Wrap Text
Reviewed consolidated interim results for the six months ended 31 August 2012
Protech Khuthele Holdings Limited
Registration number 2000/024352/06 JSE code: PKH ISIN: ZAE000101986
(Protech or the Company or the Group)
Reviewed consolidated interim results
for the period ended 31 August 2012
REvENuE up 7% OPERAtING PROfIt up 92% CASH up 45%
Condensed consolidated statement of financial position
at 31 August 2012
Reviewed Reviewed Audited
Group Group Group
R000 31/08/2012 31/08/2011 29/02/2012
ASSEtS
Noncurrent assets 435 466 481 579 460 045
Property, plant and equipment 386 974 443 649 411 278
Goodwill 33 549 33 549 33 549
Other intangible assets 3 825 4 381 4 100
Deferred tax 11 118 11 118
Current assets 422 899 359 621 358 595
Inventory 14 040 11 489 11 305
Amounts due from contract customers 60 151 64 789 64 614
trade and other receivables 238 986 203 321 192 309
Other financial assets 5 058 7 959 10 395
Bank balances and cash 104 664 72 063 79 972
total assets 858 365 841 200 818 640
EQuItY AND LIABILItIES
Share capital and reserves
Shareholders equity 340 037 344 934 324 589
Share capital and share premium 228 598 228 598 228 598
Other reserves (122 843) (124 035) (123 273)
Retained earnings 234 282 240 371 219 264
total liabilities 518 328 496 266 494 051
Noncurrent liabilities 188 121 235 256 226 837
Borrowings interest bearing 131 970 176 660 170 686
Deferred tax 56 151 58 596 56 151
Current liabilities 330 207 261 010 267 214
Borrowings interest bearing 94 675 119 125 117 451
trade and other payables 123 511 118 867 109 086
Subcontractor liabilities 36 881 23 018 20 212
Amounts due to contract customers 75 140 20 465
total equity and liabilities 858 365 841 200 818 640
SuPPLEMENtARY StAtEMENt Of fINANCIAL POSI-
tION INfORMAtION
total number of shares in issue (thousands) 362 500 362 500 362 500
Net asset value per share (cents) 93.8 95.2 89.5
NtAv/Share (cents) 83.5 84.7 79.2
Capital expenditure (R'000)
Spent 21 401 100 636 160 721
Commitments Authorised but unspent 121 170 20 000
Performance guarantees issued (R'000) 46 126 135 174 98 687
Condensed consolidated statement of comprehensive income
for the six months ended 31 August 2012
Reviewed Reviewed Audited
Group Group Group
6 months 6 months 12 months
ended ended ended
R000 31/08/2012 31/08/2011 29/02/2012
Revenue 530 592 494 770 965 794
Earnings before interest, taxation, depreciation and
amortisation 72 926 50 817 63 162
Depreciation and amortisation (40 694) (34 026) (66 985)
Earnings/(loss) before interest and taxation 32 232 16 791 (3 823)
Net interest paid (8 208) (9 660) (19 442)
Earnings/(loss) before taxation 24 024 7 131 (23 265)
taxation (9 006) 2 911 12 200
Earnings/(loss) for the period 15 018 10 042 (11 065)
Other comprehensive income for the period, net of tax 430 (6) 756
Movement in foreign currency translation reserve 430 (6) 756
total comprehensive income/(loss) for the period 15 448 10 036 (10 309)
Earnings/(loss) per share (cents)
Basic 4.1 2.8 (3.1)
Supplementary income statement information
Weighted average number of shares in issue:
Weighted average number of shares in issue (thou-
sands) 362 500 362 500 362 500
Reconciliation of headline earnings/(loss):
Profit/(loss) attributable to shareholders of the holding
company 15 018 10 042 (11 065)
Adjusted for (profit)/loss on disposal of assets (1 710) 3 656 7 360
Headline earnings/(loss) 13 308 13 698 (3 705)
Headline earnings/(loss) per share (cents)
Basic 3.7 3.8 (1.0)
Condensed consolidated statement of cash flows
for the six months ended 31 August 2012
Reviewed Reviewed Audited
Group Group Group
