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MASONITE (AFRICA) LIMITED - Audited results for the year ended 31 December 2012

Release Date: 20/03/2013 14:00
Code(s): MAS     PDF:  
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Audited results for the year ended 31 December 2012

MASONITE (AFRICA) LIMITED 
Incorporated in the Republic of South Africa 
Registration number: 1942/015502/06 
Share code: MAS ISIN: ZAE000004289 
("Masonite" or "the company")

AUDITED RESULTS
for the year ended 31 December 2012

Statement of comprehensive income
                                              
Rand thousands                                 Notes        2012        2011   
Revenue                                                  674 393     654 373   
Cost of sales                                           (504 688)   (495 231)   
Gross profit                                             169 705     159 142   
Fair value adjustment of biological assets                10 455     (2 059)   
Other income                                              10 876       2 361   
Distribution expenses                                    (96 586)    (91 521)   
Selling and marketing expenses                           (14 423)    (13 198)   
Administrative expenses                                  (17 510)    (17 418)   
Other expenses                                           (19 693)    (26 021)   
Results from operations                                   42 824      11 286   
Finance income                                             1 564       3 145   
Finance cost                                              (2 359)     (2 162)   
Profit before tax                                         42 029      12 269   
Income tax expense                                 7     (10 150)     (2 441)   
Profit for the year attributable to ordinary                                   
shareholders                                              31 879       9 828   
Revaluation of investments                                 1 369           -   
Total comprehensive income for the period                                      
attributable to ordinary shareholders                     33 248       9 828   
Earnings per share (cents)                                                     
Basic                                            8.1         447         138   
Diluted                                          8.2         447         138   

Statement of financial position
                                                     31 December 31 December
Rand thousands                                 Notes        2012        2011
ASSETS
Non-current assets
Property, plant and equipment                            112 677     107 700
Intangible assets                                            484         494
Biological assets                                  3     171 801     161 346
Investments                                                1 399          30
Total non-current assets                                 286 361     269 570
Current assets
Inventories                                              115 044      81 774
Trade and other receivables                               68 504      88 309
Amounts due from fellow subsidiaries                         518           -
Tax receivable                                             4 483       5 330
Derivative financial instruments                           1 680          82
Cash and cash equivalents                                 93 902      95 265
Total current assets                                     284 131     270 760
Total assets                                             570 492     540 330
EQUITY AND LIABILITIES
Capital and reserves
Share capital                                              3 562       3 562
Share premium                                              3 156       3 156
Share-based payment reserve                        5       1 773       2 980
Retained income                                          393 528     360 280
Total equity                                             402 019     369 978
Non-current liabilities 
Deferred tax                                              46 510      45 757
Post-retirement benefit obligation                 4      26 357      24 967
Straight-lining lease accrual                                107         103
Total non-current liabilities                             72 974      70 827
Current liabilities
Trade and other payables                                  92 329      93 886
Amounts payable to fellow subsidiaries                     2 945       2 069
Derivative financial instruments                             215       3 563
Straight-lining lease accrual                                 10           7
Total current liabilities                                 95 499      99 525
Total equity and liabilities                             570 492     540 330
Net asset value per share (cents)                          5 643       5 193

Condensed statement of cash flows


Rand thousands                                              2012        2011
Cash flow from operating activities
Operating profit                                          42 824      11 286
Adjusted for:
Fair value adjustment of biological assets               (10 455)      2 059
Depreciation and amortisation                             20 478      17 462
IFRS 2 Share-based Payment Charge                         (1 207)      2 980
Foreign exchange (gain)/loss - unrealised                 (4 093)      4 935
Increase in liability for retirement benefit obligation    1 390       1 260
(Profit)/loss on disposal of property, plant and equipment   (36)         38
Other non-cash items                                           7          33
Change in working capital                                (16 005)     11 719
Cash generated from operations                            32 903      51 772
Tax payments                                              (8 550)     (8 680)
Net financing (expense)/income                              (847)      1 028
Net cash flow from operating activities                   23 506      44 120
Cash flow from investing activities
Expenditure on property, plant and equipment
replacement                                              (25 504)    (16 190)
Proceeds on disposal of property, plant and equipment         95          61
Net cash outflow from investing activities               (25 409)    (16 129)
Net (decrease)/increase in cash and cash equivalents      (1 903)     27 991
Effects of exchange rates on the balance of cash held in
foreign currencies                                           540      (2 516)
Net cash and cash equivalents at the beginning of
the year                                                  95 265      69 790
Net cash and cash equivalents at the end of the year      93 902      95 265

