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PSV - PSV Holdings Limited - Unaudited Condensed Financial Results for the

Release Date: 27/10/2011 10:54
Code(s): PSV
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PSV - PSV Holdings Limited - Unaudited Condensed Financial Results for the six months ended 31 August 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") Unaudited Condensed Financial Results for the six months ended 31 August 2011 Condensed consolidated statement of comprehensive income for the period ended 31 August 2011 Unaudited Restated Audited
for the unaudited for the six months for the 12 months ended six months ended 31 August ended 28
2011 31 August February 2010 2011 R`000 R`000 R`000 Revenue 194 998 157 513 314 419 Gross profit 44 476 33 126 59 406 Operating expenses (38 535) (31 050) (62 436) Operating profit/(loss) 5 941 2 076 (3 030) Net finance charges* (6 026) (3 665) (8 069) Net exchange profit/(loss) 1 069 (783) 50 Profit/(Loss) before taxation 984 (2 372) (11 049) Taxation 409 643 (131) Total income/(loss) for the 1 393 (1 729) (11 180) period from continuing operations Discontinued operations 889 5 409 2 874 Total profit/(loss) for the 2 282 3 680 (8 306) period Other comprehensive income Foreign currency translation 305 - - gain Total comprehensive income for 2 587 3 680 (8 306) the period Reconciliation of headline earnings/(loss) Profit/(Loss) attributable to 2 282 3 680 (8 306) PSV equity holders (Profit)/Loss on disposal of (775) (462) (520) fixed assets Impairment of non-current - - 998 assets Headline earnings/(loss) 1 507 3 218 (7 828) Headline earnings/(loss) 619 (2 191) (10 702) continuing operations Reconciliation of normalised earnings/(loss) Headline earnings/(loss) 1 507 3 218 (7 828) Interest on deferred purchase 841 627 950 consideration payable Amortisation of specific 1 450 1 442 2 921 intangibles Deferred taxation provided on (406) (425) (818) above Straight lining of leases 875 (8) 146 Share based payments 22 570 834 Normalised earnings/(loss) 4 289 5 424 (3 795) Normalised earnings/(loss) 3 401 15 (6 669) from continuing operations Basic earnings/(loss) per 0,92 1,48 (3,36) share (cents) Basic earnings/(loss) per 0,56 (0,70) (4,52) share (cents) from continuing operations Headline earnings/(loss) per 0,61 1,30 (3,17) share (cents) Headline earnings/(loss) per 0,25 (0,88) (4,33) share (cents) from continuing operations Normalised earnings/(loss) per 1,73 2,19 (1,54) share (cents) Normalised earnings/(loss) per 1,38 0,01 (2,70) share (cents) from continuing operations Diluted earnings/(loss) per 0,91 1,45 (3,30) share (cents) Diluted earnings/(loss) per 0,55 (0,68) (4,46) share (cents) from continuing operations Diluted headline 0,60 1,27 (3,11) earnings/(loss) per share (cents) Diluted headline 0,25 (0,87) (4,25) earnings/(loss) per share (cents) from continuing operations Actual number of shares in 247 962 247 962 247 962 issue at period end Weighted number of shares in 247 210 247 962 247 210 issue at period end Fully diluted weighted average 251 740 253 178 251 740 number of shares in issue at period end * Actual net interest paid was R5 185 million. Balance comprises deferred purchase consideration interest. Condensed consolidated statement of financial position as at 31 August 2011 Unaudited Unaudited Audited 28 31 August 31 August February 2011 2010 2011
R`000 R`000 R`000 ASSETS Non-current assets 124 972 130 212 108 519 Current assets 206 093 151 944 181 458 Inventories 70 618 71 727 52 583 Trade and other receivables 68 167 67 552 58 016 Taxation receivable 6 860 3 520 7 205 Cash and cash equivalents 23 142 9 145 26 532 Assets held for sale 37 306 - 37 122 Total assets 331 065 282 156 289 977 EQUITY AND LIABILITIES Equity 145 358 154 471 142 749 Non-current liabilities 42 430 26 005 25 640 Borrowings 34 150 20 579 20 985 Deferred tax liabilities 8 280 5 426 4 655 Current liabilities 143 277 101 680 121 588 Trade and other payables 92 147 76 501 65 910 Bank overdrafts 39 080 25 179 37 200 Liabilities held for sale 12 050 - 18 478 Total equity and liabilities 331 065 282 156 289 977 Net asset value per share 58,62 62,30 57,57 (cents) Tangible net asset value per 34,77 39.01 36,99 share (cents) Condensed Consolidated statement of changes in equity for the period ended 31 August 2011 Unaudited Unaudited for Audited for for the the the
six six months 12 months months ended 31 ended 28 ended 31 August 2010 February 2011 August
