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Unaudited Condensed Consolidated Financial Results
For The Six Months Ended 31 August 2014
PSV HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1998/004365/06)
Share code: PSV ISIN: ZAE000078705
("PSV" or "the Company" or "the Group")
Unaudited condensed consolidated financial results
for the six months ended 31 August 2014
Introduction
During the period under review, PSV experienced the toughest trading conditions in its
history. The poor results are primarily attributable to the following factors:
- A R1.9 million bad debt write off and a further R2.5 million in invoicing to Protech
Khuthele Limited ("Protech"), a customer of Engineered Linings, that could not be raised
following Protech entering into liquidation;
- The NUMSA strikes which effectively cost PSV six weeks of turnover and over R2 million
in profit;
- A contraction in the capital expenditure ("capex") spend of the major gas companies in
PSV's cryogenics business;
- Excessive shared service costs; and
- Underperforming foreign assets attributable to delays in signing lucrative maintenance
contracts based on slow regulatory processes.
As a result, management has embarked upon a radical remedial programme designed to address
the aforementioned issues immediately and effectively.
Condensed consolidated statement of comprehensive income
Unaudited Unaudited
for the for the Audited for the
6 months ended 6 months ended 12 months ended
31 August 2014 31 August 2013 28 February 2014
R'000 R'000 R'000
Revenue 135 947 225 512 391 121
Gross profit 26 825 43 473 72 186
Operating expenses* (37 288) (34 225) (74 724)
Operating (loss)/profit (10 463) 9 248 (2 538)
Net finance charges (1 626) (1 017) (2 230)
(Loss)/profit before taxation
from continuing operations (12 089) 8 231 (4 768)
Taxation 1 623 (3 154) 11 458
(Loss)/profit for the period
from continuing operations (10 466) 5 077 6 690
(Loss)/profit from discontinued
operations - (4 838) (4 837)
Total comprehensive (loss)/income
for the period (10 466) 239 1 853
Reconciliation of headline
(loss)/earnings
(Loss)/profit attributable to
PSV equity holders (10 466) 239 1 853
Loss /(profit) on disposal of
property, plant and equipment (89) 335 136
Loss/(profit) on disposal of
discontinued operations - 4 716 4 716
Impairment of tangible assets - - 351
Headline (loss)/earnings (10 555) 5 290 7 056
Headline (loss)/earnings -
continuing operations (10 555) 5 372 7 177
Basic (loss)/earnings per
share (cents) (3.98) 0.09 0.71
Basic (loss)/earnings per
share (cents) from
continuing operations (3.98) 1.92 2.56
Headline (loss)/earnings per
share (cents) (4.01) 2.00 2.70
Headline (loss)/earnings per share
(cents) from continuing operations (4.01) 2.05 2.75
Diluted (loss)/earnings per
share (cents) (3.98) 0.09 0.71
Diluted (loss)/earnings per
share (cents) from continuing
operations (3.98) 1.91 2.55
Diluted headline (loss)/earnings
per share (cents) (4.01) 1.99 2.69
Diluted headline (loss)/earnings
per share (cents) from continuing
operations (4.01) 2.04 2.73
Actual number of shares in issue
at end of the period 272 548 272 548 272 548
Weighted number of shares in issue
at end of the period 262 990 263 781 261 378
Fully diluted weighted average number
of shares in issue at end of the period 263 218 265 308 262 730
* Operating expenses are net of sundry income and include depreciation, impairments and
amortisation charges.
