Protech Khuthele Holdings Limited HY 2012 results


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Protech Khuthele Holdings Limited HY 2012 results

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Protech Khuthele Holdings Limited HY 2012 results

  1. 1. for the six months ended 31 August 2012 reviewed interim results
  2. 2. 1 Condensed consolidated statement of financial position at 31 August 2012 Reviewed Reviewed Audited Group Group Group R’000 31/08/2012 31/08/2011 29/02/2012 ASSETS Non–current assets 435 466 481 579 460 045 Property, plant and equipment 386 974 443 649 411 278 Goodwill 33 549 33 549 33 549 Other intangible assets 3 825 4 381 4 100 Deferred tax 11 118 – 11 118 Current assets 422 899 359 621 358 595 Inventory 14 040 11 489 11 305 Amounts due from contract customers 60 151 64 789 64 614 Trade and other receivables 238 986 203 321 192 309 Other financial assets 5 058 7 959 10 395 Bank balances and cash 104 664 72 063 79 972 Total assets 858 365 841 200 818 640 EQUITY AND LIABILITIES Share capital and reserves Shareholders’ equity 340 037 344 934 324 589 Share capital and share premium 228 598 228 598 228 598 Other reserves (122 843) (124 035) (123 273) Retained earnings 234 282 240 371 219 264 Total liabilities 518 328 496 266 494 051 Non–current liabilities 188 121 235 256 226 837 Borrowings – interest bearing 131 970 176 660 170 686 Deferred tax 56 151 58 596 56 151 Current liabilities 330 207 261 010 267 214 Borrowings – interest bearing 94 675 119 125 117 451 Trade and other payables 123 511 118 867 109 086 Subcontractor liabilities 36 881 23 018 20 212 Amounts due to contract customers 75 140 – 20 465 Total equity and liabilities 858 365 841 200 818 640 SUPPLEMENTARY STATEMENT OF FINANCIAL POSITION INFORMATION Total number of shares in issue (thousands) 362 500 362 500 362 500 Net asset value per share (cents) 93.8 95.2 89.5 NTAV/Share (cents) 83.5 84.7 79.2 Capital expenditure (R'000) – Spent 21 401 100 636 160 721 – Commitments – Authorised but unspent – 121 170 20 000 Performance guarantees issued (R'000) 46 126 135 174 98 687
  3. 3. 2 Condensed consolidated statement of comprehensive income for the six months ended 31 August 2012 Reviewed Reviewed Audited Group Group Group 6 months 6 months 12 months ended ended ended R’000 31/08/2012 31/08/2011 29/02/2012 Revenue 530 592 494 770 965 794 Earnings before interest, taxation, depreciation and amortisation 72 926 50 817 63 162 Depreciation and amortisation (40 694) (34 026) (66 985) Earnings/(loss) before interest and taxation 32 232 16 791 (3 823) Net interest paid (8 208) (9 660) (19 442) Earnings/(loss) before taxation 24 024 7 131 (23 265) Taxation (9 006) 2 911 12 200 Earnings/(loss) for the period 15 018 10 042 (11 065) Other comprehensive income for the period, net of tax 430 (6) 756 Movement in foreign currency translation reserve 430 (6) 756 Total comprehensive income/(loss) for the period 15 448 10 036 (10 309) Earnings/(loss) per share (cents) Basic 4.1 2.8 (3.1) Supplementary income statement information Weighted average number of shares in issue: –  Weighted average number of shares in issue (thousands) 362 500 362 500 362 500 Reconciliation of headline earnings/(loss): Profit/(loss) attributable to shareholders of the holding company 15 018 10 042 (11 065) Adjusted for (profit)/loss on disposal of assets (1 710) 3 656 7 360 Headline earnings/(loss) 13 308 13 698 (3 705) Headline earnings/(loss) per share (cents) – Basic 3.7 3.8 (1.0)
