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Reviewed condensed consolidated preliminary financial results for the year ended 31 December 2013
Interwaste Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2006/037223/06)
(JSE code: IWE ISIN: ZAE000097903)
(“Interwaste” or “the Company” or “the Group”)
REVIEWED CONDENSED CONSOLIDATED PRELIMINARY FINANCIAL RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2013
Condensed Consolidated Statement of Comprehensive Income for the year ended 31 December 2013
Reviewed % Audited
12 months Change 12 months
Dec 2013 Dec 2012
R’000 R’000
Revenue 688 242 23% 558 591
Cost of sales (378 628) (315 522)
Gross profit 309 614 27% 243 069
Other income 679 -
Operating expenses (218 163) (168 305)
Earnings before interest, tax, depreciation and
amortisation 92 130 23% 74 764
Depreciation and amortisation (41 678) (42 521)
Results from operating activities 50 452 57% 32 243
Share of loss in equity accounted joint venture - (168)
Net finance cost (10 200) (10 923)
Finance cost (11 335) (11 432)
Finance income 1 135 509
Profit before taxation 40 252 90% 21 152
Taxation expense (11 737) (5 642)
Profit for the year 28 515 84% 15 510
Profit attributable to:
Non-controlling interests 1 175 721
Owners of the company 27 340 14 789
Other comprehensive income
Items that will never be reclassified to profit or
loss
Foreign currency translation reserve movement on
foreign operations 58 (12)
Total comprehensive income for the year 28 573 84% 15 498
Total comprehensive income attributable to:
Non-controlling interests 1 175 721
Owners of the company 27 398 14 777
Reconciliation of headline earnings
Profit attributable to owners of the company 27 340 85% 14 789
Adjusted for:
Loss/(profit) on disposal of property, plant and
equipment 4 987 (2 421)
Share of profit on disposal of property, plant &
equipment in equity accounted joint venture - (18)
Gain from bargain purchase (174) -
Taxation on headline earnings adjusting entries (1 396) 462
Headline earnings 30 757 140% 12 812
Weighted average number of shares in issue on which
earnings per share are based 359 183 791 329 311 210
Diluted weighted average number of shares in issue
on which diluted earnings per share are based 361 699 763 329 377 872
Basic earnings per share (cents) 7.61 70% 4.49
Diluted earnings per share (cents) 7.56 68% 4.49
Headline earnings per share (cents) 8.56 120% 3.89
Diluted headline earnings per share (cents) 8.50 118% 3.89
Condensed Consolidated Statement of Changes in Equity for the year ended 31 December 2013
Reviewed Audited
12 months 12 months
Dec 2013 Dec 2012
R’000 R’000
Profit after tax 28 515 15 510
Dividends paid to non-controlling interest (1 170) (367)
Additional share capital 7 -
Premium on share issue 50 127 -
Share issue cost (134) -
Foreign currency translation reserve movement 58 (12)
Share based payment expense 1 231 709
Purchase of additional share in subsidiary from
non-controlling interest (401) -
Equity at beginning of the year 247 563 231 723
Total Equity at end of year 325 796 247 563
Made up as follows :
Share Capital issued 40 33
Share Premium 225 451 175 458
Share-based payment reserve 2 063 832
Foreign currency translation reserve 99 41
Retained earnings 96 017 68 427
Non-controlling interests 2 216 2 772
Total Equity at end of year 325 796 247 563
Condensed Consolidated Statement of Financial Position as at 31 December 2013
Reviewed Audited
Dec 2013 Dec 2012
R’000 R’000
ASSETS
Non-current assets 455 121 338 649
Property, plant and equipment 395 338 290 177
Goodwill 59 382 47 001
Investment in joint venture - 505
Deferred tax asset 401 966
Current assets 157 243 127 137
Inventories 13 512 15 815
Loans to related companies - 7 389
Current tax receivable 427 -
Trade and other receivables 114 017 95 074
Cash and cash equivalents 29 287 8 859
Total assets 612 364 465 786
EQUITY AND LIABILITIES
Equity 325 796 247 563
Share capital and premium 225 491 175 491
Share based payment reserves 2 063 832
Foreign currency translation reserve 99 41
Retained earnings 96 017 68 427
Non controlling interests 2 126 2 772
