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Unaudited condensed consolidated financial results
for the six months ended 30 June 2014
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”)
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2014
Condensed Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
6 months % 6 months 12 months
June 2014 Change June 2013 Dec 2013
R’000 R’000 R’000
Revenue 386 014 22% 315 711 688 242
Cost of sales (201 140) (176 580) (378 628)
Gross profit 184 874 33% 139 131 309 614
Other income - 643 679
Operating expenses (125 380) (98 742) (218 163)
Earnings before interest, tax, depreciation
and amortisation 59 494 45% 41 032 92 130
Depreciation and amortisation (28 401) (20 515) (41 678)
Results from operating activities 31 093 52% 20 517 50 452
Net finance cost (8 296) (5 937) (10 200)
Finance cost (8 678) (6 193) (11 335)
Finance income 382 256 1 135
Profit before taxation 22 797 56% 14 580 40 252
Taxation expense (6 576) (3 850) (11 737)
Profit for the period 16 221 51% 10 730 28 515
Profit attributable to:
Non-controlling interests 825 748 1 175
Owners of the company 15 396 54% 9 982 27 340
Other comprehensive income:
Items that are or may be reclassified to
profit or loss
Foreign currency translation reserve movement
on foreign operations (211) (53) 58
Total comprehensive income for the period 16 010 50% 10 677 28 573
Total comprehensive income attributable to:
Non-controlling interests 825 748 1 175
Owners of the company 15 185 9 929 27 398
Reconciliation of headline earnings
Profit attributable to owners of the company 15 396 9 982 27 340
Adjusted for:
Loss/(profit) on disposal of property, plant
and equipment 340 (79) 4 987
Gain from bargain purchase - (138) (174)
Taxation charge on headline earnings
adjusting items (95) 22 1 396
Headline earnings attributable to ordinary
shareholders 15 641 60% 9 787 30 757
Weighted average number of shares in issue on
which earnings per share are based 395 977 877 330 000 880 359 183 791
Weighted average number of shares in issue on
403 156 437 331 310 697 361 669 763
which diluted earnings per share are based
Basic earnings per share (cents) 3.89 29% 3.02 7.61
Diluted earnings per share (cents) 3.82 27% 3.01 7.56
Headline earnings per share (cents) 3.95 33% 2.97 8.56
Diluted headline earnings per share (cents) 3.88 32% 2.95 8.50
Condensed Consolidated Statement of Financial Position
Unaudited Unaudited Audited
6 months 6 months 12 months
June 2014 June 2013 Dec 2013
R’000 R’000 R’000
ASSETS
Non-current assets 565 264 388 163 455 121
Property, plant and equipment 505 176 326 474 395 338
Goodwill 59 382 60 114 59 382
Deferred tax asset 706 1 575 401
Current assets 156 198 141 102 157 243
Inventories 15 014 17 569 13 512
Current tax receivable 242 206 427
Trade and other receivables 131 675 117 665 114 017
Cash and equivalents 9 267 5 662 29 287
Total assets 721 462 529 265 612 364
EQUITY AND LIABILITIES
Equity 341 848 288 234 325 796
Share capital and premium 225 491 206 526 225 491
Share based payment reserve 2 564 1 363 2 063
Foreign currency translation (deficit)/reserve (112) (12) 99
Retained earnings 111 413 78 659 96 017
Non controlling interests 2 492 1 698 2 126
LIABILITIES
Non-current liabilities 216 964 98 691 156 513
Interest-bearing borrowings 162 038 64 117 110 577
Provision for site rehabilitation 20 819 11 495 16 837
Deferred tax liabilities 34 107 23 079 29 099
Current liabilities 162 650 142 340 130 055
Current tax payable 2 247 3 429 925
Interest-bearing borrowings 79 250 37 975 55 171
Trade and other payables 75 395 80 033 73 422
Provision for onerous lease - - 532
Bank overdrafts 5 758 20 903 5
Total liabilities 379 614 241 031 286 568
TOTAL EQUITY & LIABILITIES 721 462 529 265 612 364
Number of shares in issue at year end 395 977 210 370 691 411 395 977 210
Net asset value per share (cents) 85.7 77.3 81.7
Net tangible asset value per share (cents) 70.7 61.1 66.7
Condensed Consolidated Statement of Cash Flows
Unaudited Unaudited Audited
6 months 6 months 12 months
June 2014 June 2013 Dec 2013
R’000 R’000 R’000
Net cash inflow from operating activities 37 140 26 839 79 655
Net cash outflow on investing activities (138 228) (56 079) (145 236)
Net cash inflow from financing activities 75 540 35 424 116 452
Total cash movement for the period (25 548) 6 184 50 871
Effect of exchange rate fluctuations on
cash held (225) - 43
Cash and cash equivalents acquired - - (207)
Cash and cash equivalents at beginning of
period 29 282 (21 425) (21 425)
Cash and cash equivalents at end of period 3 509 (15 241) 29 282
Condensed Consolidated Statement of Changes in Equity
Unaudited Unaudited Audited
6 months 6 months 12 months
June 2014 June 2013 Dec 2013
R’000 R’000 R’000
Profit for the period 16 221 10 730 28 515
Share issue costs - - (133)
Dividends paid to non-controlling interests (459) (1 170) (1 170)
Additional share capital - 4 7
