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BEIGE HOLDINGS LIMITED - Reviewed Consolidated Results for the Three Month Period Ended 30 June 2012

Release Date: 02/10/2012 14:19
Code(s): BEG BEGP2     PDF:  
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Reviewed Consolidated Results for the Three Month Period Ended 30 June 2012

Beige Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration No: 1997/006871/06)
 Share code: BEG ISIN code: ZAE000034161
 Share code: BEGP2 ISIN code: ZAE000154787
       ("Beige" or "the company")


REVIEWED CONSOLIDATED RESULTS FOR THE THREE MONTH PERIOD ENDED 30 JUNE 2012


Pursuant to the change in control of Beige as announced earlier this year, it should be noted that the
company has changed its year end from 31 March to 30 June each year in order to align its year end with
that of the new controlling shareholder. Accordingly, Beige will be preparing financial statements for the
three month period ended 30 June 2012 and thus the results of the Beige group presented below will not be
comparable in many instances to the prior year. The next reporting period will be for the six months ending
31 December 2012.

Condensed Consolidated Statement of Financial Position as at 30 June 2012
                                                                      Reviewed                        Audited
                                                                   30 June 2012                 31 March 2012
                                                                          R’000                         R’000
ASSETS
Non-current assets                                                      250 470                       249 898
Property, plant and equipment                                           172 315                       170 856
Intangible assets                                                        55 365                        55 608
Investment in joint venture (Note 1)                                      4 165                         6 295
Other receivables                                                           271                           299
Deferred income tax assets                                               18 354                        16 840
Current assets                                                          242 935                       224 754
Inventories                                                             116 763                       105 000
Trade and other receivables                                             120 288                       113 224
Cash and cash equivalents                                                 5 884                         6 530
Total assets                                                            493 405                       474 652

EQUITY AND LIABILITIES
Equity attributable to equity holders of the company                    187 714                       191 296
Ordinary share capital                                                   15 442                        15 442
Ordinary share premium                                                  179 898                       179 898
Other reserves                                                           13 215                        13 215
Retained loss                                                          (20 841)                      (17 259)
Non-controlling interest                                                  1 703                         1 946
Total equity                                                            189 417                       193 242

Non-current liabilities                                                  91 122                        89 707
Borrowings                                                               81 784                        80 083
Deferred income tax liabilities                                           9 338                         9 624
Current liabilities                                                     212 866                       191 703
Trade and other payables                                                168 130                       141 814
Borrowings                                                                8 933                         9 335
Current income tax liabilities                                            1 508                         1 313
Bank overdrafts                                                          34 295                        39 241
Total liabilities                                                       303 988                       281 410
Total equity and liabilities                                            493 405                       474 652

Ordinary shares (000’s)
In issue (Note 2)                                                     1 544 197                     1 544 197
Net asset value per share information (net of non-controlling
interest)
Net asset value per share (cents)                                         12.16                         12.39
Net tangible asset value per share (cents)                                 8.57                          8.79
Condensed Consolidated Statement of Comprehensive Income for the three months ended 30 June
2012
                                                                         Reviewed            Audited
                                                                      30 June 2012     31 March 2012
                                                                              R’000             R’000
Revenue                                                                     182 902           618 469
Cost of sales                                                             (160 453)         (511 093)
Gross profit                                                                 22 449           107 376
Distribution costs                                                          (4 584)          (16 988)
Administrative expenses                                                    (20 335)          (71 154)
Operating (loss)/profit before impairment                                   (2 470)            19 234
Impairment of intangible asset (Note 4)                                           -          (31 632)
Operating loss                                                              (2 470)          (12 398)
Finance income                                                                  248               421
Finance costs                                                               (3 278)          (12 237)
Loss after net financing costs                                              (5 500)          (24 214)
Share of profit/(loss) of joint venture                                          57             (656)
Loss before income tax                                                      (5 443)          (24 870)
Income tax expense                                                            1 618           (2 846)
Loss for the period/year                                                    (3 825)          (27 716)
Other comprehensive income:
Other comprehensive income for the period/year, net of tax                       -                  -
Total comprehensive loss for the period/year                                (3 825)          (27 716)
 