Condensed consolidated statement of financial position
Unaudited Unaudited
as at as at Audited as at
31 August 2014 31 August 2013 28 February 2014
R'000 R'000 R'000
ASSETS
Non-current assets* 69 075 64 888 73 057
Current assets 116 012 155 516 115 996
Inventory 29 852 41 047 29 358
Trade and other receivables 65 633 79 923 58 033
Taxation receivable - - 894
Cash and cash equivalents 20 527 34 546 27 711
Total assets 185 087 220 404 189 053
EQUITY AND LIABILITIES
Equity 88 293 97 117 99 000
Non-current liabilities 12 948 19 250 15 367
Current liabilities 83 846 104 037 74 686
Current portion of deferred
purchase consideration 5 722 5 765 6 599
Taxation payable 2 456 5 802 3 171
Current portion of long-term
liabilities 3 135 3 332 2 836
Trade and other payables 51 245 75 236 45 407
Bank overdraft 21 288 13 902 16 673
Total equity and liabilities 185 087 220 404 189 053
Net asset value per share
(cents) 33.57 35.63 37.88
Tangible net asset value per
share (cents) 18.76 20.88 22.65
* Includes deferred tax assets.
Condensed consolidated statement of changes in equity
Unaudited Unaudited
for the for the Audited for the
6 months ended 6 months ended 12 months ended
31 August 2014 31 August 2013 28 February 2014
R'000 R'000 R'000
Balance at beginning of
the period 99 000 97 059 97 059
Total comprehensive (loss)/income
for the period (10 466) 166 1 853
Dividends paid - - -
Share-based payment transactions 99 (107) (23)
Foreign currency translation
differences (340) - 111
Balance at end of the period 88 293 97 117 99 000
Condensed consolidated statement of cash flows
Unaudited Unaudited
for the for the Audited for the
6 months ended 6 months ended 12 months ended
31 August 2014 31 August 2013 28 February 2014
R'000 R'000 R'000
Cash flows from operating
activities (9 507) 1 058 (3 140)
Cash flows from investing
activities 2 996 5 733 4 320
Cash flows from financing
activities (5 288) (2 896) (6 891)
Net movement in cash and
cash equivalents (11 799) 3 895 (5 711)
Cash and cash equivalents at
beginning of the period 11 038 16 749 16 749
Cash and cash equivalents at
end of the period (761) 20 644 11 038
Condensed consolidated segmental information
for the six months ended 31 August 2014
Industrial Specialised
Supplies Services Other Total
R'000 R'000 R'000 R'000
Revenue 95 451 42 251 (1 755) 135 947
Gross profit 20 476 6 790 (441) 26 825
Operating expenses* 14 963 7 150 11 707 33 820
(Loss) before tax (95) (4 001) (6 370) (10 466)
Depreciation/amortisation 1 080 - 2 388 3 468
Capital expenditure 383 156 51 590
Gross assets 76 550 34 324 74 213 185 086
Gross liabilities 66 214 43 281 (12 701) 96 794
* Operating expenses exclude other income and finance costs.
Condensed consolidated segmental information
for the six months ended 31 August 2013
Industrial Specialised
Supplies Services Other Total
R'000 R'000 R'000 R'000
Revenue 115 783 109 729 571 225 512
Gross profit 30 446 13 159 (132) 43 473
Operating expenses* 15 193 6 540 10 015 31 748
Profit/(loss) before tax 10 198 2 241 (4 208) 8 231
Depreciation/amortisation (183) - - (183)
Capital expenditure 2 292 2 037 284 4 613
Gross assets 81 863 85 153 53 389 220 404
Gross liabilities 56 574 57 458 9 255 123 287
* Operating expenses exclude other income and finance costs.
Commentary
BASIS OF PREPARATION
The unaudited condensed consolidated financial results for the six months ended 31 August 2014
("the interim results") have been prepared in accordance with the framework concepts, the
recognition and measurement requirements of International Financial Reporting Standards ("IFRS"),
the disclosure and presentation requirements of IAS 34: Interim Financial Reporting, the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Reporting
Pronouncements as issued by the Financial Reporting Standards Council, the Listings Requirements
of the JSE Limited ("Listing Requirements") and the South African Companies Act, 2008 (Act 71 of 2008),
as amended. The accounting policies and method of computation applied in preparation of these
financial statements are in accordance with IFRS and are consistent with those applied in the
annual financial statements for the 12 months ended 28 February 2014.