  4. 4. 3 Condensed consolidated statement of cash flows for the six months ended 31 August 2012 Reviewed Reviewed Audited Group Group Group 6 months 6 months 12 months ended ended ended R’000 31/08/2012 31/08/2011 29/02/2012 Cash flows from operating activities 97 829 54 307 71 294 Cash receipts from customers 488 378 522 992 1 019 632 Cash paid to suppliers and employees (376 577) (446 667) (905 813) Cash generated by operations 111 801 76 325 113 819 Net interest paid (8 208) (9 660) (19 442) Income taxes paid (5 764) (12 358) (23 083) Cash flows from investing activities (11 646) (57 004) (58 434) Purchase of property, plant and equipment (21 401) (100 636) (160 721) Replacement – (75 293) (129 931) Additions (21 401) (25 343) (30 790) Proceeds on disposal of property, plant and equipment 7 661 47 530 102 214 Decrease/(increase) in loans granted 2 094 (3 898) 73 Cash flows from financing activities (61 491) 2 148 (5 500) (Payments)/receipts in terms of loan finance (8 650) (5 765) 3 732 Increase in borrowings related to instalment sale agreements – 111 160 175 460 Payments in terms of instalment sale agreements (52 841) (103 247) (184 692) Net increase/(decrease) in cash and cash equivalents 24 692 (549) 7 360 Cash and cash equivalents at the beginning of the period 79 972 72 612 72 612 Cash and cash equivalents at the end of the period 104 664 72 063 79 972 Cash and cash equivalents comprise of: Bank balances and cash 104 664 72 063 79 972
  5. 5. 4 Condensed consolidated statement of changes in equity for the six months ended 31 August 2012 R’000 Share capital Share premium Common control reserve Foreign currency translation reserve Retained earnings Equity attributable to the shareholders of the company Balance at 28 February 2011 – Audited 2 228 596 (123 998) (31) 230 329 334 898 Total comprehensive income for the year 756 (11 065) (10 309) Balance at 29 February 2012 – Audited 2 228 596 (123 998) 725 219 264 324 589 Total comprehensive income for the period 430 15 018 15 448 Balance at 31 August 2012 – Reviewed 2 228 596 (123 998) 1 155 234 282 340 037
  6. 6. 5 Operational segmental reporting for the six months ended 31 August 2012 SERVICES WITHIN EACH BUSINESS SEGMENT For management purposes, the Group is organised into three major operating divisions – contracting, geotechnical laboratory and readymix. These divisions are the basis on which the Group reports its primary segment information. The principal services and products of each of these divisions are as follows: Contracting – bulk earthworks, roads and civil engineering contractors, plant hire, impact compaction and logistical services. Geotechnical laboratory – geotechnical laboratory and surveying services. Readymix – supplier of readymixed concrete and pumping services. reviewed Segment revenue and segment result R’000 Segment revenue Segment result 6 months ended 31/08/2012 6 months ended 31/08/2011 6 months ended 31/08/2012 6 months ended 31/08/2011 Contracting 448 868 417 151 28 246 10 212 Geotechnical laboratory 10 215 11 055 1 035 4 127 Readymix 84 981 73 190 3 408 2 145 544 064 501 396 32 689 16 484 Corporate* 41 725 4 350 (457) 307 Eliminations (55 197) (10 976) – – 530 592 494 770 Earnings before interest and taxation 32 232 16 791 Net interest paid (8 208) (9 660) Earnings before tax 24 024 7 131 Taxation (9 006) 2 911 Earnings for the period 15 018 10 042
  7. 7. 6 Segment revenue reported above represents revenue generated from external customers. Intersegment sales amounted to R55,2 million (2011: R11,0 million). Segment result reported above represents operating profit per segment prior to taking depreciation and interest into account. The accounting policies of the reportable segments are the same as the Group’s accounting policies. REVIEWED Segment assets and liabilities R’000 Segment assets Segment liabilities As at 31/08/2012 As at 29/02/2012 As at 31/08/2012 As at 29/02/2012 Contracting 762 970 841 518 555 650 563 527 Geotechnical laboratory 7 289 17 476 2 473 5 383 Readymix 77 803 72 171 32 450 83 204 848 062 931 165 590 573 652 114 Corporate* 113 694 422 537 42 461 183 849 Intergroup eliminations (103 391) (535 062) (114 706) (341 912) 858 365 818 640 518 328 494 051 Other segment information Depreciation and amortisation Additions to non-current assets R’000 6 months ended 31/08/2012 6 months ended 31/08/2011 6 months ended 31/08/2012 6 months ended 31/08/2011 Contracting 37 679 31 056 20 516 100 012 Geotechnical laboratory 815 668 830 132 Readymix 1 705 1 693 55 329 Corporate 495 609 – 163 40 694 34 026 21 401 100 636 *  Corporate includes the transactions of the holding company.
