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Reviewed consolidated interim financial results for the six months ended 31 December 2012
ALERT STEEL HOLDINGS LIMITED
INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA
REGISTRATION NUMBER: 2003/005144/06
JSE CODE: AET
ISIN: ZAE000092847
REVIEWED CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2012
PREPARED BY
The condensed consolidated interim financial results for the period ended 31 December 2012 were prepared by Johan du Toit - CA(SA),
Chief Financial Officer. This Interim report has been reviewed by the Auditors, KPMG Inc., who have expressed an unqualified review
opinion. A copy of the auditors reports is available for inspection at the company's registered office. This interim report for the six
months ended 31 December 2012 was published on 28 March 2013.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Notes Reviewed Reviewed
FOR THE PERIOD ENDED December 2012 December 2011
R'000 R'000
Continuing operations
Revenue 374,233 400,185
Cost of sales (298,103) (300,260)
Gross profit 76,130 99,925
Other income 1,187 10,806
Selling, Distribution and Admin expenses (97,100) (115,269)
Results from operating activities (19,783) (4,538)
Impairment of goodwill - (2,550)
Loss before interest and taxation (19,783) (7,088)
Finance income - 283
Finance costs (8,675) (11,605)
Loss before taxation (28,458) (18,410)
Taxation - -
Loss from continuing operations (28,458) (18,410)
Profit from discontinued operations 2 484 137
Loss and total comprehensive income for the year (27,974) (18,273)
Total comprehensive income attributable to:
Equity holders of Alert Steel Holdings Ltd (27,974) (18,273)
Weighted average shares in issue on which earnings are based
('000) 44,546 9,154
Diluted weighted average shares in issue on which earnings
are based ('000) 44,622 9,230
Basic loss per share (cents) (62.8) (199.6)
- Continuing operations (62.8) (199.6)
- Discontinued operations - -
Diluted loss per share (cents) (62.7) (198.0)
- Continuing operations (62.7) (198.0)
- Discontinued operations - -
HEADLINE EARNINGS
Reconciliation of loss and headline loss for the year
Loss attributable to equity holders (27,974) (18,273)
Loss on disposal of property, plant and equipment 147 325
Loss from sale of of discontinued operations - 1,060
Loss/(profit) on sale of business 378 (4,056)
Impairment of goodwill - 2,550
Tax effect - -
Headline loss attributable to equity holders (27,449) (18,394)
Headline loss per share (cents) (61.6) (200.9)
- Continuing operations (61.6) (200.9)
- Discontinued operations - -
Diluted headline loss per share (cents) (61.5) (199.3)
- Continuing operations (61.5) (199.3)
- Discontinued operations - -
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Notes Reviewed Reviewed
FOR THE PERIOD ENDED December 2012 December 2011
R'000 R'000
Balance at the beginning of the period (2,148) (43,412)
Shares issued 4 29,887 48,601
Loss and total comprehensive income for the year (27,974) (18,273)
Addition to share based payment reserve - 1,980
Balance at the end of period (235) (11,104)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Notes Reviewed Reviewed
December 2012 December 2011
FOR THE PERIOD ENDED R'000 R'000
Cash outflow from operating activities 5 (13,289) (9,408)
Cash inflow/(outflow) from investing activities 5 11,677 (38,927)
Cash inflow from financing activities 5 1,430 130,932
(Decrease)/increase in cash and cash equivalents (182) 82,597
Cash and cash equivalents at the beginning of the period (19,700) (110,335)
Cash and cash equivalents at the end of the period (19,882) (27,738)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes Reviewed Audited
AS AT December 2012 June 2012
R'000 R'000
ASSETS
Non-Current Assets 132,455 139,554
Investment property 6,447 6,447
Property, plant & equipment 120,288 126,887
Goodwill 5,720 6,220
Current assets 164,940 247,788
Inventories 107,901 154,497
Trade and other receivables 56,796 75,938
Cash and cash equivalents 243 17,353
Assets held for sale - 14,497
Total assets 297,395 401,839
EQUITY & LIABILITIES
Total shareholders' funds (235) (2,148)
Non-current liabilities 67,515 70,597
Loans and borrowings 3 63,894 60,060
Onerous lease provision - 4,561
Straight-lining lease accrual 3,211 5,566
Deferred tax 410 410
Current liabilities 230,115 331,672
Loans and borrowings 3 99,751 107,818
Onerous lease provision - 1,112
Straight-lining lease accrual 1,236 1,475
Current tax payable - 30
Trade & other payables 109,003 159,960
Shareholders' loans - 24,224
Bank overdraft 20,125 37,053
Liabilities associated with disposal groups held for sale - 1,718
Total equity & liabilities 297,395 401,839
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
Reviewed Restated
FOR THE PERIOD ENDED December 2012 December 2011
R'000 R'000
External revenues
Branches 333,212 393,121
Containers & Express Stores 41,021 7,064
374,233 400,185
Reportable segment loss before tax
Branches (32,313) (18,780)
Containers & Express Stores 3,855 370
(28,458) (18,410)
Reviewed Restated
AS AT December 2012 June 2012
R'000 R'000
Segment assets
Branches 277,077 383,046
Containers & Express Stores 20,318 18,793
297,395 401,839
Segment liabilities
Branches 297,630 402,269
297,630 402,269
Due to the implementation of the brand restructuring strategy, the group has two operating segments, namely branches and
containers and express stores. The group has restated its condensed segmental analysis in line with the restructuring.
