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Audited group summarised provisional report for the year ended 30 June 2016
ELB GROUP LIMITED
('ELB', 'the Company' or 'the Group')
Incorporated in the Republic of South Africa
Registration number: 1930/002553/06
Share codes: ELR
ISIN: ZAE000035101
AUDITED GROUP SUMMARISED PROVISIONAL REPORT for the year ended 30 June 2016
- Net asset value per share down 19% year on year to 2 374 cents
- Net cash and cash equivalents at year end of R274 million
- Sales down 30% to R1 783 million
- Profit for the year decreased by 268% to a loss of R189 million
- Headline earnings per share down 262% to a loss of 519 cents
COMMENTS
INTRODUCTION
ELB Group's strategic focus is on being an internationally recognised holistic
engineering solutions provider to the mining, minerals, power, port,
construction and industrial sectors in the field of materials handling, mineral
separation, industrial projects and power solutions. This is achieved through
ELB-generated innovation, in-house capability and the supply, with world class
partners, of equipment and technology. The Group operates predominantly in
Africa and Australasia.
The combination of subdued commodity prices, a global economic slowdown, the
deterioration of the rand, a downturn in investor confidence and a low growth
rate in South Africa has put the sectors the Group operates in under severe
pressure. This, together with delayed or cancelled large infrastructure and
capital spend by both public and private sectors, as well as the litigious
environment in which the Group currently operates, has resulted in the Group
experiencing difficult trading conditions.
In recent years the Group has embarked on a number of initiatives to position
itself to achieve sustainable growth, for which returns will typically only be
realised in the future. These initiatives are all in line with the core
expertise of the Group and will enhance its ability to service its markets via
horizontal or vertical diversification.
Amongst others these initiatives include the further diversification by
Engineering Services into providing biomass, gas and energy from waste power
plants up to 50 MW and the development of expertise in the industrial sector,
specifically in the fast moving consumer goods ('FMCG') field. A number of
projects are either currently ongoing or in the pipeline in these fields.
FINANCIAL RESULTS
Due to the project nature of segments of the business there is no consistent
correlation between sales and profits in reporting periods.
The 30% decrease in Group sales for the period from R2 544 million in 2015 to
R1 783 million in 2016 primarily reflects the difficult trading conditions
experienced during the year and the lower activity levels across all of the
Group's operations.
Profit before tax for the year decreased by 257% from a profit before tax of
R160 million in 2015 to a loss before tax of R251 million in 2016.
Profit for the year attributable to ELB shareholders decreased by 261% from an
attributable profit of R92 million in 2015 to an attributable loss of R148
million in 2016.
Total comprehensive income for the year attributable to ELB shareholders
decreased by 251% from an attributable comprehensive income of R84 million in
2015 to an attributable comprehensive loss of R127 million in 2016.
Headline earnings per share for the year decreased by 262% from 321 cents per
share in 2015 to a loss of 519 cents per share in 2016.
The net asset value per share attributable to ordinary shareholders decreased
by 19% from 2 917 cents in 2015 to 2 374 cents in 2016.
The Group has during the year experienced severe margin pressure, substantial
foreign exchange related losses, the costs associated with the closing out of
certain projects, the right sizing of the business, as well as having expensed
the costs associated with the delay in the award of new contracts.
Notwithstanding the results for 2016 the Group has budgeted for a return to
profitability during the coming financial year.
OPERATIONS
Equipment
Equipment sales decreased by 10% from R765 million in 2015 to R687 million in
2016 while profit before tax decreased from R75 million in 2015 to R2 million
in 2016. This decline is as a result of difficult trading conditions, reduced
market demand, severe margin pressure and substantial foreign exchange related
losses due to the further weakening of the rand. The operation is well
positioned to benefit from more favourable trading conditions when they materialise.
