RNS Number : 1920D
Bateman Engineering N.V.
11 September 2008
Bateman Engineering N.V.
("Bateman Engineering" or the "Company")
Preliminary results for the year ended 30 June 2008
Bateman Engineering, the technology-driven engineering project house, announces its
results for the year ended 30 June 2008.
USD millions Year to June
Year to June
2008 2007
Revenue
675.4 471.1
Results from operating activities
9.0 18.3
Net finance income
14.3 3.2
Profit before tax
23.3 21.2
Profit for the year from continuing operations
16.4 20.5
Profit for the period attributable to equity holders of the parent
16.3 21.0
Clean operating profit
5.4 9.4
Net cash generated from operating activities
65.5 10.9
Net cash and cash equivalents at end of the period
130.0 93.4
Shareholders' equity after minorities
121.1 110.9
US
cents US cents
Earnings per share
From continuing operations
Basic
38.64 57.21
Diluted
37.50 54.55
* New management team and structure in place to drive profitable growth by focusing on
products and services and technology
* Strong underlying performance from majority of business units
* Global footprint and offerings extended
* Successful completion of three acquisitions during the year, bringing new
competencies to the Group
* Strong cash generation of $65.5 million
* Full year dividend maintained at 4.79 pence
Commenting on the results, Chairman, Rick Menell, said:
"During the 2008 financial year, Bateman Engineering made important strides towards
delivering on its strategic objectives by expanding
its range of business lines, geographical presence and technological strength. Near term, some
key resources are focused on closing out the
legacy contracts within the portfolio. In addition, management is streamlining the
organisation into distinct business units. This, together
with increased focus on project risk management, positions the Group well to capitalise on its
strengths. We continue to operate in a
favourable market in the resources sector."
Eddie du Rand, Group Chief Executive, said:
"The year ahead will be one of consolidation. We continue to increase our emphasis on
broadening our technology portfolio and adapting
our products and services offering to meet our clients' needs. We continue to work towards the
completion of the legacy contracts and to
reap the benefits from the implementation of the streamlined SBU structure. The resources
market we operate in remains buoyant with good
opportunities for each of our SBUs to capitalise on.
I am confident that the three SBUs are well positioned for the market opportunities that
lie ahead."
11 September 2008
ENQUIRIES:
Bateman Engineering N.V. Tel +31 79 433 9370
Eddie du Rand, Group Chief Executive Officer
Pieter du Plessis, Chief Financial Officer
Dresdner Kleinwort Tel. +44 20 7623 8000
Chris Treneman
Andrew Hollins
Alex Metherell
College Hill Tel: +44 20 7457 2020
Adam Aljewicz
NOTE FOR EDITORS:
Bateman Engineering is a technology-driven engineering-project house serving the minerals
and metals industries worldwide. Bateman
Engineering's shares (BATE.L) are traded on AIM, a market of the London Stock Exchange.
Chairman's Statement
The 2008 financial year was a demanding one for Bateman Engineering. Execution risks and
close-out problems on some major projects impacted
on the Group's overall performance, while the past year also saw a change in the executive
management team.
During the year two executive directors resigned. Jonathan Ben-Cnaan, previously Chief
Financial Officer (CFO), left to take a role as
Chief Executive Officer (CEO) of another company, and our previous CEO, Dr Sivi Gounden, moved
on to pursue outside interests. On behalf of
the Board and shareholders, I thank them both for their contribution to the Company. We
welcome to the Board Pieter du Plessis as CFO and
Eddie du Rand as Group CEO both of whom are well qualified to deliver on the Company's
potential for sustained growth in the medium and
longer term.
As a result of the project problems, measures have been implemented to de-risk future
projects as far as possible, including both a
sharper focus on project execution as well as a restructuring of the organisation for greater
alignment between the individual business
units. The Board is confident that the combination of these measures will benefit the company
for the long term.
