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AET - Alert Steel Holdings Limited - Reviewed financial results for the year
ended 30 June 2011
ALERT STEEL HOLDINGS LIMITED
Incorporated in the Republic of South Africa
REGISTRATION NUMBER: 2003/005144/06
JSE CODE: AET
ISIN: ZAE000092847
REVIEWED FINANCIAL RESULTS FOR THE YEAR ENDED 30 JUNE 2011
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
R`000 Notes 2011 2010
Revenue 769 904 818 630
Gross profit 2 135 055 177 566
Other income 8 750 12 822
Goodwill impairment (17 848) (35 324)
Operating costs 1 (191 328) (218 683)
Restructure costs 2 (12 386) -
Depreciation (11 396) (8 891)
Loss before interest
and taxation (89 153) (72 510)
Net finance costs (25 720) (18 673)
Loss before taxation (114 873) (91 183)
Taxation (784) (2 247)
Loss from continuing
operations (115 657) (93 430)
Loss from discontinued
operations 3 (4 166) (5 544)
Loss for the year
attributable to ordinary
shareholders (119 823) (98 974)
Foreign currency translation
effects (385) -
Total comprehensive loss for
the year (120 208) (98 974)
Total comprehensive loss
attributable to:
Entity holders of Alert Steel
Holdings Ltd (120 208) (98 974)
Non-controlling interest - -
Reconciliation of headline
loss for the year
Loss attributable to ordinary
shareholders (119 823) (98 974)
Loss on disposal of tangible
assets (24) 210
Loss arising from the adjustment
to the fair value of goodwill 17 848 35 324
Loss arising from the impairment
of investment property 137 -
Headline loss attributable to
ordinary shareholders (101 862) (63 440)
Weighted average number of
shares in issue, net of
treasury shares (000) 248 428 248 428
Fully diluted weighted average
number of shares in issue (000) 256 028 256 028
Loss per share (cents) (48.2) (39.8)
Headline loss per share (cents) (41.0) (25.5)
Fully diluted loss per
share (cents) (46.8) (38.7)
Fully diluted headline loss per
share (cents) (39.8) (24.8)
Notes
1 Operating costs include bad debts
provision of R12.6 million
(2010: R30.5 million)
2 Restructure costs are once off costs
related to the restructure of the
group as follows:
Restructure legal costs 763
Restructure circular costs 2 226
Branch closure and retrenchment costs 1 688
Establishment of risk management
framework 300
Settlement of onerous lease contracts 5 307
Cost of revamping branches 2 102
Total operating costs 12 386
Provision for losses on discontinued
stock lines (included in cost of
sales) 6 983
Total once off restructure costs 19 389
3 Discontinued operations comprise Alert Plumbing and Alert North West divisions
that were disposed of during the financial year and RSC division of Polokwane
and Alert Reinforcing disposed of on 23 September 2011.
