Finance director's review

Finance director's review

Don Wilson, Finance director
Don Wilson – Finance director

Revenue for the year increased by 1% to R62.7 billion, mainly due to increased revenues in Automotive and Logistics (R2.1 billion), offset by reduced revenue in Equipment southern Africa, Equipment Russia, and Iberia. The weakening rand increased revenue for the year by R995 million.

Earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 5% to R6 479 million depreciation and amortisation increasing by 6%.

The group incurred charges in the current year of R251 million related to the close out of the 2008 B-BBEE transaction, these costs comprise largely of IFRS 2 charges. Operating profit from continuing operations before the B-BBEE charge rose by 4% to R3 995 million with the group operating margin increasing to 6.4% on a comparative basis. Despite the slowdown in the mining sector, Equipment southern Africa delivered a resilient performance with operating profit of R1 894 million for the year. The growth in aftermarket activity continued to contribute positively to their results. Russia had a strong second half to produce a solid result achieving a profit of R397 million for the year. Equipment Iberia, which posted a loss of R168 million in the prior period, showed a significant turnaround to report a profit of R71 million in the current year.

The Automotive and Logistics division produced another good performance in a tough trading environment, with operating profits of R1 688 million, showing a 2.7% increase on last year.

The total negative fair value adjustments on financial instruments increased to R198 million (2014: R156 million). The current year’s losses mainly comprise the cost of forward points in exchange contracts in Equipment southern Africa and gains and losses on unhedged transactions in Handling South Africa. In addition there were translation losses on local currency receivables and bank balances in Equipment operations in Africa (mainly Angola, Zambia and Mozambique), Equipment Russia and Agriculture Mozambique, resulting from local currencies having weakened against the US dollar.

Finance costs increased by R135 million to R1 252 million. The increase is a result of higher average debt levels, arising from increased average working capital levels for the year, increased fleet leasing and rental fleets and capex relating to the logistics business, further impacted by higher interest rates in South Africa.

  • Operating profit (before B-BBEE charge) up by 4%
  • HEPS (before B-BBEE charge) from continuing operations up 8% to

The exceptional charge of R6 million comprises the impairment of goodwill in the Logistics Sea Air Transport business of R33 million and the loss on disposal of the Agriculture Russia business of R88 million. This was offset by profit of R76 million from the disposal of offshore businesses in Logistics, as well as a net profit of R35 million on sale of properties and other assets.

The taxation charge for the year was R808 million. The effective taxation rate (excluding prior year taxation and taxation on exceptional items) of 37.1% (2014: 34.1%) which included deferred taxation charges of R247 million (2014: R11 million) arising in terms of IAS 12:41 for currency depreciation mainly in Russia, Angola, Mozambique and Zambia.

Income from associates and joint ventures increased by 32% to R287 million (2014: R217 million) driven by strong performances from the Equipment joint ventures.

The non-controlling interest in the current year’s earnings includes dividends of R48 million paid to participants of the B-BBEE transaction with the balance relating to the minorities in our NMI/DSM and Logistics Transport subsidiaries.

Headline earnings per share (HEPS) from continuing operations excluding the B-BBEE charges increased by 8% to 926 cents (2014: 857 cents). Basic earnings per share (EPS) of 809 cents is 20% below the prior year which included the profit from discontinued operations of R428 million in respect of the Australian Motor Retail operations which were disposed of last year.

Cash flow

Cash generated from operations decreased to R1.1 billion compared to R3 billion generated in 2014. Reduced activity levels in Equipment southern Africa resulted in further working capital absorption in the second half. For the year Equipment southern Africa showed an absorption in working capital of R2 279 million and Handling R447 million, mainly as a result of higher inventories and reduced payables.

