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Interim results for the six months ended 31 December 2013
Accéntuate Limited
(Incorporated in the Republic of South Africa)
(Registration number 2004/029691/06)
Share code: ACE
ISIN: ZAE000115986
("Accéntuate" or "the group")
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013
HIGHLIGHTS
- Two acquisitions successfully completed and integrated
- Sales up 7,1%
- Long-term borrowings fully repaid
Condensed Consolidated Financial Statements for the six months ended 31 December 2013
Condensed consolidated Statement of Financial Position
Reviewed Reviewed Audited
6 months to 6 months to Year to
31 December 31 December 30 June
2013 2012 2013
R’000 R’000 R’000
Assets
Non-current assets 86 291 86 398 86 119
Property, plant and equipment 44 538 44 184 45 302
Goodwill and intangible assets 38 564 35 320 35 459
Other financial assets - 4 091 2 041
Deferred taxation 3 189 2 803 3 317
Current assets 121 560 97 746 101 268
Inventories 67 419 56 195 51 965
Trade and other receivables 45 213 36 595 41 192
Other financial assets 5 794 2 772 4 953
Current tax receivables 2 897 1 312 2 770
Cash and bank 237 872 388
Total assets 207 851 184 144 187 387
Equity and liabilities
Total equity 148 682 131 844 134 550
Share capital 135 836 126 379 126 382
Shares to be issued to vendors 1 484
Reserves 22 215 23 139 22 215
Accumulated loss (10 853) (17 674) (14 047)
Non-current liabilities 4 748 4 199 4 791
Deferred taxation 4 748 4 199 4 791
Current liabilities 54 421 48 101 48 046
Trade and other payables 39 865 33 668 32 284
Other financial liabilities - 5 700 2 850
Operating lease liability 2 476 1 962 2 139
Current tax payable - 369 1 333
Bank overdraft 12 080 6 402 9 440
Total liabilities 59 169 52 300 52 837
Total equity and liabilities 207 851 184 144 187 387
Number of shares in issue 122 638 059 111 108 109 111 108 119
Net asset value per share (cents) 120 119 121
Tangible net asset value per share (cents) 89 87 89
Condensed consolidated Statement of Profit and Loss and Other Comprehensive Income
Reviewed Reviewed Audited
6 months to 6 months to Year to
31 December 31 December 30 June
2013 2012 2013
R’000 R’000 R’000
Revenue 156 802 146 448 284 213
Cost of sales (74 811) (67 712) (135 219)
Gross profit 81 991 78 736 148 994
Other income 878 199 431
Operating expenses excluding depreciation
and amortisation (74 539) (66 093) (130 762)
Earnings before interest, tax depreciation
and amortisation 8 330 12 842 18 663
Depreciation and amortisation (3 019) (2 758) (3 536)
Operating profit before interest and tax 5 311 10 084 15 127
Finance costs (812) (816) (1 909)
Profit before tax 4 499 9 268 13 218
Income tax (1 305) (2 595) (3 991)
Profit after tax 3 194 6 673 9 227
Share of loss in associated company - (366) (400)
Profit for the period attributable to shareholders
of the parent 3 194 6 307 8 827
Weighted average number of shares in issue 111 511 421 104 932 950 105 335 517
Diluted average number of shares 113 327 263 104 932 950 105 335 517
Earnings Ratios (cents):
Earnings per share (cents) 2,86 6,01 8,38
Diluted earnings per share (cents) 2,82 6,01 8,38
Notes to the Financial Statements
Headline earnings per share (cents) 2,81 6,01 8,41
Diluted headline earnings per share (cents) 2,77 6,01 8,41
Reconciliation of Headline Earnings:
Profit for the period 3 194 6 307 8 827
Adjusted for:
(Profit)/Loss on disposal of property, plant
and equipment (56) - 36
Tax effect of adjustments 16 - (10)
Headline earnings attributable to shareholders
of the parent 3 154 6 307 8 853
Condensed consolidated Statement of Changes in Equity
Reviewed Reviewed Audited
6 months to 6 months to Year to
31 December 31 December 30 June
2013 2012 2013
R’000 R’000 R’000
Total equity - opening balance 134 550 125 235 125 236
Total comprehensive income for the period 3 194 6 307 8 827
Deferred tax on revaluation reserve - - 182
Share options exercised - 302 305
Issue of shares 9 454 - -
Shares to be issued to vendors 1 484
Total equity - closing balance 148 682 131 844 134 550
Condensed consolidated Statement of Cash Flows
Reviewed Reviewed Audited
6 months to 6 months to Year to
31 December 31 December 30 June
2013 2012 2013
R’000 R’000 R’000
Cash flows from operating activities (292) 30 1 580
Cash flows from investing activities 351 (517) (2 741)
Cash flows from financing activities (2 850) (2 547) (5 395)
Net (decrease) in cash and cash equivalents (2 791) (3 034) (6 556)
Cash and cash equivalents at beginning of the period (9 052) (2 496) (2 496)
Cash and cash equivalents at end of the period (11 843) (5 530) (9 052)
Segmental Report
December 2013 Reviewed Reviewed Reviewed Reviewed
31 Dec 2013 31 Dec 2013 31 Dec 2013 31 Dec 2013