  8. 8. 7 Notes to the condensed consolidated financial report for the six months ended 31 August 2012 Corporate information Protech is incorporated and domiciled in South Africa. Protech is listed on the JSE Limited. The main business of Protech and its operating subsidiaries is bulk earthworks, plant hire, civil engineering services and sale and distribution of readymix concrete. The directors of Protech authorised the issue of the condensed consolidated financial report for the six months ended 31 August 2012 on 2 November 2012. Basis of preparation and accounting policies This condensed consolidated interim report complies with International Accounting Standard 34 – Interim Financial Reporting, the disclosure requirements of the JSE Limited’s Listings Requirements and the requirements of the South African Companies Act, 2008, as amended. The condensed financial information has been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the AC 500 standards as issued by the IASB applied in the prior financial year except for those standards that became effective during the reporting period. The adoption of these standards has had no effect on the results. This report was compiled under the supervision of the chief financial officer, CJA Wolmarans CA(SA). Property, plant and equipment Capital expenditure on property, plant and equipment was R21,4 million (2011: R100,6 million) for the six months ended 31 August 2012. Subsequent events The directors are not aware of any matter or circumstance arising since the end of the period and up to the date of this report, not otherwise dealt with in this report. Independent review opinion The auditors, Deloitte & Touche have issued their unmodified review opinion on the condensed consolidated financial report for the six months ended 31 August 2012. A copy of their unmodified review opinion is available for inspection at the Company’s registered office.
  9. 9. 8 Commentary Introduction The market conditions in both the construction and mining sectors, in South Africa and on the rest of the continent, remain challenging and volatile. The depressed state of the markets had a generally negative impact on work volumes and profit margins throughout the industry and sector. The much needed and long awaited infrastructure spend, to which government remains assuredly committed, is not reflecting in tender flows. Competition in the local construction sector continues to be fierce and the level of confidence in the sector remains low. Despite the adverse market, Protech achieved satisfactory results for the first half of the 2013 financial year. The repositioning and strategic refocusing process embarked upon at the end of the previous financial year is starting to show positive effects on the Group results and will continue to do so going forward. Protech is pleased to report interim results for the 6 months ended 31 August 2012 which reflect its return to profitability from the reported loss at the end of the previous financial year. SAFETY Protech achieved an LTIFR of 0,30 for the six months ended 31 August 2012, compared to 0,38 for the comparative six months, which is as a result of an increase in safety awareness in Protech. The main contributor was the near miss campaign launched at the beginning of the financial year. Progress with strategic turnaround process Protech has continued to build on the momentum of its strategic turnaround during the period under review through a number of interventions: • Careful and focused recruitment has brought to Protech a number of seasoned industry executives, significantly upskilling the executive management in crucial areas of the business including strategy, engineering, project and construction management, commercial and risk management, organisational performance and development. A new strategic leadership team has emerged and is gaining traction in all these areas. This is being supplemented at the senior operational level with further key engagements to manage the operational delivery engine for performance. • In the turnaround, the focus has been on an internal strategy that has concerned itself with implementing consistent management information systems to provide the necessary decision making and tracking information to drive the turnaround. This included the introduction of contractual and commercial competencies to the business in order to effectively manage risk, transforming the way in which Protech delivers its solutions, with a top priority being placed on achieving the margins that it has tendered. Allied to this is managing and implementing a capacity management programme, in order to become more commercially astute. • Careful attention has been given to managing debt in order to protect the balance sheet with the net gearing ratio decreasing from 64% to 36% in the last six months, resulting from the repayment of debt in the amount of R61,5 million. The new management team also modified the plant model, extending the useful life of the plant to match market conditions and selectively positioning the Company for growth as attractive projects are secured. Accordingly, Protech is preserving its cash resources in order to secure profitable growth opportunities. Cash management is a focal point at all levels of the operational structures and has been enhanced with the appointment of several Quantity Surveyors to make sure that cash flows through the projects in accordance with initial pricing. • Protech is successfully evolving from an owner-managed culture to a professionally-led construction company. It will retain its entrepreneurial approach while equipping the operational management team to make competitive decisions and monitoring their performance, backed up by resilient management information systems. Substantial work has ensured that the cost base matches the current market pricing dynamic, in order to be able to win work and deliver margin. • Developing Protech’s value chain by pursuing carefully aligned civil engineering works will bring on a new revenue stream while keeping the business focused on its core activities and improving its ability to service its customers’ requirements. • From an external strategic perspective, Protech continues to evaluate opportunities to expand its footprint nationally, developing a regional coastal presence. Its strategy outside South Africa has been carefully streamlined to Zambia, Zimbabwe and Mozambique, while avoiding the risks that have impacted the overall performance of a number of other construction companies.
