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Audited abridged report for the year ended 28 February 2013
Protech Khuthele Holdings Limited
Registration number 2000/024352/06 JSE code: PKH ISIN: ZAE000101986
(Protech or the Company or the Group)
Audited abridged report
FOR THE YEAR ENDED 28 FEBRUARY 2013
CASH UP 74%
REVENUE UP 6,4%
OPERATING MARGIN OF 4,5%
EARNINGS PER SHARE 4,4cents
NET ASSET VALUE PER SHARE 94,5cents
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 28 February 2013
Audited Audited
R000 2013 2012
ASSETS
Non-current assets 409 798 460 045
Property, plant and equipment 355 273 411 278
Goodwill 33 549 33 549
Other intangible assets 3 552 4 100
Deferred tax 17 424 11 118
Current assets 471 556 358 595
Inventory 17 936 11 305
Amounts due from contract customers 56 902 64 614
Trade and other receivables 246 922 192 309
Other financial assets 3 428 3 428
Current tax assets 7 272 6 967
Bank balances and cash 139 096 79 972
Total assets 881 354 818 640
EQUITY AND LIABILITIES
Total equity 342 432 324 589
Share capital and share premium 228 598 228 598
Reserves (121 500) (123 273)
Retained earnings 235 334 219 264
Total liabilities 538 922 494 051
Non-current liabilities 132 275 226 837
Borrowings 75 430 170 686
Deferred tax 56 845 56 151
Current liabilities 406 647 267 214
Borrowings 102 195 117 451
Trade and other payables 173 447 109 086
Subcontractor liabilities 17 411 20 212
Amounts due to contract customers 98 848 20 465
Current tax liabilities 14 746 -
Total equity and liabilities 881 354 818 640
SUPPLEMENTARY STATEMENT OF FINANCIAL POSITION INFORMATION
Total number of shares in issue (000) 362 500 362 500
Net asset value per share (cents) 94,5 89,5
Capital expenditure (R000)
- Spent 19 371 160 721
- Commitments - Authorised but unspent 148 451 20 000
Peformance guarantees issued (R000) 149 882 98 687
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 28 February 2013
Audited Audited
R000 2013 2012
Revenue 1 027 244 965 794
Earnings before interest, taxation, depreciation and amortisation 116 054 63 162
Depreciation (69 533) (66 437)
Amortisation of intangible assets (548) (548)
Earnings/(loss) before interest and taxation 45 973 (3 823)
Interest received 3 228 2 963
Interest paid (19 425) (22 405)
Earnings/(loss) before taxation 29 776 (23 265)
Taxation (13 706) 12 200
Earnings/(loss) for the year 16 070 (11 065)
Other comprehensive income for the year, net of tax 1 773 756
Movement in foreign currency translation reserve 1 773 756
Total comprehensive income/(loss) for the year 17 843 (10 309)
Earnings/(loss) attributable to: 16 070 (11 065)
- Equity holders of the holding company 16 070 (11 065)
Total comprehensive income/(loss) attributable to:
- Equity shareholders of the company 17 843 (10 309)
Earnings per share (cents)
Basic earnings/(loss) per share 4,4 (3,1)
Supplementary income statement information Weighted average number of shares in
issue:
- Weighted average number of shares in issue (thousands) 362 500 362 500
Reconciliation of headline earnings/(loss):
Profit/(loss) attributable to shareholders of the holding company 16 070 (11 065)
Adjusted for (profit)/loss on disposal of assets (1 830) 7 360
Headline earnings/(loss) 14 240 (3 705)
Headline earnings/(loss) per share (cents)
- Basic 3,9 (1,0)
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 28 February 2013
Audited Audited
R000 2013 2012
Cash receipts from customers 1 022 297 1 019 632
Cash paid to suppliers and employees (820 600) (905 813)
Cash generated by operations 201 697 113 819
Interest received 3 228 2 963
Interest paid (19 425) (22 405)
Income taxes paid (4 877) (23 083)
Cash flows from operating activities 180 623 71 294
Purchase of property, plant and equipment (19 371) (160 721)
- Replacement (715) (129 931)
- Additions (18 656) (30 790)