Technology
Bateman Engineering's position as a leading project house in its sector is underpinned by
its capability to offer differentiated,
project-specific process technology solutions. The emphasis on achieving sustainable growth
through technological differentiation has thus
been intensified, and a focused initiative has commenced to broaden the process technology
portfolio of the Group and improve the
effectiveness of technology commercialisation. An important part of this initiative is the
formalisation of global Centres of Excellence,
established to develop, nurture and deploy the Company's process technology.
Human Capital
As a technologically-driven engineering project house, Bateman Engineering is reliant on
the intellectual capital in the business. A
major focus is on ensuring that human capital strategies support sustainable growth and
increase shareholder value through effective talent
management initiatives. Priority continues to be given to filling skills gaps within the
organisation and has resulted in a number of key
appointments being made at senior management level over the past financial year.
Corporate Governance
Bateman Engineering and its subsidiaries are committed to high standards of business
integrity, ethical values and professionalism in
all their activities. As an essential part of this, Bateman Engineering is committed to
applying corporate governance best practice,
complying substantially with the principles and best practices of the Dutch corporate
governance code (the Tabaksblat Code) and with the
provisions set out for AIM companies published by the Quoted Companies Alliance.
Safety, Health and the Environment
Once again, Bateman Engineering's safety performance was at the upper end of Industry
standards. The Group's safety, health and
environment (SHE) programme strives to protect the health and safety of the Group's employees,
subcontractors, clients and visitors, and
minimise the footprint of Bateman Engineering projects on the environment. These objectives
must be achieved often in the face of severe
environmental and logistical challenges typical of projects in developing, remote regions.
Outlook
During the 2008 financial year, Bateman Engineering made important strides towards
delivering on its strategic objectives by expanding
its range of business lines, geographical presence and technological strength. Near term, some
key resources are focused on closing out the
legacy contracts within the portfolio. In addition, management is streamlining the
organisation into distinct business units. This,
together with increased focus on project risk management, positions the Group well to
capitalise on its strengths. We continue to operate
in a favourable market in the resources sector.
It has been nearly three years since the Company was admitted to AIM and I would like to
thank my fellow Board Members for their
invaluable input. In addition, I would like to thank the Executive Management team of Bateman
Engineering as well the staff for their
ongoing commitment to the Group.
RICK MENELL
Chairman
11 September 2008
Group Chief Executive Officer's Report
The 2008 financial year has been challenging for the Group. Although a number of the
Business Units reported positive results, these
were undermined by significant losses in other areas of the business.
The negative impact on the full year's results can largely be attributed to:
* Contracting losses on the Hindustan Zinc Limited (HZL) project in India
* Contracting losses on the Moma Mineral Sands project in Mozambique
* A fire at the Lumwana Copper Concentrator project in Zambia, which has delayed the
hand-over of the plant
The Hindustan Zinc cost over-run was material and the additional costs provided for Moma
and Lumwana totalled $18m.
Key resources have been allocated to finalise these contracts during the current financial
year. However, we continue to evaluate the
final outcomes of these contracts.
The Group's strategy and structure have been reviewed and changes are being implemented to
minimise the likelihood of a future
recurrence of the problems experienced in terms of project selection, contracting methodology
and project execution.
The Group is well positioned to take advantage of the growth in our core markets.
Group Performance
Revenue increased by 43% from the previous financial year's $471 million to $675 million,
with the Australian and South East Asian,
Sub-Saharan Africa and Bateman Engineered Technologies Business Units all reporting positive
growth in line with expectations. The Metal
Recovery and CIS Business Units experienced delays in the timing of projects.
Results from operating activities decreased by 51% from the previous year's $18 million to
$9 million, largely attributable to the
problems already mentioned.
A dividend of 4.79 pence per share will be proposed at the Annual General Meeting to be
held on 26 November 2008.
Strategic Overview
During the year, a number of initiatives were undertaken to provide a stable platform to
improve the quality of earnings. An essential
part of the revised strategy is for Bateman Engineering to be a technology-focused group
working together through more aligned Strategic
Business Units. This will also enable us to readily implement best practice processes and
systems across our global operations.
