Wrap Text
PSV - PSV Holdings Limited - Reviewed condensed consolidated results for the
year ended 28 February 2011
PSV HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1988/004365/06)
JSE code: PSV
ISIN: ZAE000078705
("PSV" or "the company" or "the Group")
REVIEWED CONDENSED CONSOLIDATED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2011
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
AS AT 28 FEBRUARY 2011
2011 2010
R`000
Revenue 378 446 372 182
Cost of sales 303 015 282 026
Gross profit 75 431 90 156
Operating expenses* 74 760 161 998
Operating profit/(loss) 671 (71 842)
Financial income 1 031 8 426
Financial expenses 8 738 19 840
Loss before taxation (7 036) (83 256)
Taxation (charge)/ credit (1 270) 174
Loss for the year from (8 306) (83 082)
continuing operations
Loss for the year attributable (8 306) (83 082)
to ordinary shareholders
Basic earnings per share (3.36) (34.02)
(cents)
Headline earnings per share (3.17) 5.20
(cents)
Normalised earnings per (1.62) 8.10
share (cents)
Diluted earnings per share (3.30) (33.31)
(cents)
Diluted headline earnings per (3.11) 5.09
share
Reconciliation of earnings
Loss after tax (8 306) (83 082)
(Profit)/ loss on disposal of (520) 125
assets
Impairment of goodwill and 0 98 486
specific intangibles
Deferred tax reversed on 0 (2 833)
impairment of intangibles
Impairment of noncurrent assets 998 0
Headline earnings (7 828) 12 696
Interest on deferred purchase 950 1 839
consideration
Amortisation of intangible 2 921 4 346
assets
Deferred taxation on (818) (1 177)
amortisation of intangible
assets
Share based payments 834 2 407
Deferred taxation on share (233) (674)
based payments
Straight lining of rentals 146 349
Normalised earnings (4 028) 19 786
Weighted average number of 247 210 244 223
shares in issue
Fully diluted number of shares 247 210 247 962
in issue
*Operating expenses includes impairment charges, depreciation, amortisation and
is net of sundry income
CONDENSED STATEMENT OF FINANCIAL POSITION AT 28 FEBRUARY 2011
2011 2010
R`000
ASSETS
Non current assets 114 946 121 312
Property, plant and equipment 47 714 58 647
Intangible assets 19 454 20 948
Goodwill 36 036 31 691
Deferred taxation assets 11 742 9 806
Loans receivable 0 212
Current assets 174 287 157 837
Inventories 62 899 60 798
Trade and other receivables 67 602 77 723
Taxation receivable 7 205 4 004
Cash and cash equivalents 26 839 15 312
Non current assets held for sale 9 742 0
Total assets 289 233 279 149
EQUITY AND LIABILITIES
Shareholders` equity
Ordinary shareholders` interest 142 749 150 222
Stated capital (Share capital) 270 806 270 806
Share based payment reserve 263 1 670
Accumulated loss (125 221) (119 155)
Foreign currency translation (3 099) (3 099)
reserve
Non current liabilities 27 423 26 995
Borrowings 22 352 19 609
Purchase consideration payable 0 2 420
Deferred tax liabilities 5 071 4 966
Current liabilities 119 061 101 932
Trade and other payables 57 398 59 368
Current portion of long term 18 431 10 939
liabilities
Taxation payable 997 0
Bank overdrafts 37 200 27 440
Short term loan 0 4 167
Non current liabilities held for 5 035 0
sale
Total equity and liabilities 289 233 279 149
NAV per share 0,58 0,61
NTAV per share 0,35 0,40
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW AS AT 28 FEBRUARY 2011
Audited Audited
2011 2010
Cash flows from operations 6 635 24 548
Cash flows utilised in investing (16 098) (22 177)
activities
Cash flows from / (utilised in) 10 934 (11 440)
financing activities
Increase/(decrease) in cash and 1 471 (9 070)
cash equivalents
Cash at acquisition of subsidiary 296 0
Cash and cash equivalents at (12 128) (3 058)
beginning of the year
Cash and cash equivalents at end (10 361) (12 128)
of the year
CONDENSED STATEMENT OF CHANGES IN EQUITY AT 28 FEBRUARY 2011
Retained Foreign Share Non- Share Share Total
loss currenc premiu distrib based capital
y m utable payment
transla reserve reserve
tion s
reserve
Balance at (38 039) (3 106) - 9 917 1 513 260 606 230 891
28 February
2009
