HOWDEN AFRICA HOLDINGS LIMITED - Unaudited interim financial statements for the six months ended 30 June 2018

Release Date: 31/07/2018 17:00
Code(s): HWN
 
Wrap Text
Unaudited interim financial statements for the six months ended 30 June 2018

Howden Africa Holdings Limited (HAHL) 
(Incorporated in the Republic of South Africa) 
(Registration number 1996/002982/06)
JSE code: HWN ISIN: ZAE000010583 
(“Howden”, “the Company” or “the Group”)

Unaudited interim financial statements for the six months ended 
30 June 2018

Condensed consolidated statement of financial position 
as at 30 June 2018

                                                    Restated     Restated 
                                         30 June     30 June  31 December
                                            2018        2017         2017
R’000                          Note   (Unaudited) (Unaudited)    (Audited) 
Assets
Non-current assets                       172 070     175 532      178 403
Property, plant and equipment
and intangible assets                    127 501     132 585      133 105
Pension fund plan surplus                 17 522      16 463       17 071
Deferred tax assets               3       23 021      15 975       21 069
Trade, construction contracts
and other receivables                      4 026      10 509        7 158
Current assets                         1 959 172   1 862 541    1 952 121
Inventories                              321 299     321 111      337 065
Trade, construction contracts
and other receivables             3      257 839     377 585      389 751
Loans receivable                          17 075      16 050       25 625
Current income tax asset                  18 562      22 663       23 259
Cash and cash equivalents              1 344 397   1 125 132    1 176 421
Total assets                           2 131 242   2 038 073    2 130 524
Equity
Share capital and reserves
Share capital and reserves        3    1 623 588   1 381 734    1 533 160
Total equity                           1 623 588   1 381 734    1 533 160
Liabilities
Non-current liabilities                   63 701      95 920       78 463
Deferred tax liabilities                   3 731       2 784        5 738
Provisions                                13 105       8 695       12 956
Payables and construction
contracts                                 46 865      84 441       59 769
Current liabilities                      443 953     560 419      518 901
Provisions                                14 822      19 679       10 993
Current income tax
liabilities                                3 407           —          562
Payables and construction
contracts                                425 724     540 740      507 346
Total liabilities                        507 654     656 339      597 364
Total equity and liabilities           2 131 242   2 038 073    2 130 524


Condensed consolidated statement of comprehensive income 
for the period ended 30 June 2018
               
                                                                 Restated 
                                          Restated              12 months 
                          Six months    Six months                  ended 
                               ended         ended               December
                        30 June 2018  30 June 2017      Change       2017 
R’000            Note     (Unaudited)   (Unaudited)          %   (Audited)
Revenue           3,4        652 317       844 608       (22.8) 1 728 661 
Cost of sales       3       (479 191)     (627 463)      (23.6)(1 233 378)
Gross profit                 173 126       217 145       (20.3)   495 283
Distribution
costs                        (31 248)      (29 007)        7.7    (60 459) 
Administrative
expenses                     (64 211)      (57 796)       11.1   (127 177)
Other income                      59           654       (91.0)       468
Operating
profit                        77 726       130 996       (40.7)   308 115
Investment
income                        41 418        35 738         15.9    77 494
Finance costs                    (43)          (56)       (23.2)     (145) 
Profit before
income tax                   119 101       166 678        (28.5)  385 464
Income tax
expense                      (32 916)      (46 902)       (29.8) (111 000)
Profit for the
period                        86 185       119 776        (28.0)  274 464
Other comprehensive 
income for the 
period:
Other comprehensive 
income to be 
reclassified to 
profit or loss in 
subsequent periods:
Cash flow hedge
gain/(loss)                    4 243         1 254        238.4    (2 008) 
Total
comprehensive
income for the
period                        90 428       121 030        (25.3)  272 456
Earnings per 
share — basic 
and diluted
(cents)            3          131.12        182.23        (28.0)   417.57

Condensed consolidated statement of changes in equity 
for the period ended 30 June 2018

                                                              12 months 
                                  Six months     Six months       ended 
                                       ended          ended    December
                                30 June 2018   30 June 2017        2017 
R’000                      Note   (Unaudited)    (Unaudited)   (Audited) 
Share capital and                                             
reserves at                                                   
the beginning of                                              
the period                         1 533 160      1 254 912    1 254 912
Restatement                   3           —           5 792        5 792
Restated share capital                                        
and reserves at the                                           
beginning of                                                  
the period                         1 533 160      1 260 704    1 260 704
Total comprehensive                                           
income for the period                 90 428        121 030      272 456
Profit for the period —                                       
restated                      3      86 185         119 776      274 464
Other comprehensive                                           
income/(loss)                          4 243          1 254       (2 008) 
Share capital and                                             
reserves at the end of                                        
the period — restated               1 623 588     1 381 734    1 533 160


