Johannesburg — INDUSTRIAL engineering company PSV Holdings experienced tough trading conditions for the six months ended August, with the strengthening of the rand and high cost of debt reducing profit after tax.

Releasing results yesterday, CEO Abie da Silva said profitability was adversely affected by an increase in net finance charges of R7,5m, from R1,4m previously, partially consisting of R1,5m in notional interest on deferred purchase considerations relating to certain acquisitions. The company's woes also included a R1,4m foreign currency loss.

PSV, which is also involved in the electrical industry, manufacturing transformer drying and transformer oil purification systems, said although turnover rose 8,1% to R188,9m from R174,7m, gross profit margins reduced by 1,3 percentage points to 26,8%.

Operating profit was up 5,5% to R17,7m from R16,8m. Headline earnings per share declined 43,2% to 2,92c from 5,14c.

Core earnings per share -- defined as headline earnings after eliminating all material noncash flow adjustments -- fell 22,6% to 4,67c, from 6,03c.

A R69,4m impairment of goodwill and intangibles severely affected earnings per share, resulting in a decline from 5,3c at the interim period last year to negative 25,25c this year.

Da Silva said despite delays in finalising contracts and appointments, the company had recently experienced an increase in activity.

"Our future prospects stand at R234m, of which approximately 50% is attributable to lining projects, with the remainder being made up of service contracts, a vaporiser contract in Richards Bay, and pumps and piping contracts," he said.

Da Silva said the implementation of strict working capital protocols had lifted cash flow from operating activities by 195% to R6,1m from a negative position last year.

"This achievement enabled PSV to repay expensive short-term mezzanine debt and should result in a noticeable reduction in finance costs in the next six months," he said.

Most of the business units fell short of budgeted expectations and margins came under pressure, but all made a profit except for PSV Zambia, which was affected by falling copper prices.