To capitalise on the existing skills and knowledge within the Group, and better serve our
customers, a decision was taken to move away
from a geographically biased organisational structure to a product / service focused
structure. Individual business units are now aligned to
one of three specific product and service groupings, which have been termed Strategic Business
Units (SBUs). These are Bateman Engineering
Projects (BEP), Bateman Engineered Technologies (BET) and Bateman Metal Recovery (BMR).
Operational Review
BEP, the largest SBU, continued to increase its revenue but had mixed results as regards
operating profits, again largely attributable
to the HZL, Moma and Lumwana problems already mentioned.
Problems encountered in the Indian operation start-up have been addressed and, with the
new management and a changed structure, we
believe that this market will prove to be beneficial for the Group.
BET continues to perform well with growth in revenue and profits for the financial year.It has been successful in securing contracts
for coal stockyard equipment supply on the Douglas Middelburg Optimisation project for BHP
Billiton. The strategic initiative to supply
mills is bearing fruit and the opportunity to expand into the large mill market is being
pursued. Enhanced by Delkor, BET will continue to
focus on expanding its range of technology-backed equipment and improve its offering across
all of its regional offices.
BMR's financial year results have been impacted mainly due to lower production levels at
some of its plants and a change in accounting
treatment. Various actions have been taken to rectify operational problems and improved
production rates at these plants are already
evident. The Riders project in Pennsylvania, USA, which will extract ferromanganese from slag,
is nearing completion and will start
production during the 2009 financial year. A number of other opportunities are being
considered as part of our strategic intent to expand
this part of our business into different waste streams and recovery methods.
Management and Board Changes
The previous CEO Committee and Executive Committee was replaced by a single Executive
Committee (Excom) whose main responsibility is to
provide strategic direction, create an enabling environment and monitor performance of each
unit of the Group.
I thank all the members of the previous committees for their input and leadership during
the period they served and I am confident that
they will continue to provide expertise to the organisation in their revised roles.
The Group has commenced a search for the BEP Chief Executive Officer, an appointment that
will further strengthen the executive
committee.
Human Capital
With our increased focus on Human Capital, the Excom position of Human Capital Officer has
been created. This position has been filled
by Ben Geldenhuys and I welcome him to the role.
There has been a significant step change in the Group's focus on human capital, with the
restructuring allowing for a more appropriate
deployment of skills that enables people to operate in roles that more appropriately leverage
their strengths.
A number of key appointments were made during the year resulting in additional depth in
the senior leadership within the organisation.Increased effort in training and development, including a leadership development initiative,
will create opportunity for higher capability
within the Group.
Contracting Strategy
High demand in the engineering industry has placed not only contractors, but also
equipment suppliers, under significant pressure to
meet demand. This has resulted in significant demand inflation and increased lead times on
material and equipment supply. Together these
have negatively affected many of the current projects, more specifically impacting the Group's
results on its LSTK projects.
This has resulted in the Group moving away from contracts of a traditional lump-sum nature
as the uncertainty has increased the
difficulty in making accurate estimation in terms of both schedule and cost. As a result, the
opening order book for the 2009 financial year
shows a reduction in LSTK orders by 40%, when compared to that for the 2008 financial year.While this will have an impact on revenue, it is
expected to reduce the Group's risk exposure and have a positive impact on profit margins in
the years to come.
Risk Management
In order to manage its risk exposure more carefully, the Group will enter into contracts
that allow for appropriate sharing of risk and
reward between Bateman Engineering as project manager, its subcontractors and its clients.
To further ensure that the risks within the Group are given appropriate attention, a Group
Risk Committee has been created as a
sub-committee of the Executive Committee to review the Group's risk exposures at all levels
within the Group. The Group Risk Committee has
the responsibility of reviewing all opportunities that, when measured against a set of
pre-defined criteria, are deemed to be of high risk,
and to monitor all projects that are deemed to have high risk or are showing signs of stress.