Condensed consolidated statement of cash flows 
for the period ended 30 June 2018

                                                    Six months  Six months 
                                                         ended       ended
                                                       30 June     30 June
                                                          2018        2017
R’000                                               (Unaudited) (Unaudited)
Cash flow from operating activities
Cash generated from operations                         151 219     236 480
Interest paid                                              (43)        (56) 
Income tax paid                                        (30 910)    (51 729) 
Net cash generated from operating activities           120 266     184 695
Cash flow from investing activities
Interest received                                       41 418      35 132
Purchases of property, plant and equipment and
intangible assets                                       (2 258)     (4 036) 
BEE loan repayment                                       8 550           — 
Net cash generated from investing activities            47 710      31 096
Net increase in cash and cash equivalents              167 976     215 791
Cash and cash equivalents at the beginning 
of the period                                        1 176 421     909 341
Cash and cash equivalents at the end of the
period                                               1 344 397   1 125 132

Notes to the financial statements 
for the period ended 30 June 2018

1. Basis of preparation
The condensed consolidated interim financial statements for the period ended 
30 June 2018 are prepared in accordance with the requirements of the JSE 
Limited Listings Requirements for condensed interim report and the 
requirements of the Companies Act of South Africa. The Listings Requirements 
require condensed interim report 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 Financial Reporting Standards Council and to also, 
as a minimum, contain the information required by IAS 34 Interim Financial 
Reporting. The report has been so prepared.

2. Accounting policies
The accounting policies applied in the preparation of the condensed 
consolidated interim financial statements are in terms of IFRS and are 
consistent with those applied in the previous consolidated annual financial 
statements with the exception of the adoption of IFRS 15 - Contracts with
customers.

IFRS 15 - Contracts with customers - Revenue is recognised when the entity 
satisfies a performance obligation by transferring a promised good or service 
(i.e. an asset) to a customer, based on the consideration specified in a 
contract and excludes amounts collected on behalf of third parties. An asset 
is transferred when (or as) the customer obtains control of that asset. For 
each performance obligation, an entity shall determine at contract inception 
whether it satisfies the performance obligation over time or satisfies the 
performance obligation at a point in time. If the entity does not satisfy a 
performance obligation over time, the performance obligation is satisfied at 
a point in time.

IFRS 15 Contracts with customers was adopted on 1 January 2018 and the effects 
of the standard have been disclosed in note 3 (Changes in accounting policies). 
There were no other new revised standards adopted that have a material impact 
on the consolidated financial statements.

IFRS 16 update: the standard is not yet effective and the Group has not early 
adopted. The Group is in the process of quantifying the effect of the standard 
and is expected to have a material impact on the consolidated financial 
statements.

The Group financial results were prepared under the supervision of the Chief 
Financial Officer, Mrs M Vigouroux CA(SA).

3. Changes in accounting policies
The accounting treatment of services in multiple-arrangement contracts relating 
to services revenue category entered into in previous periods has been 
impacted by IFRS 15. The Group has elected to apply the full retrospective 
method in transition to IFRS 15, with the following expedients:
* For completed contracts with a variable consideration, the Company has used 
  the transaction price at date contract was completed; and
* For all contracts prior to 1 January 2018, the Company has not disclosed the 
  amount of the transaction price allocated to the remaining performance 
  obligations and an explanation of when the entity expects to recognise
  that amount as revenue.

The Company has not reviewed contracts that begin and are completed within 
the same financial year.

Effect of adoption of IFRS 15 on financial statements previously reported: 

                                                        June 2017
R’000                                              Gross     Tax      Net
Statement of comprehensive income
Revenue                                           (3 368)    943   (2 425) 
Cost of sales                                      1 285    (360)     925
Gross profit                                      (2 083)    583   (1 500) 
Basic and diluted earnings per share (cents)                        (2.28) 
Statement of financial position
Deferred tax assets                                                (1 669) 
Retained earnings                                                  (4 292)
Trade, construction contracts and other
receivables                                                         5 961
                                                                        —
Statement of changes in equity
Opening retained income                                             5 792
Profit for the period                                              (1 500)
                                                                    4 292


                                                       December 2017
R’000                                            Gross      Tax       Net 
Revenue                                        (14 289)   4 001   (10 288) 
Cost of sales                                    6 245   (1 749)    4 496
Gross profit                                    (8 044)   2 252    (5 792) 
Basic earnings per share (cents)                                    (8.81) 
Diluted earnings per share (cents)                                  (8.81) 
Statement of financial position
Deferred tax assets                                                     — 
Retained earnings                                                       — 
Trade, construction contracts and other
receivables                                                             —
                                                                        —
Statement of changes in equity
Opening retained income                                              5 792
Profit for the period                                               (5 792)
                                                                         —

