Wrap Text
Summarised audited financial statements for the year ended 31 December 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”)
Summarised audited financial statements
for the year ended 31 December 2017
Highlight for 2017 when compared to the corresponding period in 2016 is:
Revenue R1 743.0 +8.6%
Operating profit R316.2m +27.7%
Our vision
Our vision is to be Africa’s leading applications engineer, providing lifetime solutions
in air and gas-handling.
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 supplies major industries including 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 of financial performance
The overall 2017 performance for the Group has been positive with growth both in revenue
and operating profit margin. The growth was driven by both the Fabrication Technology
division starting to see market share growth, although not at the rate anticipated for
the year, and an improvement in project execution and management in the Environmental
Control division.
Orders
Orders received during 2017 increased by 9.3% to R1 719.7 million compared to the
corresponding period (2016: R1 572.7 million).
The closing order book for 2017 has fallen to R711.8 million (2016: R770.4 million) as
large projects are completed in the year. The aftermarket order book has increased by
4.0% resulting from retrofit orders received in the 2017 period. New build order book
has reduced 23.8% as large projects have been completed in the year.
Environmental Control division order intake reduced by 19.9% to R192.1 million compared
to the corresponding period (2016: R239.9 million). The division continues to have a
large opportunity list.
Fans and Heat Exchangers division orders received during 2017 have increased by 14.3% to
R1 415.2 million compared to the corresponding period (2016: R1 238.3 million). The
increase has been driven by new build activity in areas outside of South Africa, retrofit
projects and maintenance agreements signed in the period. Within this division we are
starting to see slow recovery in the mining and other industries across the border with
subdued spending from customers within South Africa.
The new Fabrication Technology division order intake for 2017 is R112.4 million, with
R106.1 million of this converted into revenue in the period. This business has not
increased market share as expected in the period but the view is that the business will
grow in the coming year.
Revenue
Revenue of R1 743.0 million for 2017 is ahead of the equivalent period in 2016 of
R1 604.5 million. The Environmental Control and Fabrication Technology divisions
recorded revenue growth of 74.1% and 21.8% respectively. This revenue growth has been
driven by the completion of large projects in the Environmental Control division and
market share growth for the Fabrication Technology division. The Fans and Heat Exchangers
division saw a decline in revenue of 1%; this division has seen the bulk of the impact
of the political and economic uncertainty in South Africa impacting the spending and
pricing decisions of customers.
Operating profit
Operating profit of R316.2 million is a 27.7% improvement from R247.6 million reported
in 2016.
The Environmental Control division moved to an operating profit of R51.9 million
from an operating loss of R12.7 million in the previous period, improved project
execution has resulted in an operating profit margin of 16.7% in the period.
The Fans and Heat Exchangers division’s operating profit decreased by 2.9% to
R275.7 million (2016: R283.9 million). Pricing pressure from customers has resulted
in a decline in the operating profit margins in this division from 21.2% to 20.8%.
Operating profit margin for the Fabrication Technology division has improved as the
division moves towards volume expectations.
Central operations had a decrease in costs to R15.8 million as the management team
transitions to a local management team.
Earnings per share
Earnings per share has increased by 28.3% to 426.38 cents from 332.31 cents in 2016,
this is attributable to improved operating profit margin of 18.1%, a 27.7% rand
increase from 2016, and an increase of 39.5% in finance income on excess cash.
Cash and capital management
Howden’s continuing focus on sustainable working capital management and
operating profit performance has resulted in a satisfactory cash flow performance
in 2017. Cash generated from operations for the year was R330.0 million and cash
and cash equivalents are R1 176.4 million (2016: R909.3 million).
Net asset value per share has increased by 22.2% to 2 332.55 cents
(2016: 1 909.22 cents) mainly due to the increase in cash and cash equivalents
to R1 176.4 million (2016: R909.3 million).
Outlook
While the local operating environment may remain challenging, we will continue
to support the after-market needs of customers, while recognising that their
capital expenditure plans could remain subdued in a low-growth economic
environment.
Events after reporting date
None were identified.
Dividends
The directors have resolved not to declare a dividend.
Directorate
S Badat re-joined the board on 1 December 2017 replacing M Patel who resigned
on 19 October 2017.
Directors’ responsibility
The directors take full responsibility for the preparation of this report. The
financial information has been correctly extracted from the audited information,
but is not itself audited.
Audit report
This summarised report is extracted from the underlying audited information, but
is not in itself audited. The audited annual financial statements for the year
ended 31 December 2017 from which the summarised report has been extracted were
audited by Ernst & Young Inc., who expressed an unmodified opinion thereon.