  10. 10. 9 Financial Review Statement of comprehensive income Group Revenue for the six months ended 31 August 2012 increased by 7% to R530,6 million from R494,8 million in the comparative prior year period. The bulk of the revenue for the six months under review was derived from mining related projects both locally and in the rest of the continent. Group operating profit before interest for the six months ended 31 August 2012 increased by 92% to R32,2 million (H1 2012: R16,8 million) with operating margins at group level improving to 6,1% for the period under review (H1 2012: 3,4%). Earnings per share increased by 46,4% to 4,1 cents (H1 2012: 2,8 cents) and headline earnings per share decreased by 2,6% to 3,7 cents (H1 2012: 3,8 cents). Statement of financial position Net asset value per share as at 31 August 2012 was 93,8 cents compared to 95,2 cents in the prior comparative period and 89,5 cents at 29 February 2012. Interest bearing debt related to asset finance decreased by 23,4% to R226,6 million compared to R295,8 million in the prior year comparative period. The debt to equity ratio at 31 August 2012 was 35,9% as opposed to 64,9% in the prior comparative period. Capital expenditure during the six months under review amounted to R21,4 million (H1 2012: R100,6 million). The cash position of the company remains healthy with total cash and cash equivalents at 31 August 2012 amounting to R104,6 million (H1 2012: R72,1 million). There where no significant asset disposals during the period under review with net capital expenditure amounting to R13,7 million as opposed to R53,1 million in the comparative prior year period. Statement of cash flows Cash generated by operations improved by 46,5% to R111,8 million (H1 2012: R76,3 million) as a result of improved trading results and focused cash management. When comparing cash generated by operations before working capital changes to EBITDA, the ratio of cash generated to EBITDA is 1,6 times (2012: 1,5). The Group therefore remains confident of its cash generating ability. Operational Review Contracting – 83% of group revenue The Contracting business unit remains the largest part of the business, contributing 83% (H1 2012: 83%) to Group revenue and 86% (H1 2012: 97%) to operating profit. Revenue for Contracting increased by 7,6% to R448,9 million (H1 2012: R417,2 million). Mining sector related contracts, both locally and in the rest of the continent attributed to 81% of the contracting revenue while 41% of the business unit’s revenue was generated outside South Africa from contracts that were secured in the previous financial year. Operating profit of the contracting business increased by 176,6% to R28,2 million from the comparative period’s R10,2 million. The increased awareness of risk and contract management is starting to deliver tangible benefits as several smaller contracts that have underperformed are being completed. Continued management focus through the turnaround program is expected to continue to improve the overall profitability of this business unit. Geotechnical – 2% of group revenue This is the smallest business unit in the group and its contribution to revenue of R10,2 million (H1 2012: R11,1 million) represents 2% of group revenue and is virtually unchanged from the comparative prior year period. Readymix – 15% of group revenue The revenue generated by this business unit increased by 16,1% to R85,0 million (H1 2012: R73,2 million) despite challenging market conditions. The increase in revenue is attributable to an increase in sales volumes of 5% and price increases driven by input cost increases. Operating profit achieved in this business unit increased by 58,9% to R3,4 million as opposed to R2,1 million in the prior year comparative period. The contribution to the Group operating profit is 11% (H1 2012: 13%). Board changes Mr Terence Rensen was appointed to the board as an independent non-executive director with effect from 19 April 2012. Mr Rensen also serves on the audit and risk committee.