Issue of - - - - - 10 550 10 550
shares
Share issue - - - - - (5) (5)
costs
Deferred - - - (9 917) - - (9 917)
equity -
Engineered
Linings
vendor
Odd lot - - - - - (345) (345)
share
buyback
Share based - - - - 2 123 - 2 123
payment
transactions
(Loss) for (83 082) - - - - - (83 082)
the year
Transfer of 1 966 - - - (1 966) - -
vested
shares from
share based
payment
reserve
Foreign - 7 - - - - 7
translation
reserve-PSV
Zambia
Balance at (119 155) (3 099) - - 1 670 270 806 150 222
28 February
2010
Share based - - - - 833 - 833
payment
transactions
Transfer of 2 240 - - - (2 240) - -
vested
shares from
share based
payment
reserve
Net loss for (8 306) - - - - - (8 306)
the year
Balance at (125 221) (3 099) - - 263 270 806 142 749
28 February
2011
SEGMENTAL REPORT AT 28 FEBRUARY 2011
2011
Pumps, Engineering Specialised Shared Total
Spares Linings and Services Services
and Industrial
Valves Supplies
Revenue 91 142 180 137 107 167 0 378 446
Gross Profit 19 100 35 648 20 683 0 75 431
Operating expenses 16 438 17 052 12 768 22 511 68 769
Profit/(loss)befor (54) 11 177 (698) (17 461) (7 036)
e tax
Depreciation 2 542 1 125 2 371 4 561 10 599
/amortisation
Capital 1 952 1 399 2 950 1 352 7 653
expenditure
Gross assets 84 716 62 038 58 609 72 127 277 490
Gross liabilities 14 070 28 091 20 969 78 283 141 413
2010*
Pumps, Engineering Specialised Shared Total
Spares Linings and Services Services
and Industrial
Valves Supplies
Revenue 112 078 134 914 125 190 0 372 182
Gross Profit 35 237 35 899 19 020 0 90 156
Operating expenses 14 968 16 762 9 377 17 374 58 481
Profit/(loss)befor 12 700 22 988 9 590 (30 047) 15 231
e tax
Depreciation 2 670 1 185 1 171 4 210 9 236
/amortisation
Capital 3 868 1 021 5 996 2 161 13 046
expenditure
Gross assets 74 550 63 620 45 842 84 327 268 339
Gross liabilities 21 771 9 647 16 574 74 965 122 957
*Comparative segmental analysis has been restated to be consistent with the
current year.
BASIS OF PREPARATION
The condensed consolidated financial statements have been prepared in
accordance with the recognition and measurement criteria of International
Financial Reporting Standards ("IFRS"), its interpretations adopted by the
International Accounting Standards Board ("IASB"), IAS34 : Interim Financial
Reporting, the AC500 standards as issued by the Accounting Practices Board or
its successor, and in compliance with the Listing Requirements of the JSE
Limited and the requirements of the South African Companies Act.
The accounting policies followed are consistent with those used in the prior
year and are in terms of IFRS.
REPORT OF THE INDEPENDENT AUDITORS
The provisional annual financial statements of PSV for the year ended 28
February 2011 have been reviewed by the company`s independent auditor, KPMG
Inc. In their review report dated 31 May 2011, which is available for
inspection at the company`s registered office, KPMG Inc. state that their
review was conducted in accordance with the International Standards on Review
Engagements 2410, Review of Interim Information Performed by the Independent
Auditor of the Entity, which applies to a review of provisional financial
information, and have issued an unmodified conclusion on the provisional annual
financial statements with an emphasis of matter as follows: "Without qualifying
our review report we draw attention to the going concern note below which
indicates that the Group incurred losses for the year ended 28 February 2011
and is in breach of its loan covenants with Investec Bank LTD ("Investec").
These conditions, along with other matters as set forth indicate the existence
of a material uncertainty that may cast significant doubt on the ability of the
company and its subsidiaries to continue as going concerns."
COMMENTARY
NATURE OF BUSINESS
PSV is an industrial engineering holding company comprising three operating
business segments:
- Pumps, Spares and Valves;
- Engineering Linings and General Industrial Supplies; and
- Specialised Services (including petrochemical and cryogenic activities).