Non-current liabilities 156 513 82 382
Interest-bearing borrowings 110 577 52 847
Provision for site rehabilitation 16 837 8 844
Deferred tax liabilities 29 99 20 691
Current liabilities 130 055 135 841
Current tax payable 925 1 112
Loans from related parties - 5 141
Interest-bearing borrowings 55 171 35 010
Trade and other payables 73 423 63 001
Provision for onerous lease 532 1 293
Bank overdraft 4 30 284
Total liabilities 286 568 218 223
TOTAL EQUITY & LIABILITIES 612 364 465 786
Number of shares in issue at period end 395 977 877 329 311 210
Net asset value per share (cents) 81.7 74.3
Net tangible asset value per share (cents) 66.7 60.1
Condensed Consolidated Statement of Cash Flows for the year ended 31 December 2013
Reviewed Audited
12 months 12 months
Dec 2013 Dec 2012
R’000 R’000
Net cash inflow from operating activities 76 677 66 303
Net cash outflow on investing activities (144 056) (52 893)
Net cash inflow/(outflow) from financing
activities 118 044 (7 216)
Total cash movement for the year 50 665 6 195
Cash and cash equivalents at beginning of year (21 425) (27 620)
Effect of exchange rate fluctuations on cash held 43 -
Total cash and cash equivalents at end of year 29 283 (21 425)
Condensed Consolidated Segment Report for the year ended 31 December 2013
Reviewed Audited
12 months 12 months
Dec 2013 Dec 2012
R’000 R’000
Gross revenue 529 761 410 733
Waste management 42 855 44 193
Compost manufacturing and sales 115 626 103 665
Landfill management 688 242 558 591
Results from operating activities 23 736 21 449
Waste management (6 553) (10 203)
Compost manufacturing and sales 33 269 20 997
Landfill management 50 452 32 243
Depreciation 30 560 26 732
Waste management 2 353 2 679
Compost manufacturing and sales 8 765 13 110
Landfill management 41 678 42 521
The Metals recovery segment was reported separately in previous years. The segment
operations were closed in 2013 and the segment is no longer separately measured or
reported on.
The preparation of the Group condensed preliminary financial results was supervised
by the group financial director, AP Broodryk, CA(SA).
Overview
We are pleased to be able to report another substantial improvement in performance
over the prior period. Although the prior year provides a relatively low base, there
have been meaningful improvements in a number of areas of the business and certain of
the investments made recently are generating pleasing returns.
Revenue grew by 23%, operating profit by 57%, profit after taxation by 84% and
headline earnings by 140%. As reported previously, there has been a long term focus
on leveraging the asset base and targeting operational efficiencies; the impact of
these initiatives is evident in the results.
We saw strong revenue growth in the waste business and solid growth in the landfill
business. This was driven primarily by growth from existing customers, growth from
new customers in targeted industries and the revenue from a number of the projects
commissioned in the prior and current years. Operating profit in the landfill
division grew strongly, mainly as a result of the landfill operated by the Group for
its own account, with muted profit growth in the waste business. The waste business
however plays an important role in supplying product to the Group’s landfill.
Although the extent of the loss in the compost business reduced, it remains at
concerning levels.
Cash flows were substantially higher than in the prior period. Operating activities
produced a 16% increase in cash flow, after funding the higher levels of working
capital required to support the growth, investments in existing and new operations
nearly tripled with purchases of land for a second landfill, the acquisition of
vehicles which were previously held under operating leases and continued investment
in the FG landfill. The small outflow on financing activities in the prior period was
replaced by a significant inflow due to R50 million of capital raised during the
period and an increase in borrowings to fund the purchases of property, plant and
equipment.
