Hard at work fixing cash flow
Proper client payment contract and 25% debt reduction
CONSTRUCTION SERVICES Company Top Fix Holdings’ 33% increase in revenue in the interim period to December 2008 hasn’t done much to improve its profitability. What it has achieved is lightening its debt burden. The R41m revenue increase to R162m was accompanied by a rather hefty 47,6% escalation in the cost of sales to R109m, resulting in an 11,7% drop in operating profit.
That Top Fix achieved a R200 000 growth in profit to take the total to R12,2m is indeed commendable under the circumstances. However, due to a rights issue during the year headline earnings per share were diluted to 6c from 6,5c previously.
The earnings story paints a rather dull picture if you omit to look at its cash flow statement and that of liabilities, where management has performed a good job in the high interest rates environment. Both situations improved significantly over the period. A previous cash deficit of R15m has reduced to R5,8m, while current interest-bearing liabilities fell 25% to R25m (R33m previously). That saved Top Fix shareholders interest charges of R1,1m over the period.
The company is still pursuing a former joint venture partner and a former client in an attempt to recover a total R15m owed to it. The partner is responsible for R9m of that, which accrued as a result of the joint venture agreement, which required Top Fix to provide management and personnel for the partner.
“We had a dispute with them and had to cancel the venture,” says TopFix CE Webber Marais. He hopes the matter will be concluded soon. Top Fix says should the case be resolved successfully in its favour it would result in additional earnings for its shareholders.
To further improve cash flow, Top Fix has implemented “proper client payment procedures” for payment according to contractual obligations. That could help the group receive the benefits of the increase in accounts receivable, which have increased to R77m from R57m in June 2008. The increase is due to accounts Top Fix won in the energy-generating sector, particularly in constructing new power stations.
26 FEBRUARY 2009