Premium on shares issued - 31 031 50 127
Foreign currency translation reserve movement (211) (53) 58
Share based payment expense 501 531 1 231
Purchase of additional share in subsidiary
from non-controlling interests - (402) (402)
Equity at the beginning of the period 325 796 247 563 247 563
Total equity at end of period 341 848 288 234 325 796
Made up as follows:
Share capital issued 40 37 40
Share premium 225 451 206 489 225 451
Share based reserve 2 564 1 363 2 063
Foreign currency translation 99
(deficit)/reserve (112) (12)
Retained earnings 111 413 78 659 96 017
Non-controlling interests 2 492 1 698 2 126
Total equity at end of period 341 848 288 234 325 796
Condensed Consolidated Segment Report
Unaudited Unaudited Audited
6 months 6 months 12 months
June 2014 June 2013 Dec 2013
R’000 R’000 R’000
Gross revenue
Waste management 312 950 245 370 529 761
Compost manufacturing and sales 13 993 13 625 42 855
Landfill management 59 071 56 716 115 626
386 014 315 711 688 242
Results from operating activities
Waste management 22 264 10 381 23 736
Compost manufacturing and sales (1 971) (1 572) (6 553)
Landfill management 10 800 11 708 33 269
31 093 20 517 50 452
Depreciation
Waste management 21 686 13 883 30 560
Compost manufacturing and sales 1 099 1 183 2 353
Landfill management 5 616 5 449 8 765
28 401 20 515 41 678
The preparation of the group’s condensed consolidated financial results was
supervised by the group financial director, AP Broodryk, CA (SA).
Overview
Despite a challenging operating environment, compounded by the impact of the
lengthy strike in the platinum industry, we are pleased to report an improvement in
performance over the comparable period in 2013.
Revenue was up by 22%, headline earnings rose 60% and diluted headline earnings per
share were up by 32%. The lower increase in earnings per share was a function of
the additional shares issued in the latter part of 2013. The growth for the period
reflected the benefits of the diversified nature of the Group. Interwaste has a
sustainable base that is able to render a contribution through market cycles, and
which was supplemented by a number of operations that performed strongly.
FG landfill again produced pleasing growth, the effluent treatment plant we
invested in three years ago has come of age and is producing returns which have
exceeded our expectations, our operations outside South Africa have required
significant investment but are producing profits which more than justify the monies
spent, the Envirowaste acquisition is solidly profitable and our core waste
business performed well. The landfill management business produced slower growth
than in previous periods as a result of our decision to exit loss making or
marginally profitable contracts and to tender for new business at rates which will
yield returns appropriate to the risks in the business.
Certain geographic areas within our logistics business disappointed and the compost
business remains of concern. These are being addressed and we expect improvements,
particularly from the logistics areas.
The operating margin for the current period is significantly higher than that for
the comparable prior period. This was the result of a number of profitable
initiatives supported by our continued focus on managing our cost base and on
addressing under performing operations. We benefitted from the growth we have
achieved over the last 24 months with the positive leverage resulting from revenue
growth exceeding the rate of increase in our costs.
The period under review was characterised by a substantial level of investment in
the core business and in new projects. A consequence of this was that the total
investment spend for the six months was at similar levels to the investment spend
for the whole of the 2013 financial year and resulted in an increase in the gearing
ratio. This will be managed over the next financial year.
The majority of the investment spend was applied to the cyclic replacement of a
portion of our fleet. This was effected through the purchase of the vehicles rather
than the off balance sheet full maintenance lease structures we used previously.
While this increased our balance sheet debt levels, based on our experience over
the last fleet cycle, we expect ownership of the vehicles to provide a material
medium term financial benefit.
The new projects included a further investment into the waste derived fuel blending
platform, in partnership with Lafarge, which was brought into operation during the
period. The clean, no waste to landfill, option provided by the platform represents
an important waste disposal alternative to a number of our larger customers and we
look forward to strong growth from this area. Waste legislation is likely to become
increasingly restrictive as to the waste streams that can be disposed of in
landfills and the blending platform provides a scalable cost effective alternative.