Total comprehensive loss attributable to:
Equity holders of the company                                               (3 582)          (27 401)
Non-controlling interest                                                      (243)             (315)
                                                                            (3 825)          (27 716)

Loss for the period/year                                                    (3 825)          (27 716)
Non-controlling interest                                                        243               315
Loss for the period/year attributable to equity holders of the
company                                                                     (3 582)          (27 401)

Headline earnings adjustments:
Total comprehensive loss for the period/year attributable to equity
holders of the company                                                      (3 582)          (27 401)
Adjustments:
Profit on sale and leaseback of property net of tax                             (4)               (4)
Impairment of intangible asset                                                    -            31 632
Headline earnings for the period/year attributable to equity
holders of the company                                                      (3 586)             4 227

Ordinary shares (000’s):
Weighted average shares in issue (Note 2)                                1 544 197          1 541 431
Diluted (Notes 2 & 3)                                                    1 544 197          1 541 431

Earnings per share information
Earnings per share (cents)                                                   (0.23)            (1.78)
Headline earnings per share (cents)                                          (0.23)              0.27
Diluted earnings per share (cents)                                           (0.23)            (1.78)
Diluted headline earnings per share (cents)                                  (0.23)              0.27
Notes:
1. The 50% investment in the joint venture, U Housing (Pty) Ltd, is accounted for using the equity method
   of accounting. Under the equity method, the investment in joint venture is initially recognised at cost,
   and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss
   of the investee after the date of acquisition.
2. 87 624 017 (March 2012: 87 624 017) shares held as treasury stock have been subtracted from the
   respective share totals for purposes of calculating earnings per share information.
3. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares
   outstanding to assume conversion of all dilutive potential ordinary shares. The company has one
   category of dilutive potential ordinary shares: convertible preference shares. Diluted earnings, and the
   weighted average number of ordinary shares for June 2012 and March 2012, have however not been
   adjusted in this regard as the effect of the convertible preference share conversion is antidilutive, even
   though the ruling share price at 30 June 2012 and 31 March 2012 is more than the conversion strike
   price. Potential ordinary shares are antidilutive when their conversion to ordinary shares would increase
   earnings per share or decrease loss per share from continuing operations. The calculation of diluted
   earnings per share does not assume conversion, exercise, or other issue of potential ordinary shares
   that would have an antidilutive effect on earnings per share.
4. The impairment of intangible asset in the prior period is in relation to the goodwill that arose on the
   acquisition of Crystal Pack (Pty) Ltd in 2007. The intangible asset is required to be tested for any
   possible impairment on an annual basis. The packaging segment incurred losses during the prior period
   and as a result of the uncertain economic environment relating to the packaging industry in general, and
   the packaging segment, the impairment test resulted in an impairment of the full value of the goodwill
   relating to the packaging segment of R31.6 million in the prior period.


Condensed Consolidated Statement of Cash Flows for the three months ended 30 June 2012
                                                            Reviewed                 Audited
                                                        30 June 2012           31 March 2012
                                                               R’000                    R’000
 Cash flows from operating activities:
 Net cash generated from operating activities                   6 367                   2 902
 Cash flows from investing activities:
 Net cash used in investing activities                        (3 366)                (34 975)
 Cash flows from financing activities:
 Net cash generated from financing activities                   1 299                  32 554
 Net decrease in bank overdrafts including
 cash and cash equivalents                                      4 300                     481
 Bank overdrafts including cash and cash
 equivalents at the beginning of the period/year             (32 711)                (33 192)
 Bank overdrafts including cash and cash
 equivalents at the end of the period/year                   (28 411)                (32 711)


Condensed Consolidated Statement of Changes in Equity for the three months ended 30 June 2012




                                                              
                                                                                      
                                                                                                     
                                    Ordinary share  Ordinary treasury     Ordinary share         Revaluation        Share based    Total other
                                           capital           shares              premium             reserve     payment reserve      reserves
                                            R’000             R’000                R’000              R’000          R’000              R’000
Group

