Wrap Text
Interim results
For the six months ended 31 August 2013
Protech Khuthele Holdings Limited
Registration number 2000/024352/06 JSE code: PKH ISIN: ZAE000101986
("Protech" or "the Company" or "the Group")
Interim results
For the six months ended 31 August 2013
CASH
R99 million
REVENUE
R561 million
OPERATING MARGIN OF
4.0%
EARNINGS PER SHARE
3.1 cents
NET ASSET VALUE PER SHARE
98.0 cents
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 August 2013
Reviewed Reviewed Audited
Group Group Group
R'000 31/08/2013 31/08/2012 28/02/2013
ASSETS
Non-current assets 378 986 435 466 409 798
Property, plant and equipment 324 737 386 974 355 273
Goodwill 33 549 33 549 33 549
Other intangible assets 3 276 3 825 3 552
Deferred tax 17 424 11 118 17 424
Current assets 366 457 422 899 471 556
Inventory 18 632 14 040 17 936
Amounts due from contract customers 55 682 60 151 56 902
Trade and other receivables 189 434 238 986 254 194
Other financial assets 3 739 5 058 3 428
Bank balances and cash 98 970 104 664 139 096
Total assets 745 443 858 365 881 354
EQUITY AND LIABILITIES
Share capital and reserves
Shareholders' equity 355 173 340 037 342 432
Share capital and share premium 228 598 228 598 228 598
Other reserves (119 988) (122 843) (121 500)
Retained earnings 246 563 234 282 235 334
Total liabilities 390 270 518 328 538 922
Non-current liabilities 131 597 188 121 132 275
Borrowings - interest bearing 74 752 131 970 75 430
Deferred tax 56 845 56 151 56 845
Current liabilities 258 673 330 207 406 647
Borrowings - interest bearing 45 509 94 675 102 195
Trade and other payables 140 339 123 511 188 193
Subcontractor liabilities 21 909 36 881 17 411
Amounts due to contract customers 50 916 75 140 98 848
Total equity and liabilities 745 443 858 365 881 354
SUPPLEMENTARY STATEMENT OF FINANCIAL POSITION INFORMATION
Total number of shares in issue (thousands) 362 500 362 500 362 500
Net asset value per share (cents) 98.0 93.8 94.5
NTAV/Share (cents) 87.8 83.5 84.2
Capital expenditure (R'000)
- Spent 9 607 21 401 19 371
- Commitments - Authorised but unspent 80 173 - 148 451
Guarantees issued (R'000) 64 402 46 126 149 882
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 August 2013
Reviewed Reviewed
Group Group Audited
6 months 6 months Group
ended ended 12 months
R'000 31/08/2013 31/08/2012 28/02/2013
Revenue 561 492 530 592 1 027 244
Earnings before interest, taxation, depreciation and amortisation 49 492 72 926 116 054
Depreciation and amortisation (27 184) (40 694) (70 081)
Earnings before interest and taxation 22 308 32 232 45 973
Net interest expense (4 983) (8 208) (16 197)
Earnings before taxation 17 325 24 024 29 776
Taxation (6 096) (9 006) (13 706)
Earnings for the period 11 229 15 018 16 070
Other comprehensive income for the period, net of tax 1 512 430 1 773
Movement in foreign currency translation reserve 1 512 430 1 773
Total comprehensive income for the period 12 741 15 448 17 843
Earnings per share (cents)
- Basic 3.1 4.1 4.4
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Weighted average number of shares in issue:
- Weighted average number of shares in issue (thousands) 362 500 362 500 362 500
Reconciliation of headline earnings:
Profit attributable to shareholders of the holding company 11 229 15 018 16 070
Adjusted for profit on disposal of assets (945) (1 710) (1 830)
Headline earnings 10 284 13 308 14 240
Headline earnings per share (cents)
- Basic 2.8 3.7 3.9
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
six months ended 31 August 2013
Reviewed Reviewed
Group Group Audited
6 months 6 months Group
ended ended 12 months
R'000 31/08/2013 31/08/2012 28/02/2013
Cash receipts from customers 627 472 488 378 1 022 297
Cash paid to suppliers and employees (596 311) (376 577) (820 600)
