Grintek Limited today announced interim results for the period ended December 2004 which saw group revenue from sales improve by 7%, up from R615.8 million to R656.4 million.
A 15% improvement in profit margin to 22% (2003: 19%) resulted in an increase in gross profit from R118.7 million to R145.3 million. Although selling and administration expenses rose by 24%, total overhead expenses were contained to a 1% increase. The higher expenses resulted from efforts to broaden the group's export client base as well as a realignment of indirect costs due to the formation of central service centres.
While unrealised foreign exchange gains decreased from R15.1 million to R6.4 million, operating profit increased 30 % to R37.6 million (2003: R28.8 million).
A reduction of net finance costs to R0.1 million from R9.9 million contributed to a 60% increase in profit before tax to R33.2 million (2003: R20.7 million).
Headline earnings per share increased by 36% to 6.3 cents per share, up from 4.7 cents per share.
The group utilised R36.9 million cash at operating level as working capital increased by R75.1 million (2003: R20.6 million) for the six months due to longer payment terms experienced by the defence divisions for export clients.
Trade receivables increased by R110.1 million to R532.1 million (2003: R422 million). The reduction of advance receipts from defence business for long-term contracts has had a further impact on the working capital requirement. Advance receipts declined by R25.1 million to R148.7 million (end June 2004: R173.7 million).
Capital expenditure and long-term assets decreased 51% to R16.6 million (2003: R33.7 million).
According to Shaun Liebenberg, chief executive officer of Grintek Ltd, various export contracts were successfully concluded. Integrated Defensive Aids Suites, land-based communications monitoring systems, mobile direction finding systems and radio equipment were ordered by clients in the Middle East, Asia, Africa and Europe. Deliveries of equipment were also made to India, Italy, Finland, Sweden and Switzerland during the period.
Local deliveries included EW suites and communications systems for the Navy's new patrol corvettes and submarines. The SA Air Force received EW suites for the new Hawk aircraft, and communications management systems for the Agusta A109 light utility helicopters.
"Profit improvement plans initiated a year ago to restore the competitiveness of both products and services have been achieving acceptable results," says Liebenberg. "However, the weakness of the US dollar is beginning to impact competitiveness in US dollar denominated markets in the Middle East and Asia. Cost reduction activities have been initiated to remain competitive in these markets."
Having effected most of the major organisational changes, the business activities previously conducted by the Telecommunications and Industrial Electronics divisions have been consolidated into a single operating division. This includes the introduction of more customer-focused business units in the telecommunications area, consolidation of all shared operational services into a single service centre, as well as the disposal of non-core business units.
"Though turnover is down slightly from R334.8 million to R314.8 million, a significant improvement in earnings has been achieved through rationalisation," states Liebenberg.
"Management also conducted a critical review of the balance sheet, especially inventory, which led to material adjustments to certain stock values. These have been accommodated within the improved earnings."
Business in the local carrier market has remained stable with the effects of the rand strengthening offset by a moderate growth in demand.
Says Liebenberg: "The introduction of the recently approved new wireless access technologies has created opportunity for growth in the deregulated environment, although we anticipate that the impact over the medium-term will be limited."
Pleasing growth in the GSM market in Africa has been achieved with DC Power systems recording sales of R37.8 million.
The recent representative agreement signed with Powerwave AB of Sweden should improve sales volumes of GSM RF products and antennas, and is expected to result in further growth, particularly to GSM operations in Africa.
Cost reduction objectives set for pre-paid electricity metering solutions were achieved in the ED-21 meter launched in July last year. Initial sales targets for this new product have been met with significant follow-on opportunities identified, subject to the completion of the first major roll-out due for completion in March 2005.
"We anticipate that the continued strengthening of the rand will impact on both the Defence and Technology divisions' profitability. While revenue is expected to increase in the second half of the year, growth in earnings is not anticipated for the year-end 30 June 2005, bearing in mind the foreign exchange gains made in the last six months of the previous year. We will continue to focus on improving efficiency, both on a cost containment level as well as working capital management within the group," says Liebenberg.
To maximise opportunities within the defence market, the Avitronics division will implement closer operational and technical co-operation with Saab AB.
On 21 February 2005 the board of Grintek Limited accepted and endorsed a proposal from the company's partner and shareholder, Saab AB of Sweden, for a buy-out offer to minority stakeholders as a precursor to delisting the Centurion-based company. The offer will lead to Grintek's further integration with Saab AB of Sweden for purposes of technology investment and exchange, international marketing and work-sharing. Taking into account the fair and reasonable opinion of Investec Bank Limited and an independent sub-committee, the Grintek Board has recommended that scheme members vote in favour of the scheme.
The offer is for a cash consideration of R1.90 per Grintek share. This presents minority shareholders with an opportunity to realise a significant premium of 46%, based on Grintek's average share price in the 30 days to 8 November 2004, the date of the cautionary announcement. The transaction will give Grintek access to the necessary resources for R&D, manufacturing and marketing as a key to sustainable future growth. These additional capital resources are critical to the long-term sustainability and competitiveness of the business, particularly in the capital-intensive defence, aerospace and telecommunication sectors.
A dividend of 1.5 cents per share has been declared (2003: 1.5 cents per share).
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