NOTES TO THE CONDENSED FINANCIAL RESULTS
1. Basis of preparation and accounting policies
The condensed consolidated interim financial results for the six months ended 31 December 2012 have been prepared in accordance
with IAS34 Interim Financial Reporting, the listing requirements of the JSE Limited, the SAICA Financial Reporting Guides as issued by
the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council
and the Companies Act.
The accounting policies applied are consistent with those applied for the year ended 30 June 2012, with the exception of the changes
to reporting segments noted above, and are in terms of International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board. New standards and interpretations that became effective on 1 July 2012 had no material
effect on the results for the period.
The condensed consolidated interim financial results have been prepared on the historic cost convention, except for certain financial
instruments, which are stated at fair value and is presented in Rands rounded to the nearest thousand (R'000).
2. Discontinued operations
On 31 July 2012, the following operations were discontinued:
* The Alert Steel Klerksdorp branch was disposed of. The branch was not meeting the required performance targets and was not meeting
the company's rural retail strategic objectives.
* Prior year comparative figures include the Alert Steel Klerksdorp branch as well as Alert Reinforcing and the Rebar businesses of RCS
division of Polokwane which was disposed of during the 2012 financial year.
Results of the discontinued operations: Reviewed Reviewed
December 2012 December 2011
R'000 R'000
Revenue 2,501 25,694
Expenses (2,017) (24,497)
Profit before taxation 484 1,197
Taxation - -
Profit after taxation from discontinued operations 484 1,197
Loss arising on discontinuance of operations - (1,060)
Profit for the period 484 137
Cash effects of discontinued operations
Cash flows from operating activities (7,041) 4,321
Cash flows from investing activities 6,495 4,251
Cash flows from financing activities - -
(546) 8,572
3. Loans and borrowings Reviewed Audited
December 2012 June 2012
R'000 R'000
Opening balance 167,878 80,116
Non-current liabilities 60,060 71,783
Current liabilities 107,818 8,333
New issues
Long term loan 1 advanced by Nedbank - 70,000
Long term loan 2 advanced by Nedbank - 20,000
Interest capitalised
Long term loan 1 advanced by Nedbank 1,176 3,639
Aquarella Bond 330 1,598
Classified as held for sale
Arrow Creek bond - (1,718)
Repayments
Long term loan 2 advanced by Nedbank (1,667) -
Mortgage bonds (579) (2,118)
Installment sale liabilities (3,493) (3,639)
Closing Balance 163,645 167,878
Non-current liabilities 63,894 60,060
Current liabilities 99,751 107,818
Long term loan 1 bears interest at prime less 2% and interest is capitalised on the loan. The loan is repayable in one installment on the
maturity date, being 1 October 2016.
Long term loan 2 bears interest at prime less 2%.The loan is repayable in 24 equal installments commencing on 1 October 2012.
The group was in breach of its covenants with Nedbank as at 31 December 2012. These loans have therefore been classified as current.
As a consequence, Nedbank can enforce full repayment of the loan by giving 30 days notice. Please refer to subsequent events for more
information relating to the current status of loans.
4. Shares issued
On 28 November 2012, 1 108 840 297 shares were issued to Capital Africa Steel (894 554 583 shares) and Nedbank (214 285 714
shares) in a Debt to Equity conversion at 2,8 cents per share.
