INTERWASTE HOLDINGS LIMITED - Unaudited Condensed consolidated financial results for the six months ended 30 June 2018

Release Date: 06/08/2018 09:18
Code(s): IWE
 
Wrap Text
Unaudited Condensed consolidated financial results for the six months ended 30 June 2018

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 2018

SAILENT FEATURES

• Strong growth in revenue up 24% to R595.0 million (2017: R480.7 million)
• Robust growth in operating profit up 22% to R59.8 million (2017: R49.0 million)
• Headline Earnings per share (HEPS) of 6.43 cents per share, up 41% (2017: 4.55 cents per
share)
• Strong sustainable cash generation with cash generated before financing of R78.2 million
(2017: R76.0 million)
• Continued reduction of debt with net debt to equity of 19.2% (2017: 41.3%) and a
reduction in net debt to R112.1 million (2017: R229.9 million)

FINANCIAL PERFORMANCE

Revenue grew 24% year-on-year on the back of industry price increases and growth from
diversifying our customer base, offset by lower recyclable prices and lower total volumes
to own landfill facilities which were down 7% compared to the same period last year.

Gross profit percentages remained under pressure due to lower domestic recyclable prices,
higher input costs and lower disposal volumes to the FG Landfill with increasing year-on-
year environmental compliance costs in respect of this site.

Operating profit for the six months ended 30 June 2018 was R59.8 million (2017: R49.0
million), up 22% year-on-year.

Net finance costs for the six months ended 30 June 2018 fell 27% from R16.4 million down to
R12.0 million due to the continued reduction in debt with growing cash and cash equivalents.
Net debt to equity as at 30 June 2018 was 19.2% compared to 41.3% in the prior year.

Profit before tax (PBT) for the six months ended 30 June 2018 was R47.8 million (2017:
R 32.6 million), up 47% compared to the same period last year.

Headline earnings per share (HEPS) for the six months ended 30 June 2018 was 6.43 cents per
share (2017: 4.55 cents per share) up 41% year-on-year. While there has been a notable
year-on-year growth in HEPS, the rate of growth was impacted by an increased share of
profits earned by minorities.

Net operating assets (excluding cash and cash equivalents) as at 30 June 2018 were R700.9
million (2017: R772.1 million) down 9% compared to the prior year. The reduction in net
operating assets coupled with an increase in operating profit positively impacted the annual
rolling return on net operating assets which averaged 16.0% (2017: 13.5%).      The rolling
annual return on equity averaged 9.4% (2017: 8.9%).

The Group generated cash flow before financing for the six months ended 30 June 2018 of
R78.2 million (2017: R76.0 million). Cash and cash equivalents held at 30 June 2018 were
R116.1 million compared to R75.5 million in the prior year and a similar amount as at 31
December 2017.

During the first half of 2018, Interwaste Holding’s share price traded below the net asset
value and the Company continued to use the opportunity to buy back its own shares. 11.6
million shares at an average price of 84.4c per share were acquired during the six months
ended 30 June 2018. A total of 41.1 million shares were held at 30 June 2018.
TRADING ENVIRONMENT

Lower than expected growth in the South African Gross Domestic Product (GDP) was recorded
during the first quarter of 2018 and demand for services in the waste management industry
directly correlates with economic activity aligned with global macro-economic, industry and
geographic trends. Our performance is very pleasing in a very mixed economic and political
environment. The Logistics segment delivered pleasing results with growing volumes mainly
from diversifying services across industry sectors, but this was offset by underperformance
of the Facilities segment with lower total volumes to own landfill sites.

China’s ban on importing certain waste and slag type material as part of its National Sword
campaign has negatively impacted and disrupted the global and local recycling industry.
Another list of 16 items will be banned by the end of 2019. These import bans are leading
to products being stock-piled thus driving down the value of previously related export
material, whilst alternative markets and solutions are found for their re-use. During the
financial year, decreases in recyclable waste prices have substantially impacted the local
recyclable prices and the profitability of these associated business units.