Progress on the Klinkerstene landfill continues and the current investment spend is
creating an important future source of landfill airspace for Johannesburg and
should provide a sound foundation for the Company’s medium term growth. Greenfield
landfill development is a multi year process and while we recognise that the
current investment is dilutive and will remain so until the landfill is brought
into operation, we are confident that the asset value substantially exceeds its
cost. We also commenced the construction of the next cell at FG landfill to cater
for the higher than expected demand we have experienced. We have a number of other
landfill initiatives in progress and will report on those in due course.
We are constructing a transfer station in the northern part of Johannesburg which
should result in significant logistic and cost efficiencies for both our fleet and
for certain of our customers.
We have supplemented our effluent treatment plant with an evaporator. This was
brought into operation post the period end and will enable us to process a
significantly wider range of effluent liquids.
We have continued to invest in our operations outside South Africa and the returns
to date support further emphasis on this area. We have resourced the area properly
and we gained encouraging levels of new business during the period while also
making progress on certain of the approvals we require to realise the full
potential of the operations. We are progressing a number of new non South African
opportunities.
Interwaste was the subject of a number of press articles during the period. These
contained a range of unfounded allegations and a number of factual errors. We
published a response setting out the facts and commissioned a forensic investigator
to address the matter, which investigation led to the opening of a criminal case
which is now in the hands of the South African Police Services.
Segmental review
The waste management business grew revenue by 27.5% and operating profit by 114%.
We were able to grow volumes across much of our core business and won a number of
new contracts. Our efforts to fully understand our customers’ needs and to innovate
to meet them have continued to produce growth with material portions of the current
period growth yielding strong margins. Our on-site full service offering has been
successful where implemented and we expect growth from the area as more customers
convert. Our non South African business was a strong contributor during the period
and we expect that to continue.
Revenue in the compost business was flat and the operating loss for the period
increased to R2 mln from R1.6 mln in the comparative period. This business remains
problematic with limited pricing power and a difficult cost base. As indicated
previously, our focus is to minimise the losses in the area until we are able to
exit the business in a manner which realises a meaningful proportion of the net
value we believe exists, and avoids any adverse effects on the waste management
division.
The landfill management business produced a 4.1% increase in revenue and a 7.8%
decrease in operating profit. The substantial reduction from the ratios for the
comparative period was the result of a number of costs we expensed that did not
qualify for capitalisation but which are expected to yield a long term benefit, and
the decision to exit marginal landfills and not to tender other than at rates we
believe are appropriate to the risks in managing municipal landfills. Income from
the FG landfill continued to grow and supported the result for the division.
Although the landfill management business (excluding FG landfill) is unlikely to
produce strong revenue growth in the short term, it will be an important
contributor in the medium term as a number of the projects we are currently
investing in come on line.
Prospects
Our periodic refrain that conditions on the ground remain difficult is relevant
once again. Despite lacklustre GDP growth we have seen interest rate hikes,
although tempered and there is no obvious catalyst to create the levels of growth
the South African economy badly needs. In addition, there is ongoing pressure on
the industrial sectors cost base as a result of e-tolls, administered price
increases and the increases in the cost of fuel over the last year.
Although the metal workers strike in July was resolved in a shorter period than the
earlier strike in the platinum industry, it involved significantly more workers and
a far wider array of businesses. The impact on many of our customers was pronounced
and had a consequent effect on our results for July.
We anticipate a difficult second half with more labour unrest and tepid economic
growth. Nonetheless, we expect a number of our investments to come into full
operation and to produce their budgeted returns, we anticipate continued growth
from our core business as initiatives to work more closely with our customers gain
traction and we are optimistic about our non South African business.
We will continue to invest in the next period while remaining cogniscent of capital
constraints and the need to drive returns from the monies spent to date.
Any reference to future financial performance included in this announcement has not
been reviewed or reported on by the company’s auditors.
Dividends
Interwaste will not pay a dividend for the period. Interwaste Cleaning (Pty) Ltd, a
partly owned subsidiary, paid dividends of R 459 000 to non-controlling
shareholders.
Supplementary Notes
Interwaste is a South African registered company. The condensed consolidated
financial statements of the Company comprise the Company and its subsidiaries.
Statement of compliance
The condensed consolidated interim financial statements are prepared in accordance
with International Financial Reporting Standard, (IAS) 34 Interim Financial
Reporting, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Pronouncements as issued by Financial Reporting
Standards Council and the requirements of the Companies Act of South Africa. The
accounting policies applied in the preparation of these interim financial
statements are in terms of International Financial Reporting Standards and are
consistent with those applied in the previous annual financial statements.
Basis of measurement
The condensed consolidated interim financial statements are presented in thousands
of South African Rands (R’000s) on the historical cost basis, except for derivative
financial instruments which are measured at fair value.
Going Concern
The condensed consolidated 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.
Appreciation
The board extends its gratitude to our employees, our customers and our investors
for the effort and support during the period
On behalf of the Board
18 August 2014
WAH Willcocks AP Broodryk
Chief Executive Officer 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
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