2011 R`000 R`000 R`000 Balance at the beginning of the 142 749 150 222 150 221 period Total comprehensive income for 2 282 3 680 (8 306) the period Share based payment transactions 22 569 834 Foreign currency translation 305 - - differences Balance at the end of the period 145 358 154 471 142 749 Condensed Consolidated statement of cash flows for the period ended 31 August 2011 Unaudited Unaudited Audited for for the for the the six months six months 12 months ended 31 ended 31 ended 28
August 2011 August 2010 February 2011 R`000 R`000 R`000 Cash flows from operating 2 236 733 7 044 activities Cash flows from investing (8 830) (14 029) (16 417) activities Cash flows from financing 3 325 9 093 10 845 activities Net movement in cash and cash (3 269) (4 203) 1 472 equivalents Cash from acquisition of (2 001) 296 296 subsidiary Cash transferred to assets held - - (308) for sale Cash and cash equivalents at the (10 668) (12 128) (12 128) beginning of the period Cash and cash equivalents at the (15 938) (16 035) (10 668) end of the period Condensed consolidated segmental information for the six months ended 31 August 2011 Pumps Valves Specia- Other Total Discon- and and lised tinued Spares Indus- Service opera-
trial s tions Supplie s R`000 R`000 R`000 R`000 R`000 R`000
Revenue 53 536 59 837 81 625 - 194 998 20 197 Gross profit 16 962 18 154 9 360 - 44 476 6 330 Operating 6 412 10 415 8 336 14 893 40 056 2 086 expenses* Profit before 5 490 3 867 (8 960) 587 984 1 234 tax Depreciation/ 1 291 630 1 348 2 136 5 405 289 Amortisation Capital 849 (989) (893) 9 731 8 698 (302) expenditure Gross assets** 76 036 56 309 72 161 82 194 286 700 23 170 Gross 31 480 44 547 17 249 69 397 162 673 7 893 liabilities** * Operating expenses exclude other income and finance costs ** Deferred tax assets and deferred tax liabilities are excluded Condensed consolidated segmental information for the six months ended 31 August 2010 Pumps Valves Specia- Other Total Discon- and and lised tinued Spares Indus- service operati
trial s ons Supplie s R`000 R`000 R`000 R`000 R`000 R`000
Revenue 49 552 21 176 86 784 - 157 512 38 065 Gross profit 12 554 4 934 15 638 - 33 126 12 267 Operating 9 060 1 776 9 848 9 168 29 852 3 079 expenses* Profit before (1 880) 2 413 1 722 (4 267) (2 372) 7 493 tax Depreciation/ 1 178 41 1 570 2 252 5 041 218 Amortisation Capital (703) - (1 923) 270 (2 356) 116 expenditure Gross assets** 77 168 7 162 76 560 77 175 238 065 28 729 Gross 38 600 (5 646) 11 426 61 586 105 966 12 773 liabilities** * Operating expenses exclude other income and finance costs ** Deferred tax assets and deferred tax liabilities are excluded COMMENTARY NATURE OF BUSINESS PSV is an industrial engineering company operating in the primary sectors of the South African economy. Due to the acquisition of Turbo Agencies (Proprietary) Limited ("Turbo Agencies") which was effective 1 March 2011, and the disposal of Group Line Projects (Proprietary) Limited ("Group Line Projects") which was effective 8 October 2011, the board of directors of PSV ("the Board") has decided to align the Company`s business segments with existing structures used for monthly management reporting purposes. As a result, the Company`s new business segments are as follows: Pumps and Spares; Valves and Industrial Supplies; and Specialised Services (including petrochemical, geosynthetic linings and cryogenic activities). Accordingly, the comparative segmental report for the six months ended 31 August 2010 has been restated for ease of comparison. BASIS OF PREPARATION The condensed consolidated financial statements ("interim results") have been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRS") and the presentation and disclosure requirements of IAS 34: Interim Financial Reporting, the Listings Requirements of JSE Limited and in the manner required by the Companies Act, 2008 (Act 61 of 2008). The principal accounting policies as set out in the Company`s 2011 annual report, which are in terms of IFRS, have been consistently applied throughout the six month period under review. These interim results have not been reviewed or audited by the Group`s auditors. PREPARATION OF THE INTERIM RESULTS The interim financial statements have been prepared under the supervision of the Financial Director, AR Dreisenstock CA (SA) and H Dip Tax Law. FINANCIAL REVIEW PSV experienced a tough trading period during the six month period under review. Nothwithstanding, there was a noticeable improvement from the prior interim period. Revenue from continuing operations increased by 23,8% compared to the six month period ended 31 August 2010, and gross margins increased to 22,8% (2010: 21,0%). Operating