We remain focussed on strengthening our financial position with prudent capital allocation
and this has resulted in improved cash generation, reduced debt with improving returns.
Management continues to build a diversified, sustainable and profitable business to create
value for all stakeholders.

The trading environment remains competitive but Interwaste’s strategy of providing
integrated waste management solutions and controlling the entire value chain affords us a
competitive advantage.   Our internationally accredited operating standards and innovative
service offerings continue to enable Interwaste to be the supplier of choice for many local
and multinational clients.

The regulatory framework governing the Waste Management Industry in our domestic and
global markets is constantly evolving and the supervisory capacity of regulators is
increasing significantly. We remain abreast of these changes and actively contribute to
the development of national policy and legislation through formal submissions and advisory
input addressed to policy makers and regulatory authorities. The Department of
Environmental Affairs continues to introduce a host of new environmental legislation which
will create additional opportunities for Interwaste in the form of added service offerings
to our clients.

LOGISTICS

Revenue from the Logistics segment increased 29% compared to the same period last year
with profit from operating activities increasing by 38%. Logistics operating margins
improved from 9.3% in 2017 to 9.9% in 2018, positively impacted by growing volumes and
continued strong focus on asset utilisation and efficiencies.

FACILITIES

The Facilities segment underperformed with revenue decreasing 11% compared to last year
impacted by lower net volumes to company owned landfill sites.  While volumes to FG
decreased, volumes to Klinkerstene continued to grow. The lower volumes to FG, high site
fixed costs and additional environmental compliance costs resulted in a 42% decrease in
Facilities’ operating profit compared to the same period last year.

Given the extensive focus on the FG Landfill, the site’s license and compliance has come
under scrutiny from both the National and Provincial Regulators. The Company was engaged
in legal proceedings with regards to the license for the site. The matter was heard in
December 2017 and on 13 February 2018, the Court ruled in Interwaste’s favour, setting aside
the compliance notice and the MEC’s decision to uphold the compliance notice, on the premise
that the site’s licence remains valid. GDARD and DEA together with the Greater Midstream
Forum applied for Leave to Appeal, which was granted by the Court on 11 April 2018.

The Klinkerstene Landfill which was commissioned in July 2016 continues to provide
flexibility through an additional company owned disposal facility. Cell two at the landfill
was completed in the last quarter of 2017 which provides additional airspace to meet the
Group’s short to medium-term demands.

SADC INVESTMENTS

On the back of higher petro-chemical prices, the overall activities in our cross-border
investments continue to perform well with healthy returns being generated. As some volumes
reduce in regions where approved projects are coming to an end and awaiting new approvals,
other regions grow with new volumes. We continue to take proactive steps to right size
certain areas of investment and transfer assets to ensure effective utilisation.

We continue to bill our SADC customers in US Dollars and therefore have limited exposure to
the traditional SADC type currency fluctuations.     The net fair value gain relating to
financial instruments was R1.4 million (2017: R3.1 million charge) mainly due to the
translation gains and losses on US Dollar denominated monetary assets and liabilities in
the region. We continue to successfully repatriate foreign cash flows generated outside
South Africa aligned to our investment strategy and knowledge of the countries in which we
operate.

The SADC region, into which Interwaste invested over 20 years ago, remains a key growth
area and we will continue to assess opportunities and investments in the region. We have
gained extensive local knowledge enabling us to understand and navigate the regionally
specific challenges.

OUTLOOK

Despite low GDP growth in the first quarter of 2018, the outlook for the South African
economy continues to improve characterised by rising confidence levels. The South African
GDP is now forecast to grow at around 1.2% for 2018. Growing GDP coupled with population
growth and urbanisation bodes well for the industry. Globally, some commodity prices
continued to improve into 2018 which augurs well for industrial businesses especially within
the manufacturing and mining and resource sectors.

China’s ban on importing certain waste and slag type material along with the resultant
impact on local recyclable prices will continue to negatively impact the margins of these
associated business units, but the overall effect remains marginal as we continue to grow
a diversified business within the industry. The provision of integrated waste solutions
together with increasing levels of compliance should assist in retaining clients as well as
acquiring new clients.

