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Reviewed condensed consolidated preliminary financial statements for the year ended 31 December 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”)
REVIEWED CONDENSED CONSOLIDATED PRELIMINARY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
Overview
We are pleased to be able to report another improvement in performance over the prior
year. Despite the impact of the platinum industry strike in the first half, the
current year was marked by continued strong growth.
Revenue grew by 21%, operating profit grew by 67%, profit after taxation grew by 60%
and headline earnings grew by 50%. At an earnings per share level the growth figures
were lower as a result of the increased number of shares in issue following the
capital raisings in 2013 and 2014.
The results were achieved in a constrained economic environment and reflect a
significant focus on developing new income streams and controlling costs.
The revenue growth arose mainly in the waste management business. We secured a number
of new customers, there was pleasing organic growth from many existing customers, our
non-South African businesses performed strongly and a number of investments made in
prior years produced higher income streams. In accordance with our strategies for
those businesses, growth in the compost manufacturing and landfill management
operations was deliberately constrained and was limited to relatively more profitable
opportunities.
Cash flows from operating activities were substantially higher than the previous
year; they were however matched by a materially higher level of investment in the
underlying businesses. The excess of investment over operating inflows was funded
through a capital raising in the latter part of the year. The more significant
investments included the acquisition of several properties which the Group had
leased, the continued acquisition of vehicles previously held under operating leases,
the development of a transfer station in Wynberg and the acquisition of a range of
equipment related to our core business that has contributed to our ability to provide
a more comprehensive range of services to our waste customers.
Segmental Review
The waste management business grew revenue by 28% and operating profit by 94%. The
significant growth in operating profit was a function of leverage as volumes
increased, strong contributions by certain of our new higher margin businesses and
continued cost control.
There was a material improvement in the compost manufacturing and sales business with
the loss reducing from R6.6 million in the previous year to R1.2 million. The
operation is an important part of our customer service offering and now makes a
positive contribution to group overheads. We have been able to achieve some
distribution scale on the retail side and will continue to look for opportunities to
grow sales and control costs in order to restore profitability.
The landfill management business produced a minimal increase in revenue and an 18%
increase in operating profit. Levels of income from FG landfill continued to grow and
supported this result. The division further reduced its exposure to non-profitable
third party landfills and now has a core portfolio that generates satisfactory
returns, although this is subject to change as contracts mature and new awards are
made through government tender processes. An important part of the division’s
function is the sourcing and development of new landfill space, or alternative
options to landfills, and pleasing progress was made in this area. The Group has a
number of environmental impact studies in progress that should result in future
landfill space with significant value.
Initiatives
The Group progressed a number of initiatives during the year. The Envirowaste
business has been effectively integrated and is performing well under its own brand.
It operates largely in the northern suburbs of Johannesburg and is an important
source of waste for the FG landfill.
The blending platform joint venture we have with Lafarge is operating. In addition to
the environmental benefits of reducing the volume of oil type liquids disposed of to
landfill (and such disposals will become illegal in the next few years), use of the
material as fuel for cement kilns, and subsequent use of the resultant ash, results
in clean and effective disposal of hazardous materials.
Further progress was made on the development of the Klinkerstene landfill with
important aspects of the required authorisations now in hand. This facility will be a
vital source of landfill space to the Group, and to parts of greater Gauteng, in the
medium term.
Greens Waste, previously a joint venture, is now wholly owned, and delivered a
credible performance on the back of the turnaround that was implemented when we
acquired control of the business in the prior year.
We entered into several more ventures during the period. One of those was Hazclic, a
specialised industrial cleaning service, which provides an exciting extension to the
Group’s service offering. While the venture is still in an early phase, it is showing
promising signs.
Our on-site business, where we assume responsibility for all aspects of a customer’s
integrated waste management, continues to gain acceptance and has produced
encouraging savings for those customers that have implemented the service.
We extended our geographical reach outside South Africa during the year and
substantially increased the resources allocated to the operations. The significant
decline in the oil price, and lower coal prices, will impact on our customers’
operations in certain of the areas in which we operate, however our operations are
cash generative and we remain of the view that their long term prognosis is sound.
We developed a transfer station in Wynberg which accepted its first loads late in
2014. The facility provides the Group, and certain of our major clients, with the
ability to bulk waste collected in the northern part of Johannesburg for subsequent
disposal at the FG landfill. This will result in cost savings and more efficient
operations as, without the commute to Olifantsfontein, vehicles will be able to do
more customer loads per day, and fewer vehicles will be required to achieve the same
service levels. In addition, the number of vehicles going into the landfill can be
reduced and the bulk loads can be run out to the landfill at off peak times.