  11. 11. 10 corporate action Protech issued a cautionary announcement to shareholders on 14 March 2012 wherein shareholders were advised that the company had entered into discussions which may influence the share price if successfully concluded. The discussions referred to proceeded only as far as the entering into the of non-disclosure agreements but did not progress to the stage where any third parties conducted due diligence investigations on Protech. The discussions did not lead to any formal proposal being made to the company and as such the cautionary announcement was withdrawn on 19 October 2012. Outlook Having secured seven new contracting projects in the mining and public sectors as well as the commercial and industrial segments that are valued at R456 million, the Group started the second half of the financial year with total work on hand of R750 million and a total qualified project pipeline of R1,0 billion. Market conditions in its target markets are as follows: • Public sector spending is slowly emerging as various levels of government align their capacity to award their budgeted projects. Protech is cautiously gearing its own capacity to participate in this market. • As a major constituent of the South African economy, mining remains a core target for Protech whose strategy is to extend its relationships for deeper penetration among mining houses moving from its previous position of only being awarded disparate contracts on large projects. • There are a number of opportunities throughout Africa, however with its strategy to focus on Zambia, Zimbabwe and Mozambique, as well as the stringent selection criteria, the Group will maintain a selective approach to securing work in the region. Protech’s leadership team is committed to building further momentum to deliver on the turnaround strategy that will unlock shareholder value and results in a business that has sustainable earnings, people and positioning in its chosen markets. This general forecast has not been reviewed or reported on by the Company’s auditors. On behalf of the directors MSG Mareletse ASW Page CJA Wolmarans Chairman Chief Executive Officer Group Financial Director Lanseria 2 November 2012 Directors: MSG Mareletse*† (Chairman), ASW Page (Chief Executive Officer), CJA Wolmarans (Group Financial Director), V Raseroka*, MJ Vuso*†, TW Rensen (Irish)*† * non-executive   † independent Secretary: iThemba Governance, Statutory Solutions (Pty) Ltd. Registered office: Corner R512 and Elandsdrift Road, Bultfontein, Lanseria (Private Bag X6, Lanseria, 1748) (Website: Transfer secretary: Link Market Services South Africa (Proprietary) Limited, 13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein, 2001 (PO Box 4844, Johannesburg, 2000) Sponsor: Deloitte Touche Sponsor Services (Proprietary) Limited
  12. 12. 11 Revenue R530,6m Operating profit R32,2m Earnings per share 4,1c Turnaround status check 2Introduction TNAV per share 83,5c Cash flow from operating activities R97,8m Cash balance R104,7m 92% Year-on-year change 80% 46% 45% Significant progress with turnaround: Key metrics moving in right direction LTIFR 0,30 19% 7% Up from 79,2c at 29 February 2012 Market analysis Strategy People Finance Operations and systems People Financial strength Creating sustainability Client value The journey The destination: Turnaround The turnaround process 3Introduction Inflection point: Solid progress in H1 F2013 Moving from an owner-managed culture to a professionally-led construction company
  13. 13. 12 Notes (40,000) (20,000) - 20,000 40,000 60,000 80,000 100,000 120,000 140,000 2007 2008 2009 2010 2011 2012 2013H1 PBT (R'000) The turnaround: Where are we? 4Introduction New CEO appointed
