AltX-listed B&W Instrumentation and Electrical (“B&W”) has reported dampened results for the six months to February 2013, as expected in light of bad debts and troubled trading conditions. The company continued to be impacted by the on-going and significant contraction in the E&I industry. However, the muted performance is balanced by a strong and growing order book of R454 million and a positive trading outlook.

The interim period was marked by the continued deferral of major projects, which saw revenue drop to R185,1 million from R272,9 million at this time last year. This was compounded by the R33,3 million write-down on the Madagascar project, a necessary hit to ensure some guaranteed payment (R12,5 million of the R45,8 million due) from a struggling debtor. The consequent loss after tax of R40,8 million resulted in a loss per share of 20 cents, compared to earnings per share of 0,1 cent at February 2012.

Looking to the upside, CEO Brian Harley says the company maintains no major longterm gearing, relying on short-term debt instead. “In addition the majority of our order book is made up of new orders – R383 million worth – mainly from the mining sector, at good margins.” He adds: “Further, the troublesome Madagascar project is now complete with all claims resolved, leaving a clean slate going forward.”

He points out that despite lower project volumes than in previous years, the group has been busy and has significant work-in-hand compared with peers. B&W’s E&I market share has incrementally grown from 23% to 26%, despite the tough times.

The R25,3 million cash debt for the period, lower than the negative balance of R7,4 million for the comparative period, has already corrected since the start of March. The negative cash balance was a factor mainly of the invoicing cycle. “The progressive improvements in cash flow are expected to bolster the group’s full year performance.”

While the mining sector still dominates B&W’s project stream, Harley expects a more normalised revenue split between sectors going forward. “Mining will remain the largest driver of top line growth, but its expected relative contribution to group revenue should reduce as other sectors increase.” He also foresees more work from Africa, which view is borne out by the projects B&W has started since March. Currently Africa makes up 44% of revenue.

Harley says: “We will continue with our five-year strategic plan, which kicked into gear last year. We remain on track for our short-term targets.” The strategy is focussed on project volumes, rather than revenue – put simply by Harley as: “how much work we can bring in at decent margins to diversify risk across number of projects and sectors, as opposed to chasing revenue at the expense of profit”. The selection criteria for target projects will therefore include minimum profit thresholds and a good payment behaviour.

B&W has scrapped plans for a BEE equity transaction with Regiments Capital Proprietary Limited by mutual consent. The company remains a Level 4 contributor. Instead the group is looking inward to its own black employees, aiming to increase their stake in the company to over 26%. A restructuring process at a group level will ensure black shareholding exceeds 26% in the underlying companies.

“We are positive that we will start to properly turn the corner in the last quarter of 2013, which is after our financial year-end, as we’ve repeatedly undertaken to investors. We are certain that appropriately selected and controlled projects with better margins will drive an uptick in all financial performance measures heading into the calendar year of 2014,” he concludes. B&W’s share closed Friday at R0.42.

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