CONDENSED SEGMENTAL REPORT
R`000 2011 2010
STATEMENT OF COMPREHENSIVE INCOME
Revenue
Retail 769 904 818 630
(Loss)/earnings before interest,
taxation, depreciation and
amortisation
Retail (59 909) (28 295)
Depreciation
Retail 11 396 8 891
STATEMENT OF FINANCIAL POSITION
Reportable segment assets
Retail 378 288 561 044
Reportable segment liabilities
Retail 413 319 468 968
Reconciliation of segment assets
Investment property 5 855 5 991
Property, plant and equipment 133 630 152 933
Goodwill - 17 848
Deferred tax - 1 019
Inventories 113 775 196 680
Loans to joint ventures 2 403 95
Loans to directors - 5 427
Current tax receivable - 1 396
Trade and other receivables 116 146 167 917
Cash and cash equivalents 6 479 11 736
378 288 561 044
Reconciliation of segment liabilities
Other financial liabilities 72 451 79 858
Deferred tax - 330
Loans from joint ventures - 16 006
Loans from directors - 1 419
Other financial liabilities 7 791 16 585
Current tax payable 8 142 21 414
Trade and other payables 180 898 189 281
Provisions - 65
Shareholders` loans 30 365 -
Bank overdraft 113 672 144 010
413 319 468 968
CONDENSED STATEMENT OF CASH FLOW
R`000 2011 2010
Cash (outflow) from
operating activities (13 593) (19 953)
Cash inflow/(outflow) from
investing activities 22 994 (20 291)
Cash inflow/(outflow) from
financing activities 13 512 26 626
Increase/(decrease) in cash
and cash equivalents 22 913 (13 618)
Cash and cash equivalents
beginning of period (132 275) (118 656)
Classified as held for sale
at year end 2 168 -
Cash and cash equivalents at
the end of the period (107 193) (132 275)
CONDENSED STATEMENT OF FINANCIAL POSITION
R`000 Notes 2011 2010
ASSETS
Non-current assets 139 485 177 792
Investment property 5 855 5 991
Property, plant and equipment 133 630 152 934
Goodwill - 17 848
Deferred tax - 1 019
Current assets 238 803 383 252
Inventories 113 775 196 680
Loans to joint ventures 2 403 95
Loans to director - 5 427
Current tax receivable - 1 397
Trade and other receivables 116 146 167 917
Cash and cash equivalents 6 479 11 736
Assets held for sale 3 20 187 -
Total assets 398 475 561 044
EQUITY AND LIABILITIES
Total shareholders` funds 1 (28 132) 92 076
Non-current liabilities 72 451 80 188
Other financial liabilities 72 451 79 858
Deferred tax - 330
Current liabilities 340 868 388 780
Loans from joint ventures - 16 006
Loans from directors - 1 419
Other financial liabilities 7 791 16 585
Current tax payable 8 142 21 414
Trade and other payables 180 898 189 281
Provisions - 65
Shareholders` loans 1 30 365 -
Bank overdraft 2 113 672 144 010
Liabilities held for sale 3 13 288 -
Total equity and liabilities 398 475 561 044
Weighted average number of
shares in issue (000) 248 428 248 428
Fully diluted weighted
average number of shares
in issue (000) 256 028 256 028
Net asset value per
share (cents) (11.3) 37.1
Net tangible asset value per
share (cents) (11.3) 29.9
Notes
1 Shareholders` loans were advanced ahead of the rights issue concluded on 10
October 2011. Please refer to the restructured statement of financial position.
2 On the rights offer being concluded, the overdraft facility has been partly
converted into long-term loans. Refer to the restructured statement of
financial position.
3 Assets and liabilities held for sale relate to RSC division of Polokwane and
Alert Reinforcing sold on 23 September 2011.
CONDENSED STATEMENT OF CHANGES IN EQUITY
R`000 2011 2010
Balance at the beginning of
the period 92 076 191 050
Loss for the period under review (119 823) (98 974)
Addition to foreign translation
Reserve (385) -
Balance at the end of the period (28 132) 92 076
COMMENTS
OVERVIEW
The year under review was a challenging one in which Alert Steel continued, and
largely completed, the process of implementing its restructuring strategy, which
is designed to return the company to long-term growth and sustainable
profitability by refocusing on its core business of retailing steel and steel-
related products and services.
The downturn in the markets has paradoxically brought some benefit to Alert
Steel by highlighting areas in need of attention both within the group`s
business and in its product mix which were not identified before the recession
hit in 2008. Over the past two years, management has vigorously addressed these
areas and, apart from some fine-tuning, most of the necessary corrective actions
have now been taken.
The process of discontinuing certain non-core product lines and the introduction
of new ones aligned to the group`s strategy resulted in an erosion of the
group`s current customer base which impacted on the sales function at mostly the
city branches. Subsequent to the year end, most of the branches had made up
this lost revenue from additional sales to existing customers as well as the
acquisition of new ones. Branches located in rural areas were less affected by
this development since most of these were already solely supplying steel and
related products.