Our commodities trading and effluent treatment businesses performed solidly. We have
built expertise in these areas and have invested strongly behind our people; it is
therefore gratifying to see the businesses providing the level of returns we had
originally envisaged.
We raised R81 million of capital during the period, subsequent to the R50 million
raised in 2013. The year was characterised by high levels of investment and despite
the fund raising, interest-bearing borrowings less cash, expressed as a percentage of
total equity, increased from 41.9% to 47.9%. A part of this was due to bringing debt
on balance sheet as a result of owning rather than leasing vehicles and certain
properties. Significant focus is placed on ensuring that our investments provide
appropriate returns and on managing our gearing levels.
Prospects
The 2015 financial year is likely to be difficult. Competition between trade unions
seems to be intensifying and this often leads to increased levels of labour unrest,
and militant and illegal behaviour by elements of striking workers. While workers
bear a substantial portion of the resultant costs through lost wages and benefits,
the cost to corporate South Africa of an unfortunate approach to labour relations is
meaningful.
The last five years have seen significant increases in landfill disposal costs at H:H
(high hazard) landfills. The increases were a function of the increasing costs of
operating the landfills as legislative requirements tightened, and the ability of
landfill owners to price aggressively given their control of a limited resource. A
consequence of the regular steep increases in landfill costs was that alternate forms
of disposal became economically viable, and presented opportunities for those
companies able to develop alternatives to H:H landfill disposal. During 2014 we saw
material reductions in H:H landfill disposal costs for certain waste streams. This
created some disruption in the market and resulted in initial market share gains for
the responsible landfill owners, but if applied consistently, and if sustainable in
the context of rising landfill operating costs, should enable us to provide waste
disposal to our customers at lower prices.
The reduction in the oil price and consequent reduction in the price of diesel,
although tempered by the new fuel taxes and the impact of the weak rand, should
provide an element of saving on our vehicle operating costs. The saving will however
be required to fund above inflation increases in other operating costs.
The recent load shedding has affected many of our customers and will continue to do
so. Where appropriate we have installed back up power and have been able to manage
through the dark periods.
Given the headwinds in our environment, we are cautious as to the outlook for the
next year. We will carefully target those markets where we have the best capacity to
produce meaningful growth, we will control costs tightly and we will look to further
leverage the skills base and relationships we have developed. While our primary focus
will be on organic growth, we will remain vigilant for acquisitions where we believe
that long term value is available.
Dividends
The Company will not pay a dividend for this period. Interwaste Cleaning (Pty) Ltd, a
partly owned subsidiary, paid dividends of R 459 000 to non-controlling shareholders.
Basis of preparation
The condensed consolidated preliminary financial statements are prepared in
accordance with the requirements of the JSE Limited Listings 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 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 Reporting
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 condensed consolidated
preliminary financial statements are in terms of International Financial Reporting
Standards and are consistent with those applied in previous financial statements
except for standards, interpretations and amendments that are newly effective for the
period ended 31 December 2014, and which have become applicable.
Basis of measurement
The condensed consolidated preliminary financial statements are presented in
thousands of South African Rands (R’000s) on the historical cost basis.
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, 24 March 2015 they have expressed an
unmodified conclusion. The auditor’s report does not necessarily report on all the
information in this announcement or financial statements. Shareholders are therefore
advised that in order to obtain a full understanding of the nature of the auditor’s
engagement, they should obtain a copy of the auditor’s report together with the
accompanying financial information from the issuer’s registered office.
Preparation of preliminary results
The preparation of the Group’s condensed consolidated preliminary financial
statements was supervised by the group financial director, AP Broodryk, CA(SA).
Appreciation
We extend our gratitude to all our staff who contributed to the result this year and
to our shareholders and other stakeholders for your valued support.