Cash generated by operations 31 161 111 801 201 697
Net interest paid (4 983) (8 208) (16 197)
Income taxes paid (11 303) (5 764) (4 877)
Cash flows from operating activities 14 875 97 829 180 623
Purchase of property, plant and equipment (9 607) (21 401) (19 371)
Replacement - - (715)
Additions (9 607) (21 401) (18 656)
Proceeds on disposal of property, plant and equipment 14 547 7 661 8 384
(Increase)/decrease in loans granted (2 577) 2 094 -
Cash flows from investing activities 2 363 (11 646) (10 987)
Payments in terms of loan finance (12 951) (8 650) (18 991)
Payments in terms of instalment sale agreements (44 413) (52 841) (91 521)
Cash flows from financing activities (57 364) (61 491) (110 512)
Net (decrease)/increase in cash and cash equivalents (40 126) 24 692 59 124
Cash and cash equivalents at the beginning of the period 139 096 79 972 79 972
Cash and cash equivalents at the end of the period 98 970 104 664 139 096
Cash and cash equivalents comprise of:
Bank balances and cash 98 970 104 664 139 096
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED
31 August 2013
Equity
Common Foreign currency attributable to
Share Share control translation Retained the shareholder
R'000 capital premium reserve reserve earnings of the company
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
Total comprehensive income
for the period 1 512 11 229 12 741
Balance at 31 August 2013
- Reviewed 2 228 596 (123 998) 4 010 246 563 355 173
OPERATIONAL SEGMENTAL REPORTING
for the six months ended 31 August 2013
SERVICES WITHIN EACH BUSINESS SEGMENT
For management purposes, the Group is organised into three major operating divisions - Construction, Value add 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:
Construction - bulk earthworks, roads and civil engineering contractors, plant hire and logistical services.
Value add - geotechnical laboratory, surveying services and impact compaction.
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
R'000 31/08/13 31/08/12 31/08/13 31/08/12
Construction 480 943 448 868 20 049 28 246
Value add 14 256 10 215 1 343 1 035
Readymix 74 294 84 981 2 936 3 408
569 493 544 064 24 328 32 689
Corporate* 42 390 41 725 (2 020) (457)
Eliminations (50 391) (55 197) - -
561 492 530 592
Profit before interest and taxation 22 308 32 232
Net interest paid (4 983) (8 208)
Profit before taxation 17 325 24 024
Taxation (6 096) (9 006)
Profit for the period 11 229 15 018
Segment revenue reported above represents revenue generated from external customers. Intersegment sales amounted to
R50.4 million (2012: R55,2 million).
The accounting policies of the reportable segments are the same as the Group's accounting policies.
REVIEWED SEGMENT ASSETS AND LIABILITIES
Segment assets Segment liabilities
6 months 6 months
ended As at ended As at
R'000 31/08/13 28/02/13 31/08/13 28/02/13
Construction 749 542 914 375 437 526 615 891
Value add 25 025 13 406 17 609 1 480
Readymix 83 283 76 518 92 207 87 927
857 850 1 004 299 547 342 705 298
Corporate* 411 921 420 708 178 948 183 769
Eliminations (524 328) (543 653) (336 020) (350 145)
745 443 881 354 390 270 538 922
REVIEWED OTHER SEGMENT INFORMATION
Depreciation and Capital
amortisation expenditure
6 months 6 months 6 months 6 months
ended ended ended ended
R'000 31/08/13 31/08/12 31/08/13 31/08/12
Construction 25 262 37 679 8 984 20 516
Value add 1 023 815 434 830
Readymix 899 1 705 189 55
Corporate - 495 - -
27 184 40 694 9 607 21 401
* Corporate includes the transactions of the holding company.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL REPORT
for the six months ended 31 August 2013
CORPORATE INFORMATION
Protech is a limited liability company 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 2013 on 25 October 2013.
