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HOWDEN AFRICA HOLDINGS LIMITED - Unaudited interim financial statements for the six months ended 3o June 2017

Release Date: 14/09/2017 16:00
Code(s): HWN     PDF:  
Wrap Text
Unaudited interim financial statements for the six months ended 3o June 2017

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 3o June 2017


Vision and highlights
Our vision is to be Africa's leading application engineer, providing lifetime solutions in air and gas-handling.


- Revenue R848.0 million                                              
  Increased by 20.7% from R702.8 million in 2016   

- Operating profit R133.1 million                                            
  Increased by 29.9% from R102.4 million in 2016            

- Earnings per share 184.51 cents                                
  Increased by 31.0% from 140.85 cents in 2016


Howden Africa is a market-driven, customer-orientated company. Its main business activities are the design, 
manufacture and marketing of specialised air and gas-handling solutions for a wide range of industries. The 
Group's major industries supplied include power generation, petrochemical, mining, iron and steel, cement 
and water treatment.

Howden Africa is also a distributor of ESAB welding and cutting equipment and consumables.

Howden Africa is committed to environmental awareness. Accordingly, all product designs and manufacturing 
are scrutinised for environmental friendliness. Design and drawing activities are computerised and 
manufacturing is concentrated on producing key components. Manufacturing facilities are located in Booysens 
(Johannesburg) and Struandale (Port Elizabeth).

COMMENTARY
OVERVIEW
Howden Africa generated a solid set of results in the first half of 2017, despite the current challenging 
market conditions. The business generated a year-on-year improvement in results through successful execution 
of turnkey projects.

RESULTS
Orders received of R868.1 million for the first half of 2017 is 28.8% ahead of the corresponding period in 2016. 
There has been improved order intake in all three segments during the period. The award of turnkey projects in 
the Environmental Control and Fans and Heat Exchangers divisions resulted in an increased order intake of 127.4% 
and 20.4% respectively compared to the prior year, while the Fabrication Technology division received orders of 
R57.5 million, up on the corresponding period in 2016.

Revenue was R848.0 million for the first half of 2017 and is 20.7% ahead of the equivalent period in 2016 of 
R702.8 million. The Fans and Heat Exchangers division increased revenue 12.2% to R660.1 million due to the 
execution of a large international mining project and the continued drive within aftermarket. The increase of 
61.2% in the Environmental Control division is driven by the execution of a few significant turnkey projects 
in the period. The Fabrication Technology division had an improvement in revenue of 70.2% to R59.0 million to
the corresponding period, which period was the first period of trade for this segment.

Operating profit of R133.1 million is an increase of 29.9% over the R102.4 million to June 2016; the performance in
the Fans and Heat Exchangers division was robust with both the Environmental Control division and the Fabrication
Technology division returning to profits from the losses made in the corresponding prior period. Margins are still 
under pressure in the Environmental Control division, but improvements in profit are expected. 

Earnings per share of 184.51 cents is 31.0% up on the corresponding period last year due to improved operating 
profit achieved by the business and additional investment income.

Cash generated from operations was R236.5 million a significant improvement over the corresponding period (2016: 
R61.8 million).

Net asset value per share has increased by 21.9% to 2 095.64 cents (June 2016: 1 718.98 cents) mainly due to the
increase in cash and cash equivalents to R1.1 billion.

OUTLOOK
Capital project spend within power generation, mining and general industry is expected to remain subdued. The Fans 
and Heat Exchangers division will continue to focus its strategy on the supply of services and spares to key industries.
Pockets in the market within the Environmental Control division have seen recovery and key project awards have been
received in the period for execution in the latter part of 2017. The Fabrication Technology division is expected to grow.

DIVIDENDS
The directors have resolved not to declare a dividend (2016: nil).

DIRECTORATE
No changes were made during the period under review.

UNAUDITED INTERIM FINANCIAL RESULTS
The Company's auditors Ernst & Young Inc., have not reviewed or audited the interim financial results for the six
months ended 30 June 2017.

