Wrap Text
Condensed Consolidated Unaudited Results
for the six months ended 28 February 2014 and
Cautionary Announcement
AUSTRO GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2001/029771/06)
JSE share code: ASO ISIN: ZAE000090882
("Austro" or "the company" or "the group")
Condensed Consolidated Unaudited Results for the six months ended 28 February 2014 and
Cautionary Announcement
EPS up 12% to 3,0 cents per share
Adjusted HEPS up 55% to 4,4 cents per share
Adjusted EBITDA up 47% to R27,3 million
Growth in Power segment profitability
Turnaround in Wood segment continues to gain momentum
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
for the six for the six for the twelve
change months ended months ended months ended
% 28 February 2014 28 February 2013 31 August 2013
R'000 R'000 R'000
Revenue 1% 264 110 261 142 502 709
Cost of sales (179 686) (181 692) (348 401)
Gross profit 6% 84 424 79 450 154 308
Other operating income 1 821 2 962 1 759
Net operating expenses (10%) (72 591) (66 073) (151 486)
Profit from operations before
interest and taxation 13 654 16 339 4 581
Net interest received 559 19 142
Interest received 972 1 048 1 865
Interest paid (413) (1 029) (1 723)
Profit before taxation 14 213 16 358 4 723
Taxation (expense)/income (2 320) (5 746) 2 972
Total comprehensive income
for the period 12% 11 893 10 612 7 695
Attributable to:
Owners of Austro 11 984 10 737 7 904
Non-controlling interest (91) (125) (209)
Total comprehensive income
for the period 11 893 10 612 7 695
Number of shares in issue 395 292 923 395 292 923 395 292 923
Weighted average number of shares 395 292 923 395 292 923 395 292 923
Earnings per share and diluted
earnings per share (cents) 12% 3,0 2,7 2,0
Headline earnings per share
and diluted headline
earnings per share (cents)1 7% 3,0 2,8 1,8
Adjusted headline earnings
per share (cents)1 55% 4,4 2,8 5,2
EBITDA (R'000)2 (4%) 17 874 18 625 13 389
Adjusted EBITDA (R'000)2 47% 27 329 18 625 30 909
Unaudited Unaudited Audited
for the six for the six for the twelve
change months ended months ended months ended
% 28 February 2014 28 February 2013 31 August 2013
R'000 R'000 R'000
1.Headline earnings reconciliation
Attributable income for the period 11 984 10 737 7 904
Net (profit)/loss on disposal of
plant and equipment (78) 563 (952)
Tax effect of adjustments 22 (104) 267
Headline earnings 7% 11 928 11 196 7 219
Legal costs relating to Freed litigation 3 087 - -
Provision for long-term
share-related incentives 6 368 - 1 325
Deferred taxation adjustment (1 435) - -
Onerous lease effect - - (2 457)
Inventory write-off - - 13 231
Obsolete inventory provision - - 5 421
Tax effect of adjustments (2 647) - (4 076)
Adjusted headline earnings 55% 17 301 11 196 20 663
2.EBITDA reconciliation
Profit from operations before
interest and taxation 13 654 16 339 4 581
Depreciation 4 220 2 286 8 808
EBITDA (4%) 17 874 18 625 13 389
Legal costs relating to Freed
litigation 3 087 - -
Provision for long-term
share-related incentives 6 368 - 1 325
Onerous lease effect - - (2 457)
Inventory write-off - - 13 231
Obsolete inventory provision - - 5 421
Adjusted EBITDA 47% 27 329 18 625 30 909
Adjusted EBITDA % 10,3% 7,1% 6,1%
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited Unaudited Audited
as at as at as at
28 February 2014 28 February 2013 31 August 2013
R'000 R'000 R'000
ASSETS
Non-current assets 160 417 147 220 158 173
Plant and equipment 43 976 41 019 40 987
Goodwill 95 544 95 544 95 544
Deferred taxation 20 897 10 657 21 642
Current assets 340 525 356 061 304 489
Inventories 194 496 191 248 170 298
Trade and other receivables 108 804 105 157 88 662
Taxation receivable 5 285 4 318 5 191
Cash and cash equivalents 31 940 55 338 40 338
Total assets 500 942 503 281 462 662
EQUITY AND LIABILITIES
Capital and reserves 376 880 373 231 364 896
Stated capital 295 497 295 497 295 497
Accumulated profits 81 383 77 734 69 399
Non-controlling interest (301) (126) (210)
Total capital and reserves 376 579 373 105 364 686