Proceeds on disposal of property, plant and equipment 8 384 102 214
Decrease in loans granted - 73
Cash flows from investing activities (10 987) (58 434)
Increase in borrowings related to bank loans - 14 054
Payments in terms of bank loans (18 991) (10 322)
Increase in borrowings related to instalment sale agreements - 175 460
Payments in terms of instalment sale agreements (91 521) (184 692)
Cash flows from financing activities (110 512) (5 500)
Net increase in cash and cash equivalents 59 124 7 360
Cash and cash equivalents at the beginning of the year 79 972 72 612
Cash and cash equivalents at the end of the year 139 096 79 972
Cash and cash equivalents comprise of:
Bank balances and cash 139 096 79 972
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 28 February 2013
Foreign
Common currency
Share Share control translation Retained Total
R000 capital premium reserve reserve earnings Equity
Balance at 1 March 2011 (Audited) 2 228 596 (123 998) (31) 230 329 334 898
Total comprehensive loss 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 year - - - 1 773 16 070 17 843
Balance at 28 February 2013 (Audited) 2 228 596 (123 998) 2 498 235 334 342 432
OPERATIONAL SEGMENTAL REPORTING FOR THE YEAR ENDED
28 February 2013
Services within each business segment
For management purposes, the Group is organised into three major operating divisions - contracting, geotechnical laboratory and
Readymix. These three 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.
SEGMENT REVENUE AND SEGMENT RESULT
Segment revenue Segment result
R000 2013 2012 2013 2012
Contracting 879 668 865 767 45 333 (17 902)
Geotechnical laboratory 17 503 23 405 (87) 7 123
Readymix 150 622 139 386 757 5 541
1 047 793 1 028 558 46 003 (5 238)
Corporate1 98 969 51 823 (30) 3 415
Intergroup eliminations (119 518) (114 587) - (2 000)
1 027 244 965 794
Operating profit/(loss) 45 973 (3 823)
Net interest paid (16 197) (19 442)
Profit/(loss) before tax 29 776 (23 265)
Taxation (13 706) 12 200
Profit/(loss) for the year 16 070 (11 065)
Segment revenue reported above represents revenue generated from external customers. Intersegment sales amounted to R119,5 million
(2012: R114,6 million). Segment result reported above represents operating profit per segment prior to taking interest into account.
The accounting policies of the reportable segments are the same as the Groups accounting policies.
SEGMENT ASSETS AND LIABILITIES
Segment assets Segment liabilities
R000 2013 2012 2013 2012
Contracting 914 375 841 518 615 891 563 527
Geotechnical laboratory 13 406 17 476 1 480 5 383
Readymix 76 518 72 171 87 927 83 204
1 004 299 931 165 705 298 652 114
Corporate1 420 708 422 537 183 769 183 849
Intergroup eliminations (543 653) (535 062) (350 145) (341 912)
881 354 818 640 538 922 494 051
OTHER SEGMENT INFORMATION
Depreciation and Additions to property,
amortisation plant and equipment
R000 2013 2012 2013 2012
Contracting 64 137 61 486 18 334 158 103
Geotechnical laboratory 1 574 1 319 948 854
Readymix 3 353 3 439 89 1 243
Corporate1 1 017 741 - 521
70 081 66 985 19 371 160 721
1 Corporate includes the transactions of the holding company.
GEOGRAPHICAL SEGMENTAL REPORTING
Property, Plant and
Revenue equipment
R000 2013 2012 2013 2012
South Africa 793 857 751 017 337 291 410 154
Rest of Africa2 233 387 214 777 17 982 1 124
1 027 244 965 794 355 273 411 278
2 Property, plant and equipment in Rest of Africa comprise assets acquired through subsidiaries or joint venture operations. The
operations in the Rest of Africa hire plant and machinery locally as well as from South Africa.
Information about major customers
Included in revenues arising from contracting income of R879,7 million (2012: R865,8 million) are revenues of approximately
R380,6 million (2012: R279,7 million) which arose from contracting income from two of the Groups largest customers.