6 months 6 months 12 months
ended ended ended
R000 31/08/2012 31/08/2011 29/02/2012
Cash flows from operating activities 97 829 54 307 71 294
Cash receipts from customers 488 378 522 992 1 019 632
Cash paid to suppliers and employees (376 577) (446 667) (905 813)
Cash generated by operations 111 801 76 325 113 819
Net interest paid (8 208) (9 660) (19 442)
Income taxes paid (5 764) (12 358) (23 083)
Cash flows from investing activities (11 646) (57 004) (58 434)
Purchase of property, plant and equipment (21 401) (100 636) (160 721)
Replacement (75 293) (129 931)
Additions (21 401) (25 343) (30 790)
Proceeds on disposal of property, plant and equipment 7 661 47 530 102 214
Decrease/(increase) in loans granted 2 094 (3 898) 73
Cash flows from financing activities (61 491) 2 148 (5 500)
(Payments)/receipts in terms of loan finance (8 650) (5 765) 3 732
Increase in borrowings related to instalment sale agree-
ments 111 160 175 460
Payments in terms of instalment sale agreements (52 841) (103 247) (184 692)
Net increase/(decrease) in cash and cash equivalents 24 692 (549) 7 360
Cash and cash equivalents at the beginning of the
period 79 972 72 612 72 612
Cash and cash equivalents at the end of the period 104 664 72 063 79 972
Cash and cash equivalents comprise of:
Bank balances and cash 104 664 72 063 79 972
Condensed consolidated statement of changes in equity
for the six months ended 31 August 2012
Equity
attributable
foreign to the
Common currency shareholders
Share Share control translation Retained of the
R000 capital premium reserve reserve earnings company
Balance at 28 february 2011
Audited 2 228 596 (123 998) (31) 230 329 334 898
total comprehensive income for
the year 756 (11 065) (10 309)
Balance at 29 february 2012
Audited 2 228 596 (123 998) 725 219 264 324 589
total comprehensive income for
the period 430 15 018 15 448
Balance at 31 August 2012
Reviewed 2 228 596 (123 998) 1 155 234 282 340 037
Operational segmental reporting
for the six months ended 31 August 2012
Services within each Business Segment
For management purposes, the Group is organised into three major operating divisions contracting, geotechnical laboratory and readymix. these divisions are the basis
on which the Group reports its primary segment information. the principal services and products of each of these divisions are as follows:
Contracting bulk earthworks, roads and civil engineering contractors, plant hire, impact compaction and logistical services.
Geotechnical laboratory geotechnical laboratory and surveying services.
Readymix supplier of readymixed concrete and pumping services.
Reviewed segment revenue and segment result
Segment revenue Segment result
6 months 6 months 6 months 6 months
ended ended ended ended
R000 31/08/2012 31/08/2011 31/08/2012 31/08/2011
Contracting 448 868 417 151 28 246 10 212
Geotechnical laboratory 10 215 11 055 1 035 4 127
Readymix 84 981 73 190 3 408 2 145
544 064 501 396 32 689 16 484
Corporate* 41 725 4 350 (457) 307
Eliminations (55 197) (10 976)
530 592 494 770
Earnings before interest and taxation 32 232 16 791
Net interest paid (8 208) (9 660)
Earnings before tax 24 024 7 131
taxation (9 006) 2 911
Earnings for the period 15 018 10 042
Segment revenue reported above represents revenue generated from external customers. Intersegment sales amounted to R55,2 million (2011: R11,0 million). Segment
result reported above represents operating profit per segment prior to taking depreciation and interest into account.
The accounting policies of the reportable segments are the same as the Groups accounting policies.