Balance at 31 March 2011                    16 319            (923)              179 570             16 463          1 979             18 442

Comprehensive income:

Loss for the year                               --               --                   --                 --             --                 --

Total comprehensive income for the year         --               --                   --                 --             --                 --

Realisation of revaluation reserve              --               --                   --            (5 227)             --            (5 227)

Profit on sale of treasury shares net of
taxation                                        --               --                   --                 --             --                 --

Sale of treasury shares                         --               46                  328                 --             --                 --

Dividends paid                                  --               --                   --                 --             --                 --
Total contributions by and distributions
to owners of the company, recognised
directly in equity                              --               46                  328            (5 227)             --             (5 227)

Other comprehensive income:

Other comprehensive income for the year         --               --                   --                 --             --                 --

Balance at 31 March 2012                    16 319            (877)              179 898             11 236          1 979             13 215

Comprehensive income:

Loss for the period                             --               --                   --                 --             --                 --

Total comprehensive income                      --               --                   --                 --             --                 --
Total contributions by and distributions
to owners of the company, recognised
directly in equity                              --               --                   --                 --             --                 --

Other comprehensive income:                     --               --                   --                 --             --                 --

Other comprehensive income for the period       --               --                   --                 --             --                 --


Balance as at 30 June 2012                  16 319            (877)              179 898             11 236          1 979             13 215


Condensed Consolidated Statement of Changes in Equity for the three months ended 30 June 2012
cont…

                                                  Retained                  Non-controlling    
                                           (loss)\earnings           Total    Interest          Total equity
                                                R’000                R’000      R’000               R’000
Group

Balance at 31 March 2011                         8 125              221 533      2 261             223 794

Comprehensive income:

Loss for the year                              (27 401)            (27 401)      (315)             (27 716)

Total comprehensive income for the year        (27 401)            (27 401)      (315)             (27 716)
 
Realisation of revaluation reserve               5 227                   --         --                   --
Profit on sale of treasury shares net of
taxation                                           242                  242         --                  242

Sale of treasury shares                             --                  374         --                  374

Dividends paid                                 (3 452)              (3 452)         --              ( 3452)
Total contributions by and distributions to
owners of the company, recognised
directly in equity                              2 017               (2 836)         --              (2 836)

Other comprehensive income:

Other comprehensive income for the year                    --            --         --                   --
 
Balance at 31 March 2012                      (17 259)              191 296      1 946              193 242

Comprehensive income:

Loss for the period                            (3 582)              (3 582)      (243)              (3 825)

Total comprehensive income                     (3 582)              (3 582)      (243)              (3 825)
Total contributions by and distributions to
owners of the company, recognised
directly in equity                                  --                  --          --                   --
   
Other comprehensive income:

Other comprehensive income for the
period                                              --                  --          --                   --

Balance as at 30 June 2012                    (20 841)             187 714       1 703              189 417


Condensed Consolidated
Segmental Analysis for the
three months ended 30 June               Outsource
2012                                  manufacturing           Packaging              Other         Group
                                              R’000               R’000              R’000         R’000
Total segment revenue
-reviewed as at 30 June 2012                  177 190              20 615               --        197 805
- audited as at 31 March 2012                 579 508              96 188               --        675 696
                         1
Inter-segment revenue
reviewed as at 30 June 2012                  (12 846)             (2 057)               --       (14 903)
- audited as at 31 March 2012                (50 653)             (6 574)               --       (57 227)
Revenue          from      external
customers
- reviewed as at 30 June 2012                 164 344              18 558               --        182 902
- audited as at 31 March 2012                 528 855              89 614               --        618 469
Operating profit/(loss) before
impairment
- reviewed as at 30 June 2012                   3 952             (4 374)           (2 048)       (2 470)
- audited as at 31 March 2012                  21 876             (6 062)             3 420        19 234
Net finance costs
- reviewed as at 30 June 2012                 (2 226)               (292)             (512)       (3 030)
- audited as at 31 March 2012                 (5 676)             (1 630)           (4 510)      (11 816)
Profit/(loss) before tax
- reviewed as at 30 June 2012                  1 727              (4 667)           (2 503)       (5 443)
- audited as at 31 March 2012                 16 201             (39 325)           (1 746)      (24 870)
Total assets
- reviewed as at 30 June 2012                401 810               85 824             5 771       493 405
- audited as at 31 March 2012                349 008              116 101             9 543       474 652
Total liabilities
- reviewed as at 30 June 2012                221 486               29 662            52 840       303 988
- audited as at 31 March 2012                193 499               29 606            58 305       281 410
1
Includes intra-segment revenue.