  14. 14. 13 Turnaround strategy is gaining momentum Internal People Risk and contractual Debt + cash management Project management Management information systems External Civils Earthworks Mining Zambia, Zimbabwe, Mozambique Public sector JV’s and partnerships 6Strategy Short term: Protech Khuthele Civils and Earthworks • Earthworks • Compaction Technology • Geotechnical • Plant Equipment • Drill and Blast • Surfacing • Concrete Works Medium term: Protech Khuthele Manufacturing • Readymix • Precast Concrete Products • Crushing and Screening Longer term value chain enhancements Strategic implementation of value chain enhancements Combination Transformation Turnaround In depth market analysis: Informed strategic target markets Public sector Mining Commercial Industrial Outside South Africa • Spending turning slowly • Long adjudication periods • Impact of economic + labour issues • Showing signs of recovery • Opportunities highly contested • Significant opportunities • High risks must be addressed • Careful resourcing: benefit from spending • Well positioned: Civils and earthworks • Core competency: strong relationships • No exposure to contract mining • Expand national footprint: Coastal expansion • Readymix: flexibility and speed • Focused campaign: Stringent criteria • Zambia, Zimbabwe and Mozambique Focus area Market Protech’s positioning 5Strategy
  15. 15. 14 Notes Leadership team to drive turnaround Board of Directors Mafahle Mareletse (Chairman) Matsotso Vuso Vincent Raseroka Terence Rensen Antony Page (CEO) Nellis Wolmarans (CFO) 7People Chief Executive Officer Antony Page Seasoned construction executive with more than 30 years’ experience. Led the turnaround of the roads and earthworks division of a major SA construction congolmerate. Strategy Derrick Pautz BEng (Civil) Has extensive construction and project management experience on major projects in SA Africa. Responsible for turnaround of asset management function in a major roads and earthworks business. Organisational Performance Hannelie du Preez MComm (Industrial Psychology) Holds several degrees in HR management and has held top human resource management positions. An expert in strategic development and alignment of organisational development. Risk and Contractual Chris Ryninks NHDip Quantity Surveyor 30yrs commercial, contractual and legal experience specific to construction industry. A leader in field of change management in construction projects. Project Management Andre Smit BEng Hons (Civil) (PrEng) Previously head of project management division within a major roads and earthworks business spanning all projects leading to their successful execution. Strategy Nathan Pillay BSc Eng (Civil) Brings his vaste experience in construction and project management on major projects to re-engineer PKH’s earthworks division while developing the new civils business. Programme Director: SSTCP Drikus Engelbrecht Hons Bcompt (Unisa), CA (SA) Equipped to provide guidance on Protech’s turnaround workstreams based on financial knowledge and understanding of Protech’s history. Finance Nellis Wolmarans CA (SA), MComm (Tax) More than 20yrs’ experience in Finance, including five years in the construction and mining sector. Management Accountant Yakesh Jugmohan BCom, National Diploma (Cost and Management Accounting) Brings to bear his 16yrs’ experience in Management and Financial Accounting at an operational, managerial and strategic level. New New New New New New New Commercial Director Chris Porter BSc Eng (Civil) (Pr Eng) More than 30yrs’ experience in roads and earthworks construction, in the field of contracting and estimating civil engineering projects. Operations Julien Dovey BSc Quantity Surveying Tenure with Protech of 20yrs with extensive experience in the civil and earthworks industry.
