminium 11 220 539 68 457 731 85 579 605
- Steel 28 601 280 82 522 088 124 910 599
- Glass 43 582 236 29 259 072 63 024 053
- Corporate - - -
83 404 055 180 238 891 273 514 257
Segment result - operating
profit/(loss)
- Aluminium 6 222 355 21 806 188 22 524 721
- Steel 2 124 143 29 972 241 34 096 112
- Glass (2 759 079) (2 641 161) (9 523 199)
- Corporate (40 642) (823 432) (1 107 712)
5 546 777 48 313 836 45 989 922
Segment assets
- Aluminium 64 431 595 101 895 186 76 478 070
- Steel 72 559 855 97 243 024 96 256 619
- Glass 99 864 522 85 423 916 87 886 977
- Corporate 12 530 974 10 685 473 8 562 305
249 386 946 295 247 599 269 183 971
Commentary
Introduction
The unaudited consolidated interim results for the six months to August 2010
(`the period`) reflect the impact of tough trading conditions in the
construction sector in South Africa, and in particular in the Western Cape where
the group has a dominant presence. Excess capacity in the market has induced
significant price pressure and eroded operating margins.
During the period corporate activity included the acquisition of 50% of Hulamin
Building Systems and of 100% of Glass Unlimited through Independent Glass in
Port Elizabeth. The acquisitions added impetus to Mazor`s diversification
strategy targeting attractive markets to secure sustainable growth.
Basis of preparation
The unaudited consolidated interim financial statements have been prepared in
accordance with IAS 34: Interim Financial Reporting, International Financial
Reporting Standards (`IFRS`) and the AC 500 Standards as issued by the
Accounting Practices Board or its successor on interim financial reporting and
Schedule 4 of the South African Companies Act, 1973. The accounting policies
applied in the preparation of these unaudited consolidated interim financial
statements are consistent with those applied in the audited annual financial
statements for the previous year ended 28 February 2010.
The consolidated results for the six months have not been audited nor reviewed
by the group`s auditors.
Group profile
Mazor Steel designs, supplies and erects structural steel frames.
Mazor Aluminium designs, manufactures and installs aluminium doors, windows,
shopfronts, facades and balustrades for major blue-chip construction groups.
Newly acquired Hulamin Building Systems augments the division`s offering with a
wide range of fenestration systems and accessories.
The Glass division comprises Compass Glass and Independent Glass, which
manufacture and distribute laminated and toughened safety glass and double-
glazed units.
Through strategic expansion and acquisitions, the group has a strong presence
across Gauteng, KwaZulu-Natal and the Eastern Cape in addition to its historical
base in the Western Cape.
Review of operations
Although the market remained challenging during the period, increasing trade
activity in the second half could indicate the start of an upturn. However,
notwithstanding the initial signs of improvement, competition is still intense
and margin contraction is expected to continue until significantly higher levels
of demand begin to materialise.
Core divisions Mazor Steel and Mazor Aluminium, which together account for the
majority of group profitability, were hard hit by deteriorating trading
conditions. Protracted contract delays and cancellations in the private sector,
due to credit constraints, negatively impacted these divisions. The
rationalisation process from the prior year to counter the reduced project base
has seen labour costs adjusted to meet current demand. Newly acquired Hulamin
Building Systems is expected to boost performance going forward. The business
has introduced revenue streams from new markets and cross-selling opportunities
which would have been difficult to access organically.
The steel and aluminium divisions have expanded their focus to include African
markets in Namibia, Nigeria and Malawi, securing private development contracts
with confirmed financing. Contribution from this work is expected to translate
into an improved performance in the six months ahead.
The Glass division which comprises Compass Glass and Independent Glass continued
to capture market share and is experiencing higher sales volumes.
Financial results
Revenue declined 53.7% to R83.4 million from R180.2 million in the comparative
period, with net profit down 77.9% to R7.1 million from R32.2 million.
Accordingly earnings per share reduced by 79.8% year on year to 5.9 cents from
29.2 cents.
The decline in earnings is attributable to the drop in demand in the general
construction sector and consequent margin compression. The revenues and
operating profit of Mazor Steel and Mazor Aluminium declined by 65.3% and 92.9%,
and 83.6% and 71.5%, respectively.
In the Glass division external revenue increased by 49% year on year to R43.6
million as a result of the increased market penetration and expanded product
offering.
