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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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