Non-current liabilities 6 214 17 047 8 022
Interest-bearing liabilities 2 510 5 416 3 984
Deferred tax liability 3 704 - 4 038
Provision for onerous lease - 11 631 -
Current liabilities 118 149 113 129 89 954
Trade and other payables 115 029 109 751 87 440
Current portion of interest-bearing liabilities 2 734 2 280 2 512
Current portion of provision for onerous lease - 1 098 -
Taxation payable 386 - 2
Total equity and liabilities 500 942 503 281 462 662
Net asset value per share (cents) 95,3 94,4 92,3
Net tangible asset value per share (cents) 71,2 70,3 68,1
Average net operating assets (R'000) 452 002 428 037 431 113
Average net tangible operating assets (R'000) 356 458 332 493 335 569
Average net operating asset turnover5 1,1x 1,1x 1,2x
Average net tangible operating asset turnover5 1,4x 1,5x 1,5x
Adjusted operating profit margin6 8,7% 6,3% 4,4%
Pre-tax return on average net operating assets 9,8% 7,1% 5,1%
Pre-tax return on average net tangible operating assets 12,4% 9,1% 6,6%
5 Turnover determined for the last 12 months
6 Operating profits determined for the last 12 months
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Unaudited Unaudited Audited
for the six for the six for the twelve
months ended months ended months ended
28 February 2014 28 February 2013 31 August 2013
R'000 R'000 R'000
Profit before taxation 14 213 16 358 4 723
Non-cash items and other adjustments 3 583 3 141 4 456
17 796 19 499 9 179
(Increase)/decrease in working capital (16 751) 6 785 18 167
(Increase)/decrease in inventories (24 198) 6 085 26 697
(Increase)/decrease in trade and other receivables (20 142) 1 509 14 587
Increase/(decrease) in trade and other payables 27 589 (809) (23 117)
Cash generated by operations 1 045 26 284 27 346
Interest received 972 1 048 1 865
Interest paid (413) (1 029) (1 723)
Dividends paid - - -
Taxation paid (1 619) (2 128) (597)
Cash (outflow)/inflow from operating activities (15) 24 175 26 891
Additions to plant and equipment (7 795) (3 516) (13 130)
Proceeds on disposal of plant and equipment 664 817 3 452
Cash outflow from investing activities (7 131) (2 699) (9 678)
Repayment of interest-bearing liabilities (1 252) (553) (1 290)
Settlement of onerous lease - - (10 000)
Cash outflow from financing activities (1 252) (553) (11 290)
Net (outflow)/inflow of cash and cash equivalents (8 398) 20 923 5 923
Cash and cash equivalents at beginning of period 40 338 34 415 34 415
Cash and cash equivalents at end of period 31 940 55 338 40 338
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Unaudited Unaudited Audited
for the six for the six for the twelve
months ended months ended months ended
28 February 2014 28 February 2013 31 August 2013
R'000 R'000 R'000
Stated capital
Balance at beginning and end of period 295 497 295 497 295 497
Accumulated profits 81 383 77 734 69 399
Balance at beginning of period 69 399 66 997 66 997
Prior year adjustments - - (5 502)
Attributable income for the period 11 984 10 737 7 904
Dividends declared and paid - - -
Non-controlling interest (301) (126) (210)
Total capital and reserves 376 579 373 105 364 686
CONDENSED SEGMENTAL ANALYSIS
Power Wood Head Office
Unaudited Unaudited Audited Unaudited Unaudited Audited Unaudited Unaudited Audited
for the for the for the for the for the for the for the for the for the
six six twelve six six twelve six six twelve
months months months months months months months months months
ended 28 ended 28 ended 31 ended 28 ended 28 ended 31 ended 28 ended 28 ended 31
February February August February February August February February August
2014 2013 2013 2014 2013 2013 2014 2013 2013
R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Revenue 178 983 169 782 344 263 89 873 94 066 171 586 9 342 3 543 9 698
Gross profit 54 258 50 116 98 894 30 364 29 334 55 414 9 342 3 543 9 698
Gross profit % 30% 30% 29% 34% 31% 32% 100% 100% 100%
Profit/(loss)
from operations
before interest
and taxation 13 350 15 824 6 228 5 295 671 9 541 (4 991) (156) (11 188)
