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HOWDEN AFRICA HOLDINGS LIMITED - Summarised audited financial statements for the year ended 31 December 2017

Release Date: 28/03/2018 16:00
Code(s): HWN     PDF:  
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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
Date: 28/03/2018 04:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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