Operating segments
The operating segments reported above form the basis on which internal reporting is structured for the chief decision makers. Therefore
there are no differences in terms of the numbers reported to shareholders and management.
NOTES TO THE ABRIDGED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 28 February 2013
1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
The abridged financial information has been prepared in accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS) of the International Accounting Standards Board, the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee, the information as required by IAS 34: Interim Financial Reporting,
the JSE Limiteds Listings Requirements and the requirements of the Companies Act of South Africa. The report has been prepared using
accounting policies that comply with IFRS, which are consistent with those applied in the financial statements for the year ended
29 February 2012. The preparation of the Groups consolidated year-end results for the year ended 28 February 2013 was supervised by the
Group Financial Director, MR Madubanya CA(SA).
2. SUBSEQUENT EVENTS
No material events have occurred subsequent to 28 February 2013 which may have an impact on the Groups reported financial position
at this date.
3. AUDIT OPINION
The Groups external auditors, Deloitte & Touche, have issued their unmodified audit opinion on the groups financial statements for the
year ended 28 February 2013. The audit was conducted in accordance with International Standards on Auditing. A copy of their audit
report is available for inspection at the companys registered office. These abridged financial statements have been derived from the
group financial statements and are consistent, in all material respects, with the group financial statements.
Any reference to future financial performance included in this announcement has not been reviewed or reported on by the Companys
auditors.
COMMENTARY
Protech is pleased to report annual results for the year ended 28 February 2013 which confirm that the turnaround is well on track, as evidenced
by its return to profitability and strengthened financial position.
Industry overview
Market conditions in the construction and mining sectors, in South Africa and on the rest of the continent, remain largely unchanged:
- In public sector infrastructure, long lead times on awarding new projects have been exacerbated by funding constraints. Protech is carefully
building its civil engineering and earthworks resources to benefit from anticipated opportunities within this sector, targeting transport, particularly
rail and road.
- In mining infrastructure, mining houses are increasingly segmenting projects into smaller packages. As a result an increasing number of smaller
players submit tenders, putting pressure on margins. This is countered by more stringent safety requirements that is creating a barrier to entry that
plays to Protechs strength, with its strong safety protocols and systems.
- There are signs of recovery in the commercial and industrial sector and through national expansion and by broadening its offerings, Protech
aims to continue to grow its ability to service this sector.
- Outside South Africa, private sector investment in new mining projects as well as general commercial and industrial infrastructure continues to
create growth opportunities. Protech has maintained its selective approach in its core target areas, being Zambia, Zimbabwe and Mozambique.
Safety
Overall, Protech achieved an LTIFR of 0,39 for the 12 months ended 28 February 2013, compared to 0,37 for the previous financial year. While
the Contracting division, which represents 84% of Group revenue, achieved an excellent LTIFR of 0,29, the performance was marred by two LTIs
within the Readymix division that represents 14% of Group revenue.
Corporate activity
The offer from Eqstra Holdings Limited to acquire all the outstanding shares in Protech at R0,60 per share has been extended. Eqstra is also on
record as stating that there is no scope to increase the offer price. This offer is considered unfair and unreasonable by the independent board,
constituted of non executive directors of Protech to advise on the matter. PwC Corporate Finance (Pty) Ltd has valued Protech at between R0,79
and R0,88 per share.
The independent board has strongly recommended that shareholders reject the offer in order to benefit from Protechs turnaround strategy.
Protechs management achieved its turnaround targets for the 2013 financial year and tangible benefits are starting to emerge. The Eqstra offer
values Protech substantially below the valuation undertaken by PwC as well as the net tangible asset value per share of 84,2 cents and discounts
the long term value creation potential of Protechs construction and infrastructure related activities. The Group believes that there is limited scope
for synergies between Protech and Eqstra and any benefits of a merger will in any event accrue to Eqstra shareholders.
Strategic turnaround: Evolving from an owner-managed culture to a professionally-led construction company.