For and on behalf of the board of directors


IH Brander            W Thomson
Chairman              Chief Executive Officer

14 September 2017


Condensed consolidated statement of comprehensive income
for the period ended 30 June 2017
                                                                                                                                 Twelve     
                                                                            Six months         Six months                        months     
                                                                                 ended              ended                         ended     
                                                                               30 June            30 June                   31 December     
                                                                                  2017               2016                          2016    
                                                                            (Unaudited)        (Unaudited)     Change          (Audited)     
                                                                 Note            R'000              R'000           %             R'000    
Revenue                                                                        847 976            702 823        20.7         1 604 535    
Cost of sales                                                                 (628 748)          (511 284)       23.0        (1 176 761)   
Gross profit                                                                   219 228            191 539        14.5           427 774    
Distribution costs                                                             (29 007)           (24 088)       20.4           (58 546)   
Administrative expenses                                                        (57 796)           (65 769)      (12.1)         (123 827)   
Other income                                                                       654                737       (11.3)            2 210    
Operating profit                                                    5          133 079            102 419        29.9           247 611    
Investment income                                                               35 738             25 861        38.2            55 566    
Finance costs                                                                      (56)               (61)       (8.2)              (72)   
Profit before income tax                                                       168 761            128 219        31.6           303 105    
Income tax expense                                                             (47 485)           (35 639)       33.2           (84 684)   
Profit for the period                                                          121 276             92 580        31.0           218 421    
Other comprehensive income for the period                                                                                                  
Other comprehensive income to be reclassified 
to profit or loss in subsequent periods:                                                     
Cash flow hedge gain/(loss)                                                      1 254             (1 921)                       (1 418)   
Other comprehensive income not to be reclassified 
to profit or loss in subsequent periods:                                                 
Pension fund plan loss                                                               -                  -                        (1 298)   
Total other comprehensive income/(loss) for the period, net tax                  1 254             (1 921)                       (2 716)   
Total comprehensive income for the period                                      122 530             90 659        35.2           215 705    
Earnings per share - basic and diluted (cents)                                  184.51             140.85        31.0            332.31    


Condensed consolidated statement of financial position
as at 30 June 2017
                                                              30 June      31 December    
                                                                 2017             2016    
                                                           (Unaudited)        (Audited)   
                                                                R'000            R'000    
ASSETS                                                                                    
Non-current assets                                            177 201          185 931    
Property, plant and equipment and intangible assets           132 585          136 708    
Pension fund plan surplus                                      16 463           17 485    
Deferred tax assets                                            17 644           18 132    
Trade, construction contracts and other receivables            10 509           13 606    
Current assets                                              1 856 580        1 675 109    
Inventories                                                   321 111          332 166    
Trade, construction contracts and other receivables           371 624          386 010    
Loans receivable                                               16 050           16 050    
Current income tax asset                                       22 663           31 542    
Cash and cash equivalents                                   1 125 132          909 341    
TOTAL ASSETS                                                2 033 781        1 861 040    
EQUITY                                                                                    
Share capital and reserves                                                                
Share capital and reserves                                  1 377 442        1 254 912    
Total equity                                                1 377 442        1 254 912    
LIABILITIES                                                                               
Non-current liabilities                                        95 920          102 066    
Deferred tax liabilities                                        2 784            3 069    
Provisions                                                      8 695           11 642    
Payables and construction contracts                            84 441           87 355    
Current liabilities                                           560 419          504 062    
Provisions                                                     19 679           18 300    
Current income tax liabilities                                      -           13 123    
Payables and construction contracts                           540 740          472 639    
Total liabilities                                             656 339          606 128    
TOTAL EQUITY AND LIABILITIES                                2 033 781        1 861 040    