REvIEWED Segment assets and liabilities
Segment assets Segment liabilities
As at As at As at As at
R000 31/08/2012 29/02/2012 31/08/2012 29/02/2012
Contracting 762 970 841 518 555 650 563 527
Geotechnical laboratory 7 289 17 476 2 473 5 383
Readymix 77 803 72 171 32 450 83 204
848 062 931 165 590 573 652 114
Corporate* 113 694 422 537 42 461 183 849
Intergroup eliminations (103 391) (535 062) (114 706) (341 912)
858 365 818 640 518 328 494 051
Other segment information
Depreciation and amortisation Additions to non-current assets
6 months 6 months 6 months 6 months
ended ended ended ended
R000 31/08/2012 31/08/2011 31/08/2012 31/08/2011
Contracting 37 679 31 056 20 516 100 012
Geotechnical laboratory 815 668 830 132
Readymix 1 705 1 693 55 329
Corporate 495 609 163
40 694 34 026 21 401 100 636
* Corporate includes the transactions of the holding company.
Notes to the condensed consolidated financial report
for the six months ended 31 August 2012
Corporate information
Protech is incorporated and domiciled in South Africa. Protech is listed on the JSE Limited. the main business of Protech and its operating subsidiaries is bulk
earthworks, plant hire, civil engineering services and sale and distribution of readymix concrete.
The directors of Protech authorised the issue of the condensed consolidated financial report for the six months ended 31 August 2012 on 2 November 2012.
Basis of preparation and accounting policies
This condensed consolidated interim report complies with International Accounting Standard 34 Interim financial Reporting, the disclosure requirements of the
JSE Limiteds Listings Requirements and the requirements of the South African Companies Act, 2008, as amended. the condensed financial information has been
prepared in accordance with the framework concepts and the measurement and recognition requirements of International financial Reporting Standards (IfRS) and
the AC 500 standards as issued by the IASB applied in the prior financial year except for those standards that became effective during the reporting period. the
adoption of these standards has had no effect on the results. this report was compiled under the supervision of the chief financial officer, CJA Wolmarans CA(SA).
Property, plant and equipment
Capital expenditure on property, plant and equipment was R21,4 million (2011: R100,6 million) for the six months ended 31 August 2012.
Subsequent events the directors are not aware of any matter or circumstance arising since the end of the period and up to the date of this report, not otherwise dealt with in this report.
Independent review opinion
The auditors, Deloitte & touche have issued their unmodified review opinion on the condensed consolidated financial report for the six months ended 31 August 2012. A copy
of their unmodified review opinion is available for inspection at the Companys registered office.
Directors: MSG Mareletse* (Chairman), ASW Page (Chief Executive Officer), CJA Wolmarans (Group financial Director), v Raseroka*, MJ Vuso*, TW Rensen (Irish)*
* non-executive independent
Secretary: iThemba Governance, Statutory Solutions (Pty) Ltd.
Registered office: Corner R512 and Elandsdrift Road, Bultfontein, Lanseria (Private Bag X6, Lanseria, 1748) (Website: www.pkh.co.za)
Transfer secretary: Link Market Services South Africa (Proprietary) Limited, 13th floor, Rennie House, 19 Ameshoff Street, Braamfontein (PO Box 4844, Johannesburg,
2000)
Sponsor: Deloitte & Touche Sponsor Services (Proprietary) Limited
Commentary
Introduction
The market conditions in both the construction and mining sectors, in South Africa and on the rest of the continent, remain challenging and volatile. the depressed
state of the markets had a generally negative impact on work volumes and profit margins throughout the industry and sector. the much needed and long awaited
infrastructure spend, to which government remains assuredly committed, is not reflecting in tender flows. Competition in the local construction sector continues to be
fierce and the level of confidence in the sector remains low.
Despite the adverse market, Protech achieved satisfactory results for the first half of the 2013 financial year. the repositioning and strategic refocusing process
embarked upon at the end of the previous financial year is starting to show positive effects on the Group results and will continue to do so going forward.