FINANCIAL RESULTS
Revenue reduced by 6% to R769.9 million with a consequent after tax loss of
R120.2 million. The gross profit decreased by 23.9% to R135 million after
making an additional provision of R7 million for anticipated losses on disposing
of the remaining inventory of the discontinued lines.
Operating expenses decreased by 7% year on year to R203.7 million. The current
year operating expenses include exceptional expenses related to the restructure,
including legal and circular costs of R3 million; branch closure and
retrenchment costs of R1.7 million; settlement of onerous lease agreements of
R5.3 million and revamp costs of R2.1 million.
During the financial period, Alert Steel disposed of certain operations, as a
going concern, to Alert Steel North West (the shares in which entity have
subsequently been acquired by Alert Steel) and also disposed of the operations
of Alert Plumbing as a going concern. The operations of RSC Polokwane and the
shares in Alert Reinforcing have also been disposed of. The loss from these
discontinued operations was R4.2 million (2010: loss of R5.5 million).
Depreciation, amortisation and impairments equated to 3.8% of revenue (2010:
5.4%). Headline loss increased from R63 million to R101 million. Headline loss
per share increased from 25.5 cents to 41 cents.
PROSPECTS
With the restructuring behind and the renewed focus on steel and steel-related
products, the company has regained the lost revenue from discontinued lines in
the first three months of the new financial year by growing sales in new steel
and steel related product lines.
For the first three trading months of the new financial year, the group has
shown a revenue of R190.3 million (2010: R240.1 million), earnings before
interest, taxation, depreciation and amortisation of R6.2 million (2010: R15
million loss) and loss before tax of R1.5 million (2010: R25.3 million). The
loss and headline loss per share are 0.6 cents (2010: 10.2 cents). The loss for
the first quarter was driven by abnormally high interest for the period caused
by a R1.5 million fee charged for a R30 million guarantee for Mittal, interest
being charged at prime +2% on the R30 million shareholder loans which have been
converted into shares on the rights offer and interest being charged at prime
+2% on the overdraft facility which has now been converted into long-term loans
with interest at prime -2%.
Alert Steel`s main strategic objective for the upcoming 12 months is to focus on
growing its rural market and expanding its rural footprint through the roll out
of Alert Express stores.
RESTRUCTURED STATEMENT OF FINANCIAL POSITION
There have been several post balance sheet events which affect the company`s
Statement of Financial Position. These are as follows:
- The rights offer at 3.3 cents per share for the group was finalised on 10
October 2011. The final number of shares issued in the rights offer was 1 515
151 515 which generated a cash inflow of R50 000 000.
- Following the completion of the rights offer, Nedbank advanced a loan to the
group of R70 000 000. The loan has been used to settle the corresponding amount
of indebtedness on the group`s overdraft facility. The loan was secured, inter
alia, by a cession of debtors and general notarial bonds of R162 000 000. The
loan bears interest at prime minus 2 percent and is repayable on the fifth
anniversary of the advance date.
- Nedbank also advanced a further loan to the group of R20 000 000. The loan
has been used to settle the corresponding amount of indebtedness on the group`s
overdraft facility. The loan was secured, inter alia, by a cession of debtors
and general notarial bonds of R162 000 000. The loan bears interest at prime
and is repayable in 24 equal monthly instalments, starting in month 13.
- The group has entered into a transaction with Murray & Roberts Steel (Pty)
Ltd, in which the group disposed of RSC Polokwane division and its shares in
Alert Reinforcing (Pty) Ltd while acquiring the balance of the shares in Alert
Steel Polokwane (Pty) Ltd.