R’000 R’000 R’000 R’000
Environmental Corporate and
Flooring Solutions Eliminations Total
Total sales
121 849 38 279
Less: Inter-segmental sales - (3 326)
Revenue 121 849 34 953 - 156 802
Gross Profit 60 032 21 959 - 81 991
Operating profit before
depreciation and amortisation 7 286 907 137 8 330
Depreciation and amortisation (2 066) (725) (228) (3 019)
Operating profit before interest
and tax 5 220 182 (91) 5 311
Segmental assets 160 517 29 758 17 576 207 851
Segmental liabilities 33 883 16 446 9 840 59 169
December 2012 Reviewed Reviewed Reviewed Reviewed
31 Dec 2012 31 Dec 2012 31 Dec 2012 31 Dec 2012
R’000 R’000 R’000 R’000
Environmental Corporate and
Flooring Solutions Eliminations Total
114 357 35 534
Total sales
Less: Inter-segmental sales - (3 443)
114 357 32 091 - 146 448
Revenue
57 735 21 001 - 78 736
Gross Profit
Operating profit before
depreciation and
amortisation 10 803 760 1 279 12 842
Depreciation and
amortisation (1 758) (728) (272) (2 758)
Operating profit before
interest and tax 9 045 32 1 007 10 084
Segmental assets 137 998 24 904 21 242 184 114
Segmental liabilities 24 875 18 075 9 350 52 300
REVIEW OF PERFORMANCE
SUMMARY
Accentuate results for the half year to December 2013 reflect the continued impact of the lower trading levels in
a number of key market segments which impacted the last quarter of the financial year ended in June 2013 and
the cost pressures caused by the weakening Rand. After seeing some signs of improved activity between
September and November, trading in December was noticeably the lowest in recent years. It was pleasing to note
that both FloorworX and Safic continued to make progress on expanding their market base during the very tough
market conditions prevalent in the industrial and construction sectors. This contributed to turnover being
marginally higher than the previous half year. However, the increased competitive pressure on selling prices, the
higher cost of many raw materials and lower production volumes in FloorworX have led to reduced gross margins.
The increased distribution costs, largely driven by the higher fuel prices, together with the additional costs
relating to the concerted sales focus on penetrating new markets, have seen the operating profit reduce by 47%.
The Suntups and Degrachem acquisitions concluded during the period are both settling in very well into the
existing group structures and are contributing in line with initial expectations. Management remains confident
that they will add value going forward. In line with the group’s stated strategy of growing both organically and by
acquisition, considerable efforts were focused during the period under review on identifying and evaluating
possible targets.
Finance charges were slightly less than the previous half year and the tax charge reduced in line with the lower
profits. Headline earnings per share were 53% lower than the corresponding previous period.
Inventory levels have increased following the acquisitions made during the period, planned higher stock holding
of certain products in anticipation of projects to be delivered early in 2014 and the lower than anticipated sales in
December. This has resulted in the cash flows from operating activities being slightly negative for the period. The
long term loans have been fully repaid on schedule.
FLOORING DIVISION
This division, which celebrated 60 years in business during 2013, comprises the FloorworX business operations
and contributed 78% of the group revenue.
Sales of flooring products manufactured by FloorworX at the East London facility were lower than during the
comparative six months largely due to reduced demand from the public sector. Production volumes declined by
6%. This was offset by increased sales of imported flooring products, especially in the area of commercial office
and retail developments. The Suntups acquisition contributed to this increase and will provide even further
impetus in these markets going forward. The result was a 6,6% increase in revenue for the flooring division.
Trading margins remained under severe pressure, impacted by cost drivers including fuel, energy and
petrochemical derivative inputs which have not yet been fully reflected in selling prices in the market. Operating
profit reduced by 42%.
Marketing activities remain focused on ensuring that FloorworX maintains its leading position within the resilient
flooring sector. There are strategies already implemented to penetrate new markets whilst further improving the
service offering in those sectors where FloorworX has traditionally been a significant supplier.
ENVIRONMENTAL SOLUTIONS DIVISION
This comprises the SAFIC business operations and contributed 22% of the group revenue.