EBITDA3 22 753 18 854 16 554 9 738 3 437 15 695 (4 959) (123) (11 124)
Adjusted
EBITDA3 25 840 18 854 35 206 9 738 3 437 3 238 1 409 (123) 201
Capital
expenditure 4 540 719 11 136 3 545 2 797 1 986 9 - 8
Depreciation 1 615 1 269 4 088 2 574 984 4 655 31 33 65
Taxation
expense/(income) 2 605 4 734 2 432 1 349 741 (2 100) (1 634) 271 (3 304)
Total assets 293 042 304 579 256 834 108 528 98 093 106 760 260 987 256 156 261 777
Total liabilities 74 547 71 236 52 747 42 088 57 136 45 428 10 756 2 119 4 110
Net tangible
operating
assets4 194 333 181 651 174 665 64 622 56 764 57 462 7 180 2 075 7 808
Number of
employees 251 203 200 136 158 150 5 6 5
Consolidation Total
Unaudited Unaudited Audited Unaudited Unaudited Audited
for the for the for the for the for the for the
six six twelve six six twelve
months months months months months months
ended 28 ended 28 ended 31 ended 28 ended 28 ended 31
February February August February February August
2014 2013 2013 2014 2013 2013
R'000 R'000 R'000 R'000 R'000 R'000
Revenue (14 088) (6 249) (22 838) 264 110 261 142 502 709
Gross profit (9 540) (3 543) (9 698) 84 424 79 450 154 308
Gross profit % - - - 32% 30% 31%
Profit/(loss)
from operations
before interest
and taxation - - - 13 654 16 339 4 581
EBITDA3 (9 658) (3 543) (7 736) 17 874 18 625 13 389
Adjusted
EBITDA3 (9 658) (3 543) (7 736) 27 329 18 625 30 909
Capital
expenditure (299) - - 7 795 3 516 13 130
Depreciation - - - 4 220 2 286 8 808
Taxation
expense/(income) - - - 2 320 5 746 (2 972)
Total assets (161 615) (155 547)(162 709) 500 942 503 281 462 662
Total liabilities (3 028) (315) (4 309) 124 363 130 176 97 976
Net tangible
operating
assets4 266 135 240 490 239 935
Number of
employees 392 367 355
3 All EBITDA figures exclude intercompany management fees
4 Excludes goodwill which is all attributable to the Power segment
COMMENTARY
Austro is an industrial energy and supplies group that provides quality branded and in some segments
locally manufactured capital and consumable goods and support services to a broad range of economic
sectors in South Africa and sub-Saharan Africa. Clients range from heavy industrial, mining and
construction groups to wholesalers, retailers, technology and telecommunications companies, banks
and manufacturers.
Austro currently comprises two key business segments:
- Power segment ("Power") incorporates:
- Private Power Sales: the design,manufacture, supply, installation and maintenance of diesel
generators and distribution of industrial engines, marine engines and components.
- Temporary Power: rental of temporary power in the form of diesel generators.
- Wood segment incorporates the distribution and maintenance of professional woodworking equipment,
tooling and edging.
Group subsidiaries include:
- New Way Power Proprietary Limited (incorporating Neptune Plant Hire) ("New Way Power")
- PowerO2 Proprietary Limited ("PowerO2")
- Austro Proprietary Limited ("Wood")
It is the board's intention to refocus Austro as an energy group and introduce energy related companies
which we believe will deliver appropriate returns on capital and have good growth prospects throughout
sub-Saharan Africa. We intend developing these existing and new platforms over time through a combination
of organic and acquisitive growth.
Results
The group has delivered a good performance despite the difficult economic environment. Revenue increased
marginally to R264,1 million (2013: R261,1 million), being negatively affected by a decline in revenues
from the Wood segment. There was a notable increase in gross margins in both business segments. Operating
expenses increased 10%, driven primarily by the employment of executives and staff across the group,
once-off legal fees and the appointment of JFN Management Proprietary Limited ("JFN") to provide strategic
and business support services to Austro and supplement the internal executive capacity of the group. If
these operating expenses are excluded, operating expenses have decreased by 5% relative to the prior
comparative period.