Acquisitions
The Group completed three acquisitions in the financial year, enlarging both our product
and geographic footprint.
Metplant is performing in line with management's expectations and has been fully
integrated with the Australian operations. The growth
and performance of Intertech in the CIS has been hampered by delays experienced on the timing
of project awards which are now expected to
occur in the 2009 financial year. Delkor was acquired in April 2008 and will form the platform
for the globalisation of the equipment supply
business unit. Delkor is also performing in line with management's expectations.
The Group has grown into key markets through acquisition, and management's focus will now
be on the successful integration of these
acquisitions into the Group. As a result, acquisition activity in the foreseeable future will
be limited to acquiring technologies that
enhance the Group's existing products or services.
Safety, Health and Environment
Bateman Engineering's ongoing commitment to safety has again yielded good results for the
2008 year. No fatalities, significant
occupational diseases or major environmental incidents occurred during the period and we
achieved a lost-time injury-frequency rate of 0.25.It is disappointing that this is down from last year's lost-time injury-frequency rate of
0.17, but it was largely in one part of the
business and remedial action has been taken. During the year, three projects achieved
significant safety milestones of man hours worked
without a lost time injury. These were: 7 million man hours on the Moma Sands project in
Mozambique, 4 million man hours on the Lumwana
project in Zambia and 2 million man hours on the Uranium One project in South Africa.
Environmental concerns are a key factor for an organisation which develops new
resource-based process plants and we work closely with
all of our clients to protect the environment in which we work and live.
Outlook
The year ahead will be one of consolidation. We continue to increase our emphasis on
broadening our technology portfolio and adapting
our products and services offering to meet our clients' needs. We continue to work towards
the completion of the legacy contracts and to
reap the benefits from the implementation of the streamlined SBU structure. The resources
market we operate in remains buoyant with good
opportunities for each of our SBUs to capitalise on.
I am confident that the three SBUs are well positioned for the market opportunities that
lie ahead.
Appreciation
To the people who have joined our Group during the past year, I welcome you all and wish
you an exciting and rewarding career at Bateman
Engineering. To all the management and staff, I extend my appreciation for your efforts during
the past year and for the determination shown
to resolve the many challenges that the Group faced.
EDDIE DU RAND
Group Chief Executive Officer
11 September 2008
Chief Financial Officer's Report
Execution issues impacted negatively on the Group's results for the financial year ended
30 June 2008 making this a difficult year for
Bateman Engineering. Specifically, issues have been encountered on closing out the Moma and
Hindustan Zinc Limited (HZL) projects and the
incident of the fire at the Lumwana project. The business continues to vigilantly monitor its
LSTK projects in order to ensure that any
issues are identified, reported and corrected as soon as possible.
Highlights
30 June 2008 - $m 30 June 2007 - $m % change
Revenue 675 471 43.4
Gross profit 64 50 28.3
Clean operating profit 5 9 (44.0)
Profit before tax 23 21 9.4
Net asset value 121 111 9.2
Cash generated from operations 65 11 499
Financial report
There will always be a spread of projects with some outperforming and others
underperforming expectations. The cumulative negative
impact of the HZL, Moma and Lumwana projects (all the subjects of announcements) during the
financial year was unusual and significant. The
focus of the Group's risk management strategies going forward is to reduce the variability of
the Company's financial results.
Segmental analysis
Revenue 30 June 2008 - $m 30 June 2007 - $m % increase
Bateman Engineering Projects 517 350 47.6
Bateman Engineered 156 103 51.1
Technologies
Bateman Metal Recovery 21 28 (25.2)
Corporate, Other & (19) (10) 79.9
Eliminations
Total 675 471 43.4
Order book
New orders booked in the financial year totalled $537m, 22% lower than the exceptionally
strong outturn in 2007. This begins to reflect
the new approach of taking on more reimbursable projects. The order book of $360m as at 30
June 2008 and the quality of new project
prospects gives the Group a sound entry point to the new financial year and demonstrates the
changing risk profile in terms of contracts
that the Group is willing to pursue.