expenses increased by 24,1%, in line with the increase in revenue. Operating margins increased to 3,0% (2010: 1,3%) and headline earnings per share from continuing operations increased by 128,4% to 0,25 cents (2010: 0,88 cents loss per share). Normalised earnings per share from continuing operations, calculated after eliminating interest provided on deferred purchase considerations, straight lining of leases, share based payments and amortisation of intangibles net of tax effects thereon also increased to 1,38 cents per share (2010: 0,01 cents per share). Compared to the prior interim period, operating cash flows trebled during the six month period under review, despite the ongoing pressure exerted on working capital. Securing a twelve month commitment from the Group`s bankers, together with the successful disposal of Group Line Projects subsequent to the six month period under review, will significantly reduce the Company`s gearing and consequential business risk. A detailed assessment of the Group`s goodwill and intangible assets was undertaken at period end. In terms of this assessment, the carrying values of goodwill and intangible assets of the Company`s cash generating units were in line with the values reflected in the statement of financial position. Accordingly, the Board decided not to effect any impairment at this time. The carrying value of goodwill and intangible assets will be re- assessed at year end. OPERATIONAL REVIEW Pumps and Spares This segment experienced an increase in revenue, gross margins and consequential profitability during the six months ended 31 August 2011, compared to the prior interim period. The segment contributed 27.5% to the Company`s total consolidated revenue at an average gross profit margin of 31,7% (2010: 25,3%). As the rainy season approaches, PSV is confident that there will be an improvement in high margin refurbishment and maintenance work on water pumps. The Company`s Mather + Platt subsidiary, which benefited from relocation and restructuring in the six month period under review, achieved a profit in the six month period under review, compared to the loss experienced in the prior interim period. Valves and Industrial Supplies This segment contributed 30.7% to the Company`s total consolidated revenue at an average gross profit margin of 30,3% (2010: 23,3%). Revenue increased substantially to R59,8 million (2010: R21,2 million), as a result of the addition of Turbo Agencies in the six month period, which contributed R30,4 million in revenue, as well as to the outstanding performance by Omnirapid Mining and Industrial Supplies (Proprietary) Limited ("Omnirapid"). Omnirapid has continued to exceed budgetary expectations, generating revenue of R34,5 million in the six month period under review(2010: R25,3 million). Specialised Services Specialised Services contributed 42% to the Company`s total consolidated revenue at an average gross profit margin of 11,5% (2010 18,0%). Segmental revenue declined from R86,8 million for the six months ended 31 August 2010 to R81,6 million for the comparable six month period ended 31 August 2011. The decline of the gross profit margin is attributable to PSV`s petrochemical subsidiary Petro-Logic (Proprietary) Limited ("Petro-Logic"). Petro-Logic has invested significantly in human and capital resources, as well as having implemented vastly improved operating procedures and systems. Unfortunately, whilst Petro-Logic can unreservedly be called market leaders in terms of service excellence, the provision of this service has come at an unaffordable cost. Post the six month period under review, Petro-Logic has been able to negotiate far better maintenance rates with its main customers, diversify its revenue streams into more profitable areas and effectively control costs. As a result, the Board is expecting a significant improvement in performance in the next six months. ACQUISITION OF TURBO AGENCIES With effect 1 March 2011 100% of the issued share capital was purchased from Earthwise Services (Pty) Ltd ("EWS") and Keith and Carol Parry ("the Parry`s) for a consideration of R24 million. Turbo Agencies supplies tooling equipment and provides crane maintenance services to the mining, engineering automotive industries in Botswana, Zambia and the Democratic Republic of Congo ("DRC"). The main reason for the purchase of Turbo Agencies is to extend PSV`s footprint into Africa, and leverage off Turbo Agencies` existing customer network with the range of PSV products. The purchase consideration is to be settled as follows: - A R12 million fully amortising vendor financed loan owed to EWS payable over five years at prime plus one and - R12 million due to the Parry`s subject to profit warranties to be settled in three equal tranches by the issue of PSV shares. However, in terms of the sales agreement, in the event that the price of PSV shares drops below 17 cents per share, then the entire consideration due is to be settled in cash. As this is the case, the full amount is now to be settled in cash. The balance sheet at effective date was as follows: 28-Feb- 11 R`000