The division made further progress towards its stated objectives of increasing revenue in areas which provide
recurring and contract based income, broadening the customer base and adding more specialised chemical
products. This assisted the division in achieving a 7,7% increase in revenue despite the extremely tough trading
conditions experienced in the mining and heavy industrial sectors traditionally serviced by Safic. The acquisition
during the period of Degrachem, which supplies specialty solutions to the metal treatment market, provided
further diversification to the customer base and product mix. The contractual and managed account area of the
business now accounts for 35% of the total revenue of the division. The supply of adhesives, screeds and
maintenance products into the flooring market through FloorworX was steady and remains a focus area for Safic.
The total volumes produced by Safic increased by 9% compared to the first six months of the previous year. The
division also continues to assess the possible opportunities to provide local production for certain water
treatment products supplied by Ion Exchange Safic.
The changing product mix supplied by Safic together with pricing pressure from customers and cost increases on
inputs due to the volatility of the local currency, resulted in a slightly reduced gross margin ratio. Continuing
attention to cost control was reflected in cash expenses increasing by only 4% despite the investment in
additional resources for the sales team. The net result was a marginal increase in operating profit for the division.
The restructuring of the sales function was largely completed during the period and the focus of industry specific
teams should facilitate improved service levels for customers. This was in line with the two year plan for the
division approved by the board at the commencement of the current financial year.
WATER TREATMENT DIVISION
This comprises the Ion Exchange Safic water treatment business, which is a partnership with Ion Exchange India,
and which is equity accounted by Accentuate as an associated company.
Ion Exchange Safic provides a comprehensive range of water treatment technologies and solutions to the
southern African market. The customer base continues to grow. Following the pleasing results achieved on the
project, one of the largest customers has recently significantly increased their process to be treated by products
supplied by Ion Exchange Safic. Numerous discussions with potential clients continue and the business is involved
in an increasing number of quotes and proposals. The lengthy sales cycle generally encountered in this industry
has caused the rate of market penetration to be a little slower than the partners were anticipating. The set up
costs and marketing costs required to ensure the large base of potential customers are aware of Ion Exchange
Safic’s presence and capabilities has resulted in the operations not yet reaching break even, although no further
losses are reflected in the Accentuate group results for this period as the investment had already been reduced to
nil during the previous financial year.
Although the business will take a little longer than originally anticipated to make a contribution to the group
results, Accentuate maintain their view that this venture can become a meaningful contributor to the success of
the group in the years ahead as it enhances its reputation for providing cost effective and innovative water
treatment solutions.
PROSPECTS
As mentioned in previous announcements, the effect of the national election scheduled for May, coupled with the
volatility of the Rand, are likely to result in the economic climate for the group remaining challenging for the
second half of the financial year. However, the operating entities within Accentuate are anticipating that the
trading levels for the second half of the current financial year will be better than those experienced in the second
half of the previous financial year. This is supported by the current order book for the flooring division being
higher than it has been for some time and indications that the school upgrade programme announced by the
government is gaining momentum in certain provinces. The weaker Rand will allow the products manufactured by
the group to be even more competitive once the impact of the change has been fully absorbed into the market
prices.
The businesses will continue to robustly manage costs with the aim of improving gross margins and containing
operating costs. The additional costs incurred in line with the strategy of expanding into new markets will have a
reduced impact in the second half. A key challenge will be managing the impact of the currency volatility and the
petrochemical derived prices on the cost of raw materials and operating costs.
The group remains confident about the growth potential that exists in the markets currently serviced and in the
new areas being targeted. It is hoped that the government’s proposed infrastructural development programmes
will be effectively and efficiently implemented since these present significant opportunities for the Accentuate
businesses. Management continues to vigorously target potential new markets and there has already been
progress in this area. As set out in the integrated annual report, the group strategy includes growing by
acquisition. This was as evidenced by the two successful acquisitions announced during the period under review.
There are a number of other possible acquisitions being considered and evaluated which would further expand
and diversify the group’s product mix and customer base. Announcements in this regard will be made at the
appropriate time.
Opportunities remain evident in the area of water treatment. Significant investment in the country’s water
resources is required if the country is to meet the growing demand. Additionally, the rising cost of water will
result in users having to be much more efficient in their use and recycling of water. Increasingly stringent effluent
regulations and monitoring, together with the significant increases in penalties for violation of these regulations,
will present increasing demands from all users of water for solutions in this regard. Ion Exchange Safic is ideally
positioned to provide comprehensive solutions in all of these areas that are suitable for the local conditions and
which have been tried and tested in other emerging economies.
ACQUISITIONS DURING PERIOD
On 1 September 2013 the group acquired certain of the assets and liabilities of Degrachem (Pty) Limited and
Suntups Wooden Flooring (Pty) Limited in separate transactions. The Degrachem business acquired is principally
involved in the supply of specialty metal treatment products and the Suntups business acquired is principally
involved in the supply of engineered wooden flooring and decking products.