Engineering Services
Sales decreased by 47% from R1 444 million in 2015 to R761 million in 2016, but
profit before tax decreased by 324% from a profit of R105 million in 2015, to a
loss of R235 million in 2016. The loss before tax is attributable to a number
of factors, including costs associated with the closing out of certain
projects, which costs include a substantial amount that is subject to a dispute
which the operation is seeking to recover; carrying the costs associated with
the delay in the award of new contracts; prevailing depressed market
conditions; fluctuating commodity prices and project timing, with a number of
projects only being in the early stages of completion, or being deferred.
The B&W Instrumentation and Electrical component of this segment has again made
a significant positive contribution to the segment this year.
Engineering Services has been predominantly focussed on the coal, industrial,
FMCG and power sectors over the past year. The operation also successfully
completed the construction of one of the world's longest single-flight
conveyors.
The project work on hand remains at a satisfactory level with on-going projects
in Angola, Botswana, DRC, Gabon, Ghana, Israel, Liberia, Mozambique, Namibia,
South Africa and Zambia.
Australasia
Sales decreased by 4% from R350 million in 2015 to R336 million in 2016 while
profit before tax decreased from R2 million in 2015 to R1 million in 2016.
The Australasian business has faced difficult trading conditions in the markets
in which it operates and as a consequence has experienced a marginal
deterioration in its profit for the year. The business continues to service the
growing demand for its Ditch Witch and Komptech range of products and the New
Zealand business unit has again proven to be a valuable contributor to the
operation.
The operation remains well positioned in both Australia and New Zealand to take
advantage of any increase in infrastructure spend in the region and improved
trading conditions.
CASH FLOW
Net cash and cash equivalents declined from R366 million to R274 million. Cash
flow management remains a high priority for the group and ELB works closely
with its bankers, suppliers and customers to ensure the Group continues to
maintain a strong balance sheet at all times.
PROSPECTS
Over the past twenty-four months ELB has invested into a diversification
strategy away from its reliance on the minerals and metals related sectors.
This diversification is predominantly in the FMCG and power industry for plants
less than 50MW. To date this strategy has been well accepted by the market and
a number of projects are underway with good opportunities available in the
near future.
The Group is targeting a number of imminent opportunities that if successful
should position the Group favourably for the next twenty-four to thirty-six
months. The Group is confident that it can harness the opportunities as they
present themselves and deliver on our strategy.
SOCIAL RESPONSIBILITY
ELB's empowerment partner is the ELB Educational Trust, which was established
to promote the education of black South Africans in engineering disciplines. To
this end scholarships continue to be awarded to students at various South
African universities.
ELB is also promoting education through the St Vincent School for the Deaf.
This institution has received substantial donations from ELB. The support of
the ELB Educational Trust and St Vincent School will further assist the
historically disadvantaged in our community.
Apart from donations ELB has also made significant contributions towards small
business development of the historically disadvantaged in South Africa.
BOARD OF DIRECTORS
There have been no changes to the board of directors during the 2016 financial
year or to the date of this report.
DIVIDEND
The board has decided not to declare a final dividend (2015 – 67 cents per
ordinary share). The total dividend for the year is therefore 30 cents per
ordinary share versus 97 cents per ordinary share for the 2015 financial year.