Acquisitions
Through the Group's acquisition strategy during the year, the Group acquired businesses
that strategically enhanced the position of the
Group in Russia and Australia and provided a global footprint for the BET SBU. All of these
acquisitions made a positive contribution to
the Group in the year ended 30 June 2008 and bring with them new business prospects.
Finance income
The net finance income of $14.3m is significantly higher than the prior year and is
largely due to three factors namely:
The Metal Recovery business
A number of metal recovery plants are now treated as finance leases. As a result, the
income derived from these plants is now presented
as finance income. These are ongoing contracts and thus the Company will continue to benefit
from the income thereof.
Foreign exchange gains
The Company adopts a conservative policy of immediately hedging any foreign exchange rate
risks arising at the project level. In the
year ended 30 June 2008, this resulted in favourable gains.
LSTK projects
As anticipated, the Group had considerable up front receipts on certain LSTK projects.This resulted in high levels of cash on hand on
which the Group earned interest income.
As the Group progressively adopts its revised contracting model, taking on less LSTK type
risk, cash on hand, bonding requirements and
construction contract liabilities will decline. Consequently overall finance income is
anticipated to decline.
Taxation
The effective tax rate for the year is 29.5% (up from the prior year's exceptional 3.4%),
higher than anticipated, largely as a result
of provisions and additional costs incurred in relation to legacy LSTK contracts.
Cash
Free cash remained at acceptable levels throughout the year (up from prior years). As at
30 June 2008, it was $40.6 million. Free cash
is defined as all cash excluding advance payments from clients.
Conclusion
In the past year the Company has reported disappointing financial results. The benefits
arising from aligning the Business Units'
product and service offerings globally, the changes to the contracting model and improved risk
management on project execution, together
should ensure that the Group is well positioned to deliver to its potential in the current
extended commodities cycle.
PIETER DU PLESSIS
Chief Financial Officer
11 September 2008
Consolidated Income Statement
USD '000s 2008 2007
Revenue 675,399 471,088
Cost of revenue (611,739) (421,457)
Gross profit 63,660 49,631
Other income 5,557 9,836
Selling, general and administrative expenses (58,280) (40,194)
Other expenses (1,941) (981)
Result from operating activities 8,996 18,292
Net finance income 14,256 3,160
Income from equity accounted investees - (205)
Profit before tax 23,252 21,247
Income tax expense (6,857) (717)
Profit for the year from continuing operations 16,395 20,530
Discontinued operations - (10)
Profit for the year 16,395 20,520
Attributable to:
Equity holders of the parent 16,251 20,978
Minority interests 144 (458)
16,395 20,520
Earnings per share US cents US cents
From continuing operations
Basic 38.64 57.21
Diluted 37.5 54.55
Consolidated Balance Sheet
USD '000s 2008 2007
ASSETS
Intangible assets 53,780 1,733
Property, plant and equipment 18,046 15,162
Investment in equity accounted investees 62 62
Loans to equity accounted investees 2,668 285
Other investments 261 257
Non current receivables 2,847 493
Finance lease asset - non current portion 11,470 5,198
Receivable from controlling shareholder 5,190 4,840
Deferred taxation 5,506 8,569
Non current assets 99,830 36,599
Construction and engineering contracts in progress 34,008 64,613
Inventories 5,323 4,107
Trade and other receivables 141,617 104,628
Finance lease asset - current term portion 3,042 1,000
Interest receivable 287 1
Income tax receivable 2,971 1,224
Cash and cash equivalents 132,430 97,804
Current assets 319,678 273,377
Total assets 419,508 309,976
EQUITY AND LIABILITIES
Issued capital 671 563
Share premium 95,071 94,861