Segment revenues and results
                                   Segment revenue          Segment PBIT
Rand thousands                     2012         2011       2012         2011
Hardboard                       517 537      494 309     33 202       22 965
Other products                   83 348       75 589      4 953      (11 071)
Forestry                        102 439      112 453     21 048       16 415
Intersegment                    (30 026)     (28 413)         -            -
Unallocated                       1 095          435      1 131          395
Total                           674 393      654 373     60 334       28 704
Administrative expenses                                 (17 510)     (17 418)
Results from operations                                  42 824       11 286
Finance income                                            1 564        3 145
Finance expense                                          (2 359)      (2 162)
Profit before tax                                        42 029       12 269
Income tax expense                                      (10 150)      (2 441)
Total per statement of
comprehensive income                                     31 879        9 828

Segment assets
                                                           2012         2011
Rand thousands
Hardboard                                               230 460      207 386
Other products                                           30 926       34 318
Forestry                                                196 383      184 443
Unallocated                                             112 205      114 183
                                                        569 974      540 330
Amounts due from fellow subsidiaries                        518            -
Total segment assets                                    570 492      540 330

Condensed statement of changes in equity                                  
                                                                 Share-   
                                                                  based   
                                             Share      Share   payment   
Rand thousands                             capital    premium   reserve   
Balance at 1 January 2011 -                                               
Audited                                      3 562      3 156         -   
Share-based payment charge                       -          -     2 980   
Total comprehensive expense                                               
attributable to ordinary shareholders            -          -         -   
Balance at 31 December 2011 -                                             
Audited                                      3 562      3 156     2 980   
Share-based payment gain                         -          -    (1 207)   
Total comprehensive expense                                               
attributable to ordinary shareholders            -          -         -   
Balance at 31 December 2011 -                                             
Audited                                      3 562      3 156     1 773 
  
                                                     Retained     Total   
Rand thousands                                         income    equity   
Balance at 1 January 2011 -                                               
Audited                                               350 452   357 170   
Share-based payment charge                                  -     2 980   
Total comprehensive income                                                
attributable to ordinary shareholders                   9 828     9 828   
Balance at 31 December 2011 -                                             
Audited                                               360 280   369 978   
Share-based payment gain                                    -    (1 207)   
Total comprehensive expense                                               
attributable to ordinary shareholders                  33 248    33 248   
Balance at 31 December 2011 -                                             
Audited                                               393 528   402 019   

Notes

1. Basis of preparation
The condensed financial information has been prepared in accordance with the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting
Pronouncements as issued by Financial Reporting Standards Council, requirements of the South
African Companies Act, 2008 as amended, and the Listings Requirements of the JSE Stock Exchange
South Africa. The report has been prepared using accounting policies that comply with IFRS which
are consistent with those applied in the financial statements for the year ended 31 December
2011. The condensed financial statements have been prepared under the supervision of the Chief
Financial Officer, N M Stromnes.

2. Auditor's opinion
The auditors, Deloitte & Touche, have issued their opinion on the company's financial statements
for the year ended 31 December 2012. The audit was conducted in accordance with International
Standards on Auditing. They have issued an unmodified audit opinion. These summarised
financial statements have been derived from the company financial statements and are consistent
in all material respects, with the company financial statements. A copy of their audit report
is available for inspection at the company's registered office. Any reference to future
financial performance included in this announcement, has not been reviewed or reported on by the
Company's auditors.

3. Biological assets
Land, logging roads and related facilities are accounted for under property, plant and
equipment. Trees and sugar cane are generally felled at the optimum age when ready for their
intended use. After harvest, timber to be utilised at the mill is accounted for under
inventories.

Timber and sugar cane are accounted for as biological assets. Biological assets are stated at
fair value with any resultant gain or loss recognised in the statement of comprehensive income.
The company owns timber plantations which it operates in order to supply the mill at Estcourt
with its primary raw material. Sugar cane has been planted in areas unsuitable for timber, in
order to use the land productively.

Rand thousands               2012      2011   
Timber plantations                            
Establishment costs        41 007    31 315   
Immature timber            55 130    46 325   
Mature timber              66 256    77 459   
Total                     162 393   155 099   
Sugar cane                                    
Establishment costs         2 456     2 321   
Immature sugar cane         3 942     2 780   
Mature sugar cane           3 010     1 146   
Total                       9 408     6 247   
Total biological assets   171 801   161 346   

4. Retirement benefit obligation
The company provides post-retirement medical benefits to retired employees who were employed
before January 1997. The liability in respect of this post-retirement medical benefit is
actuarially valued on an annual basis using the Projected Unit Credit Method. Actuarial gains or
losses in respect of post-retirement medical benefits are recognised as income or expenses if
the net cumulative unrecognised actuarial gains or losses at the end of the previous period
exceed 10% of the present value of the post-retirement obligation at that date. There are no
plan assets held. The amount recognised is the excess determined above, divided by the average
remaining working lives of the employees participating in the plan.