Goodwill and intangible assets from the acquisitions consist largely of the synergies and economies of scale
expected from combining the operations of the entities into existing structures, know-how and market knowledge
of management, and certain agency and distribution agreements.
Fair value of assets acquired and liabilities assumed:
Degrachem Suntups Total
R’000 R’000 R’000
Property, plant and equipment 667 314 981
Inventories 375 6 284 6 659
Trade and other receivables 799 482 1 281
Trade and other payables (655) (442) (1 097)
Total identifiable net assets 1 186 6 638 7 824
Goodwill and intangible assets 1 814 1 300 3 114
Purchase price 3 000 7 938 10 938
Accéntuate Ltd ordinary shares issued to date 2 817 076 8 712 864 11 529 940
Accéntuate Ltd ordinary shares to be issued 841 464 968 096 1 809 560
The agreements with the vendors were for the purchase considerations to be settled by issuing Accéntuate
ordinary shares at a price based on the volume weighted average price of shares traded during the two months
preceding the effective date. The majority of the shares have already been issued. The balance will be issued
either six months after the effective date, based on the realisation of the working capital acquired, or twelve
months after the effective date based on the achievement of certain profit warranties. The figures in the table
above reflect the full potential purchase considerations and it is not anticipated that there will be any material
reductions to these amounts. The acquisition details of the businesses disclosed above are based on estimated
fair values at the effective date. The actual fair value of the businesses will be accurately determined by the next
anniversary date.
The revenue from the acquisitions during the period was R8,5 million, and would have been R13,25 million had
the acquisitions been effective for the full period under review.
DIVIDEND
In line with the policy to only consider paying dividends based on full year results, no interim dividend is
proposed.
GOING CONCERN
The board of directors is satisfied that, after taking into account the current banking facilities, its utilisation
thereof and the budgeted profits and cash flows, the working capital available to Accéntuate will be sufficient to
meet its requirements for the next 12 months.
CONTINGENT LIABILITY
There are directors’ fees of R1,46 million payable subject to implementation of the required special resolution.
UPDATE ON ANNUAL GENERAL MEETING
The legal challenge against the results of certain of the resolutions passed at the latest Accentuate annual general
meeting instituted by a consortium of shareholders, whose votes were amongst those excluded from the voting
results due to non-compliance with the Companies Act, is continuing. The company is doing everything possible to
have the matter heard in court as quickly as possible. A further announcement will be made to shareholders
immediately after the outcome of the legal proceedings has been decided.
EVENTS AFTER REPORTING DATE
There are no significant matters arising since the end of the period under review.
BASIS OF PREPARATION
The condensed consolidated financial results for the six months ended 31 December 2013 have been prepared in
accordance with and contain the information required by IAS 34 Interim Financial Reporting, the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee or its successor, the JSE Listings Requirements
and the Companies Act.
The financial statements are based on appropriate accounting policies and methods of computation which are in
terms of IFRS and which have been consistently applied with those in the audited financial statements for the
previous year and which are supported by reasonable and prudent judgments and estimates.
They were prepared under supervision of the chief financial officer, Chris Povall (CA(SA)).
UNQUALIFIED REVIEW OPINION
The condensed consolidated financial statements for the six months ended 31 December 2013 have been
reviewed by the group’s auditors, Mazars Inc. The review was conducted in accordance with ISRE2410 "Review of
Interim Financial Information Performed by the Independent Auditor of the Entity". Their review report is
available for inspection at the group’s registered office.
APPRECIATION
The board would like to take this opportunity to thank all the management teams and staff for their loyalty and
dedication towards the achievement of the objectives that have been set. The board would also like to thank all
the customers, partners, advisors, suppliers and most importantly, the shareholders for their ongoing support and
faith.
CORPORATE INFORMATION
Non-executive directors: MDC Motlatla (chairman)
RB Patmore
NE Ratshikhopha
D Molefe
PS Kriel (alternate)
Executive directors: FC Platt (chief executive officer)
CJ Povall (chief financial officer)
DE Platt
Registration number: 2004/029691/06
Registered address: Accéntuate Business Park
32 Steele Street
Steeledale
Johannesburg
2197
Postal address: PO Box 1754
Alberton
1450
Company secretary: PS Dayah
E-mail: pdayah@accent.co.za
Telephone: (011) 406 4100
Facsimile: (086) 509 3246
Transfer secretaries: Computershare Investor Services (Pty) Limited
Designated adviser: Bridge Capital Advisors (Pty) Limited
By order of the Board
3 March 2014
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