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The condensed consolidated interim results have been prepared in accordance with the framework concepts, the recognition and
measurement criteria of International Financial Reporting Standards ('IFRS') and in accordance with and containing the
information required by the International Accounting Standard 34: Interim Financial Reporting ('IAS 34'), the Financial Reporting
Guides as issued by the South African Institute of Chartered Accountants ('SAICA') Accounting Practices Committee, the
Johannesburg Stock Exchange Limited ('JSE') Listings Requirements and the requirements of the Companies Act of 2008, as
amended. The accounting policies applied in the preparation of these interim financial statements are consistent with those
applied in the previous annual financial statements.
This report was compiled under the supervision of the chief financial officer, MR Madubanya CA(SA).
PROPERTY, PLANT AND EQUIPMENT
Capital expenditure on property, plant and equipment was R9,6 million (2012: R21,4 million) for the six months ended
31 August 2013.
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
These condensed consolidated interim results have been reviewed by the independent auditors, Deloitte & Touche. They
conducted their review in accordance with International Standards on Review Engagements 2410, Review of Interim Financial
Information Performed by the Independent Auditor and their unmodified review opinion is available for inspection at the Company's
registered office. Any reference to future financial performance included in this announcement has not been reviewed or reported
on by the Group's external auditors.
COMMENTARY
Introduction
Protech is pleased to report interim results for the six months ended 31 August 2013 which reflect the substantial progress that
has been achieved through the strategic turnaround strategy, which has culminated in its improved profitability from a loss-making
position in FY2012. The progress has been made under severe trading conditions, further compounded by a delay in public sector
infrastructure roll out and slow infrastructure projects investments in the mining sector.
Safety
Protech achieved a Loss Time Injury Frequency Rate (LTIFR) of 0,49 for the six months ended 31 August 2013, compared to 0,30
for the previous comparative period. While the contracting business, which represents 84% of Group revenue, achieved a strong
LTIFR of 0.11, the performance was marred by four LTI's within the Readymix division and Value-add services which represent a
combined 16% of the Group's revenue.
The reduction of total man hours contributed to the LTIFR for this period. With new contracts in the pipeline, the man hours across
our operations will increase significantly, thereby eliminating these as a contributing factor. The target for 2014 still remains an
LTIFR below 0.25.
Strategic Turnaround Progress Update
Protech has continued to make considerable progress in the implementation of the strategic turnaround strategy. The Group has
embarked on Phase Two of the turnaround plan, designed to build on the foundation established during Phase One as well as to
turn the intelligence and analysis into tangible change through focused implementation projects.
The key theme is managing the change for the successful completion of the work required within each project. Strategic Business
Objectives will establish and develop detailed strategic objectives that will inform the overall business strategy and give direction
to the other eight managing change projects which include finance; information and systems; strategic market and sales; people
organisational performance and human resources; commercial and risk; readymix and asset management.
All of the eight projects are of equal importance in realising the Group's turnaround success. However, the change strategy in
three of the business drivers should, from the start, deliver measurable and tangible benefits that should further improve the
group's profitability. These are:
- Managing Change in Operations which will develop and implement business intelligence tools for construction projects aimed
at improving efficiency, reducing waste and cultivating project, construction and risk management capabilities to continuously
improve performance and maximise profit.
- Managing Change in Readymix will seek to grow and develop the Protech Readymix business into a major market player
through various market diversification strategies and operational excellence.
- Managing Change in Asset Management will continue to improve the asset management and plant operating model of the
business and will investigate the feasibility and possible operating models for an external plant hire business.
Financial Review
Statement of comprehensive income
Despite continuing tough market and labour conditions in the construction sector, the group posted revenue of R561 million for the
six months ended 31 August 2013 reflecting a 6% increase from R531 million reported in the comparative period. Operating profit
or earnings before interest and tax declined to R22 million (H1 2013: R32 million) in the current year primarily as a result of
R13 million costs incurred during the Eqstra bid. This was partly offset by a decline in depreciation costs, leading to a decrease in
operating margin to 4.0% (H1 2013: 6.1%). Given that the Eqstra offer lapsed at the end of July 2013, similar costs are not
expected to be incurred in the latter part of the financial year.