We continue to drive returns by managing costs and improving efficiencies.
References to forward looking statements included anywhere in this announcement have not
been reviewed or reported on by the Group’s external auditors.

DIVIDENDS

The maiden dividend declared on the 19 March 2018 in respect of the results for the year
ended 31 December 2017 was paid on 16 April 2018. Interwaste will not pay a dividend for
the interim period. The Board remains committed to future dividends by applying a policy
of between 4.5 to 5.0 times cover of income attributable to Interwaste shareholders, bearing
in mind the balance between capitalising on opportunities and delivering on short, medium
and long-term value for shareholders.
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 the 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 the International Financial
Reporting Standards and are consistent with those applied in the previous year’s annual
financial statements.

During the period new and revised standards were adopted, the details of which are
recorded in note 7.

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 share-based payments which
are measured at fair value.

RESTATEMENT OF JUNE 2017 STATEMENT OF CASH FLOWS

As advised in the condensed consolidated financial statements for the year ended 31 December
2017 and the consolidated financial statements for 2017, the 30 June 2017 Condensed
Consolidated Statement of Cash flows was restated to more accurately reflect additions of
property, plant and equipment through instalment sales agreements as a non-cash flow item
as required by IAS7: Cash flow statements. This is set out in note 3 to the Unaudited
condensed financial Results for the six months ended 30 June 2018.

GOING CONCERN

The condensed consolidated interim 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.

PREPARATION OF INTERIM RESULTS

The preparation of the Group’s condensed consolidated interim financial statements was
supervised by the Chief Financial Officer, RA Lumb CA(SA).

APPRECIATION

We extend our gratitude to all staff who contributed to the results for the period and to
our shareholders and other stakeholders for your valued support.


On behalf of the Board
6 August 2018

WAH Willcocks                                           RA Lumb
Chief Executive Officer                                 Chief Financial Officer
Condensed Consolidated Statement of profit/loss and other comprehensive income
For the six months ended 30 June 2018

                                                June 2018          %     June 2017      December 2017
                                                   R’000        Change      R’000           R’000
                                                Unaudited                Unaudited         Audited
                                                 6 months                 6 months        12 months

 Revenue                                           595 030       24%        480 652         1 033 085
 Cost of sales                                   (304 823)                (219 983)         (495 449)
 Gross profit                                      290 207       11%        260 669           537 636

 Operating expenses                              (180 252)                (159 671)          (325 541)
 Administrative expenses                         (167 218)                (146 432)          (296 717)
 Selling and distribution expenses                (10 108)                  (9 833)          (22 336)
 Research and development expenses                 (2 926)                  (3 406)           (6 488)
 Earnings before interest, tax and
                                                   109 955        9%        100 998           212 095
 depreciation
 Depreciation                                     (50 143)                 (51 989)         (102 783)
 Results from operating activities                  59 812       22%         49 009           109 312

 Net finance costs                                (11 991)                 (16 382)          (30 506)
 Finance costs                                    (14 101)                 (17 085)          (33 480)
 Finance income                                      2 110                      703             2 974

 Profit before taxation                             47 821       47%         32 627            78 806

 Taxation expense                                 (13 798)                  (9 607)          (24 985)

 Profit for the period                              34 023       48%         23 020            53 821

 Profit attributable to:
   Non-controlling interests                         6 152                      704             6 165
   Owners of the company                            27 871                   22 316            47 656

 Other comprehensive income, net of tax
 items that may be reclassified subsequently
 to profit or loss
 Foreign currency translation reserve
 movement on foreign operations                      4 291                  (1 444)           (3 632)

 Total comprehensive income for the period          38 314       78%         21 576            50 189

 Total comprehensive income attributable to:
   Non-controlling interests                         6 152                      704             6 165
   Owners of the company                            32 162                   20 872            44 024