Foreign currency translation reserve (6,804) (2,375)
Accumulated profits (losses) 31,997 17,869
Equity attributable to equity holders of the parent 120,935 110,918
Minority interests 137 -
Total equity 121,072 110,918
Non-current liabilities 20,501 4,998
Deferred taxation 838 -
Non-current liabilities 21,339 4,998
Construction and engineering contract liabilities 106,608 84,083
Trade payables, other payables and accruals 164,021 104,010
Income tax payable 3,968 1,533
Bank overdrafts 2,420 4,434
Current liabilities 277,097 194,060
Total liabilities 298,436 199,058
Total equity and liabilities 419,508 309,976
Consolidated Statement of Changes in Equity
USD '000s Attributable to equity holders of the parent
Minority Total
Foreign
Interest Equity
Currency Accumulated
Issued Share Translation Profits
Capital Premium Reserve (Losses) Total
Balance at 30 June 2006 451 55,321 (2,388) (1,408) 51,976
455 52,431
Revaluation of issued capital 36 - - - 36
- 36
Foreign exchange translation - - 13 - 13
3 16
Total income and expense 36 - 13 - 49
3 52
recognised directly in equity
Result for the year - - - 20,978 20,978
(458) 20,520
Total recognised income and 36 - 13 20,978 21,027
(455) 20,572
expense
Share capital issued 56 40,353 - - 40,409
- 40,409
Share issue expenses - (1,634) - - (1,634)
- (1,634)
Share capital issued to 46 1,758 - - 1,804
- 1,804
Employee Share Ownership Plan
Shares held in (26) (937) - - (963)
- (963)
Employee Share Ownership Plan
Share Based Payment - - - 596 596
- 596
Dividends Paid - - - (2,297) (2,297)
- (2,297)
Balance at 30 June 2007 563 94,861 (2,375) 17,869 110,918
- 110,918
Revaluation of issued capital 101 - - - 101
- 101
Foreign exchange translation - - (4,429) - (4,429)
(7) (4,436)
Total income and expense 101 - (4,429) - (4,328)
(7) (4,335)
recognised directly in equity
Result for the year - - - 16,251 16,251
144 16,395
Total recognised income and 101 - (4,429) 16,251 11,923
137 12,060
expense
Shares taken up in Employee 7 210 - - 217
- 217
Share Ownership Plan
Share based payment - - - 2,053 2,053
- 2,053
Foreign exchange translation - - - (4,176) (4,176)
- (4,176)
Balance at 30 June 2008 671 95,071 (6,804) 31,997 120,935
137 121,072
Consolidated Cash Flow Statement
USD '000s 2008 2007
Cash flows from operating activities
Result from operating activities - continuing 8,996 17,631
operations
(excluding dividends received)
Profit before tax attributable to discontinued - (10)
operations
Non-cash adjustments 5,392 (105)
Changes in operating assets 36,702 91,647
Changes in operating liabilities 5,614 85,795
Net finance income 13,009 1,724
Income tax paid (4,230) (2,453)
Net cash generated from operating activities 65,483 10,935
Cash flows from investing activities
Property, plant and equipment purchased (8,297) (6,409)
Property, plant and equipment proceeds on disposal 484 1,307
Dividend received from equity accounted investees - 969
Proceeds on disposal of listed investment 47 608
Subsidiary (acquired) disposed (22,316) 607
Equity accounted investees acquired - (51)
Increase in loans to equity accounted investees (2,416) (398)
Net cash utilised in investing activities (32,498) (3,367)
Cash flows from financing activities
Increase in long-term liabilities 3,480 2,867
Share capital issued 41,250
Shares taken up in Employee Share Ownership Plan 217 -
Share issue expenses - (1,634)
Increase in long term receivable (631) (493)
Finance lease receivable repayments 700 4
Dividends paid (4,176) (2,297)
Net cash (utilised in) generated from financing (410) 39,697
activities
Increase in cash and cash equivalents 32,575 47,265
Cash and cash equivalents at beginning of year 93,370 47,008
Exchange gains on cash and bank overdrafts (1,738) (893)
Net cash acquired (disposed of) in subsidiaries 5,803 (10)
Net cash and cash equivalents at end of the year 130,010 93,370
This information is provided by RNS
The company news service from the London Stock Exchange
END
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