- The group also acquired 100% of the shares in and claims against Alert Steel
North West (Pty) Ltd ("Alert Steel North West"). The purchase consideration for
the shares so acquired will be determined in accordance with an agreed formula
which is dependent on the net asset value of Alert Steel North West at a date
determined by Alert Steel which is more than 24 months but less than 36 months
after the closing date of this transaction ("the Conversion Date"). The
purchase consideration for the claims so acquired is the face value of all
claims against Alert Steel North West so acquired, and the portion of the
purchase consideration relating to acquired claims was discharged by the
creation of a loan claim in such amount by Alert Steel in favour of Capital
Africa Steel (Pty) Ltd (the seller of such claims). The loan so created shall
bear interest at the prime rate plus 2%. Both the loan claim so created and the
purchase consideration for the shares acquired will be discharged by conversion
into ordinary shares in Alert Steel on the Conversion Date referred to above.
The effect on the statement of financial position, had the transactions taken
place on 30 June 2011, is as follows:
RESTRUCTURED STATEMENT OF FINANCIAL POSITION
Loan
Repor- Rights restruc-
R`000 ted offer ture
Assets
Non-current assets 139 485 - -
Current assets 238 803 - -
Assets held for sale 20 187 - -
Total assets 398 475 - -
Equity and liabilities
Equity (28 132) 50 000 -
Non-current liabilities 72 451 - 82 500
Current liabilities 340 867 (50 000) (82 500)
Liabilities held for sale 13 288 - -
Total liabilities 426 607 (50 000) -
Total equity and
liabilities 398 475 - -
RESTRUCTURED STATEMENT OF FINANCIAL POSITION continued
Murray & North
Roberts West Re-
trans acqui- struct-
R`000 action sition ured
Assets
Non-current Assets 979 3 289 143 753
Current Assets 30 343 24 767 293 913
Assets held for sale (20 187) - -
Total Assets 11 135 28 056 437 666
Equity and liabilities
Equity - (290) 21 578
Non-current liabilities 246 27 000 182 197
Current liabilities 24 177 1 346 233 891
Liabilities held for sale (13 288) - -
Total liabilities 11 135 28 346 416 088
Total equity and
liabilities 11 135 28 056 437 666
BASIS OF PREPARATION
These annual financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS), the AC 500 standards as
issued by the Accounting Practices Board and its successor, the South African
Companies Act (2008) and the Listings Requirements of the JSE Limited.
ACCOUNTING POLICIES
The accounting policies applied by the group are consistent with those applied
in the comparative financial periods, except for the adoption of improved,
revised or new standards and interpretations. The aggregate effect of these
changes in respect of the year ended 30 June 2011 is nil.
STATEMENT OF GOING CONCERN
We draw attention to the fact that the loss for the year ended 30 June 2011 was
R120.2 million and the net asset value at 30 June 2011 was negative R28.1
million.
The group has raised additional capital of R50 million in the form of a rights
offer to shareholders concluded on 10 October 2011. Had the rights offer taken
place before 30 June 2011, the group`s net asset value would have been R21.6
million.
The financial statements have been prepared on the basis of accounting policies
applicable to a going concern. This basis presumes that funds will be available
to finance future operations and that the realisation of assets and settlement
of liabilities, contingent obligations and commitments will occur in the
ordinary course of business.
The ability of the company to continue as a going concern is dependent on a
number of factors namely the:
- successful implementation of various initiatives to reduce costs and increase
revenue and margins to return the group to profitable operations; and
- collection of impaired trade receivables. Various legal initiatives are in
advanced stages to collect long outstanding trade receivables and the directors
are of the opinion that these measures will be successful in the recovering of
at least 50% of the said receivables.
Whilst the group is technically solvent post the rights offer, the cash flow
remains tight. Trade creditors are being paid throughout the month and no
compromises have been made with any trade creditor. Management is in the
process of assessing other financing options to fund their plans for growth and
expansion.
CHANGES TO THE BOARD OF DIRECTORS
The following changes to the board of directors transpired during the past
financial year, and to the date of this report, mainly as a result of the
restructuring of the group.
- Mr E Dube resigned as executive chairman on 15 September 2010.
- Mr WF Schalekamp replaced him and was appointed as chairman of Alert Steel on
28 September 2010.
- Mr W Mentz resigned as financial director 31 March 2011.