  16. 16. 15 Financial Review Net interest bearing debt D:E (asset backed) 36% Operating profit R32,2m Turning the corner: Performance against key turnaround metrics 8Finance Return on capital employed (annualised) 9% 92% Year-on-year change 45% LTIFR 0,30 30% GFCF Medium term goals 8% – 12% 50% – 80% 0.25 21% Gaining momentum: Tangible benefits of turnaround initiatives by new management
  17. 17. 16 Notes Consolidated statement of comprehensive income 10Finance Finding the appropriate turnover Plant operating model revised Reduced debt and effective cash utilisation Good management of costs and project execution Difference between EPS + HEPS: Profit on asset disposal Rm H1 2013 H1 2012 % ch Revenue 530.6 494.8 +7% EBITDA 72.9 50.8 +40% Depreciation and amortisation (40.7) (34.0) +20% Operating profit before interest 32.2 16.8 +92% Trading margin (%) 6.1% 3.4% +3.7% Net interest (paid) (8.2) (9.7) -15% Taxation (charge) / credit (9.0) 2.9 - Earnings for the period 15.0 10.0 +50% EPS (c) 4.1 2.8 +46% HEPS (c) 3.7 3.8 -3% Six months ended 31 August 2012
  18. 18. 17 NAV per share (cents) 93,8 95,2 NTAV per share (cents) 83,5 84,7 Statement of financial position 12Finance Lengthened useful life of assets Capex: All for expansion Net debt repayments of R69,2m Improved cash balances: operating profit growth Six months ended 31 August 2012 Rm H1 2013 H1 2012 Assets 783,2 841,2 Property, plant and equipment 387,0 443,6 Cash 104,7 72,1 Intangible 37,4 37,9 Other 254,1 287,6 Liabilities 443,2 496,3 Interest bearing liabilities 226,6 295,8 Other liabilities 216,6 200,5 Shareholder’s equity 340,0 344,9 R10,2m R4,1m R2,1m GeotechnicalContracting Readymix 1. Before inter group eliminations F2011 1 and 2 Operating profit Revenue1 H1 F2013: R544,1m H1 F2012: R501,4m 1 Turnaround in operational performance 11Finance H1 F2013: R32,6m H1 F2012: R16,4m R10,2m R85,0m R448,9m R11,1m R73,1m R417,2m R1,0m R3,4m R28,2m Revenue1 up 7% with 81% mining related – Better geographic balance: 41% outside SA EBIT margin up 79%: Operating profit up 92% – Margin improved from 3.4% to 6.1% – Stronger risk and contract management – Tail end of marginal legacy contracts – Management focus through turnaround programme 92% operating profit 80% cashflow from operating activities
  19. 19. 18 Notes 28.6 71.3 172.8 177.4 221.0 208.2 122,0 35,9% 50,3% 73,6% 57,2% 66,0% 64,1% 35,9% 0 10 20 30 40 50 60 70 80 90 100 0 50 100 150 200 250 F2007 F2008 F2009 F2010 F2011 F2012 H1 2013 Rm Total net interest-bearing debtNet gearing % Tight debt management 13Finance Keeping our powder dry: Cash resources preserved to pursue profitable growth opportunities Debt repayments of R69,2m Gearing ratio almost halved to 35,9% Defending balance sheet – Extended useful life of plant – Still within warranty period Capacity to take on selected new projects Matching assets to growth New CEO Turnaround
  20. 20. 19 Effectively converting operating profit into cash flow (Rm) 15Finance 80,0 104,7 114,2 8,2 5,8 21,4 5,3 2,1 8,7 52,8 Cash and cash equivalents (opening balance) Cash generated by operations Net interest paid Income taxes paid Expansion capex Proceeds on disposal of PPE Decrease in loans granted Payments in terms of loan finance Payments in terms of instalment sale agreements Cash and cash equivalents (closing balance) +R24,7m Improved cash conversion ratio to 1,6 x EBITDA (up from 1,5x): R24,7m increase in cash and cash equivalents Rm F2013 Budget H1 F2013 H1 F2012 Plant Equipment 20,0 21,4 160,7 Expansion 20,0 21,4 30,8 Replacement - - 129,9 Capital expenditure: Matching assets to growth 14Finance Asset turnover 1,37 1,15 19%year-on-year improvement in asset turnover ratio
  21. 21. 20 Notes Operations and way forward
  22. 22. 21 Sustaining the turnaround: Managing our cost base down Working to price correctly on tender work – Entrenching the right business processes Tendering at the right margin to remain competitive Realising tendered margins Key information and management accounting to match the business 18Operations Ensuring that our cost base matches current market pricing dynamic Stronger business processes Risk management Contracts management Project management Construction management Key information management Focusing on our core business Contracting (comprising PK and Pela) • Seven new contracts valued at R456m • Defended market share in tight market • Increasing revenue per Rand invested in Plant division • Margin recovery: Improved project execution + extended life of assets • Project and contract management: Managing tail end of legacy contracts • Planning roll out of Civils offering Readymix Geotechnical Revenue: R448,9m Operating profit: R28,4m 8% 177% Revenue: R85,0m Operating profit: R3,4m 16% 59% Revenue: R10,2m Operating profit: R1,0m 8% 75% 17Operations