Protech is pleased to report interim results for the 6 months ended 31 August 2012 which reflect its return to profitability from the reported loss at the end of the
previous financial year.
Safety
Protech achieved an LTIFR of 0,30 for the six months ended 31 August 2012, compared to 0,38 for the comparative six months, which is as a result of an increase in
safety awareness in Protech. the main contributor was the near miss campaign launched at the beginning of the financial year.
Progress with strategic turnaround process
Protech has continued to build on the momentum of its strategic turnaround during the period under review through a number of interventions:
- Careful and focused recruitment has brought to Protech a number of seasoned industry executives, significantly upskilling the executive management in crucial areas
of the business including strategy, engineering, project and construction management, commercial and risk management, organisational performance and development.
A new strategic leadership team has emerged and is gaining traction in all these areas. this is being supplemented at the senior operational level with further key
engagements to manage the operational delivery engine for performance.
- In the turnaround, the focus has been on an internal strategy that has concerned itself with implementing consistent management information systems to provide the
necessary decision making and tracking information to drive the turnaround. this included the introduction of contractual and commercial competencies to the business
in order to effectively manage risk, transforming the way in which Protech delivers its solutions, with a top priority being placed on achieving the margins that it has
tendered. Allied to this is managing and implementing a capacity management programme, in order to become more commercially astute.
- Careful attention has been given to managing debt in order to protect the balance sheet with the net gearing ratio decreasing from 64% to 36% in the last six months,
resulting from the repayment of debt in the amount of R61,5 million. the new management team also modified the plant model, extending the useful life of the plant
to match market conditions and selectively positioning the Company for growth as attractive projects are secured. Accordingly, Protech is preserving its cash resources
in order to secure profitable growth opportunities. Cash management is a focal point at all levels of the operational structures and has been enhanced with the
appointment of several Quantity Surveyors to make sure that cash flows through the projects in accordance with initial pricing.
- Protech is successfully evolving from an owner-managed culture to a professionally-led construction company. It will retain its entrepreneurial approach while
equipping the operational management team to make competitive decisions and monitoring their performance, backed up by resilient management information
systems. Substantial work has ensured that the cost base matches the current market pricing dynamic, in order to be able to win work and deliver margin.
- Developing Protechs value chain by pursuing carefully aligned civil engineering works will bring on a new revenue stream while keeping the business focused on its
core activities and improving its ability to service its customers requirements.
- From an external strategic perspective, Protech continues to evaluate opportunities to expand its footprint nationally, developing a regional coastal presence.
Its strategy outside South Africa has been carefully streamlined to Zambia, Zimbabwe and Mozambique, while avoiding the risks that have impacted the overall
performance of a number of other construction companies.
financial Review
Statement of comprehensive income
Group Revenue for the six months ended 31 August 2012 increased by 7% to R530,6 million from R494,8 million in the comparative prior year period. the bulk of the
revenue for the six months under review was derived from mining related projects both locally and in the rest of the continent.
Group operating profit before interest for the six months ended 31 August 2012 increased by 92% to R32,2 million (H1 2012: R16,8 million) with operating margins at
group level improving to 6,1% for the period under review (H1 2012: 3,4%).
Earnings per share increased by 46,4% to 4,1 cents (H1 2012: 2,8 cents) and headline earnings per share decreased by 2,6% to 3,7 cents (H1 2012: 3,8 cents).
Statement of financial position
Net asset value per share as at 31 August 2012 was 93,8 cents compared to 95,2 cents in the prior comparative period and 89,5 cents at 29 february 2012.
Interest bearing debt related to asset finance decreased by 23,4% to R226,6 million compared to R295,8 million in the prior year comparative period. the debt to equity
ratio at 31 August 2012 was 35,9% as opposed to 64,9% in the prior comparative period. Capital expenditure during the six months under review amounted to R21,4
million (H1 2012: R100,6 million). the cash position of the company remains healthy with total cash and cash equivalents at 31 August 2012 amounting to R104,6
million (H1 2012: R72,1 million).