Past service costs are recognised as an expense on a straight-line basis over the average period
until the benefits vest. To the extent that benefits have already vested, past service costs are
recognised immediately.

5. Employee Share Incentive Scheme
The adoption of IFRS 2 Share-based Payment (IFRS 2) in 2005 required that all awards made after
7 November 2002 be accounted for in the financial statements of the company. IFRS 2 requires a
"fair value" to be placed on employee share options. Fair value is measured as the market price
of the entity's options adjusted for the terms and conditions applicable to the option. Since
employee share options are not traded there is no market price available, hence the use of an
option-pricing model in determining its fair value. The fair value of the share option is
measured using a stochastic model, based on the standard binomial options pricing model (which
is mathematically consistent with the Black-Scholes Model) but allows for the particular
features of employee share options to be modelled realistically. IFRS 2 has therefore been
applied to the Masonite Share Incentive Scheme in respect of the awards made to executive
directors and senior management on 4 January 2011.

6. Segmental reporting
A segment is a distinguishable component of the company that is engaged in providing products or
services which are subject to risks and rewards that are different from those of other segments.
The basis of segment reporting is representative of the internal structure used for management
reporting, as well as the structure in which the chief operating decision maker reviews the
information.

The basis of segmental allocation is determined as follows:

- revenue that can be directly attributed to a segment and the relevant portion of the profit
that can be allocated on a reasonable basis to a segment, whether from sales to external
customers or from transaction with other segments of the company;

- operating profit that can be directly attributed to a segment and a relevant portion of the
operating profit that can be allocated on a reasonable basis to a segment, including profit
relating to external customers and the expenses relating to transactions with other segments of
the company; and

- total assets are those that are employed by a segment in its operating activities and that are
directly attributable to the segment or can be allocated to the segment on a reasonable basis.

The company's reportable segments are as follows:

- Hardboard;
- Other products; and
- Forestry.

Rand thousands                                               2012        2011
7. Income tax expense
Current tax                                                 9 397       6 065
Deferred tax                                                  753      (3 624)
Total                                                      10 150       2 441

8. Earnings per share

8.1 Basic
Basic earnings per share is calculated by dividing the
profit attributable to ordinary shareholders by the
weighted average number of shares in issue during the year.
Profit attributable to ordinary shareholders               31 879       9 828
Weighted average number of ordinary shares in issue     7 124 225   7 124 225
Basic earnings per share (cents)                              447         138

8.2 Diluted
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 dilution
of earnings per share is the result of options granted to executive directors and senior
management, on 4 January 2011, to acquire 210 000 (2011: 210 000) shares at a weighted average
price of R29,69 per share on or before December 2020. The calculation of diluted earnings per
share at 31 December 2012 was based on profit attributable to ordinary shareholders and the
number of shares that could have been acquired at fair value (determined as the average annual
market share price of the company's shares) based on the monetary value of the subscription
rights attached to the outstanding share options. The number of shares calculated is compared
with the number of shares that would have been issued assuming the exercise of the share
options.

Rand thousands                                               2012        2011   
Profit attributable to ordinary shareholders               31 879       9 828    
Weighted average number of ordinary shares in issue     7 124 225   7 124 225   
Adjusted for weighted average share options outstanding    14 075      10 315   
Weighted average number of ordinary shares (diluted)                             
at 31 December                                          7 138 300   7 134 540   
Diluted earnings per share                                    447         138   
8.3 Headline earnings                                                            
Reconciliation of headline earnings                                              
Profit for the year                                        31 879       9 828   
Adjusted for:                                                                    
(Profit)/loss on disposal of assets                           (36)         38   
Tax effect of (profit)/loss on disposal of assets              10         (11)   
Headline earnings                                          31 853       9 855   
Headline earnings per share (cents)                           447         138   
Diluted headline earnings per share (cents)                   446         138   

9. Change in directorate                                                        
Resignations                                                                    
Mr NCK Vinay (Financial Director)                   Wednesday 18 January 2012   
Mr MM Clark (Non-executive Director)                     Friday 20 April 2012   
Mr AH Wilson (Chairman of the Board)                      Monday 16 July 2012   
Mr KMP Spencer                                        Thursday 30 August 2012   
Appointments                                                                    
Mr NM Stromnes (Chief Financial Officer)            Wednesday 7 December 2012   
Mr MG Leitch (Chairman of the Board)                      Monday 16 July 2012   
Mr RG Lewis (Independent Non-executive Director)       Wednesday 18 July 2012   

*Mr Leitch was also appointed to the Audit and Risk Committee and Remuneration and Nominations
Committee.