A copy of the auditor’s report on the audited annual financial statements is
available for inspection at the Company’s registered office, 1A Booysens Road,
Booysens, 2091, during normal business hours together with the annual financial
statements identified in the auditor’s report.
A full copy of these financial statements is available on the Howden
Africa Holdings website www.howden.co.za
Notice of annual general meeting
Notice is hereby given that the annual general meeting (AGM) of shareholders of
the Company will be held at HAHL’s registered office, on Wednesday, 30 May 2018
at 1A Booysens Road, Booysens, Johannesburg, South Africa at 13:30 to consider
and, if deemed fit, to pass with or without modification all of the ordinary and
special resolutions as set out in the notice of AGM contained in the integrated
report. The record date for the purposes of determining the shareholders of the
Company entitled to receive the AGM notice is Friday, 23 March 2018.
The record date for purposes of determining which shareholders of the Company
are entitled to attend, participate in, and to vote at the AGM is Friday,
25 May 2018.
Accordingly, the last date to trade in the Company’s shares on JSE Limited in
order to be eligible to attend, participate in and vote at the AGM is Tuesday,
22 May 2018.
It is requested that the completed form of proxy must be deposited at the
office of the Company’s transfer secretaries, Link Market Services South Africa
(Pty) Ltd by no later than 13h30 on 29 May 2018. Should your forms of proxy
not be returned to the transfer secretary by the aforesaid date and time, the
proxy may be handed to the chairman of the Annual General Meeting at any time
before the commencement of the Annual General Meeting.
Preparation of condensed annual financial statements
The Group financial results were prepared under the supervision of the
Chief Financial Officer, Mrs M Vigouroux CA(SA).
For and on behalf of the board of directors
IH Brander W Thomson
Chairman Chief Executive Officer
28 March 2018
Condensed consolidated statement of financial position
as at 31 December 2017
R’000 2017 2016
Assets
Non-current assets 178 403 185 931
Property, plant and equipment and intangible
assets 133 105 136 708
Pension fund plan surplus 17 071 17 485
Deferred tax assets 21 069 18 132
Trade, construction contracts and other
receivables 7 158 13 606
Current assets 1 952 121 1 675 109
Inventories 337 065 332 166
Trade, construction contracts and other
receivables 389 751 386 010
Loans receivable 25 625 16 050
Current income tax asset 23 259 31 542
Cash and cash equivalents 1 176 421 909 341
Total assets 2 130 524 1 861 040
Equity
Share capital and reserves
Share capital and reserves 1 533 160 1 254 912
Total equity 1 533 160 1 254 912
Liabilities
Non-current liabilities 78 463 102 066
Deferred tax liabilities 5 738 3 069
Payables and construction contracts 59 769 87 355
Provisions 12 956 11 642
Current liabilities 518 901 504 062
Payables and construction contracts 507 346 472 639
Current income tax liabilities 562 13 123
Provisions 10 993 18 300
Total liabilities 597 364 606 128
Total equity and liabilities 2 130 524 1 861 040
Condensed consolidated statement of comprehensive income
for the year ended 31 December 2017
Change
R’000 Notes 2017 2016 %
Revenue 1 742 950 1 604 535 8.6
Cost of sales (1 239 623) (1 176 761) 5.3
Gross profit 503 327 427 774 17.7
Distribution costs (60 459) (58 546) 3.3
Administrative expenses (127 177) (123 827) 2.7
Other income 468 2 210 (78.8)
Operating profit 5 316 159 247 611 27.7
Investment income 77 494 55 566 39.5
Finance costs (145) (72) 101.4
Profit before income tax 393 508 303 105 29.8
Income tax expense (113 252) (84 684) 33.7
Profit for the year 280 256 218 421 28.3
Other comprehensive income
for the year
Other comprehensive income to
be reclassified to profit or
loss in subsequent periods:
Cash flow hedge loss (2 008) (1 418)
Other comprehensive income not
to be reclassified to profit
or loss in subsequent periods:
Pension fund plan loss — (1 298)
Other comprehensive loss for
the year, net of tax (2 008) (2 716)
Total comprehensive income for
the year 278 248 215 705 29.0
Earnings per share — basic and
diluted (cents) 426.38 332.31 28.3
Condensed consolidated statement of changes in equity
for the year ended 31 December 2017
R’000 2017 2016
Share capital and reserves at the beginning
of the year 1 254 912 1 039 207
Total comprehensive income for the year 278 248 215 705
Profit for the year 280 256 218 421
Other comprehensive loss (2 008) (2 716)
Share capital and reserves at the end
of the year 1 533 160 1 254 912
Condensed consolidated statement of cash flows
for the year ended 31 December 2017
R’000 2017 2016
Cash flow from operating activities
Cash generated from operations 330 019 216 297
Interest paid (145) (72)
Income tax paid (117 017) (71 975)
Net cash generated from operating activities 212 857 144 250
Cash flow from investing activities
Interest received 76 241 53 990
Purchases of property, plant and equipment
and intangible assets (12 443) (10 650)
Loans issued (9 575) (8 550)
Proceeds from disposal of property, plant
and equipment — 111
Net cash generated from investing activities 54 223 34 901
Net increase in cash and cash equivalents 267 080 179 151
Cash and cash equivalents at the beginning
of the year 909 341 730 190
Cash and cash equivalents at the end of
the year 1 176 421 909 341
Notes to the financial statements
for the year ended 31 December 2017
1. Basis of preparation
The condensed consolidated annual financial statements for the year ended
31 December 2017 are prepared in accordance with the requirements of the
JSE Limited Listings Requirements for condensed reports and the requirements
of the Companies Act of South Africa. The Listings Requirements require
condensed 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.