The interim results have been prepared under the supervision of the Financial Director,
Tony Dreisenstock CA(SA), and have not been audited or reviewed by the Group's auditors.
Any forecast financial information contained in the interim results has not been reviewed
and reported on by the Group's auditors in accordance with paragraph 8.40(a) of the
Listings Requirements.
NATURE OF BUSINESS
PSV is an industrial engineering holding company comprising two operating business
segments:
- Industrial Supplies (including industrial spares and supplies, crane maintenance
and automotive spares); and
- Specialised Services (including geosynthetic linings and cryogenic activities).
FINANCIAL RESULTS
Revenue during the period under review decreased by 39,7% from R225.5 million to R135.9 million.
The contraction in turnover levels is attributable to the aforementioned contributing factors.
Gross profit margins remained stable at 19.7% (2013: 19.3%) mainly due to a positive change
from a higher margin sales mix.
Although operating expenses decreased by 8.9% from the previous corresponding period, the
operating expense ratio increased to 21.5% from 19.1% during the previous corresponding period
due mainly to the reduction in revenue.
During the period under review PSV incurred a comprehensive loss of R10.5 million compared
to a R0.2 million profit in the previous corresponding period. Headline loss per share from
continuing operations decreased to 4.01 cents per share ("cps") (2013: earnings 2.05 cps).
Due to the losses incurred, PSV's net cash position reflected a R0.8 million deficit,
compared to R11.1 million cash available at 28 February 2014. Net tangible asset value
per share also decreased to 18.8 cps compared to 22.7 cps as at February 2014. PSV is however,
still trading at a substantial discount compared to its current share price.
Whilst PSV's overall interest-bearing debt position increased marginally during the last
six months, all debt obligations were properly and timeously serviced. As a result of the
significant turnaround strategies currently being implemented, PSV remains a viable going
concern, and enjoys the continued and ongoing support of its bankers and suppliers.
OPERATIONAL REVIEW
Industrial Supplies
This segment contributed 70% (2013: 51%) to the Group's consolidated revenue at an average
gross profit margin of 21% (2013: 26%).
Despite having been detrimentally affected by strike action and generally poor economic
conditions, Omnirapid remains highly profitable, cash generative and continues to deliver
consistent results.
Turbo incurred a loss for the six months primarily due to various lucrative mining
contracts not having been signed and unsustainable infrastructure costs. A substantial
reorganisation is currently under way and all outstanding mining contracts should be
signed in the near future. Head count has been reduced by 52% and 33% in Zambia and
Botswana. These measures should ensure that Turbo returns to a profitable position.
Specialised Services
Specialised Services contributed 30% (2013: 49%) to the Group's consolidated revenue
at an average gross profit margin of 16% (2013: 12%).
The aforementioned contributing factors detrimentally impacted Engineered Linings,
necessitating downsizing of business operations. Breakeven levels have been decreased
by 75%, payment arrangements have been secured with critical suppliers and order levels
have recovered to sustainable levels.
Currently the business is focusing on smaller low value higher margin installation jobs.
A threshold has been introduced with respect to low margin high value geosynthetic supply
jobs. Any supply jobs which exceed the threshold will be routed directly to the material
supplier in return for a destination commission.
The result is a substantial reduction in top line with increases in bottom line profitability.
Furthermore, the risk profile of the business has changed and is now far more positive than
at any time in the past. The Board is confident that with continued focus, the company will
return to long-term profitability.
African Cryogenics remains cash generative and profitable despite major logistical hurdles,
industrial strike action and contraction in gas company capex spend. The business is now
properly entrenched at its new state-of-the-art manufacturing facility and is enjoying
reasonably healthy order books at good margins.