There where no significant asset disposals during the period under review with net capital expenditure amounting to R13,7 million as opposed to R53,1 million in the
comparative prior year period.
Statement of cash flows
Cash generated by operations improved by 46,5% to R111,8 million (H1 2012: R76,3 million) as a result of improved trading results and focused cash management.
When comparing cash generated by operations before working capital changes to EBItDA, the ratio of cash generated to EBItDA is 1,6 times (2012: 1,5). the Group
therefore remains confident of its cash generating ability.
Operational Review
Contracting 83% of group revenue
The Contracting business unit remains the largest part of the business, contributing 83% (H1 2012: 83%) to Group revenue and 86% (H1 2012: 97%) to operating
profit. Revenue for Contracting increased by 7,6% to R448,9 million (H1 2012: R417,2 million). Mining sector related contracts, both locally and in the rest of the
continent attributed to 81% of the contracting revenue while 41% of the business units revenue was generated outside South Africa from contracts that were secured
in the previous financial year.
Operating profit of the contracting business increased by 176,6% to R28,2 million from the comparative periods R10,2 million. the increased awareness of risk and
contract management is starting to deliver tangible benefits as several smaller contracts that have underperformed are being completed. Continued management focus
through the turnaround program is expected to continue to improve the overall profitability of this business unit.
Geotechnical 2% of group revenue
This is the smallest business unit in the group and its contribution to revenue of R10,2 million (H1 2012: R11,1 million) represents 2% of group revenue and is virtually
unchanged from the comparative prior year period.
Readymix 15% of group revenue
The revenue generated by this business unit increased by 16,1% to R85,0 million (H1 2012: R73,2 million) despite challenging market conditions. the increase in
revenue is attributable to an increase in sales volumes of 5% and price increases driven by input cost increases.
Operating profit achieved in this business unit increased by 58,9% to R3,4 million as opposed to R2,1 million in the prior year comparative period. the contribution to
the Group operating profit is 11% (H1 2012: 13%).
Board changes
Mr Terence Rensen was appointed to the board as an independent non-executive director with effect from 19 April 2012. Mr Rensen also serves on the audit and risk
committee.
Corporate action
Protech issued a cautionary announcement to shareholders on 14 March 2012 wherein shareholders were advised that the company had entered into discussions
which may influence the share price if successfully concluded. the discussions referred to proceeded only as far as the entering into the of non-disclosure agreements
but did not progress to the stage where any third parties conducted due diligence investigations on Protech. the discussions did not lead to any formal proposal being
made to the company and as such the cautionary announcement was withdrawn on 19 October 2012.
Outlook
Having secured seven new contracting projects in the mining and public sectors as well as the commercial and industrial segments that are valued at R456 million, the
Group started the second half of the financial year with total work on hand of R750 million and a total qualified project pipeline of R1,0 billion.
Market conditions in its target markets are as follows:
- Public sector spending is slowly emerging as various levels of government align their capacity to award their budgeted projects. Protech is cautiously gearing its own
capacity to participate in this market.
- As a major constituent of the South African economy, mining remains a core target for Protech whose strategy is to extend its relationships for deeper penetration
among mining houses moving from its previous position of only being awarded disparate contracts on large projects.
- There are a number of opportunities throughout Africa, however with its strategy to focus on Zambia, Zimbabwe and Mozambique, as well as the stringent selection
criteria, the Group will maintain a selective approach to securing work in the region.
Protechs leadership team is committed to building further momentum to deliver on the turnaround strategy that will unlock shareholder value and results in a business
that has sustainable earnings, people and positioning in its chosen markets. this general forecast has not been reviewed or reported on by the Companys auditors.
On behalf of the directors
MSG Mareletse
Chairman
ASW Page
Chief Executive Officer
CJA Wolmarans
Group financial Director
Lanseria
2 November 2012
www.pkh.co.za
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