The accounting standards and amendments issued to accounting standards and
interpretations which are relevant to the Group, but not yet effective at
31 December 2017, have not been adopted. It is expected that, where applicable,
these standards and amendments will be adopted on each respective effective date,
except where specifically identified. The Group continuously evaluates the impact
of these standards and amendments.
IFRS 15 update: the standard will be adopted on the effective date of
1 January 2018. An assessment of the impact has been completed and services in
multiple-arrangement contracts were identified requiring a cumulative adjustment
of R4.3 million after tax to equity. The Group has elected to apply the full
retrospective method in transition to IFRS15, with some expedients.
IFRS9 update: the standard will be adopted on the effective date of 1 January 2018.
An assessment was performed and no material impact was identified.
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 Executive Committee.
Change
R’000 2017 2016 %
Orders received
Fans and Heat Exchangers 1 415 200 1 238 338 14.3
Environmental Control 192 100 239 949 (19.9)
Fabrication Technology 112 400 94 430 19.0
1 719 700 1 572 717 9.3
Change
R’000 2017 2016 %
External revenue
Fans and Heat Exchangers 1 325 917 1 338 783 (1.0)
Environmental Control 310 890 178 610 74.1
Fabrication Technology 106 143 87 142 21.8
1 742 950 1 604 535 8.6
Intersegmental sales
Fans and Heat Exchangers 35 482 26 115 35.9
Environmental Control 28 456 29 690 (4.2)
Fabrication Technology 1 567 2 783 (43.7)
65 505 58 588 11.8
Operating profit
Fans and Heat Exchangers 275 654 283 942 (2.9)
Environmental Control 51 930 (12 744) 507.5
Fabrication Technology 4 349 1 257 246.0
331 933 272 455 21.8
Central operations (15 774) (24 844) (36.5)
Total operating profit 316 159 247 611 27.7
Investment income 77 494 55 566 39.5
Finance costs (145) (72) 101.4
Profit before income tax 393 508 303 105 29.8
Assets
Fans and Heat Exchangers 751 933 848 304 (11.4)
Environmental Control 241 340 166 437 45.0
Fabrication Technology 99 272 113 892 (12.8)
Central operations 1 038 111 732 407 41.7
2 130 656 1 861 040 14.5
Change
R’000 2017 2016 %
Liabilities
Fans and Heat Exchangers 439 404 462 761 (5.0)
Environmental Control 86 224 54 908 57.0
Fabrication Technology 46 445 63 301 (26.6)
Central operations 25 423 25 158 1.2
597 496 606 128 (1.4)
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 31 December 2017 (level 2 instruments). These are included
as other receivables and payables on the condensed consolidated statement
of financial position.