GROUP BALANCE SHEET
30 June 2016 30 June 2015
R'000 R'000
Assets
Non-current assets 367 178 316 612
Property, plant and equipment 176 859 180 031
Goodwill and intangible assets 21 789 26 289
Pension fund employer surplus account 40 263 39 532
Deferred income tax assets 128 267 70 760
Current assets 1 332 190 1 598 859
Construction contract work not yet billed 129 742 313 034
Inventories 584 718 580 735
Receivables and other current assets 332 860 313 140
Cash and cash equivalents 284 870 391 950
Total assets 1 699 368 1 915 471
EQUITY AND LIABILITIES
Equity attributable to ordinary shareholders of ELB 677 772 837 575
Issued capital 107 702 107 702
Treasury shares (40 417) (36 094)
Reserves 81 992 60 233
Retained earnings 528 495 705 734
Non-controlling interests 84 764 148 664
Total equity 762 536 986 239
Non-current liabilities 55 481 49 411
Interest bearing borrowings 35 047 19 006
Provision for trade back commitments 1 224 2 327
Deferred income tax liabilities 19 210 28 078
Current liabilities 881 351 879 821
Construction contract liabilities 186 675 40 103
Interest bearing payables 139 018 118 339
Payables and other current liabilities 544 544 695 841
Bank overdraft 11 114 25 538
Total liabilities 936 832 929 232
Total equity and liabilities 1 699 368 1 915 471
Net asset value per ordinary share (cents) 2 374 2 917
GROUP STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
30 June 2016 30 June 2015
R'000 R'000
Sales 1 782 718 2 544 394
Operating costs excluding depreciation and
amortisation of non-financial assets (2 008 904) (2 359 582)
Operating (loss)/profit before depreciation and
amortisation of non-financial assets (226 186) 184 812
Depreciation and amortisation of non-financial
assets (25 000) (28 405)
(Loss)/profit from operations (251 186) 156 407
Finance income 15 661 16 598
Finance expense (15 369) (12 540)
(Loss)/profit before income tax (250 894) 160 465
Income tax credit/(expense) 61 944 (47 963)
(Loss)/profit for the year (188 950) 112 502
(Loss)/profit for the year attributable to:
Ordinary shareholders of ELB (147 584) 92 237
Non-controlling interests (41 366) 20 265
(188 950) 112 502
Other comprehensive income 24 203 (10 220)
Items that may be reclassified subsequently to
profit or loss
Foreign currency translation reserve adjustments
attributable to ordinary shareholders of ELB 24 968 (7 269)
Income tax effect of adjustments (3 818) 1 430
Items that will not be reclassified to profit or
loss
Non-controlling interests in foreign currency
translation adjustments 4 310 (1 282)
Foreign currency translation adjustments to
foreign non-controlling interests – (1 517)
Pension fund employer surplus account
remeasurements (2 196) (3 490)
Aeroplane revaluation surplus increase 1 385 943
Income tax effect of items that will not be
reclassified to profit or loss (446) 965
Total comprehensive income for the year (164 747) 102 282
Total comprehensive income attributable to:
Ordinary shareholders of ELB (127 167) 84 462
Non-controlling interests (37 580) 17 820
(164 747) 102 282
Earnings per ordinary share
Basic earnings per share (cents) (516,4) 322,3
Diluted basic earnings per share (cents) (515,9) 320,7
Headline earnings per share (cents) (519,4) 321,2
Diluted headline earnings per share (cents) (518,8) 319,7
GROUP STATEMENT OF CHANGES IN EQUITY
30 June 2016 30 June 2015
R'000 R'000
Opening balance 986 239 913 180
Total comprehensive income for the year (164 747) 102 282
(Loss)/profit for the year (188 950) 112 502
Other comprehensive income 24 203 (10 220)
Total (distributions to) and contributions by
owners (36 032) (29 223)
Ordinary dividends paid (27 804) (27 841)
Distributions to non-controlling interests (3 695) (3 232)
Equity settled share options expense 8 43
ELB ordinary shares acquired and held as treasury
shares (6 023) –
Treasury shares paid up and released to
participants 1 482 1 807
Changes in ownership interests in subsidiaries
Acquisition of non-controlling interests (22 924) –
Closing balance 762 536 986 239
Comprising:
Issued capital 107 702 107 702
Treasury shares (40 417) (36 094)
Reserves 81 992 60 233
Retained earnings 528 495 705 734
Equity attributable to ordinary shareholders of
ELB 677 772 837 575
Non-controlling interests 84 764 148 664
Total equity 762 536 986 239
GROUP STATEMENT OF CASH FLOWS
30 June 2016 30 June 2015
R'000 R'000
Operating activities
Net cash (outflow)/inflow from operating
activities before dividends and distributions paid (44 807) 3 444