4. Revenue
Revenue comprises revenue from contracts with customers.

                                                    Restated     Restated
                                      Six months  Six months    12 months 
                                           ended       ended        ended 
                                         30 June     30 June     December
                                            2018        2017         2017
R’000                                 (Unaudited) (Unaudited)    (Audited)
Construction contracts                    62 517     148 646      406 292 
Sale of goods                            316 842     395 939      796 825
Services                                 272 958     300 023      525 544
                                         652 317     844 608    1 728 661

5. Segmental analysis by operating division
Operating segments are reported in a manner consistent with the internal 
reporting provided to the chief operating decision-maker (CODM). The CODM, 
who is responsible for allocating resources and assessing performance of the 
operating segments, has been identified as the Howden Africa executive 
committee.

                                               Restated            Restated
                                 Six months  Six months           12 months 
                                      ended       ended               ended 
                                    30 June     30 June            December
                                       2018        2017  Change        2017
R’000                            (Unaudited) (Unaudited)      %    (Audited) 
Orders received
Fans and Heat Exchangers            457 898     713 267   (35.8)  1 415 200
Environmental Control                55 385      97 326   (43.1)    192 100
Fabrication Technology               48 267      57 545   (16.1)    112 400
                                    561 550     868 138   (35.3)  1 719 700

                                               Restated            Restated
                                 Six months  Six months           12 months 
                                      ended       ended               ended 
                                    30 June     30 June            December
                                       2018        2017  Change        2017
R’000                            (Unaudited) (Unaudited)      %    (Audited) 
Revenue from contracts 
with customers
Fans and Heat Exchangers            552 787     656 768   (15.8)  1 311 628
Environmental Control                46 247     128 847   (64.1)    310 890
Fabrication Technology               53 283      58 993    (9.7)    106 143
                                    652 317     844 608   (22.8)  1 728 661
Operating profit/(loss)
Fans and Heat Exchangers             83 884     132 979   (36.9)    267 610
Environmental Control                (3 344)        987  (438.8)     51 930
Fabrication Technology                3 396       2 404    41.3       4 349
                                     83 936     136 370   (38.4)    323 889
Central operations                   (6 210)     (5 374)   15.6     (15 774) 
Total operating profit               77 726     130 996   (40.7)    308 115

6. Financial instruments
The Group has not disclosed the fair values of financial instruments measured 
at amortised cost as their carrying amounts closely approximate their fair 
values. Financial instruments measured at fair value comprise forward exchange 
contracts and are determined using forward exchange rates as at 30 June 2018 
(level 2 instruments). These are included as other receivables and payables 
on the condensed consolidated statement of financial position.

7. Operating profit includes
                              
                                   30 June  30 June  Change  31 December
R’000                                 2018     2017       %         2017
Depreciation and amortisation        7 029    8 074   (12.9)      15 915
Foreign exchange loss                6 702    2 618   156.0        6 742


8. Headline earnings per share

                                               Restated            Restated
                                    30 June     30 June         31 December
                                       2018        2017  Change        2017
R’000                            (Unaudited) (Unaudited)      %    (Audited)
Headline earnings per share
(cents)                              131.13      182.36   (28.1)     417.77
Number of shares in issue
(’000)                               65 729      65 729     0.0      65 729
Reconciliation of headline 
earnings
Net profit attributable to
equity holders                       86 185     119 776   (28.0)    274 464
Loss on disposal of property,
plant and equipment                       —          85  (100.0)          — 
Write off of property, plant
and equipment                             2           —       —         131
Headline earnings attributable
to equity holders                    86 187     119 861   (28.1)    274 595


9. Capital commitments
                                               Restated            Restated
                                    30 June     30 June         31 December
                                       2018        2017  Change        2017
R’000                            (Unaudited) (Unaudited)      %    (Audited)
Authorised and contracted             4 848         851   469.7          38

10. Other salient features

                                               Restated            Restated
                                    30 June     30 June         31 December
                                       2018        2017  Change        2017
R’000                            (Unaudited) (Unaudited)      %    (Audited) 
Net asset value per share          2 470.12    2 102.17    17.5    2 332.55
Capital expenditure                   2 258       4 036   (44.1)     12 443