On behalf of the Board
24 March 2015
WAH Willcocks AP Broodryk
Chief Executive Officer Financial Director
Condensed Consolidated Statement of Comprehensive Income for the year ended 31 December 2014
Dec 2014 % Dec 2013
Reviewed Change Audited
R’000 R’000
Revenue 834 474 21% 688 242
Cost of sales (421 169) (378 628)
Gross profit 413 305 33% 309 614
Other income - 679
Operating expenses (264 419) (218 163)
Earnings before interest, tax, depreciation and 148 886 62% 92 130
amortisation
Depreciation and amortisation (64 870) (41 678)
Results from operating activities 84 016 67% 50 452
Net finance cost (19 580) (10 200)
Finance cost (20 368) (11 335)
Finance income 788 1 135
Profit before taxation 64 436 60% 40 252
Taxation expense (18 890) (11 737)
Profit for the year 45 546 60% 28 515
Profit attributable to:
Non-controlling interests 1 224 1 175
Owners of the Company 44 322 62% 27 340
Other comprehensive income
Items that are or may be reclassified to profit or
loss:
Foreign currency translation reserve movement on (39) 58
foreign operations
Total comprehensive income for the year 45 507 59% 28 573
Total comprehensive income attributable to:
Non-controlling interests 1 224 1 175
Owners of the Company 44 283 27 398
Reconciliation of headline earnings
Profit attributable to owners of the company 44 322 27 340
Adjusted for:
Loss on disposal of property, plant and equipment 2 318 4 987
Gain from bargain purchase - (174)
Taxation charge on headline earnings adjusting (649) (1 396)
items
Total non-controlling interest effects of 9 -
adjustments
Headline earnings attributable to ordinary 46 000 50% 30 757
shareholders
Weighted average number of shares in issue on which 409 464 398 359 183
earnings per share are based 791
Diluted weighted average number of shares in issue 417 189 252 361 699
on which diluted earnings per share are based 763
Basic earnings per share (cents) 10.82 42% 7.61
Diluted earnings per share (cents) 10.62 40% 7.56
Headline earnings per share (cents) 11.23 31% 8.56
Diluted headline earnings per share (cents) 11.03 30% 8.50
Condensed Consolidated Statement of Financial Position at 31 December 2014
Dec 2014 Dec 2013
Reviewed Audited
R’000 R’000
ASSETS
Non-current assets 658 412 455 121
Property, plant and equipment 598 590 395 338
Goodwill 59 382 59 382
Deferred tax asset 440 401
Current assets 241 765 157 243
Inventories 14 747 13 512
Current tax receivable 120 427
Trade and other receivables 164 992 114 017
Cash and cash equivalents 61 906 29 287
Total assets 900 177 612 364
EQUITY AND LIABILITIES
Equity 453 083 325 795
Equity attributable to the owners of the Company 450 192 323 669
Share capital and premium 306 498 225 490
Share based payment reserves 3 295 2 063
Foreign currency translation reserve 60 99
Retained earnings 140 339 96 017
Non controlling interests 2 891 2 126
Liabilities
Non-current liabilities 252 208 156 513
Interest-bearing borrowings 191 378 110 577
Provision for site rehabilitation 23 964 16 837
Deferred tax liabilities 36 866 29 099
Current liabilities 194 886 130 056
Current tax payable 3 036 925
Interest-bearing borrowings 87 436 55 171
Trade and other payables 104 414 73 423
Provision for onerous lease - 532
Bank overdraft - 5
Total liabilities 447 094 286 569
TOTAL EQUITY & LIABILITIES 900 177 612 364
Condensed Consolidated Statement of Cash Flows for the year ended 31 December 2014
Dec 2014 Dec 2013
Reviewed Audited
R’000 R’000
Net cash inflow from operating activities 104 387 79 655
Net cash outflow on investing activities (265 846) (145 236)
Net cash inflow from financing activities 194 074 116 452
Total cash movement for the year 32 615 50 871
Effect of exchange rate fluctuations on cash held 9 43
Cash and cash equivalents acquired - (207)
Cash and cash equivalents at beginning of year 29 282 (21 425)
Total cash and cash equivalents at end of year 61 906 29 282
Condensed Consolidated Statement of Changes in Equity for the year ended 31 December 2014
Dec 2014 Dec 2013
Reviewed Audited
R’000 R’000
Profit after tax 45 546 28 515
Share issue cost - (134)
Dividends paid to non-controlling interest (459) (1 170)
Share capital raised 6 7
Premium on shares issue 81 002 50 127
Foreign currency translation reserve movement (39) 58
Share-based payment expense 1 232 1 231
Purchase of additional share in subsidiary from - (402)
non-controlling interest
Equity at beginning of the year 325 795 247 563
Total Equity at end of year 453 083 325 795
Made up as follows :
Share Capital issued 46 40
Share Premium 306 452 225 450
Share-based payment reserve 3 295 2 063
Foreign currency translation reserve 60 99
Retained earnings 140 339 96 017
Non-controlling interests 2 891 2 126
Total Equity at end of year 453 083 325 795
Condensed Consolidated Segment Report for the year ended 31 December 2014
Dec 2014 Dec 2013
Reviewed Audited
R’000 R’000
Gross revenue from external customers 834 474 688 242
Waste management 676 330 529 761
Compost manufacturing and sales 40 989 42 855
Landfill management 117 155 115 626
Results from operating activities 84 016 50 452
Waste management 46 024 23 736
Compost manufacturing and sales (1 215) (6 553)
Landfill management 39 207 33 269
Depreciation 64 870 41 678
Waste management 54 183 30 560
Compost manufacturing and sales 2 475 2 353
Landfill management 8 212 8 765
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
Sponsor: Grindrod Bank Limited
www.interwaste.co.za
Date: 24/03/2015 03:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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