On 10 December 2012 the company consolidated it shares at a ratio of 100:1. The issued share capital was reduced with 5 149 379 648
shares due to the impact of the consolidation.
Reviewed Reviewed
FOR THE PERIOD ENDED December 2012 December 2011
R'000 R'000
Shares issued 31,096 115,000
Rights issue expenses (1,209) (2,725)
Total cash inflow 29,887 112,275
Issued share capital Number Number
Balance beginning of the period 4,092,550,566 256,028,570
Shares issued 1,108,840,297 3,836,521,996
Share consolidation (5,149,376,948) -
Balance end of the period 52,013,915 4,092,550,566
5. Notes to cash flow statement Reviewed Reviewed
December 2012 December 2011
R'000 R'000
Cash effects of operating activities
Loss before taxation (27,974) (18,273)
Adjustment for:
Depreciation and amortisation 7,675 5,128
Loss on sale of property, plant and equipment 147 325
Profit on disposal of subsidiaries - (2,995)
Loss on disposal of businesses 378 -
Interest received - (283)
Interest paid 8,675 11,605
Impairment of goodwill - 2,550
Lease accrual adjustment (8,266) (736)
Share based payment expense - 1,980
Working capital changes:
Inventories 46,596 2,370
Trade and other receivables 19,142 50,687
Trade and other payables (50,957) (43,727)
Cash generated from operations (4,584) 8,631
Interest received - 283
Interest paid (8,675) (11,605)
Taxation paid (30) (6,717)
Cash utilised in operating activities (13,289) (9,408)
Cash effects of investing activities:
Consideration paid on purchase of property, plant and equipment (3,235) (7,951)
Proceeds on sale of property, plant and equipment 3,806 2,952
Loans repaid by joint ventures - 3
Consideration paid on acquisition of business - (39,502)
Proceeds on sale of business 11,106 5,572
Cash from/(utilised in) investing activities 11,677 (38,926)
Cash effects of financing activities
Repayment of other financial liabilities - (1,457)
Repayments of bonds on properties (579) -
Advances of bonds on properties 330 -
Repayments of installment sale agreements (3,493) -
Loans received from bank 1,176 91,087
Loans repaid to bank (1,667) -
Loans received from shareholders - 23,164
Repayment of loans to shareholders (24,224) (30,464)
Proceeds on rights issues 29,887 48,602
Cash flows from financing activities 1,430 130,932
6. Related parties
The group, in the ordinary course of business entered into various transactions on an arms length basis with related parties. Significant
items are:
Reviewed Reviewed
December 2012 December 2011
R'000 R'000
Purchases from/(sales to) related parties
Capital Africa Steel (Pty) Ltd 3,500 8,250
Reinforcing & Mesh Solutions, a division of Capital Africa Steel (Pty) Ltd 2,515 7,584
Steel Mecca (Pty) Ltd - (3,885)
Transactions with key management personnel
Directors emoluments 1,808 2,375
7. Salient features
* Actual number of shares in issue ('000) 52,014 1,763,580
* Net asset value per share (cents) (0.5) (0.6)
* Net tangible asset value per share (cents) (11.5) (1.0)
Net asset value per share is determined by dividing the total
shareholders' funds by the actual number of shares in issue at
reporting date
Net tangible asset value per share is determined by dividing
the total shareholders' funds less goodwill by the actual number
of shares in issue at reporting date
* Write down of inventory to net realisable value 3,700 3,900
* Settlement of onerous lease 5,554 -
* Significant items in loss before taxation
- Directors emoluments 1,808 2,375
- Employee cost 46,729 49,241
OVERVIEW
The trading for the six months under review continued to be challenging. The strike in the mining sector had a major impact on the
trading for November and December 2012 and continued to impact on the January 2013 results. The group's split between cash
business and credit continues to grow and the cash business has increased to more than 60% of the group's revenue. We have
however seen a slowdown in contracting and credit business during the period. Revenue due to the slowdown in contracting business
impacted on the overall performance of the group and the net result was that the group did not achieve the revenue forecast. The
group made substantial progress in the Alert Container roll out project and now has 29 containers which were fully operational by the
end of December 2012. The group was also able to roll out five new Alert express stores during this period. Both these projects are on-
going and form part of the group's future strategy.