Earnings before interest, taxation, depreciation and amortisation ("EBITDA") of R17,9 million (2013:
R18,6 million) declined marginally as a result of the increased operating expenses. The company has
elected to show adjusted EBITDA which provides a more meaningful reflection of sustainable trading.
Adjusted EBITDA increased 47% to R27,3 million (2013: R18,6 million) at an adjusted EBITDA margin
to revenue of 10,3% (2013: 7,1%). The adjustments to EBITDA arise from:
- legal fees of R3,1 million incurred to interdict and restrain former New Way executive directors from
breaching restraint of trade undertakings, common law and other legal duties owed to the group (refer
to a SENS announcement released on 5 November 2013). The group has to date been successful in enforcing
this restraint (refer to update below); and
- an IFRS2 charge of R6,4 million relating to the provision for long-term share-related incentives awarded
to JFN and staff. Due to the magnitude of the charge in the current reporting period we have separately
identified and reported this charge in a voluntary adjusted HEPS calculation and accordingly we have
included an adjustment in the comparative for the year ended 31 August 2013. It is our intention to
continue providing this additional disclosure going forward.
The group's effective tax rate is distorted by movements in deferred tax balances during the interim period
relating to corrections in the tax base.
Headline earnings of R11,9 million (2013: R11,2 million) are marginally higher than for the prior comparative
period. This translates into headline earnings per share ("HEPS") of 3,0 cents (2013: 2,8 cents). Adjusted
headline earnings of R17,3 million (2013: R11,2 million) represents an improvement of 1,6 cents per share
(55%) to 4,4 cents per share.
Net working capital has increased over the interim period as replacement stock has been purchased at higher
Rand prices and as Wood prepares for their in-house trade show to be held in June. There is a significant
internal focus on reducing inventory levels on a sustainable basis. Debtor collections are being closely monitored.
Suppliers are paid within credit terms.
The group maintained a strong financial and liquidity position with cash balances at 28 February 2014 amounting to
R31,9 million (2013: R55,3 million). External borrowings remain low at R5,2 million (2013: R7,7 million)
resulting in a net cash position of R26,7 million (2013: R47,6 million). A R45 million trading facility is in
place which provides the group with more scope to manage exchange control fluctuations and credit terms with
foreign suppliers.
The group has invested R7,8 million in capital expenditure during the financial year to date, equating to 3,0%
of revenue. This capital expenditure related to expanding the Temporary Power fleet, improving the New Way
manufacturing facility, moving premises at Wood and the acquisition of the Leitz agency at Wood.
Operational review
Power
The Private Power Sales segment performed well in a challenging environment, supported by ongoing demand in the
construction and data infrastructure markets. Hyram Serretta was appointed as the CEO with effect from January 2014.
Revenue increased 4% to R161,5 million (2013: R155,0 million) and gross profit grew 2% to R41,2 million
(2013: R40,2 million). Adjusted EBITDA increased 31% to R17,2 million (2013: R13,2 million), representing a
margin relative to revenue of 11%. Staff headcount has increased by 51 people, primarily due to the inclusion of
previously outsourced manufacturing staff.
The Temporary Power segment continued to grow and performed exceptionally well. Revenue was up 18% to R17,5 million
(2013: R13,2 million) and gross profit increased 33% to R13,2 million (2013: R10,0 million), representing a margin
of 76%. Given the demand for rental equipment, the group has started expanding its fleet. Our in-house manufacturing
capabilities give this division a pricing advantage in the market place. EBITDA increased 50% to R8,6 million
(2013: R5,7 million), representing a margin relative to revenue of 49%.
During the interim period Austro launched a new company under the Power segment - PowerO2. This company will house
the distributorship business that formerly existed within New Way Power, distributing diesel engines and spare
parts to the fire pump, water pump, industrial, generator and marine industries. The business commenced trading
in 2014 and is expected to be a strong contributor to the Power segment revenue going forward.
Wood
Wood underwent a significant restructuring in the prior year to align the business' cost base with revenue. This
restructuring continues to yield benefits and this is evident in Wood's performance for the year to date.
While revenue decreased marginally to R89,9 million (2013: R94,1 million) due to difficult industry trading
conditions, gross profit grew 4% to R30,4 million (2013: R29,3 million). Gross profit margins recovered
impressively to 34% from 31% due to a deliberate focus on pricing and higher margin service related revenues.