Condensed consolidated statement of changes in equity
for the period ended 30 June 2017
                                                                                                   Twelve 
                                                           Six months       Six months             months 
                                                                ended            ended              ended 
                                                              30 June          30 June        31 December 
                                                                 2017             2016               2016 
                                                           (Unaudited)      (Unaudited)          (Audited)
                                                                R'000            R'000              R'000 
Share capital and reserves at the beginning of                                            
the period                                                  1 254 912        1 039 207          1 039 207 
Total comprehensive income for the period                     122 530           90 659            215 705 
Profit for the period                                         121 276           92 580            218 421 
Other comprehensive income/(loss)                               1 254           (1 921)            (2 716)
Share capital and reserves at the end of the period         1 377 442        1 129 866          1 254 912 


Condensed consolidated statement of cash flows
for the period ended 30 June 2017
                                                                            Six months         Six months  
                                                                                 ended              ended    
                                                                               30 June            30 June     
                                                                                  2017               2016    
                                                                            (Unaudited)        (Unaudited)    
                                                                                 R'000              R'000
Cash flow from operating activities                                                                          
Cash generated from operations                                                 236 480             61 755    
Interest paid                                                                      (56)               (61)   
Income tax paid                                                                (51 729)           (50 713)   
Net cash generated from operating activities                                   184 695             10 981    
Cash flow from investing activities                                                                          
Interest received                                                               35 132             25 861    
Purchases of property, plant and equipment and intangible assets                (4 036)            (2 862)   
Proceeds from disposal of property, plant and equipment                              -                 14    
Net cash generated from investing activities                                    31 096             23 013    
Net increase in cash and cash equivalents                                      215 791             33 994    
Cash and cash equivalents at the beginning of the period                       909 341            730 190    
Cash and cash equivalents at the end of the period                           1 125 132            764 184    


Notes to the interim financial statements
for the period ended 30 June 2017


1.  Basis of preparation
    The condensed consolidated interim financial statements for the period ended 30 June 2017 are prepared in 
    accordance with the requirements of the JSE Limited Listings Requirements for interim reports and the 
    requirements of the Companies Act of South Africa. The Listings Requirements require interim 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 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 financial statements are in 
    terms of IFRS and are consistent with those applied in the previous consolidated annual financial statements.

    There were no new revised standards adopted that have a material impact on the consolidated financial statements. 

    IFRS 15 update: the standard is not yet effective and the Group has not early adopted. An assessment of the impact 
    has been completed and we have concluded that the standard will have an impact on 2017 opening balances.
    
    The Group financial results were prepared under the supervision of the Chief Financial Officer, Mrs M Vigouroux CA(SA).
                                                                                                   
3.  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.  

                                                                                         Twelve     
                                   Six months         Six months                         months     
                                        ended              ended                          ended     
                                      30 June            30 June                    31 December     
                                         2017               2016                           2016    
                                   (Unaudited)        (Unaudited)      Change          (Audited)     
                                        R'000              R'000            %             R'000    
    Orders received                                                                                
    Fans and Heat Exchangers          713 267            592 339         20.4         1 238 338    
    Environmental Control              97 326             42 804        127.4           239 949    
    Fabrication Technology             57 545             38 719         48.6            94 430    
                                      868 138            673 862         28.8         1 572 717    
    Revenue                                                                                        
    Fans and Heat Exchangers          660 136            588 213         12.2         1 338 783    
    Environmental Control             128 847             79 952         61.2           178 610    
    Fabrication Technology             58 993             34 658         70.2            87 142    
                                      847 976            702 823         20.7         1 604 535    
    Intersegmental sales                                                                           
    Fans and Heat Exchangers           13 514             11 412         18.4            26 115    
    Environmental Control              18 203             16 276         11.8            29 690    
    Fabrication Technology                485                560        (13.4)            2 783    
                                       32 202             28 248         14.0            58 588    
    Operating profit/(loss)                                                                        
    Fans and Heat Exchangers          135 061            118 403         14.1           283 942    
    Environmental Control                 987             (3 941)      (125.0)          (12 744)    
    Fabrication Technology              2 404             (1 781)      (235.0)            1 257    
                                      138 452            112 681         22.9           272 455    
    Central operations                 (5 373)           (10 262)       (47.6)          (24 844)    
    Total operating profit            133 079            102 419         29.9           247 611    
    Investment income                  35 738             25 861         38.2            55 566    
    Finance costs                         (56)               (61)        (8.2)              (72)    
    Profit before tax                 168 761            128 219         31.6           303 105
    
4.  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 2017 (level 2 instruments). 
    These are included as other receivables and payables on the condensed consolidated statement of financial position.