Protechs executive completed the implementation phase of the strategic turnaround programme and is now embedding these into the business:
- People: Protechs positioning as a construction company with an evolving culture is drawing attention in the marketplace, and providing an
advantage in attracting skills to the Group. The competencies have been further strengthened by the recruitment of additional industry specialists
during the year.
- Risk and contractual: Risk management practices have been created and implemented. This includes tighter project selection criteria, with a
formal tender risk review process that has been fully embedded into the tender process. Improved lifecycle risk and change management are
starting to contribute to improved project margins.
- Debt and cash management: The Group effectively converted its improved operating performance into strong cash flow, repaying borrowings of
R110,5 million, while also improving the cash balance by 74% to R139,1 million. As a result, net gearing declined to 11% from 64% a year ago against
a long term target of between 50% and 80%. This creates a substantial advantage for Protech as it has headroom for growth and the capacity to take
on selected new opportunities once the turnaround has been fully bedded down.
- Project and construction management: These dedicated resources are tasked with achieving the tender margins on projects. This includes the
management of available resources and capacity to effectively execute in the projects environment. In addition, operational efficiency initiatives
include productivity and waste management as well as centralised procurement aimed at entrenching the margin improvements achieved to date.
- Management information systems: Critical to the success of the turnaround has been providing management with up to date information to
support decision making and monitor performance. Management information dashboards have been implemented across the business.
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
Revenue for the year ended 28 February 2013 increased by 6% to R1 027,2 million from R965,8 million in the comparative prior year. This growth
rate is in line with managements decision to avoid aggressively pursuing new projects in order to boost the order book at margins that
inadequately reflect the inherent project risks. Revenue from mining related contracts continued to make up the majority of the Groups revenue,
while 23% of revenue was generated outside South Africa.
Group operating profit before interest for the year ended 28 February 2013 showed a strong turnaround, to R46,0 million (2012: loss of R3,8 million).
The Group operating margin increased to 4,5% for the period under review (2012: (0,4%).
The Group reported earnings per share of 4,4 cents from a loss of 3,1 cents per share in the prior year.
Statement of financial position
Net tangible asset value per share as at 28 February 2013 increased 6% year on year to 84,2 cents compared to 79,2 cents in the prior
comparative period, reflecting the improved operational performance of the Group.
Interest bearing debt related to asset finance decreased by 37,3% to R153,8 million compared to R245,4 million in the prior year, while total
borrowings at 28 February 2013 amounted to R177,6 million (2012: R288,1 million). Accordingly, the net debt to equity ratio at 28 February 2013
was 11% as opposed to 64% in the prior year. Capital expenditure during the year under review declined to R19,4 million (2012: R160,7 million).
Despite repayments of borrowings amounting to R110,5 million during the year, the Group improved its cash position by R59,1 million, reporting
total cash and cash equivalents at 28 February 2013 of R139,1 million (2012: R80,0 million).
Proceeds on disposals of fixed assets during the year amounted to R8,4 million (2012: R102,2 million) resulting in net capital expenditure of
R11,0 million (2012: R58,4 million). The lower gearing and capital expenditure are immediate benefits of the optimised plant model which was
implemented at the end of the previous financial year in terms of which the useful life of plant was extended within the warranty period.
Statement of cash flows
Cash generated by operations improved by 77,2% to R201,7 million (2012: R113,8 million) as the Group effectively translated its improved trading
performance into positive cash flow and maintained a focused approach to cash management. When comparing cash generated by operations before
working capital changes to EBITDA, the ratio of cash generated to EBITDA is 1,0 times (2012: 1,16).
Operational Review
Construction 84% of Group revenue
The Construction activities remain the largest part of the business, contributing 84% (2012: 84%) to Group revenue and 98% to operating profit
compared to a loss of R18 million in the prior year. Construction Revenue increased by 2% to R879,7 million (2012: R865,8 million), in line with
the Groups project selection strategy.
Operating profit from Construction showed a R61,9 million turnaround to R45,3 million from the comparative period loss of R17,9 million. Stronger
risk and project management, enabled a steady improvement in overall project margins during the year due to the combined impact of an
improved ability to mitigate risks on older projects and better selection criteria on new projects. Operational efficiency initiatives aimed at improving
productivity on plant and equipment also contributed to the turnaround.