The strong focus on the core business led to pleasing progress in addressing issues
and taking advantage of opportunities in the different operations. The Gauteng waste
business produced encouraging growth and returns, and made a significant contribution
to the profit growth produced by the landfill business. Steps were taken to remedy
disappointing performances in certain other geographic areas and satisfactory rates
of growth have been achieved in new areas. We targeted industries where we have some
competitive advantage and where the opportunities are of a scale appropriate to our
business, the results have been good and have yielded profitable progress. The roll
out of our on-site waste solution continued and more customers are recognising the
financial and other benefits of this waste management option. The current year was
the first full year of operation for the FG landfill and a number of contracts for
use of the airspace were secured with strong consequent growth in monthly tonnages
and revenues. The effluent treatment business was a satisfactory contributor during
the period, albeit off a low base, and with further investment in the area we expect
exciting returns.
In addition to the core business, a number of projects were progressed. Envirowaste
was purchased early in the financial year and the results to 31 December have
exceeded our expectations. We have worked on permitting the Klinkerstene landfill
site (located near Delmas) for some time and we received the necessary authorisations
during the year. That allowed us to purchase the properties on which the landfill
will be developed. A significant investment was made into a blending platform in a
joint venture with Lafarge. This will allow us to use hazardous waste as fuel for
cement kilns, thereby converting waste into energy and limiting the disposal to
landfills. The blending platform will allow us to offer customers the option of
disposal with no portion of waste to landfill, and for certain hazardous waste
streams, the disposal to landfill of which is currently prohibited, or will be
prohibited within four years, a cost effective, environmentally sound solution. We
have made further investments into our businesses outside South Africa; the returns
to date are acceptable and the potential is substantial.
During the period under review two of our employees were involved in the collection
of waste and its subsequent disposal at landfills other than the landfills to which
it should have been directed. Although this only occurred in a limited number of
cases, it constituted a significant breach of our operating policies and a
contravention of Waste regulations. As soon as we became aware of the issue the
employees were suspended, and have subsequently left our employ, the relevant
regulators were notified and a plan to remedy the matter was presented to them, the
affected customer was informed and corrective action was taken. Certain of the waste
which was incorrectly disposed of was excavated, together with the recommended buffer
to ensure no residual environmental risk, and moved to an appropriate landfill. With
the agreement of the relevant authorities, we will monitor the site for 12 months to
ensure no residual contamination. The remainder of the disposed of waste was traced
to a landfill which was authorised to accept that waste, however certain
administrative requirements for the disposal had not been complied with.
Segmental review
The waste management business grew revenue by 29% and operating profit by 11%.
Relatively lower growth in operating profit was a function of higher than
inflationary increases in fuel and external landfill costs, portions of which were
absorbed to remain competitive, costs associated with a number of projects which were
expensed, and continued investment in people. The waste management business also
contributed strongly to the significant increase in the profitability of the landfill
division through the levels of growth achieved in the volumes to the FG landfill.
The Group completed the acquisition of Enviro Waste, effective 1 March 2013. The
purchase consideration was R13.2 million. Goodwill of R 8.2 million resulted from the
purchase price allocation. Had the transaction been concluded at the beginning of the
year, consolidated revenue and profit would have increased by R3 million and R 400
000 respectively.
The business forms part of the waste management division and its performance for the
year has been solid and exceeded our on acquisition expectations. Enviro Waste will
continue to operate under its own brand and will form an important adjunct to the
Interwaste service offering.
Compost manufacturing and sales continue to disappoint. The loss made by the business
declined but remains at levels which are significant. Our ability to substantially
downscale this business is constrained by the likely impact of that on the waste
management business and our focus will therefore remain on minimising the losses
until we are able to exit the business without adversely affecting the rest of the
Group.
The landfill management business produced a 12% increase in revenue and a 58%
increase in operating profit. Levels of income from FG landfill have grown in line
with the strong growth in the volumes to the landfill and have supported this result.
The division remains challenged by the economics of certain third party landfills,
particularly the smaller contracts, where the risk adjusted cost of the capital
equipment required to properly manage the landfills is not adequately reflected in
tender prices. We reduced our exposure to smaller third party landfills during the
period and will not retender for contracts where the returns are marginal and/or
there is no strategic benefit to managing the landfills.