  23. 23. 22 Notes Sustaining the turnaround: Managing capacity Entrenching proper capacity management Avoiding the trap of pursuing turnover without putting in place the right resources Planning the civils business – Reviewing all opportunities – Analysing capacity requirements – Creating the optimal structure 19Operations Roles and Levels Pay and Incentives Re-engineering Empowerment Performance Culture Performance Management Competencies KPAs
  24. 24. 23 Investment case: Delivery scorecard 21Conclusion We are carefully positioning people, focusing on our core business and creating sustainability Clearly defined strategy • Value chain enhancements • Clear criteria for African opportunities • New focus on public sector, particularly transport and energy Focus on nurturing entrepreneurship through skills • Strategic leadership in place, strengthening senior operational team • Progress refining operational structures • Attracting experienced industry specialists: Human Resources, Risk Management, Civil Engineering • Key focus on organisational development to grow talent Innovation and flexibility • Foundation of new risk management focus• Ingrained into Protech’s culture and recognised by market • Ability to react to opportunities on short notice Strong financial position • Increasing revenue per invested Rand • R24,7m increase in cash and cash equivalents • Extended useful life of plant • Cash balances to fund organic growth 29 February 2012: We said we would 31 August 2012: We achieved • Planning for civils offering nearing completion • Streamlined ZZM focus • 11% of revenue in first half NAV 93,8 cps 20 Building on the momentum of the turnaround Outlook Qualified opportunity pipeline: R1,05bn Total work on hand of R750m reflects tight market – Targeting further financial recovery Continued focus on optimising internal structures Further defining growth targets Priority on selecting the right opportunities Deliver on turnaround strategy: 1. Sustainable earnings, people and positioning 2. Drive shareholder value R1.05bn R0.75bn Order Book Work on hand Qualified pipeline
  25. 25. 24 Notes Top of mind: What our investors want to know •Question: What exactly led to you withdrawing the cautionary? •Answer: The discussions never progressed to any formal proposal being made, and the process did not even reach the stage of a due diligence by a third party.1 •Question: Why should we share your confidence in the turnaround. Is it sustainable? •Answer: Our leadership team has delivered sustained turnarounds. The process spans every aspect of the business. We have implemented management information systems to monitor performance at a granular operational level. Our stronger risk, project and contract management capability enables us to deliver the tendered margin on our contracts. 2 •Question: The order book is lower compared to what you has six months ago. Is your win rate up to scratch? •Answer: The market undeniably remains tight, but we won seven new deals valued at R456m in the last six months even though our tender risk process has tightened and our selection criteria are more stringent. Our efforts have been to avoid the trap of sacrificing future margins to bolster our current order book. •Question: Investors need to be rewarded, when can we expect to see a dividend being paid? •Answer: Our conservative approach remains unchanged and although we generated good cash flows, the markets remain tough. We have worked hard to preserve our cash resources and as the turnaround takes shape our growth strategy will come to the fore to generate excess returns. We will review our dividend policy once the group is in a stronger position. •Question: You made some bold changes to the plant policy six months ago. Is this paying off? •Answer: All our capex for the six months was for expansion rather than replacement. The income statement impact has not had time to flow through because the change only came into effect six months ago. We are in a stronger cash position and our turnover per Rand invested in our plant is improving. We continue to benchmark our performance against our peers. Conclusion 3 4 5 22
  26. 26. 25 Questions Answers Certain statements in this release that are neither reported financial results nor other historical information are forward looking statements including but not limited to predictions of or indications of future earnings. Undue reliance should not be placed on such statements because, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results and company plans and objectives to differ materially from those expressed or implied in the forward looking statements. The information in this presentation has not been reviewed or reported on by Protech’s auditors. Forward looking statements 23
  27. 27. 26 Notes Contact details Protech Khuthele Holdings Limited Corner of R512 and Elandsdrift Road, Lanseria PO Box 1326, Lanseria, 1748 Antony Page (CEO) Nellis Wolmarans (CFO) This presentation is available on +2711 301 5599 +2786 633 7892 +2782 411 4555 +2782 468 8521 25