 Basic earnings per share (cents)                     6.36       33%           4.80              10.40
 Diluted earnings per share (cents)                   6.36       33%           4.77              10.35
Condensed Consolidated Statement of Financial Position
As at 30 June 2018

                                                         June 2018      June 2017      December 2017
                                                         Unaudited      Unaudited         Audited
                                                           R’000          R’000            R’000
 ASSETS

 Non-current assets                                         738 616      763 272          753 241
 Property, plant and equipment                              673 060      697 510          687 919
 Goodwill                                                    64 008       64 008           64 008
 Deferred taxation assets                                     1 548        1 754            1 314

 Current assets                                             392 987      312 164          328 843
 Inventories                                                 10 980        9 162            9 213
 Current taxation receivables                                 9 318        4 425            7 597
 Trade and other receivables                                256 559      223 074          195 938
 Cash and cash equivalents                                  116 130       75 503          116 095

 TOTAL ASSETS                                             1 131 603      1 075 436       1 082 084

 EQUITY AND LIABILITIES

 EQUITY                                                     582 811        556 837         566 582

 Equity attributable to owners of the company               571 603        553 121         559 310
 Stated capital                                             283 141        310 164         292 974
 Share-based payment reserve                                  3 295          5 141           4 564
 Foreign currency translation reserve                       (7 403)        (9 506)        (11 694)
 Retained earnings                                          292 570        247 322         273 466
 Non-controlling interests                                   11 208          3 716           7 272

 LIABILITIES

 Non-current liabilities                                    234 175        290 778        264 265
 Interest-bearing borrowings                                125 109        198 360        162 079
 Provision for site rehabilitation                           43 758         36 301         37 808
 Deferred taxation liabilities                               65 308         56 117         64 378

 Current liabilities                                        314 617       227 821         251 237
 Current taxation payable                                    11 073           574             666
 Interest-bearing borrowings                                103 079       107 058         110 546
 Trade and other payables                                   200 465       120 189         140 025

 Total liabilities                                          548 792        518 599         515 502
 TOTAL EQUITY AND LIABILITIES                             1 131 603      1 075 436       1 082 084
Condensed consolidated statement of cash flows
For the six months ended 30 June 2018



                                                         June 2018    June 2017     December 2017
                                                            R’000        R’000          R’000
                                                         Unaudited    Unaudited        Audited
                                                          6 months    Restated*       12 months
                                                                       6 months
  Profit before taxation                                     47 821       32 627           78 806
  Adjustments for:
  Depreciation                                               50 143       51 989          102 783
  Finance costs                                              14 101       17 085           33 480
  Finance income                                            (2 110)        (703)          (2 974)
  Loss/(profit) on disposal of property, plant and
                                                                426      (1 402)            2 084
  equipment
  Profit on disposal of business                                  -            -            (202)
  Share-based payment credit                                (1 267)        (260)            (838)
  Foreign currency translation differences                    1 680        (774)          (1 138)
  Movement in provision for site rehabilitation                 979          831            1 218

  Changes in working capital:
  Increase in inventories                                   (1 767)      (1 018)          (1 070)
  Increase in trade and other receivables                  (60 621)     (29 851)          (3 752)
  Increase in trade and other payables                       60 440       27 926           50 185

  Cash generated from operations                            109 825       96 450          258 582
  Finance costs paid                                       (12 869)     (15 964)         (31 237)
  Finance income received                                     2 110          703            2 974
  Taxation paid                                             (4 414)     (11 692)         (21 256)

  Net cash inflow from operating activities                  94 652       69 497          209 063

  Cash flows from investing activities
  Purchases of property, plant and equipment               (21 555)     (10 657)         (33 286)
  Proceeds on disposal and scrapping of property,
                                                                                           18 073
  plant and equipment                                         5 102       17 175
  Disposal of subsidiary, net of cash disposed of                 -            -          (1 209)

  Net cash (outflow on)/inflow from investing
                                                                                         (16 422)
  activities                                               (16 453)        6 518