Adjusted EBITDA increased 183% to R9,7 million (2013: R3,4 million) due primarily to a significant decrease
in operating expenses. This represents a margin relative to revenue of 11%.
Changes to the board of directors
Austro was pleased to announce the following appointments to its board with effect from 12 February 2014:
- Mpho Makwana as an independent non-executive director;
- Paul Baloyi as an independent non-executive director;
- Nopasika Lila as an independent non-executive director; and
- Paul O'Flaherty as a non-executive director.
Update on litigation and distributorship
The interim interdict granted to New Way Power (the details of which were included in the company's Integrated
Annual Report) remains in full force and effect until such time as a final determination on the matter is made
or a settlement agreement is reached. New Way Power continues to be the sole distributor of John Deere industrial
engines in South Africa and remains in contractual negotiations to formalise this arrangement.
Prospects and risks
Financial year-to-date trading has been encouraging. Risks remain in respect of labour unrest, the ability of
Eskom to continue to meet demand for power, a slowdown in consumer spending and the knock-on effect this may have
on construction activity and monetary policy. Input costs, through Rand exchange rates, and the sectors that the
group serves are closely linked to monetary conditions and the performance of the global economy.
Our outlook is positive for the balance of the year. Within Private Power Sales the sales order book remains healthy
and we plan to pursue organic and acquisitive growth opportunities. The restructuring undertaken during the 2013
financial year at Wood is expected to continue yielding benefits in the year ahead.
Dividend
In line with the group policy to reinvest for growth, no dividend has been declared for the interim period.
Cautionary Announcement
Shareholders are advised that the company has entered into negotiations which if successfully concluded may
have a material effect on the price of the company's securities. Accordingly, shareholders are advised to
exercise caution when dealing in the company's securities until a full announcement is made.
Basis of presentation
The accounting policies and method of measurement and recognition applied in the preparation of these
condensed consolidated unaudited interim financial results are consistent with those applied in the
audited annual financial statements for the previous year ended 31 August 2013.
The group has adopted the following new standards:
- Amendment to IFRS 7 - Disclosures - Offsetting Financial Assets and Financial Liabilities
- IFRS 10 - Consolidated Financial Statements
- IFRS 12 - Disclosure of Interests in Other Entities
- IFRS 13 - Fair Value Measurement
- Amendments to IAS 1 - Presentation of Items of Other Comprehensive Income
- Amendments to IAS 16 - Property, Plant and Equipment
- Amendment to IAS 19 - Employee benefits
- Revised IAS 27 and 28 - Investments in Associates and Joint Ventures
- Amendments to IAS 32 - Financial Instrument Presentation
- Amendments to IAS 34 - Interim Financial Reporting
There was no material impact on the interim financial results identified based on management's
assessment of these standards.
The condensed consolidated unaudited interim financial results have been prepared in accordance with International
Financial Reporting Standards ("IFRS") and are presented in terms of the disclosure requirements set out in
International Accounting Standards ("IAS") 34 as well as the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards
Council, the JSE Limited Listings Requirements and the requirements of the Companies Act, 2008. Financial Director,
Jarrod Friedman CA(SA), was responsible for the preparation of the condensed consolidated unaudited interim financial
results. The results for the period ended 28 February 2014 have not been reviewed or reported on by the group's
independent external auditors.
There were no significant or material events subsequent to the end of the interim period.
For and on behalf of the board
PD Mansour JS Friedman
Chief Executive Officer Financial Director
15 May 2014
Non-executive directors: AJ Phillips* (Chairman), PC Baloyi*, SB Joffe, NV Lila*, PM Makwana*, PS O'Flaherty (*Independent)
Executive directors: PD Mansour (Chief Executive Officer), JS Friedman (Financial Director)
Registered address: 1125 Leader Avenue, Stormill Ext 4, Roodepoort, 1724
Business address: 30 - 38 Jacoba Street, Alberton North, 2023
Business postal address: PO Box 1914, Florida, 1710
Company secretary: Probity Business Services Proprietary Limited
Transfer secretaries: Computershare Investor Services Proprietary Limited
Sponsor: Java Capital
Date: 15/05/2014 08:55:00 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
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