The group also made huge strides in cutting cost, reducing the overhead cost for the period by 15.8%. The monthly overhead cost
continues to be a key focus area to ensure that Alert becomes the lowest cost producer in the industry and this will continue to be one
of the main focus areas in the next six months.
Part of the group's restructuring plan for the six months was to reduce its inventory holding in order to improve working capital, as well
as to ensure that the group has the correct product mix to be in line with its strategy of selling only steel and steel related products.
This restructuring plan included an improvement in the collections of debtors in order to increase cash resources, which could be used
to settle suppliers on time. This was achieved by implementing more stringent controls in determining to which customers we would
provide credit to, as well as continuously following up on customers who had long outstanding debt. Alert was also able to settle more
creditors than in the prior year as there was more cash resources available in the current period than in the prior period.
In addition to the above, the overdraft balance decreased due to improved collection of debtors, decreased inventory levels and the
proceeds from the disposal of branches not generating enough cash flow and finally proceeds from the disposal of investments not in
use anymore. This is in line with the restructuring plan as discussed above.
The overall trading results were not in line with expectations but we do believe the necessary building blocks have been put in place to
ensure that the trading and profitability improve in the coming months. Alert concentrated on improving the working capital
requirements during the period by reducing inventories by R46.6 million and at the same time reduced trade receivables by R19
million. This impact improved the net cash flow position of the group which resulted in an improvement in the amount payable to
suppliers by R51 million.
A settlement has been reached with the landlord relating to the Wonderboom lease, therefore the provision for onerous leases has
been reduced to zero. The settlement amount will be repaid within the next year and is classified as a sundry creditor.
FINANCIAL RESULTS
When comparing the results for the 6 months ended December 2012 to the six months ended December 2011, the following items can
be noted:
Revenue decreased by 6.5% to R374 million (December 2011: R400 million). The gross profit decreased by 23.8% to R76 million
(December 2011: R99 million).
Selling, Admin and Distribution expenses decreased by 15.8% to R97 million (December 2011: R115 million).
The loss after tax increased by 54.6% to R28 million (December 2011: R18 million)
Headline loss increased by 49% to R27 million (December 2011: R18 million). Headline loss per share decreased by 69.% to 61.62 cents
per share (December 2011: 200.93 cents).
SUBSEQUENT EVENTS
Subsequent to 31 December 2012, the following events occurred:
* Nedbank Limited assigned the rights and obligations under its Banking Facilities, Property Loan Agreement and Securities to AKM Sons
Property Trust and Southern Palace Investments 265 (Pty) Ltd.
* A sale of shares and claims agreement was concluded between Alert Steel Corporate Services (Pty) Ltd ("ASCS"), Rayhaan Hassim, and
Aquarella Investments 454 (Pty) Ltd ("Aquarella"), in terms of which Hassim agreed to acquire all of the shares in and claims against
Aquarella held by ASCS for a purchase price equal to R1.00 in respect of the shares in Aquarella being sold and an amount equal to the
face value of the claims against Aquarella held by ASCS.
* A sale of shares and claims agreement was concluded between ASCS, Hassim and Anchor Park Investments 114 (Pty) Ltd, (Anchor
Park"), in terms of which Hassim agreed to acquire all of the shares in and claims against Anchor Park held by ASCS for an aggregate
purchase price equal to R6,6 million.
* A deed of sale of immovable property was concluded between Alert Steel (Pty) Ltd, (Alert Steel") and Aquarella, in terms of which
Alert Steel agreed to sell the property situated in Louis Trichardt to Aquarella for a purchase price equal to R2,4 million.
* A lease agreement was concluded between Aquarella and Alert Steel in terms of which it was agreed that the Louis Trichardt Property
will be leased by Aquarella to Alert Steel.
* A lease agreement was concluded between Aquarella and Alert Steel in terms of which it is agreed that, with effect from the first day of
the calendar month immediately succeeding the date on which the Aquarella Sale Agreement is concluded and becomes unconditional
in accordance with its terms and for a period of 60 months thereafter, that the property situated at Portion of Stand 227, East Lynne,
25 Lanham Street, Pretoria is leased by Aquarella to Alert Steel.
* A loan agreement was concluded between Cannistraro Investments 282 (Pty) Ltd ("Cannistraro") and the company, in terms of which
Cannistraro agrees to lend and advance an aggregate amount of R21 million to the company at an interest rate equal to the prime rate,
which loan is to be repaid by the earlier of 31 December 2013 and the date on which Cannistraro becomes obliged to subscribe for
shares in the company in terms of the provisions of the Underwriting Agreement.
