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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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