Prospects
Once again we report that conditions on the ground remain difficult. Our customers
are under pressure, the strain being experienced by the consumer seems likely to
grow, which in turn will affect our customers, and the weaker rand and high levels of
administered inflation directly affect our cost base.
The labour unrest affecting the platinum industry continues with negative
consequences for the ordinary worker and a myriad of parties beyond the mining
industry. 2014 is likely to be another difficult labour year with questionable
agendas at play and minimal prospects of negotiations which move the ball forward for
either workers or business.
We are confident that the Group is well positioned to deal with these headwinds but,
nonetheless, expect the next year to be challenging. Our priorities will include a
continuation of the strong focus on efficiencies in the core waste management
business, and the roll out of services to our customers which address their changing
needs, a push to complete a number of the projects in progress by their deadlines and
to extract their promised returns, continued investment into innovation in the
treatment and disposal of waste and into how we render our services, and a focus on
growing and extracting profitability from our non South African assets.
R50 million of capital was raised during the year to strengthen the balance sheet and
support growth. Despite the substantial investment in various aspects of the
business, total liabilities less cash, as a percentage of equity, declined from 85%
to 79%. This included the impact on gearing of purchasing vehicles with a cost of R30
million, previously held under leases, and the substantial investment in long term
assets. We will continue to manage our gearing down in order to reduce risk but
recognise that in a growing asset based business with an emphasis on lean structures,
we will face relatively high levels of gearing for some time.
Dividend
The Group will not pay a dividend for the period.
Platinum Waste Resource (Pty) Ltd, a partly owned subsidiary, paid dividends of
R1 170 000 to non-controlling shareholders.
Basis of preparation
The condensed consolidated preliminary financial statements are prepared in
accordance with the requirements of the JSE Listing Requirements for preliminary
reports and the requirements of the Companies Act of South Africa. The Listing
Requirements require preliminary reports to be prepared in accordance with the
framework of concepts and the measurement and recognition requirements of
International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Pronouncements
as issued by the Financial Reporting Standards Council and to also, as a minimum,
contain the information required by IAS 34 Interim Financial Reporting. The
accounting policies applied in the presentation of these preliminary financial
statements are in terms of International Financial Reporting Standards and are
consistent with those applied in the previous annual financial statements. The
adoption of new standards and interpretations has had no material effect on the
results for the period, nor has it required a restatement of prior year results.
Basis of measurement
The condensed consolidated preliminary financial statements are presented in
thousands of South African Rands (R’000s) on the historical cost basis, except for
share based payments which are measured at fair value.
Going concern
The condensed consolidated preliminary financial statements have been prepared on the
going concern basis as the directors believe that the Group has adequate resources to
continue in operation for the foreseeable future.
Report of the independent auditors
The condensed consolidated preliminary financial statements have been reviewed by the
auditors, KPMG Inc. In their report dated 19 March 2014 they have expressed an
unmodified conclusion. A copy of the auditors report is available for inspection at
the Company’s registered office.
Appreciation
In February 2014 Bruce Buys, the general manager of our Gauteng division, passed
away. We are grateful for the outstanding contribution Bruce made in his years at
Interwaste and we will miss him. Our condolences go to his family.
The board extends it gratitude to all our employees, our customers and our investors
for the effort and support during the period.
On behalf of the Board
20 March 2014
WAH Willcocks AP Broodryk
Chief Executive Financial Director
Corporate Information
Non-executive directors: A Kawa (Chairperson), LJ Mahlangu, PF Mojono, GR Tipper, BL
Willcocks
Executive directors: WAH Willcocks (CEO), AP Broodryk (FD), LC Grobbelaar
Registration number: 2006/037223/06
Registered address: P O Box 382, Germiston, 1400
Company secretary: Allen de Villiers
Telephone: (011) 323 7300
Facsimile: 086 576 8152
Transfer secretaries: Computershare Investor Services (Pty) Limited
Designated Adviser: Grindrod Bank Limited
Date: 20/03/2014 10:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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