OPERATIONAL REVIEW
The Group experienced its toughest financial year since inception. Gross
margins decreased to 19,9% (2010: 24,2%) and EBITDA margins decreased to 3,0%
(2010: 9,6%).The trading performance is attributable to poor economic trading
conditions, our Mather & Platt subsidiary performing below expectation, as well
as high shared services costs. As a result, the Group was also required to
impair deferred tax assets in terms of IAS12: Income Taxes by R3,9 million
further contributing to the year`s results.
The Group recently relocated to an industrial park in order to integrate all
its subsidiaries into one location. The sale of the old head office property
required an accounting impairment of the carrying value of the property and the
underlying assets situated on the property by an additional R1 million. The
integration will enable the Group to further streamline headcount and eliminate
duplicated costs in all aspects of the business. This process has already
commenced and operational costs have successfully started to reduce. In line
with this strategy, the Group is investigating the possibility of
divisionalising the business to further reduce administration and compliance
costs.
SEGMENTAL REVIEW
The Pumps, Spares and Valves segment was again affected by poor market
conditions. Segmental revenue decreased to R91 million (2010: R112 million) and
segmental margins decreased to 21% (2010: 31%). Whilst Mather & Platt did not
perform as expected, both APE Pumps and PSV Services managed to improve margins
and maintain order books at historic levels. Mather & Platt has subsequently
been restructured. Remedial action has included the replacement of senior
management, the workshop being merged with PSV Services and APE Pumps and two
thirds of the workforce being either retrenched or dismissed. With this
restructuring, the company is expected to generate profits in the new financial
year.
The Engineering Linings and Industrial Supplies segment reflected a 34%
increase in revenue to R180 million (2010: R135 million). Gross margins reduced
to 20% (2010: 27%) in order to obtain higher turnover levels. Groupline
Projects achieved its best financial year in its 21 year history as it took
advantage of the surge in infrastructural spend by ESKOM. The Group`s general
industrial supply company, Omnirapid, continued to exhibit impressive growth as
its after tax profits increased by over 177%. Engineered Linings managed to
maintain historic turnover levels but was forced to decrease margins to remain
competitive.
The Specialised Services segment also experienced a 14% reduction in turnover.
The segment managed to increase gross margins by 27% to 19% (2010: 15%).
Petrologic experienced problems in its production line, which resulted in a
reduction in turnover, although it managed to increase its gross margin
percentage. Petrologic has a new management team in place whose vision and
determination to produce service excellence is already yielding excellent
results and is transforming this company into a market leader.
Cryoshield has integrated well into the Group. Cryoshield produced its best set
of financial results in its history despite tough trading conditions. Rand Air
and Gas, the Group`s other cryogenic business, was negatively affected as the
gas industry remained in deep recession. This company`s turnover declined and
gross margins also came under pressure. Management is confident that the market
conditions will improve.
FINANCIAL REVIEW
Despite the second half of the year being exceptionally difficult, the Group
was able to achieve an operational profit. Turnover for the year increased by
1,7% to R378,5 million (2010: R372,2 million) although the gross profit margin
decreased to 19,9% (2010: 24,2%). Operational costs increased compared to the
prior financial year. Most of the increase is attributable to shared services.
Additional senior staff inflationary increases in salary and overheads, the
expensing of costs previously capitalised to investments and substantial costs
relating to the restructuring of Mather & Platt are the primary reasons for the
increase.
The Group remains robust despite the economic downturn and continues to
generate positive cash flows from operations. The Group`s cash flow cycle and
working capital ratios remained consistent with the previous year primarily
attributable to effective working capital management procedures in place. The
Group finished the year with a net overdraft of R10,4 million (2010: R12,1
million).
The Group`s HEPS is a loss of 3,2 cps (2010: profit of 5,2 cps). The decline is
as a result of the tough trading conditions experienced during the year.
However, the Group`s EPS improved to a loss of 3,4 cps (2010: loss of 34 cps)
A detailed assessment of the carrying value of the Group`s goodwill was
undertaken at year end. In terms of this assessment, the goodwill attributable
to the Group`s various cash generating units was in line with the values
reflected in the Statement of Financial Position. In terms of the assessment,
it was therefore decided not to impair the goodwill. It should be noted that
the cost of running the Group`s head office has not been apportioned to the
cash generating units in assessing the carrying value of goodwill.
GOING CONCERN
The Group incurred a loss for the year ended 28 February 2011, amounting to R8
305 789 (2010: R83 075 796), after impairment charges, and at year end was
unable to meet the terms and conditions of the loan covenants with its main
banker Investec. The Group however had positive cash flows. Investec has
indicated that it has no intention of reducing the Group`s facilities at the
present moment although it reserves its rights in this regard. Nothwithstanding
the aforementioned, management is currently in discussions with Investec
regarding the facility. An update on these discussions will be communicated to
shareholders on the release of the audited results.