- Mr J du Toit was appointed as director of Alert Steel on 1 April 2011 and
took over the function of CEO from Mr WF Schalekamp.
- Mr WF Schalekamp`s position changed to that of executive deputy chairman and
Mr R van Rooyen was appointed as acting chairman on 31 March 2011, effectively
from 1 April 2011.
- On 1 June 2011, Mr N Cresswell was appointed as financial director and Mr M
McCulloch as a non-executive director.
- Mr M McCulloch was also elected as chairman of the board from 1 June 2011.
- Messrs M Patel, W van der Merwe and Ms G Mahuma were appointed non-executive
directors to the board on 1 October 2011.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Compliance with legislation
The following matter was reported to the Independent Regulatory Board for
Auditors on 16 March 2011 by the group`s external auditors, in terms of section
45(1) of the Auditing Professions Act, 2005 (No.26 of 2005): According to the
report, credit was extended by the group to entities controlled by a director of
the group, Mr WF Schalekamp, which was not repaid in accordance with normal
business practices. Credit extended on 30 June 2010 amounted to R5 427 427.
Additional credit of R1 328 666 was awarded payable on 31 December 2010. Credit
awarded on 31 December 2011 amounted to R6 756 093. This credit may constitute
a loan granted in contravention of section 226 (1)(b) of the Companies Act,
1973, (No.61 of 1973), as no consent was given as prescribed in section 226(2)
of the Act. The full credit extended has been repaid before the financial year
end.
AUDITORS` REVIEW REPORT
The condensed financial results have been reviewed by Alert Steel`s independent
auditors, RSM Betty Dickson (Tshwane). The Auditors` Review Report concluded
that, based on their review, nothing has come to their attention that caused
them to believe that the condensed financial results are not prepared, in all
material respects, in accordance with International Financial Reporting
Standards and the AC 500 standards as issued by the Accounting Standards Board
or its successor, the JSE Listing Requirements and the manner required by the
Companies Act of South Africa.
The Auditors` Review Report includes an emphasis of matter whereby the auditors,
without qualifying their report, draw attention to the total comprehensive loss
of R120.2 million incurred during the year ended 30 June 2011 and that this
indicates a material uncertainty that may cast significant doubt on the group`s
ability to continue as a going concern. The ability of the group to continue as
a going concern is dependent on several factors, which inter alia, include those
profitable operations can be resumed.
On the group`s compliance with laws and regulations the auditors reported that,
in accordance with their responsibilities in terms of sections 44(2) and 44(3)
of the Auditing Profession Act, they have identified a certain unlawful act or
omission committed by persons responsible for the management of Alert Steel
Holdings Limited which constitute a Reportable Irregularity in terms of the
Auditing Profession Act, 2005 (No. 26 of 2005), and have reported such matter to
the Independent Regulatory Board for Auditors. The matter pertaining to the
Reportable Irregularity has been described in the commentary of the directors
under the heading: Report on other legal and regulatory requirements.
A copy of the Auditors` Review Report is available for inspection at the
company`s registered office.
The preparation of the annual financial statements has been supervised by the
chief financial officer, Mr N Cresswell (CA(SA)).
For and on behalf of the board
M McCulloch J du Toit
Chairman Chief executive
17 October 2011
Pretoria
Non executive directors: OV Jevon, R van Rooyen, M McCulloch, M Patel, G Mahuma,
W van der Merwe
Executive directors: J du Toit, W Schalekamp, N Cresswell
Registered address: Cnr Engelbrecht and Lanham Streets, East Lynne, Pretoria,
0186
Postal address: PO Box 29607, Sunnyside, 0132
Company secretary: M Pretorius
Telephone: (012) 800 0000
Facsimile: (012) 800 4661
Transfer secretaries: Computershare Investor Services (Pty) Ltd
Designated adviser: QuestCo Sponsors (Pty) Ltd
Auditors: RSM Betty & Dickson (Tshwane)
Website: www.alertsteel.co.za
Date: 17/10/2011 08:00:31 Supplied by www.sharenet.co.za
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