11. Related party transactions

                                          Six months  Six months  12 months 
                                               ended       ended      ended 
                                             30 June     30 June   December
                                                2018        2017       2017
R’000                                     (Unaudited) (Unaudited)  (Audited) 
Transactions during the                
period                                 
Sales to related parties               
Howden Australia                              18 351      52 563    101 898
Other                                          2 557         168        954
                                              20 908      52 731    102 852
Purchases from related parties
ESAB Middle East                              44 520      34 707     65 236
Howden Process Compressors
Limited                                        1 322       2 872      6 934
Howden Denmark                                     —       3 405      8 075
Howden Group Limited UK —
management fee and ERP licence
fees                                          13 199      11 590     24 153
Other                                          3 293       5 290     14 794
                                              62 334      57 864    119 192


                                          30 June     30 June  31 December
                                             2018        2017         2017
R’000                                  (Unaudited) (Unaudited)    (Audited)
Balances at                                                    
Amounts receivable from related                                
parties                                                        
Howden Australia                            3 583          30       38 676
Other                                       2 662         750          782
                                            6 245         780       39 458
Amounts payable to related parties                             
ESAB Middle East                           67 503      49 934       45 819
Howden Group Limited UK                    13 199*     11 931*         632
Howden Denmark                                  —       3 521        7 935
Other                                       8 939       7 333        8 969
                                           89 641      72 719       63 355

* Amount is an accrual that is due and payable in December subject to exchange 
  rate movement denominated in Great British Pound (GBP).

12. Events after reporting date
There were no events identified after the reporting date that require disclosure 
or an adjustment to the financial results.

Commentary

Overview
Howden Africa experienced a challenging first half year, stemming from financial 
constraints of customers, subdued economic outlook and general industry 
uncertainty, however we continue to look for all opportunity to support our 
customers.

Results
Orders received of R561.5 million for the first half of 2018 is 35.3% behind the 
corresponding period in 2017. There has been deterioration of order intake in 
all three segments during the period, with the delays in environmental control 
projects, a reduction in activities within the Power market and general decline 
within the South African industry.

Revenue was R652.3 million for the first half of 2018 a decline of 22.8% behind 
the equivalent period in 2017 of R844.6 million. The Fans and Heat Exchangers 
division revenue has declined by 15.8% to R552.8 million with the large portion 
of the decline attributable to outage activity in the power market compared to 
activity levels for the same period in the prior year. This division also had no 
large mining projects being executed in the period. The decline of 64.1% in The 
Environmental Control division is driven by a lower opening order book with no 
significant order intake in the period. With subdued economic outlook and industry
uncertainty the fabrication sector has seen a decline in demand of products with 
a decline in revenue of 9.7% to R53.3 million to that of the corresponding period.

Operating profit of R77.7 million is a decrease of 40.7% over the R131.0 million 
to June 2017; all three divisions have reported significant decline in operating 
profit percentage with reduced revenue volumes and pricing pressure from key 
customers.

Earnings per share of 131.12 cents has declined by 28.0% to the corresponding period 
as operating profit declined.

Cash generated from operations declined to R151.2 million from the corresponding 
period (2017: R236.4 million) driven by the decline in operating profit and working 
capital movements in project funding.

Net asset value per share has increased by 17.5% to 2 470.12 cents (June 2017: 
2 102.17 cents) mainly due to the increase in cash and cash equivalents and working 
capital movements relating to activity levels.

Outlook
Capital project spend within power generation, mining and general industry is 
expected to remain subdued. The business will continue to seek opportunities beyond 
our borders.

Directorate
Mr Alastair Irvine joined the board effective 30 May 2018 replacing Mr James Brown 
who resigned from the board effective 30 May 2018.

Dividends
The directors have resolved not to declare a dividend (2017: nil).

Unaudited interim financial results
The Company’s auditor Ernst & Young Incorporated, have not reviewed or audited the 
interim financial results for the six months ended 30 June 2018.

For and on behalf of the board of directors

IH Brander               W Thomson
Chairman                 Chief Executive Officer

31 July 2018

Corporate information

Registered office
1A Booysens Road
Booysens
South Africa 2019
(PO Box 2239, Johannesburg, 2000) 
T +27 11 240 4000
F +27 11 493 0545

Directors
IH Brander (Chairman)#* W Thomson (Chief Executive Officer)# A Irvine#*
M Malebye* M Vigouroux (Chief Financial Officer) H Mathe* S Badat*
(#British; *Non-executive) 

Company secretary
CR Masson

Transfer secretaries
Link Market Services South Africa (Proprietary) Limited
13th Floor, 19 Ameshoff Street
Braamfontein, Johannesburg
(PO Box 4844, Marshalltown 2000)

Sponsor
PricewaterhouseCoopers Corporate Finance
(Proprietary) Limited
4 Lisbon Lane
Waterfall City
Jukskei View
2090

Website www.howden.co.za

Publication date
31 July 2018
Date: 31/07/2018 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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