Additional information
                                                               Reviewed                          Audited
                                                     Three months ended                       Year ended
                                                           30 June 2012                    31 March 2012
                                                                  R’000                            R’000
Amortisation of intangible assets                                   243                              967
Depreciation of property, plant and
equipment                                                         4 269                           13 755
Purchase of property, plant and
equipment                                                         5 728                           48 098
Operating lease commitments                                      39 663                           45 281


COMMENTARY
The directors of Beige and its subsidiaries are pleased to announce the reviewed results for the three
months ended 30 June 2012. These results show the consolidated position of Beige, as compared to the
audited results for the year ended 31 March 2012.

1. Nature of business
   The Beige Group primarily operates as a contract and packaging manufacturer, manufacturing and
   distributing cosmetics, soaps, laundry soaps, packaging and allied products on behalf of brand
   owners for both the local and international home and personal care industry and is the largest fully
   empowered contract manufacturer in the South African home and personal care industry.

2. Listing information
   Beige is listed on the Alternative Exchange (“AltX”) of the JSE Limited under the share code: BEG
   and ISIN number is ZAE 000034161. The preference shares issued by the Company are listed
   under the share code: BEGP2 and ISIN number ZAE000154787, but have been suspended
   following the election by The Lion Match Company (Proprietary) Limited (“Lion Match”) to acquire
   all the remaining preference shares pursuant to Lion Match exceeding a holding of more than 90%
   of the preference shares following the mandatory offer earlier this year. The preference shares will
   be delisted on 03 October 2012.

3. Basis of preparation and change in year end
   In order to align its year end with that of Lion Match, the company has changed its year end from
   31 March to 30 June each year, which has resulted in the preparation of financial statements for
   the three month period ended 30 June 2012.

   The condensed consolidated financial statements for the three months ended 30 June 2012 were
   prepared in accordance with the recognition and measurement criteria of International Financial
   Reporting Standards (“IFRS”), IAS 34: Interim Financial Reporting, Section 8.57 of the Listing
   Requirements of the Johannesburg Stock Exchange (“the JSE”), the requirements of the
   Companies Act 2008 (No. 71 of 2008) and were prepared under the supervision of the Group’s
   financial director, Mr M Easter (CA)(SA).

   The principal accounting policies used in the preparation of the results for the three months ended
   30 June 2012 are consistent with those applied for the year ended 31 March 2012. During the
   period, the Group adopted all the IFRS and interpretations being effective and deemed applicable
   to the Group. None of these had a material impact on the results of the Group.

4. Reviewed results
   PricewaterhouseCoopers Inc, the Group’s independent auditors, have reviewed the condensed
   consolidated financial information for the three months ended 30 June 2012, that comprise the
   condensed consolidated statement of financial position at 30 June 2012, the condensed
   consolidated statement of comprehensive income, the condensed consolidated statement of
   changes in equity, and the condensed consolidated statement of cash flows for the period then
   ended, and have expressed an unqualified and unmodified review opinion on these condensed
   consolidated financial statements. A copy of the review opinion is available for inspection at the
   company’s registered office.

5. Segment reporting
   The chief operating decision-maker has been identified as the board of directors. The board
   considers the business from a product perspective, from which management assesses the
   performance of outsource manufacturing and packaging products. Management has determined
   the operating segments based on these reports.