Dividends and distributions paid (31 499) (31 073)
Net cash outflow from operating activities (76 306) (27 629)
Net cash outflow from investing activities (8 421) (23 834)
Net cash outflow from financing activities (18 978) (700)
Decrease in cash and cash equivalents (103 705) (52 163)
Cash and cash equivalents at the beginning of the year 366 412 422 792
Effect of exchange rate movements on cash
balances 11 049 (4 217)
Cash and cash equivalents at the end of the year 273 756 366 412
SEGMENT INFORMATION
Consol-
idation
Engineer- and
Equip- ing Austral- Elimin-
Total ment Services asia Central ation
R'000 R'000 R'000 R'000 R'000 R'000
Year ended
30 June 2016
Sales
External
sales 1 782 718 685 868 761 053 335 785 12 –
Inter segment – 921 – – – (921)
As reported
in profit or
loss 1 782 718 686 789 761 053 335 785 12 (921)
(Loss)/profit
before income
tax (250 894) 1 576 (235 193) 500 (18 974) 1 197
Assets 1 699 368 747 284 566 931 336 970 120 588 (72 405)
Liabilities 936 832 382 630 467 822 129 714 22 947 (66 281)
Year ended
30 June 2015 -
(restated)
Sales
External
sales 2 544 394 751 831 1 442 731 349 807 25 –
Inter segment – 13 216 1 600 – – (14 816)
As reported 2 544 394 765 047 1 444 331 349 807 25 (14 816)
in profit or
loss
Profit/(loss)
before income
tax 160 465 74 868 105 434 1 682 (21 636) 117
Assets 1 915 471 811 028 725 642 345 248 129 951 (96 398)
Liabilities 929 232 399 095 429 378 143 799 21 064 (64 104)
Restatement
During the year, the Group amended the composition of its reportable segments
to align it with the information now provided to the chief operating decision
maker in order to better present these activities. Group investment entities
and administrative functions are now grouped together in a segment called Central.
An investment company, previously reported within the Australasian segment, has
been reclassified and is now reported within the Central segment. Accordingly,
the Group has restated the operating segment information for the prior year to
align with the current year's reporting structures.
HEADLINE EARNINGS, SHARES IN ISSUE AND PER SHARE MEASUREMENTS
30 June 2016 30 June 2015
R'000 R'000
CALCULATION OF HEADLINE EARNINGS
(Loss)/profit attributable to ordinary
shareholders of ELB (147 584) 92 237
Deduct: Items excluded from headline earnings
as detailed below:
847 288
Profit on disposal of plant and equipment 1 399 544
Income tax effect on profit on disposal of
plant and equipment (402) (144)
Non-controlling interests in profit on disposal
of plant and equipment (150) (112)
Headline earnings (148 431) 91 949
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES IN
ISSUE ('000)
Number of shares in issue at the beginning of
the year 35 824 35 824
Less effect of treasury shares in Group
entities at the beginning of the year (7 112) (7 254)
Basic number of shares in issue at the
beginning of the year 28 712 28 570
Weighted average effect of changes during the year
Shares acquired and held as treasury shares (156) -
Treasury shares released to share scheme
participants 22 52
Weighted average number of shares in issue 28 578 28 622
Effect of outstanding share options 31 139
Diluted weighted average number of shares in issue 28 609 28 761
BASIC NUMBER OF SHARES IN ISSUE AT THE END OF THE YEAR
Ordinary shares in issue ('000's) 35 824 35 824
Deduct: Treasury shares in issue ('000's) 7 270 7 112
Ordinary shares in issue on which net asset
value per ordinary share is calculated 28 554 28 712
Earnings per ordinary share (cents)
- basic (516,4) 322,3
- diluted (515,9) 320,7
Headline earnings per ordinary share (cents)
- basic (519,4) 321,2
- diluted (518,8) 319,7
Net asset value per ordinary share (cents) 2 374 2 917
Dividends declared for the year per ordinary
share (cents) 30 97
NOTES
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The summarised Group financial statements are prepared in accordance with the
requirements of the JSE Limited Listings Requirements for provisional reports,
and the requirements of the Companies Act applicable to summary financial
statements. The JSE Limited Listings Requirements require provisional 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 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 preparation of the Group financial
statements from which the summarised financial statements were derived are in
terms of IFRS and are consistent with those accounting policies applied in the
preparation of the previous Group financial statements.