10. Annual general meeting
Shareholders are advised that the seventieth annual general meeting of shareholders of the
company will be held at Masonite's offices at Block 2, Island Office Park, 35-37 Island Circle,
Riverhorse Valley, Durban on 19 June 2013 at 13:00.

11. Subsequent events
No material fact or circumstance has occurred between the end of the period and the date of this
report.

Report to Stakeholders
Market conditions during the last year were challenging in our local and international business.
Revenue grew by 3.1% to R674 million (2011: R654 million) for the year under review. The
building market in South Africa and our main export market remain supressed due to subdued new

housing starts and weak construction markets.
Results from operations improved by 279.4% to R42,8 million (2011: R11,3 million). Results from
operations, excluding the effect of adjustments to the value of biological assets, increased by
143,6% to R32,4 million (2011: R13,3 million) due mainly to improved product sales mix and once
off expenses in 2011. During 2012, Masonite tightened its focus on operational excellence, value
optimisation and productivity initiatives.

Headline earnings, improved to R31,9 million (2011: R9,9 million) and earnings per share
improved by 223.9% (447 cents versus 138 cents).

Our strategy encompasses three main themes:
1. Efficient, quality manufacturing of hardboard, softboard, door facings and decorative wall
panelling;
2. Maximising value from our plantations; and
3. Strengthening our commercial operations, from supply chain through to sales.
We believe this will lead to improved efficiencies, better capacity management and improved
customer service.

2012 Operating Results
Working capital increased from R75,9 million to R95,1 million due to increased inventory. An
inventory reduction plan is in place. The company ended the year in a strong cash position.
2012 represented a challenging year for our operational divisions. The Mill was impacted by the
labour unrest in the transport and coal sectors in the second six months. In spite of that we
maintained a strong safety and customer service record. The forestry division experienced an
unusually high level of natural disasters (snow, fires and flooding). Masonite has insurance in
place to guard against natural disasters.

The company is committed to a strong safety culture. During 2012 it maintained its excellent
safety record, maintaining FSCTM certification, NOSA and NOSCAR ratings. The executive team
focused extensively on strengthening the corporate governance agenda in line with the principles
of King III.

Looking Forward
Given continued uncertainty in the South African building market, we expect trading conditions
to remain difficult over the next 18 months. We expect that Rand weakness may provide some
relief in the short term against imports. Input costs continue to be a concern as labour and
energy prices rise ahead of price growth. Provided there is no further deterioration in the
global markets, we expect improved profit from our international sales. We anticipate that
demand in the packaging sector will continue to be suppressed for the first six months, but
expect some recovery in the medium term. We expect the door panel market to continue to be
competitive.

We believe that the actions we have taken in the last year towards strengthening our core
business, our continuous improvement agenda and working capital focus will continue to improve
our ability to generate shareholder value in the coming year. We face a number of strategic
market risks with competitor production facilities coming on board in the latter end of 2013
that which could affect the achievement of our strategic goals. 2013 will drive cost reduction
and improvement in our working capital position.

Appreciation

We would like to thank Alan Wilson who retired during 2012 as non-executive chairman. Alan was a
long standing and valued member of the Masonite board. Alan previously held management positions
within Masonite as both Managing Director and Marketing Director. Kevin Spencer retired from the
Board at the end of August 2012. Robert Lewis joined the Board, in July 2012, as a non-executive
director.

We record our appreciation to the shareholders of Masonite for their continued confidence in the
company and their support as we continue to work towards strengthening returns and growing
value.

MG Leitch                                           HJ Loring
Chairman                                            Chief Executive Officer

20 March 2013

DIRECTORS MG Leitch (Chairman), HJ Loring (CEO),NM Stromnes (CFO), WP Coetzee, N Maharajh, MJ
Erceg (USA), LP Repar (Canadian),CA Virostek (Canadian), RE Lewis(USA), AG Venton

COMPANY SECRETARY
MP Govender

TRANSFER SECRETARIES
Computershare Investor Services (Proprietary) Limited
70 Marshall Street, Johannesburg, 2001

SPONSOR
Nedbank Capital
135 Rivonia Road, Sandton, 2196
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