5. Operating profit includes
R’000 2017 2016 Change %
Depreciation and amortisation 15 915 16 086 (1.1)
6. Headline earnings per share
Change
R’000 2017 2016 %
Headline earnings per share (cents) 426.58 332.36 28.3
Number of shares in issue (000) 65 729 65 729 0.0
Reconciliation of headline earnings
Profit for the year 280 256 218 421 28.3
Write off of property, plant and
equipment 131 35 274.3
Headline earnings attributable to equity
holders 280 387 218 456 28.3
7. Capital commitments
R’000 2017 2016
Authorised and contracted 38 774
8. Related party transactions
Related party transactions with entities outside the Howden Africa Group
Sales to Purchases Management
related from related fee to related
R’000 parties parties party
2017
Howden Denmark A/S 46 8 075 —
Howden Thomassen Compressors BV
Netherlands — 922 —
Howden Australia Proprietary
Limited 101 898 1 095 —
Howden Group Limited UK 83 156 16 619
Howden Holdings Limited UK — — —
James Howden and Co. — 848 —
Howden Process Compressors
Limited — 6 934 —
Howden Alphair Simsmart — 25 —
Howden Roots LLC — 451 —
Howden Turbo Finland — 554 —
ESAB KFT — — —
Howden North America 818 926 —
Howden Compressors Limited — 2 898 —
ESAB Middle East 7 65 236 —
Howden Hua Engineering — 141 —
Howden BC Compressors — 53 —
102 852 88 314 16 619
ERP licence Technology Service fee —
fee to licence fee to shared service
R’000 related party related party centre
2017
Howden Denmark A/S — — —
Howden Thomassen
Compressors BV Netherlands — — —
Howden Australia
Proprietary Limited — — —
Howden Group Limited UK 7 534 — —
Howden Holdings Limited UK — 2 599 —
James Howden and Co. — — —
Howden Process Compressors
Limited — — —
Howden Alphair Simsmart — — —
Howden Roots LLC — — —
Howden Turbo Finland — — —
ESAB KFT — — 4 126
Howden North America — — —
Howden Compressors Limited — — —
ESAB Middle East — — —
Howden Hua Engineering — — —
Howden BC Compressors — — —
7 534 2 599 4 126
Related party transactions with entities outside the Howden Africa Group
Sales to Purchases Management
related from related fee to related
R’000 parties parties party
2016
Howden Denmark A/S — 7 758 —
Howden Thomassen Compressors BV
Netherlands — 398 —
Howden Australia Proprietary
Limited 50 484 404 —
Howden Group Limited UK — 7 15 361
Howden Holdings Limited UK 73 786 —
Howden Process Compressors
Limited 71 3 157 —
Howden South America 439 — —
FW US Fairfield 133 — —
FW Finland — 152 —
Howden Mexico — 20 590 —
ESAB KFT — — —
Howden North America 2 883 — —
Howden Compressors Limited — 1 152 —
ESAB Middle East 273 121 727 —
Howden Hua Engineering — 243 —
Howden BC Compressors — 75 —
54 356 156 449 15 361
ERP licence Technology Service fee —
fee to licence fee to shared service
R’000 related party related party centre
2016
Howden Denmark A/S — — —
Howden Thomassen
Compressors BV
Netherlands — — —
Howden Australia
Proprietary Limited — — —
Howden Group Limited UK 7 758 — —
Howden Holdings Limited
UK — 2 560 —
Howden Process
Compressors Limited — — —
Howden South America — — —
FW US Fairfield — — —
FW Finland — — —
Howden Mexico — — —
ESAB KFT — — 3 380
Howden North America — — —
Howden Compressors
Limited — — —
ESAB Middle East — — —
Howden Hua Engineering — — —
Howden BC Compressors — — —
7 758 2 560 3 380
Related party balances as at 31 December 2017
2017
Amounts due by Amounts owed to
R’000 related parties related parties
Howden Denmark A/S — 7 935
FW Finland — —
Howden Thomassen BV Netherlands — 308
Howden Australia Proprietary Limited 38 676 969
Howden Group Limited UK 45 632
Howden Holdings Limited UK — 3 251
Howden North America — 856
Howden HUA Engineering — —
Howden Compressors Limited 71 2 344
ESAB Middle East 666 45 819
ESAB KFT — 353
Howden South America — —
James Howden & Co — 880
Howden India — 8
39 458 63 355
2016
Amounts due by Amounts owed to
R’000 related parties related parties
Howden Denmark A/S — 2 518
FW Finland — 128
Howden Thomassen BV Netherlands — 172
Howden Australia Proprietary Limited 45 994 756
Howden Group Limited UK — 306
Howden Holdings Limited UK 55 3 220
Howden North America 2 453 —
Howden HUA Engineering — 37
Howden Compressors Limited 69 1 187
ESAB Middle East 1 421 63 064
ESAB KFT — 388
Howden South America 378 —
James Howden & Co — 487
Howden India — 8
50 370 72 271
9. Events after reporting date
There were no events identified after reporting date that require disclosure
or an adjustment to the financial results.
10. Other salient features
R’000 2017 2016 Change %
Net asset value (cents) 2 332.55 1 909.22 22.2
Capital expenditure 12 443 10 650 16.8
Operating profit to revenue (%) 18.1 15.4 2.7
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)#
J Brown#*
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
28 March 2018
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