ASSETS Non-current assets 11,665 Goodwill 4,392 Deferred Tax 433 Other non-current 6,840 assets Current assets 21,051 Inventories 5,625 Trade and other 15,234 receivables Cash and cash 192 equivalents Total assets 32,716 Non-current 16,638 liabilities Loans from 13,841 shareholders Finance lease 2,797 obligations Current liabilities 11,905 Taxation payable 1,725 Trade and other 7,986 payables Bank overdrafts 2,194 Total equity and 28,543 liabilities Net assets 4,173 As at 31 August 2011 Turbo has generated revenue of R30million and contributed 28% to the Group`s EBITDA. The current profit after tax for the six months ending 31 August 2011 is R2.8million. CHANGES TO THE BOARD At the Company`s recent annual general meeting held on 29 September 2011, shareholders voted against the re-election of all the incumbent non- executive directors. The Company has committed to re-establishing its Board and its audit and risk committees by no later than 30 November 2011, provided that all JSE and statutory requirements can be met timeously. Shareholders will be informed accordingly. As a result of the disposal of Group Line Projects, Dave Kelly`s function changed from that of an executive director to a non-executive director with effect from 30 September 2011. DIVIDENDS The Group will continue to retain and utilise cash generated to fund its working capital requirements and potential acquisitions. As such, no dividends were declared or proposed. The Board will review the dividend policy annually. SUBSEQUENT EVENTS Other than the disposal of Group Line Projects, the Board is not aware of any other material matters that have occurred since the end of the six month period under review, up to and including the date of this report. PROSPECTS It is the opinion of the Board that, the six month period under review has undoubtedly been the most difficult period which the Company has had to endure during its history. However, the Board is pleased with its adopted strategy of disposing of Group Line Projects and replacing the lost income with the positive contribution from Turbo Agencies. Turbo Agencies is also assisting with the diversification of the PSV footprint in Africa. Furthermore, the consolidation of costs and businesses into the PSV Office Park has been a resounding success. In October 2011, PSV acquired the business of PSV MITECH, a local manufacturer of globe control valves, pneumatic actuators, de-superheaters and allied equipment for the process industry. This acquisition will provide PSV with access to the high end of the control valve market, a segment PSV has not previously been involved in, as well as the ability to broaden the existing valve range in South African, African and international markets. The effective date accounts are still being finalised. Consequently, the relevant financial information is not yet available. Although the economic climate is expected to remain difficult, the Board is cautiously optimistic that the changes effected within the various business units will position them to generate better returns despite the current operating environment. For and on behalf of the Board AJD da Silva AR Dreisenstock Chief Executive Officer Financial Director 27 October 2011 DIRECTORS Executive Directors: P Robinson* (Deputy Chairman), AJD da Silva (Chief Executive Officer), AR Dreisenstock (Financial Director). Non-Executive Directors DJ Kelly* *British Company secretary: M Pretorius REGISTERED OFFICE: PSV Holdings Office Park, Corner Barbara and North Reef Roads, Henville Ext, Elandsfontein Postnet Suite 229, Private Bag X19, Gardenview, 2047 Tel (local): (011) 657 6000 Tel (international): +2711 657 6000 Fax: (011) 822 8470 TRANSFER SECRETARIES: Computershare Investor Services (Proprietary) Limited, 70 Marshall Street, Johannesburg, South Africa, 2001 (PO Box 61051, Marshalltown, South Africa, 2107) DESIGNATED ADVISER: Merchantec Capital Date: 27/10/2011 10:54:01 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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