Other income of R10 million arose as a result of the acquisition of HBS. It
represents Mazor Aluminium`s share of the profit on sale of its architectural
systems and intellectual property (see `Acquisitions` below).
At 31 August 2010, the group had issued guarantees amounting to R5.4 million
compared to R44.4 million at 31 August 2009. These guarantees have arisen in the
ordinary course of business and it is not expected that any loss will arise
therefrom.
As announced on SENS on 16 August 2010, the group has provided financial
assistance to our BEE partner, Cloudberry Investments 18 (Pty) Limited, subject
to shareholder approval. A circular to shareholders was posted on 25 October
2010 and a general meeting will be held on 16 November 2010.
Share transactions
On 18 March 2010 the group delisted 100 000 shares previously held as treasury
shares. On 21 April 2010, 100 000 new shares were listed on the JSE. These
shares were issued to the vendor as part of the purchase consideration for the
acquisition of the business of Glass Unlimited (see `Acquisitions` below). These
shares are restricted and may not be sold for a period of two years from the
date of acquisition. The vendor remains employed by Independent Glass as the
manager of the Eastern Cape.
Acquisitions
Hulamin Building Systems
During the period Mazor Aluminium acquired a 50% interest in Hulamin Building
Systems (`HBS`) for a consideration of R32.6 million before elimination of an
intra-group profit of R10 million.
The consideration payable was settled by Mazor through:
* the sale by Mazor to HBS of architectural systems and intellectual property
for R20 million; and
* a cash payment to Hulamin Extrusions (Pty) Limited of R12.6 million.
HBS markets and supplies a wide range of fenestration systems into the South
African residential, commercial and industrial markets through branches in
Johannesburg, Cape Town, Durban and Port Elizabeth. The business enjoys a
significant market share in the aluminium industry. The transaction will enable
Mazor to gain access to an enlarged client base which would have been difficult
to obtain organically.
Independent Glass - Port Elizabeth
The group identified the need to expand its national footprint in the glass
industry and particularly the potential for growth in the Eastern Cape.
Glass Unlimited, based in Port Elizabeth, was targeted as a suitable partner for
this expansion, and with effect 1 April 2010 the group, through Independent
Glass, acquired the business of Glass Unlimited as a going concern. The purchase
consideration comprised a cash payment of R315 000 in respect of stock and fixed
assets and the issue of 100 000 shares in the group.
Prospects
The current lower interest rate cycle, with possible expectation of further
interest rate cuts, has fuelled slowly recovering interest from developers in
the construction sector. This bodes well for a continued strengthening of the
market.
It is therefore anticipated that the second half of the year should be stronger
than the first, although market conditions for Mazor Aluminium and Mazor Steel
will remain difficult. The Glass division is expected to continue benefiting
from increased market penetration to maintain its positive growth curve. Recent
inroads into new markets and expansion of the group`s product offering have
built a solid platform from which to exploit growth opportunities once the
macroeconomic environment improves.
Sub-Saharan Africa offers promising prospects as South African retail giants
expand into neighbouring countries with new shopping spaces.
Dividend declaration
A dividend of 18.1 cents per share in respect of the year ending
28 February 2010, totalling R21.99 million, was paid on 14 June 2010 and is
reflected in these results net of treasury share dividends received.
In line with company policy, no interim dividend has been declared for the
period. It is the intention of the board to declare a dividend for the full year
ending 28 February 2011.
Appreciation
We thank our management and staff for their steadfast commitment during a
difficult period. We also thank our board for their continued invaluable
guidance and extend our appreciation to our business associates, customers and
shareholders for their ongoing support.
On behalf of the board
M Kaplan R Mazor
Chairman CEO
Cape Town 9 November 2010
Directors: M Kaplan (Chairman)*, R Mazor (CEO), L Mazor (Group Financial
Director), S Mazor, A Groll*, F Boner*, S Ozinsky*, A Varachhia*
* Non-executive director Independent
Registered office: 8 Monza Road, Killarney Gardens, 7441
(PO Box 60635, Table View, 7439)
Sponsor: Bridge Capital Advisors (Pty) Limited
2nd Floor, 27 Fricker Road, Illovo Boulevard, Illovo, 2196
(PO Box 651010, Benmore, 2010)
Transfer secretaries: Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
www.mazorgroup.co.za
Date: 09/11/2010 10:00:03 Supplied by www.sharenet.co.za
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