  Cash flows from financing activities
  Treasury shares acquired                                  (9 834)      (5 395)         (22 584)
  Net movement in interest-bearing borrowings              (57 114)     (26 346)         (83 868)
        Interest-bearing borrowings raised                        -       33 988           33 988
        Interest-bearing borrowings repaid                 (57 114)     (60 334)        (117 856)
  Acquisition of non-controlling interest                         -            -          (1 100)
  Dividends to owners of the Company                        (8 768)            -                -
  Dividends to non-controlling interests                    (2 216)        (427)            (427)
  Net cash outflow from financing activities               (77 932)     (32 168)        (107 979)

  Total cash movement for the period                            267       43 847           84 662
  Effect of exchange rate fluctuations on cash held           (232)          805              582
  Cash and cash equivalents at beginning of period          116 095       30 851           30 851
  Total cash and cash equivalents at end of period          116 130       75 503          116 095

*See note 3 for details of the restatement of the June 2017 condensed consolidated statement
of cash flows.
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2018

                                                        June 2018     June 2017     December 2017
                                                           R’000         R’000          R’000
                                                        Unaudited     Unaudited        Audited
                                                         6 months      6 months       12 months
 Equity at the beginning of period (audited)                566 582       541 343         541 343
 Profit after tax                                            34 023        23 020          53 821
 Dividends paid to non-controlling interests               ( 2 216)         (427)           (427)
 Dividends paid to owners of the Company                   ( 8 768)             -               -
 Acquisition of non-controlling interest without a
 change in control                                               -             -          (1 100)
 Treasury shares acquired                                 ( 9 834)       (5 395)         (22 584)
 Foreign currency translation reserve movement               4 291       (1 444)          (3 633)
 Share-based payment reserve movement                     ( 1 267)         (260)            (838)
 Total equity at end of period                             582 811       556 837          566 582

NOTES TO THE FINANCIAL RESULTS

1. Condensed consolidated segment report
   For the six months ended 30 June 2018

                                                        June 2018     June 2017     December 2017
                                                           R’000         R’000          R’000
                                                        Unaudited     Unaudited        Audited
                                                         6 months      6 months       12 months
 Gross revenue from external customers
 Logistics                                                 544 005       423 131          924 539
 Facilities                                                 51 025        57 521          108 546
                                                           595 030       480 652        1 033 085

 Results from operating activities
 Logistics                                                  54 087        39 160           93 751
 Facilities                                                  5 725         9 849           15 561
                                                            59 812        49 009          109 312

 Depreciation
 Logistics                                                  41 864        41 328           82 224
 Facilities                                                  8 279        10 661           20 559
                                                            50 143        51 989          102 783

 Segment assets
 Logistics                                                 952 850       900 350          914 418
 Facilities                                                178 753       175 086          167 666
                                                         1 131 603     1 075 436        1 082 084

 Segment liabilities
 Logistics                                                 494 702       460 656          471 854
 Facilities                                                 54 090        57 943           43 648
                                                           548 792       518 599          515 502
2. Reconciliation of headline earnings
   For the six months ended 30 June 2018

                                                    June 2018          %       June 2017     December
                                                       R’000        Change        R’000        2017
                                                    Unaudited                  Unaudited       R’000
                                                     6 months                   6 months      Audited
                                                                                            12 months

 Profit attributable to owners of the Company           27 871       25%           22 316        47 656
 Adjusted for:
 Loss/(profit) on disposal of property, plant
                                                           426                    (1 402)         2 084
 and equipment
 Tax effect of loss/(profit) on disposal of
                                                         (119)                        392         (583)
 property, plant and equipment
 Profit on disposal of business                                 -                   (202)           202
 Tax effect of profit on disposal of business                   -                      57            57

 Headline earnings attributable to ordinary
                                                        28 178       33%           21 161        49 012
 shareholders

 Weighted average number of shares in issue
                                                 438 153 409                  465 308 987   458 111 275
 on which earnings per share are based
 Diluted weighted average number of shares in
 issue on which diluted earnings per share       438 342 741                  467 366 292   460 251 501
 are based

 Headline earnings per share (cents)                      6.43       41%             4.55         10.70
 Diluted headline earnings per share (cents)              6.43       42%             4.53         10.65

3. Restatement of June 2017 cash flows

   The 2017 Condensed Statement of Cash Flows was restated in order to correct a
   classification error reflecting additions of property, plant and equipment through
   instalment sales agreements amounting to R42.8 million as non-cash flow items as required
   by IAS 7: Cash flow statements.