The ongoing focus in Construction is on sustainably achieving tender margins to deliver profitable growth. This is enabled by the improved
construction and project management capability as well as greater collaboration between the areas of activity including civil engineering,
earthmoving, asset management and structural concrete.
Geotechnical Laboratory 2% of Group revenue
This area of the business comprises specialist services including survey and laboratory services, road testing services; and geotechnical services,
all of which have, to date predominantly been provided to the Group. The contribution to revenue of R17,5 million (2012: R23,4 million)
represents 2% of Group revenue. The decline in revenue is largely due to the mix of work currently being undertaken by the Group. A greater
focus on securing external work is aimed at diversifying the revenue streams and reducing the dependence on internal work.
Readymix 14% of Group revenue
The revenue generated by this business unit increased 8% to R150,6 million (2012: R139,4 million). The increase in revenue is mainly attributable
to price increases driven by input cost increases.
Operating profit achieved in this business unit declined by 86%% to R0,8 million (2012: R5,5 million). The decline is largely due to a reallocation of
certain Readymix plant costs which were historically allocated to the Construction segment, but have been more appropriately allocated to the
Readymix segment for the 2013 financial year. Going forward, the pricing will take into account all the costs associated with the segment.
New leadership appointed at Readymix has increased its technical capability to broaden the concrete services offering. A greater focus on quality and
sales and a review of the logistics model is being investigated to improve returns. Product innovation, leveraging the SARTS laboratory capability, to
design bespoke concrete solutions for customers is planned.
Board changes
Resignations from the board and its subcommittees during the 2013 financial year were as follows:
- Mr CJA Wolmarans resigned as Financial Director from the PKH Board as well as from all other directorships and offices he held with the
Company and its subsidiaries and/or affiliated entities with effect from 21 December 2012.
- Mr Mafahle Mareletse, remains the Chairman of the Protech board, but resigned from the audit and risk committee in accordance with
governance principles as set out in King III with effect from 1 March 2013.
Protech continued to strengthen its Board of Directors to support delivery of the growth strategy, with the following appointments during the 2013
financial year:
- Mr Terence Rensen was appointed to the board as an independent non-executive director with effect from 19 April 2012. He also serves on the
audit and risk and the social and ethics committees.
- Mr Robert Madubanya was appointed as the company`s new Group Financial Director and executive member of the board with effect from
1 February 2013. With 13 years experience in construction including five years in an executive role, he strengthened the financial capability and
competency of the business.
- Mr Malcolm Adamson, was appointed as independent non-executive director to the board as well as its audit and risk committee with effect from
1 March 2013.
Outlook
Protechs current order book amounts to R1,0 billion, of which R360 million relates to contracts in final negotiation. Its total qualified pipeline of
opportunities is valued at some R3,1 billion. While mining remains a key focus for the Group, it is also pursuing a larger proportion of total
revenues to be generated in the public sector, particularly parastatal works in the transport sector.
Having completed the implementation of the strategic turnaround during 2013, Protechs focus in the 2014 financial year will be on embedding and
adapting the principals of the turnaround in order to deliver sustainable benefits which would, be demonstrated through further margin
improvement while extending the Groups strong cash generative track record. Furthermore, Protech will maintain its selective project target
approach, in order to deliver profitable revenue growth. With its healthy cash balances and low gearing ratio, the Group has the capacity to pursue
attractive opportunities. Accordingly, the Group is positioned to improve its financial performance in the year ahead.
This general forecast has not been reviewed or reported on by the Companys auditors.
On behalf of the directors
MSG Mareletse ASW Page MR Madubanya
Chairman Chief Executive Officer Group Financial Director
17 May 2013
Executive Directors: ASW Page (Chief Executive Officer), MR Madubanya (Group Financial Director)
Non-Executive Directors: M Mareletse (Chairman)*, V Raseroka, M Vuso*, TW Rensen*, MP Adamson*
* independent
Company Secretary: iThemba Governance and Statutory Solutions (Pty) Limited
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
www.pkh.co.za
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