SUBSEQUENT EVENTS
On 31 October 2014, after months of interaction, PSV served notice of cancellation of
the lease agreement at its principal location in Elandsfontein, Germiston. The reason
for the cancellation was the non-performance by the landlord of its obligations in terms
of the lease agreement. Accordingly, PSV's head office has relocated to Stoneridge
Office Park, Greenstone.
DIVIDENDS
The Group will continue to retain and utilise cash generated to fund working capital
requirements and as such, no dividends were declared or proposed. The board of directors
of PSV ("the Board") reviews the dividend policy annually.
CHANGES TO THE BOARD
There were no changes to the Board during the period under review.
PROSPECTS
PSV expects tough trading conditions to prevail in the coming six months.
The significant restructure of head office and other operations will ensure a substantial
reduction in costs, resulting in the alleviation of pressure on cash. The remedial action
taken is severe and will ensure PSV's going concern viability.
Omnirapid has moved into the new African Cryogenics facility, thereby eliminating duplicated
overhead costs. Low operating costs and a burgeoning reputation for service excellence
throughout Africa, should ensure this business continues to generate high levels of cash
and profitability, and that budgetary targets will be comfortably exceeded, albeit at
lower margins.
African Cryogenics has repeatedly demonstrated economic resilience and an ability to adapt
to changing market conditions as demonstrated by sustained levels of profitability and positive
cash generation over the years. The business unit has embarked upon an aggressive marketing
campaign designed to entice the gas companies away from imports to locally manufactured
cryogenic vessels and containers. The campaign has attracted interest and we are hoping to start
achieving some levels of success in the new financial year.
The current order book is reasonable and at good margins. Whilst the unit is expected to generate
below top line budgetary targets, the budgeted profit after tax should be met, due to higher margins
and strict control of operating costs.
Turbo operates in countries of immense opportunity and potential, especially in Zambia and the
Democratic Republic of Congo ("DRC"). PSV is systematically implementing new procurement and
marketing strategies designed to ensure sustainable levels of turnover and profitability. New
highly experienced management has been recruited into the various Turbo business units. Management's
objective is to drive the successful implementation of Turbo's new strategies.
The current financial year has seen statutory impediments in the DRC delaying the signing of lucrative
contracts which were pivotal in formulating budgetary targets for the 2015 financial year. The Board is
pleased that these impediments have been addressed and Turbo DRC should soon return to profitability
and positive cash generation.
Despite the adversity experienced by Engineered Linings in the first half of the financial year, the
unit has emerged leaner and more focused. The unit is comfortably servicing all its obligations and is
systematically reducing its legacy trade debt with critical suppliers. Losses have been stopped and
the unit has returned to profitability. Whilst the unit is not expected to reflect a profit in the
2015 financial year, a reduction in losses is anticipated.
PSV generated a Loss Before Interest, Tax, Depreciation and Amortisation ("LBITDA") of R7.5 million
in the first quarter and an EBITDA of R0.47 million in the second quarter, indicating a slow return
to overall profitability. The Company is bullish in its ability to sustain the positive trend
generated in the second quarter particularly in light of the substantial reduction in shared
services costs and operational costs.
For and on behalf of the Board
AJD da Silva
Chief Executive Officer
AR Dreisenstock
Chief Financial Officer
Johannesburg
13 November 2014
DIRECTORS
Executive Directors:
AJD da Silva (Chief Executive Officer)
AR Dreisenstock (Chief Financial Officer)
Non-Executive Directors:
R Patmore (Independent Chairperson)
A de la Rue (Independent Chairman of the Audit Committee)
E Ratshikhopha (Independent Chairman of the Social and Ethics Committee)
COMPANY SECRETARY
Merchantec Proprietary Limited
DESIGNATED ADVISER
Merchantec Capital
REGISTERED OFFICE
Building C
2nd Floor
Stoneridge Office Park
8 Greenstone Place
Greenstone Hill
Postnet Suite 229
Private Bag X19
Gardenview
2017
Tel: 0860 778 778
Fax: 0860 329 778
www.psvholdings.com
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