   The impact of the changes are reflected below:

 Figures in R’000s                                      June 2017
                                                                               June 2017
                                                        unaudited
                                                                               unaudited
                                                        condensed
                                                                               condensed
                                                     consolidated                               Impact of
                                                                            consolidated
                                                     statement of                             restatement
                                                                            statement of
                                                    cash flows as
                                                                           cash flows as
                                                       previously
                                                                                 revised
                                                         reported
 Net cash outflow on investing activities                (36 282)                  6 518           42 800
 Net cash outflow on financing activities                  10 632               (32 168)          (42 800)

 This restatement had no impact on Earnings per share, nor Headline Earnings per share for
 June 2017.
4. NET ASSET VALUE PER SHARE

   The net asset value per share of 135.55 cents (2017: 120.58 cents) is based on equity
   attributable to owners of the Company of R571.6 million (2017: R553.1 million) divided
   by the number of shares in issue, excluding treasury shares, of 427 994 267 (2016: 458
   699 213).

5. RELATED PARTIES

   Trusts relating to directors            The Wilco Family Trust
                                           N2 Property Trust


   Directors                               PF Mojono
                                           WAH Willcocks
                                           RA Lumb
                                           LC Grobbelaar
                                           BL Willcocks
                                           C Boles
                                           D Rosevear
                                           LJ Mahlangu


  Key Management                           JJ Mcneil
                                           R Pillay
                                           DL Nkomo
                                           K Stubbs

  Significant shareholders                 The Wilco Family Trust


There were no major transactions with related parties for the period ended 30 June 2018.

6. SUBSEQUENT EVENTS

The directors are not aware of any material matter or circumstance arising since the end of
30 June 2018 and up to the date of approval of the condensed consolidated financial results,
relevant to an assessment of the financial results at 30 June 2018.

7. IMPACT OF IFRS 15, IFRS 9 AND IFRS 16

The following new and revised standards have been issued and is effective at the date of
this report;

IFRS 15: Revenue from contracts with customers
The Group implemented the revised statement, for both the sale of goods and rendering of
services revenue streams, and had no material impact on the results.

IFRS 9: Financial instruments
The Group implemented the revised statement, the impairment model for trade receivables has
changed from an “incurred loss” model to an “expected loss” model, and had no material
impact on the results.

The following new and revised standard has been issued, but is not yet effective at the
date of this report and thus has not been adopted;

IFRS 16: Leases
The Group has a number of operating leases for equipment and vehicles that may be recognised
on the statement of financial position as a result of the adoption of IFRS 16.
Management has identified specific contracts where an impact is expected and is in the
process of determining:

-   Whether these contracts meet the definition of lease contracts per IFRS 16;
-   Whether any scope exemptions apply; and
-   The quantitative impact of recognising these leases on the statement of financial
    position, where relevant.

At the end of the period the Group had lease commitments of R 5.2 million (2017: R6.6
million) for premises and R0.05 million (2017: R1.7 million) for vehicles and equipment.

Corporate Information
Non-executive directors: PF Mojono(Chairperson), LJ Mahlangu, C Boles, D Rosevear,
BL Willcocks
Executive directors: WAH Willcocks (Chief Executive Officer), RA Lumb (Chief Financial
Officer), LC Grobbelaar
Registration number: 2006/037223/06
Registered Address: P O Box 382, Germiston, 1400
Company Secretary: Amanda Fairley
Telephone: (011) 323 7300
Facsimile: 086 576 8152
Transfer secretaries: Computershare Investor Services (Pty) Limited

Sponsor: Grindrod Bank Limited

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