Summarised cash flow statement
Operating cash flows before movements in working capital     7 094     6 302  
Increase in working capital     (3 429)     (470)  
Net investment in leasing and rental fleets:     (2 601)     (2 879)  
Cash generated from operations     1 064     2 953  
Other net operating cash flows     (1 947)     (1 997)  
Dividends paid (including non-controlling interest)     (814)     (742)  
Cash (utilised in)/retained from operating activities     (1 697)     214  
Net cash used in investing activities     (1 826)     (69)  
Net acquisitions     (1 887)     (1 385)  
Proceeds on disposal of subsidiaries, investments and intangibles     61     1 316  
Net cash (outflow)/inflow before financing activities     (3 523)     145  

Cash applied to the net investment of property, plant and equipment together with subsidiaries and intangibles of R1 826 million mainly comprises the purchase of heavy vehicles and cranes in the Logistics transport business, and facilities in the Equipment southern Africa, Iberia and Automotive trading business. In addition, approximately R328 million was invested in Angolan US$ linked bonds as protection against further currency devaluation. The group had a net cash outflow of R3 523 million for 2015 compared to the R145 million inflow in 2014.

Financial position and debt

Total assets employed in the group increased by R4.2 billion to R48.2 billion at September. This increase was driven by the weaker rand (R2.5 billion) and increases in working capital, leasing and rental assets, and property, plant and equipment.

Total interest-bearing debt at September 2015 increased to R13.4 billion (2014: R11.3 billion) while cash and cash equivalents reduced to R2.4 billion (2014: R4.2 billion). While the group achieved some reduction in net debt in the second half of the year, this was hampered by higher working capital levels and further impacted by the investment of US$26 million in Angolan US$ linked impacted by government bonds. Net interest-bearing debt at 30 September 2015 of R11.1 billion was R3.9 billion up on the prior year of R7.2 billion.

The group’s equity increased by R2.6 billion in the current year of which R1.3 billion related to currency movements.

The group debt-to-equity ratio at 30 September 2015 was 66.9% (September 2014: 64.7%), while group net debt to equity was 55.1% (September 2014: 40.9%).

Southern Africa     12 057     3 679 1 377 704 6 297  
Offshore     1 368     672 222 9 465  
Total     13 425     4 351 1 599 713 6 762  

In March this year the company issued a bond for R710 million, under the South African Domestic Medium Term Note programme (BAW21) which matures in March 2022. In September we concluded a local R2 billion finance package which includes a five-year fixed-rate R500 million loan, a five-year floating rate R500 million loan and a six-year R1 billion revolving credit facility. The funds raised were utilised to repay the R1.2 billion B-BBEE loan which matured in September and the R750 million bond (BAW2) which matured in October 2015. In addition, our UK subsidiary concluded a five-year £110 million syndicated loan facility in July, to refinance the existing £100 million bilateral facility.

In South Africa, short-term debt includes commercial paper totalling R0.9 billion (September 2014: R1.0 billion). While this market has remained liquid, spreads have been negatively impacted by interest rate uncertainty. We expect to maintain our participation in this market. At 30 September 2015 the group had committed unutilised borrowing facilities of R5 494 million and further uncommitted facilities of R2 170 million.

Fitch Ratings affirmed the company’s long-term credit rating at A+(zaf) (Stable Outlook) following the annual credit review in February 2015.

Gearing in the three segments are as follows:

Debt to equity (%)
Trading Leasing Car Rental Group
gross debt
net debt
Target range 30 – 50 600 – 800 200 – 300
Ratio at 30 September 2015 43 688 211 67 55
Ratio at 30 September 2014 40 662 205 65 41  
Going forward

The group return on net operating assets from continuing operations (excluding the B-BBEE charge) decreased from 18.8% in 2014 to 16.8% in the current year due to increased net operating assets, mainly in Equipment southern Africa and the Handling divisions. The group disposed of certain loss-making operations during the second half of the year which together with a continued improvement in Equipment Iberia should assist operating results in the coming year. The strategic redeployment of capital into higher returning businesses and a reduction in working capital should further contribute to improved returns in 2016.

Donald Wilson

Finance director