* An underwriting agreement was concluded between Cannistraro and the Company, in terms of which Cannistraro agreed to underwrite
an amount of R96 million of a rights issue to be undertaken by the Company, subject to the fulfilment of various suspensive conditions,
including but not limited to all regulatory approvals being obtained in relation to such rights offer and a waiver being obtained from
the TRP in relation to a mandatory offer to shareholders of the Company at R2.00 per share.
STATEMENT OF GOING CONCERN
The group incurred a loss for the period ended 31 December 2012 of R28 million(31 December 2011: R18 million) and at that date, the
group's liabilities exceeded its assets by R0,2 million (30 June 2012: negative R2.1 million). Notwithstanding the loss for the period and
the current value of the net asset value of the group, there have been considerable improvements to the company's financial
performance, cost structures and cash flow during the period and its financial position at end of December 2012.
Market conditions continued to be depressed for the first six months of the financial year; this has been aggravated by strikes at the
company and within the mining and transportation sectors. The going concern of the group is very dependent on the successful
conclusion of the debt restructuring and business plan as announced on SENS on the 11 February 2013 including but not limited to the
following:
* Successful implementation of the underwritten rights offer of R96 millions of which R21 million will be a cash injection and a R75
million debt to equity conversion;
* The finalisation of disposal of the Aquarella investment property;
* The finalisation of the disposal of two non-core properties;
* The implementation of the new business plan including expanding the group's products range to include hardware and related
materials.
CHANGES TO THE BOARD OF DIRECTORS
The following changes to the Board of directors occurred during the period and afterwards:
* Mr. E Hewitt resigned as non-executive director on 5 November 2012
* Mr N Cresswell resigned as executive director on 9 January 2013
* Mr W Schalekamp resigned as non-executive director on 18 December 2012 and was reappointed as executive director on 11 February
2013
* Mr M McCulloch resigned as non-executive director on 9 February 2013
* Mr P Dodson was appointed as executive director on 11 February 2013
* Mr A Loonat was appointed as executive director on 11 February 2013
* Mr J du Toit resigned as Chief Executive Officer on 6 February 2013 and was reappointed as Chief Financial Officer on 20 February 2013.
INDEPENDENT REVIEW BY THE AUDITORS
The condensed consolidated financial interim results for the six months ended 31 December 2012 have been reviewed by Alert Steel's
independent auditors KPMG Inc. The Auditor's Review Report concluded that, based on their review, nothing has come to their
attention that caused them to believe that the condensed consolidated interim financial results of Alert Steel Holdings Limited for the
six months ended 31 December 2012, are not prepared, in all material respects, in accordance with the International Accounting
Standard IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee,
and the requirements of the Companies Act of South Africa.
The audit report contains an unqualified opinion, but includes the following emphasis of matter:
"Without qualifying our opinion, we draw attention to the going concern paragraph in the directors commentary which indicates that
the group incurred a loss for the period ended 31 December 2012 of R28 million and, at that date, the group's liabilities exceeded its
assets by R0,2 million. The paragraph indicates that directors have prepared the financial statements on the basis of accounting policies
applicable to a going concern on the basis that the group has enough cash resources to meet its obligations as they fall due. The note
also sets out the directors' assumptions at arriving at this conclusion."
The auditor's report is available for inspection at the company's registered office.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Compliance with legislation
For the period under review, there were no matters of non-compliance with legislation of which the directors were aware.
DATE OF PUBLICATION OF THIS REPORT 28 March 2013
ANNUAL FINANCIAL STATEMENTS
The previous signed audited annual financial statements of the Group for the period ended 30 June 2012 are available for inspection at
the registered address found below and on the company website: www.alertsteel.co.za.
CORPORATE INFORMATION
Non executive directors: M Patel (Chairman), Afzal Loonat, G Mahuma, W van der Merwe
Executive directors: P Dodson, J du Toit, WF Schalekamp
Registration number: 2003/005144/06
Registered address Cnr Engelbrecht & Lanham Streets, East Lynne, Pretoria
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 Exchange Sponsors (2008) (Pty) Ltd
Auditors KPMG Inc.
Date: 28/03/2013 08:38:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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