Initiatives taken by the directors during the year to restore the business to
profitability include:
- Restructuring the business of the loss making subsidiary, Mather & Platt, to
the extent that subsequent to year end the subsidiary is operating profitably
with positive cash flows;
- Reduction of costs mainly through the retrenchment of certain senior members
of management, rationalization of shared services and the centralization of
several operations into a single industrial park: and
- Entering into negotiations with third parties, which are substantially
complete, for the sale of certain subsidiaries, the proceeds of which are
expected to enhance the capital base of the Group.
In an attempt to further reduce costs management is considering the possibility
of divisionalising the Group`s subsidiaries on a phased basis.
The Board is of the view that these initiatives should enable the group to
improve its capital base and trade profitably. The Group is expected to be able
to meet the terms and conditions of its loan covenants during the 2012
financial year. Accordingly the financial statements are prepared on the going
concern basis.
The Board is confident that the implementation of the above measures together
with an improvement in trading conditions should be more than sufficient to
ensure that the Group`s current facilities are not changed by Investec. In the
unlikely event that Investec deem it necessary to change the terms of the
abovementioned facilities, there is a material uncertainty that may cast
significant doubt on the ability of the company and its subsidiaries to
continue as going concerns and be able to realize their assets and discharge
their liabilities in the normal course of business.
PROSPECTS
The management of PSV expect the operating environment to remain difficult for
the first half of the new financial year. Various factors suggest that the
forthcoming year will reflect an improvement in the overall financial
performance of the Group. These factors include inter alia the integration of
the Group, the reduction in shared service costs, the further substantial
restructuring of Mather & Platt and the finalistation of the Turbo Agency group
of Companies ("Turbo") acquisition into PSV. As with all Group companies, Turbo
is characterized by strong management, a trading history in excess of 20 years
and a strong profit track record. The horizontal and vertical integration
possibilities are impressive. Turbo will enable the Group to establish a
credible footprint in Africa and assist Group companies to market their
products and services in new unchartered territories.
Turbo was acquired for a purchase consideration of R24 million and will be
funded through a combination of a 5 year interest bearing vendor loan and the
issue of shares on achievement of stringent profit warranties.
DIVIDENDS
The Group will continue to retain and utilise cash generated to fund working
capital requirements and potential acquisitions and as such, no dividends were
declared or proposed. The board will review the dividend policy annually.
COMPANY SECRETARY
During the course of the year, the Group`s company secretary Megan Saayman
resigned and was temporarily replaced by Sheenagh Reynolds and the Financial
Director Tony Dreisenstock. On 10 January 2011 PSV announced the appointment of
Monika Pretorius as the company secretary of PSV Holdings with immediate
effect. PSV wishes Monika well in this role.
ANNUAL GENERAL MEETING
The annual general meeting will be held at PSV Holdings Office Park Corner
Barbara and North Reef Roads Elandsfontein Johannesburg. Further details on the
company`s annual general meeting will be contained in PSV`s annual report to be
posted to shareholders on or about 5 August 2011.
For and on behalf of the board
AJD da Silva
Chief Executive Officer
AR Dreisenstock
Financial Director
31 May 2011
DIRECTORS
Executive Directors: P Robinson* (Deputy Chairman), AJD da Silva (Chief
Executive Officer), AR Dreisenstock (Financial Director), DJ Kelly*.
Non-Executive Directors: CE Chimombe-Munyoro (Non-Executive Chairperson),
E Dube (Alternate), MM Patel**, GS Nzalo**
*British
**Independent Non-Executive Directors
COMPANY SECRETARY: M Pretorius
REGISTERED OFFICE: PSV Holdings Office Park
Corner Barbara and North Reef Roads Elandsfontein Johannesburg
Postnet Suite 229, Private Bag X19, Gardenview, 2047 T (local): 0860 778 778 T
(international): +2711 657 6000 F: 0860 329 778
TRANSFER SECRETARIES: Computershare Investor Services (Pty) Limited, 70
Marshall Street, Johannesburg,
South Africa, 2001. PO Box 61051, Marshalltown, South Africa, 2107
DESIGNATED ADVISER: Vunani Corporate Finance
Date: 31/05/2011 14:31:31 Supplied by www.sharenet.co.za
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