5.  Operating profit includes
                                                                                                       Twelve     
                                                              Six months         Six months            months     
                                                                   ended              ended             ended     
                                                                 30 June            30 June       31 December     
                                                                    2017               2016              2016    
                                                              (Unaudited)        (Unaudited)         (Audited)     
                                                                   R'000              R'000             R'000    
    - Depreciation and amortisation                                8 074              7 971            16 086    

6.  Headline earnings per share
    Headline earnings per share (cents)                           184.64             140.83            332.36    
    Number of shares in issue (000)                               65 729             65 729            65 729    
    Reconciliation of headline earnings                                                                          
    Profit for the period                                        121 276             92 580           218 421    
    Loss/(profit) on disposal of property, plant and equipment 
    and intangible assets                                             85                (12)                -    
    Write off of intangible assets                                     -                  -                35    
    Headline earnings                                            121 361             92 568           218 456    

7.  Capital commitments
    - Authorised and contracted                                      851                335               774    

8.  Related party transactions
    The Group has a related party relationship with subsidiaries 
    of the ultimate holding company, Colfax Corporation. The Group, 
    in the ordinary course of business, enter into various sale, 
    purchase and service transactions with Colfax Corporation 
    subsidiaries.                                        
    Significant transactions during the period
    Sales to related parties
    Howden Australia                                              52 563                  -            50 484    
                                                                  52 563                  -            50 484    
    Purchases from related parties                                                                            
    ESAB Middle East                                              34 707             92 067           121 727    
    Howden Mexico                                                      -             17 194            20 590    
    Howden Group UK - management and ERP licence fee              11 590             16 405            23 119    
                                                                  46 297            125 666           165 436    

8.  Related party transactions
                                                                 30 June            30 June       31 December    
                                                                    2017               2016              2016    
                                                              (Unaudited)        (Unaudited)         (Audited)   
                                                                   R'000              R'000             R'000    
    Significant movement in balances
    Amounts receivable from related parties
    Howden Australia                                                  30                  -            45 994    
                                                                      30                  -            45 994    
    Amounts payable to related parties                                                                           
    ESAB Middle East                                              49 934             64 479            63 064    
    Howden Mexico                                                      -              7 919            20 590    
    Howden Group UK                                               11 931*            15 836               306    
                                                                  61 865             88 234            83 960    
    * Amount is an accrual that is due and payable in December 2017 subject to exchange rate movement 
      denominated in Great British Pound (GBP).
  
9.  Events after the reporting date
    There were no events identified after reporting date that require disclosure or an adjustment to the interim 
    financial statements.

10. Other salient features
                                               30 June          30 June                  31 December    
                                                  2017             2016                         2016    
                                            (Unaudited)      (Unaudited)     Change         (Audited)   
                                                 R'000            R'000           %            R'000    
    Net asset value                           2 095.64         1 718.98        21.9         1 909.22    
    Capital expenditure                          4 036            2 862        41.0           10 650    
    Operating profit to revenue                   15.7             14.6         1.1             15.4    


CORPORATE INFORMATION

Registered office
1A Booysens Road 
Booysens 
South Africa 
2091

Postal address
PO Box 2239
Johannesburg, 2000

Directors
IH Brander (Chairman)#** 
W Thomson (Chief Executive Officer)#
J Brown#**, M Malebye**
M Vigouroux (Chief Financial Officer)
H Mathe**, M Patel**
(#British **Non-executive)

Company secretary
CR Masson

Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue
Rosebank, Johannesburg, 2196

Sponsor 
PricewaterhouseCoopers Corporate 
Finance Proprietary Limited

Website
www.howden.co.za

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