There are no new, revised or amended accounting standards, effective from
1 July 2015, applicable to the Group.
RELATED PARTY TRANSACTIONS
Group entities entered into various sale and purchase transactions with related
parties in the Group in the ordinary course of business, the nature of which
was consistent with those previously reported. All transactions and balances
with these related parties have been eliminated in the consolidated results.
Elbquip Holdings Pty Limited, a subsidiary in the Group, acquired for cash, the
non-controlling interests in its Australasian operations for an amount of
R23 million, effective from 1 July 2015.
FAIR VALUES
The Group measures foreign currency forward exchange contracts at fair value
using inputs as described in Level 2 of the fair value hierarchy. The fair
values for foreign currency forward exchange contracts are based on quotes from
brokers. Similar contracts are traded in an active market and the quotes
reflect the actual transactions on similar instruments. All other financial
assets or liabilities carrying values approximate their fair values based on
the nature or maturity period of the financial instrument. There were no
transfers between Levels 1, 2 or 3 of the fair value hierarchy during
the period.
CAPITAL EXPENDITURE INCURRED AND FUTURE CAPITAL EXPENDITURE COMMITMENTS
Capital expenditure of R12 million (2015: R28 million) was incurred during the
year on property, plant and equipment. There were capital expenditure
commitments amounting to R3 million for the acquisition of office and computer
equipment (2015: There were no material capital expenditure commitments).
CONTINGENCIES
The Group operates in the engineering contracting business and is exposed to
the risks associated with engineering contracts which does from time to time
include the need to resolve disputes by way of mediation, arbitration and if
need be, litigation. These risks are managed on the basis of limited liability
and appropriate insurances.
A subsidiary is currently involved in a dispute with a client over claims that
it seeks to recover. It has also received a counter claim from the client for
contract delays, which claim has been rejected. It is too early in the process
to determine the outcomes of the disputes and the financial impact.
FINANCIAL PREPARATION AND INDEPENDENT AUDIT
This summary report is extracted from audited information, but is not itself
audited. The financial statements were audited by KPMG Inc., who expressed an
unmodified opinion thereon. The audited financial statements and the auditor's
report thereon are available for inspection at the Company's registered office.
The directors take full responsibility for the preparation of the provisional
report and the financial information has been correctly extracted from the
underlying financial statements. The preparation of the Group financial
statements from which the summarised financial statements were derived was
supervised by the group financial director, Michael Easter CA(SA).
POST BALANCE SHEET EVENTS
There were no significant events arising between the end of the financial year
and the date of these financial statements which materially affect the
financial position or results of the Group or Company.
On behalf of the Board
Dr Stephen Meijers
Chief Executive Officer
ELB Group and ELB Engineering Services
Peter Blunden
Chief Executive Officer
ELB Equipment
Michael Easter
Group Financial Director
ELB Group
Boksburg
26 September 2016
Registered office
14 Atlas Road, Anderbolt, Boksburg 1459
Postal address
PO Box 565, Boksburg, 1460
Telephone
+27 11 306 0700
Website
www.elb.co.za
Share Transfer Secretaries
Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107)
Sponsor
Rand Merchant Bank (a division of FirstRand Bank Limited)
1 Merchant Place, Cnr Fredman Drive & Rivonia Road, Sandton, 2196
Directors
AG Fletcher (chairman), Dr SJ Meijers (group chief executive and chief
executive - ELB Engineering Services), PJ Blunden (chief executive - ELB
Equipment), MC Easter (financial director), T de Bruyn,* Dr JP Herselman,* MV
Ramollo, CJ Smith (alternate), IAR Thomson,* JC van Zyl.*
*Non executive
Company secretary
Elbex Proprietary Limited
Release date
The audited group summarised provisional report was released on 29 September
2016.
Date: 29/09/2016 05:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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