Statement of financial position
A decline of non-current assets to R379 million (FY 2013: R410 million) is primarily due to depreciation of assets with no
significant additions during the period. The replacement and expansion capital expenditure is anticipated to reflect in the second
half of the year with commitments already placed with suppliers.
The liquidity position reflected by a current ratio of 1.4 (FY 2013: 1.3) is still strong, given that the group was placed under severe
working capital pressure by incurring transaction costs during the year and repayment of advance payments on some contracts.
The debt equity ratio of 6% (FY 2013: 11%), will increase in the second half as the committed funding for capital expenditure starts
to reflect.
The group NAV per share improved to 98.0 cents compared to 94.5 cents as at 28 February 2013.
Statement of cash flow
Cash generated from operations declined to R31 million (H1 2013: R111 million) as a result of repayment of advance payments,
direct working capital funding of the GPS joint venture in the DRC and transaction costs incurred. After repayment of borrowings of
R57 million, the Group ended with a cash balance of R99 million (H1 2013: R105 million).
Operational Review
Construction - 84% of Group revenue
The construction segment still remains Protech's flagship business, contributing 84% (H1 2013: 83%) and 82% (H1 2013: 86%) to
group revenue and profit respectively. Of this revenue, R224 million (H1 2013: R184 million) came from outside of South Africa.
The construction segment experienced difficulty in securing work due to the decline in mining infrastructure, continued delays and
slow roll-out in public sector work.
Turmoil in the South African mining sector and the global economic uncertainty have made mining companies reluctant to invest in
large capital projects, particularly in South Africa. However, Protech continues to selectively examine opportunities beyond the
South African borders.
Readymix - 13% of Group revenue
Readymix contributed R74 million (H1 2013: R85 million) or 13% (H1 2013: 15%) of revenue and R3 million (H1 2013: R3 million)
of profit. Readymix decline in revenue is as a result of the competitive industry and the construction sector labour unrest that led
to a decline in volumes.
Value-add services - 3% of Group Revenue
Value add services contributed R14 million (H1 2013: R10 million) or 3% (H1 2013: 2%) of revenue and R1 million
(H1 2013: R1 million) of profit.
Corporate action
Eqstra was granted an extension by the Takover Regulation Panel until 31 July 2013 to procure the fulfilment of the suspensive
conditions to its offer to acquire all the shares in Protech that it did not already own. On 1 August 2013, Eqstra released an
announcement stating that they had been unable to procure the fulfilment of the suspensive conditions to the offer and that the
offer subsequently had lapsed on the 31 July 2013.
Outlook
The Group has been awarded contracts in the public sector as well as the commercial and industrial segments totalling
R350 million.
The current order book amounts to R1 billion of which R230 million relates to contracts in final negotiation. Total qualifying pipeline
is valued at R2.9 billion.
The number of tenders submitted by the Group in the mining sector has decreased while tenders submitted in the transport and
commercial sectors have increased. This demonstrates the downturn in the mining sector and reflects Protech's increased focus on
government infrastructure.
Priorities:
- Protech continues to evaluate opportunities to expand its footprint nationally by increasing exposure in Government
infrastructure. It also continues to focus on mining infrastructure and the development of its presence in other regions of
South Africa that are part of its focus areas.
- The Group aims to increase its market share by expanding its value chain, thereby increasing the product offering available to
the Group's customers.
- Protech remains focused on Zambia, Zimbabwe and Mozambique as key cross-border areas that present attractive
opportunities to compete in the private and public construction sectors.
Protech's leadership team is focused on the primary objective of delivering on its turnaround strategy. This should create
sustainable value for shareholders and result in a professionally-led construction business.
This general forecast has not been reviewed or reported on by the Company's auditors.
On behalf of the directors
MSG Mareletse ASW Page MR Madubanya
Chairman Chief Executive Officer Group Financial Director
25 October 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 (Proprietary) 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
Date: 28/10/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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