6. Business review
   Trading conditions in the local and international retail trading environment remain challenging as a
   result of continued economic uncertainty. This is borne out in the substantial fluctuations in the
   monthly demand book and provides for an extremely volatile trading environment.

   Revenue from outsource manufacturing remain under pressure and margins similarly remain under
   pressure resulting from increased raw material costs and higher production costs attributable to
   above-inflationary energy cost increases and additional labour costs linked to the volatility of the
   monthly demand book. These costs were not fully recoverable by price increases given the
   competitive environment in which the Group operates. Revenue from the packaging operation is
   also lower than expected.

   In order to mitigate the risks associated with the uncertain economic environment and in line with its
   strategy of pursuing value enhancing opportunities, the Company continues to pursue vertical
   integration opportunities to secure sources of supply of raw materials and to improve margins. In
   line with this strategy, the Company has secured a credit facility for the construction and installation
   of new soap noodle manufacturing plant and equipment through the Industrial Development
   Corporation. The soap noodle plant, which is expected to be completed by December 2012, will
   further enable the Company to manage its input cost as a result of a higher degree of control over
   the value chain.

7. Financial and operational overview
   The results for the three months ended 30 June 2012 again reflect a period characterised by a
   challenging trading environment in which economic uncertainty continued to impact the production
   decisions made by Beige’s local and multi-national clients. Whilst the Group’s facilities enable it to
   accommodate changes to the demand book and product mix, this did have an impact on the gross
   profit margin, which showed a decline of 5.1% from the prior year of 17.4% to 12.3%. In addition,
   the reporting period of three months is an exceptional period on which to report results and is only as
   a result of the change of year end to June. Accordingly, this reflects some seasonal distortions
   which traditionally are smoothed in the normal twelve month reporting period and to some extent
   makes comparisons meaningless.

   However, the major contributor to the operating loss before impairment has been the packaging
   segment with an operating loss before impairment of R4.3 million (March 2012: R6.0 million). The
   loss in the current period is primarily as a result of the difficult trading conditions in this sector, with a
   reduction in sales volumes and margin pressures. Management is confident however that this can
   be turned around in the 2013 financial year.

   The variance in the loss before income tax from a R24.9 million loss to a R5.4 million loss in the
   current period is primarily as a result of the impairment of the goodwill attributable to the packaging
   segment in the prior year, which goodwill arose on the acquisition of Crystal Pack (Pty) Ltd. The
   variance, excluding the goodwill impairment, is further compounded by the fact that the current
   reporting period is only for three months, making a reasonable comparison meaningless. In addition,
   a number of once off costs were incurred in the three month period, including costs associated with
   the requirement for a full statutory audit for the three month period.

   The effective tax rate of 29.7% is affected primarily by the dividends on preference shares not being
   deductible for tax purposes and other allowable permanent tax deductions.

8. Prospects
   The Group expects the trading conditions over the next year to remain challenging. However, the
   volume demand which was deferred by the groups customers during the current reporting period, is
   anticipated to be brought into production during the first half of next year. Whilst price increases to
   address the significant increases in input costs experienced over the prior financial year have
   already been implemented in most cases, further increases to recover costs will have to be carefully
   managed and cost control throughout the Group will continue to be a key focus area. The Group
   continues to make additional investments in infrastructure and capacity and both the Durban and
   Gauteng operations have been expanded in expectation of the future growth in demand for the
   goods and services it provides. These initiatives all form part of a strategic decision by the Group to
   grow market share in a controlled fashion. The long term benefits of this growth strategy include the
   optimisation of available production capacity, improvements in efficiency and the achievement of
   greater benefits resulting from consolidated procurement. The recent change in control of the
   Company provides an opportunity for Beige to harness the benefits of being associated with a larger
   group and well-known brand that is not in direct competition with the Group’s customer base and this
   association is expected to present upside potential for the Group.

9. Contingent liabilities
   A contingent liability exists in respect of tax, penalties and interest for approximately R3.8 million.
   Based on legal advice obtained, the board is of the opinion that no exposure exists in this regard.

10. Contingent assets
    As announced in prior years, Beige has initiated criminal and civil legal actions against all parties
    who were involved in the material irregularities at Crystal Pack (Pty) Ltd and steps to recover all
    amounts involved, including costs and damages are ongoing. No asset in relation to this claim has
    been recognised in these results or previous results as the claim is still in progress.

11. Change in control
    During the prior year The Lion Match Company (Pty) Ltd (“Lion Match”) acquired a controlling
    interest in the voting shares of the Company thus requiring it to make an offer to minority
    shareholders to acquire all or part of their ordinary and preference shareholdings in the Company.
    The mandatory offer closed during the period under review, with Lion Match acquiring an additional
    46.54% of the issued ordinary share capital and 96.20% of the issued preference share capital of
    the Company. In accordance with Section 3.83(b) of the JSE Listings Requirements, Beige
    confirms having received notification from Lion Match in accordance with Section 122 of the
    Companies Act, 2008 to the effect that its beneficial interest in the ordinary share capital of the
    Company amounts to 78.53% of the ordinary shares in issue and its beneficial interest in the
    preference share capital of the Company amounts to 95.04% of the preference shares in issue.
    Given that the treasury shares held by Beige are not entitled to vote at a general shareholders
    meeting, Lion Match accordingly now owns 82.99% of the voting ordinary share capital and
    96.20% of the voting preference share capital of the Company.


12. Events after reporting period
    During the period under review the majority of the suspensive conditions relating to the acquisition
    by Beige of a 50% interest in Kgalagadi Soap Industries (Pty) Ltd (“KSI”) were fulfilled, with the
    exception of the payment of the purchase price. However, post the end of the reporting period, the
    Company received notice that the pre-emptive rights existing in the Shareholder Agreement were
    being exercised by the existing shareholder in KSI, which pre-emptive rights were triggered by the
    change in control of Beige earlier in the year and which exercise thereof has the effect of
    terminating the acquisition process by Beige of KSI. Accordingly, KSI has not been consolidated in
    the group results for the period ended 30 June 2012. The company will only account for fees due
    in terms of an interim management agreement, and not for a share of the profits, which results
    would be immaterial to the group.

13. Changes to the board
    Following the change in control of Beige, the board has been restructured in order to accommodate
    the appointment of additional directors nominated by Lion Match. In line with this, Messrs M
    Fandeso, MM Du Preez and AP Du Preez (alternate to MM Du Preez) and Ms L Gadd resigned from
    the board with effect from 27 June 2012.The board is extremely grateful to these directors for their
    principled leadership and wise counsel over the years and wishes them well in their future
    endeavours. Also with effect from 27 June 2012, Messrs AH Trikamjee, AGS Osman, AMI Abdoola,
    A Heeralal, NMI (Gora) Abdoola, M Tembe and C De Jager have been appointed to the board as
    non-executive directors, while Mr G Wade has been appointed to the board in an executive capacity.

By order of the Board
Ashwin Trikamjee                                                           Mark Di Nicola
Deputy Chairman                                                            Chief Executive Officer
02 October 2012
Johannesburg



Company Secretary and Registered Office
Arcay Client Support (Pty) Ltd (Registration number 1998/025284/07)
Arcay House, Number 3 Anerley Road, Parktown, 2193
PO Box 62397, Marshalltown, 2107
Directors
NMI (Gora) Abdoola (Chairman)(#), AH Trikamjee (Deputy Chairman)(#), MM Di Nicola (CEO), G Wade (Deputy CEO), MC Easter,
AMI Abdoola (#), C de Jager (#), A Heeralal (#), LI Karp (#), AGS Osman (#), M Tembe(#), RH Weissenberg (#) (#) Non-executive
Designated Advisor                                                        Transfer Office
Arcay Moela Sponsors (Pty) Ltd                                            Link Market Services South Africa (Pty) Ltd
Auditors
PricewaterhouseCoopers Inc

Date: 02/10/2012 02:19:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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