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Preliminary Audited Results
MASONITE (AFRICA) LIMITED
Incorporated in the Republic of South Africa
Registration number: 1942/015502/06
Share code: MAS ISIN: ZAE000004289
("Masonite" or "the company")
PRELIMINARY AUDITED RESULTS
for the year ended 31 December 2013
Summarised statement of profit or loss and other comprehensive income
Restated
Audited Audited
Rand thousands Notes 2013 2012
Revenue 673 236 674 393
Cost of sales (493 293) (504 688)
Gross profit 179 943 169 705
Fair value adjustment of biological assets 3 28 899 10 455
Other income 5 461 10 876
Distribution expenses (97 457) (96 586)
Selling and marketing expenses (12 532) (14 423)
Administrative expenses (19 816) (17 510)
Other operating expenses (35 760) (19 693)
Results from operations 48 738 42 824
Finance income 1 551 1 564
Finance cost (2 926) (2 359)
Profit before tax 47 363 42 029
Income tax expense 7 (11 656) 10 150)
Net profit for the year 35 707 31 879
Other comprehensive income
Items that may be classified subsequently
to profit or loss - 1 369
Increase in fair value of available-for-
sale assets - 1 369
Items that may not be classified subsequently
to profit or (loss) 866 (1 935)
Actuarial gain/(loss) on post-retirement
medical benefit obligation 1 203 (2 688)
(Increase)/decrease of income tax (337) 753
Total comprehensive income for the year
attributable to ordinary shareholders 36 573 31 313
Earnings per share (cents)
Basic 8.1 501 447
Diluted 8.2 500 447
Summarised statement of financial position
Restated Restated
Audited Audited Audited
31 December 31 December 31 December
Rand thousands Notes 2013 2012 2011
ASSETS
Non-current assets
Property, plant and equipment 111 665 112 677 107 700
Intangible assets 671 484 494
Biological assets 3 200 700 171 801 161 346
Investments 1 399 1 399 30
Total non-current assets 314 435 286 361 269 570
Current assets
Inventories 102 180 115 044 81 774
Trade and other receivables 93 103 68 504 88 309
Amounts due from fellow subsidiaries - 518 -
Tax receivable 793 4 483 5 330
Derivative financial instruments 62 1 680 82
Cash and cash equivalents 88 705 93 902 95 265
Total current assets 284 843 284 131 270 760
Total assets 599 278 570 492 540 330
EQUITY AND LIABILITIES
Capital and reserves
Share capital 3 566 3 562 3 562
Share premium 3 156 3 156 3 156
Share-based payment reserve 5 2 628 1 773 2 980
Retained income 426 675 390 102 358 789
Total equity 436 025 398 593 368 487
Non-current liabilities
Deferred tax 53 579 45 177 45 177
Post-retirement benefit
obligation 4 31 781 31 116 27 038
Straight-lining lease accrual 93 107 103
Total non-current liabilities 85 453 76 400 72 318
Current liabilities
Trade and other payables 71 208 92 329 93 886
Amounts payable to fellow subsidiaries 4 809 2 945 2 069
Derivative financial instruments 1 770 215 3 563
Straight-lining lease accrual 13 10 7
Total current liabilities 77 800 95 499 99 525
Total equity and liabilities 599 278 570 492 540 330
Net asset value per share (cents) 6 114 5 643 5 193
Summarised statement of cash flows
Audited Audited
Rand thousands 2013 2012
Cash flow from operating activities
Operating profit 48 738 42 824
Adjusted for:
Movement in fair value of biological assets (28 899) (10 455)
Depreciation and amortisation 22 738 20 478
IFRS 2 Share-based payment charge 855 (1 207)
Foreign exchange loss/(gain) - unrealised 3 398 (4 093)
Increase in liability for retirement benefit obligation 1 868 1 390
Profit on disposal of property, plant and equipment (51) (36)
Other non-cash items (11) 7
Change in working capital (28 260) (16 005)
Cash generated from operations 20 376 32 903
Taxation refund/(paid) 99 (8 550)
Net financing expense (1 335) (847)
Net cash flow from operating activities 19 140 23 506
Cash flow from investing activities
Replacement of property, plant, and equipment and
intangible assets (22 006) (25 504)
Proceeds on disposal of property, plant and equipment 144 95
Net cash outflow from investing activities (21 862) (25 409)
Cash flow from financing activities 4 -
Net cash flow from financing activities 4 -
Net decrease in cash and cash equivalents (2 718) (1 903)
Effects of exchange rates on the balance of cash held in
foreign currencies (2 479) 540
Net cash and cash equivalents at the beginning of
the year 93 902 95 265
Net cash and cash equivalents at the end of the year 88 705 93 902
Summarised segment revenues and results
Segment revenue Segment PBIT
Rand thousands 2013 2012 2013 2012
Hardboard 517 983 517 537 24 610 33 202
Other products 82 216 83 348 1 856 4 953
Forestry 111 060 102 439 40 236 21 048
Intersegment (39 825) (30 026) - -
Unallocated 1 802 1 095 1 852 1 131
Total 673 236 674 393 68 554 60 334
Administrative expenses (19 816) (17 510)
Results from operations 48 738 42 824
Finance income 1 551 1 564
Finance expense (2 926) (2 359)
Profit before tax 47 363 42 029
Income tax expense (11 656) (10 150)
Total per statement of
comprehensive income 35 707 31 879
Summarised segment assets
2013 2012
Rand thousands
Hardboard 240 925 230 460
Other products 38 265 30 926
Forestry 217 209 196 383
Unallocated 102 879 112 205
599 278 569 974
Amounts due from fellow subsidiaries - 518
Total segment assets 599 278 570 492
Summarised statement of changes in equity
Share-
based
Share Share payment
Rand thousands capital premium reserve
Balance at 1 January 2012
(as previously reported) 3 562 3 156 2 980
Re-measurement of post-retirement medical
aid benefit - - -
Balance as at 1 January 2012 (restated) 3 562 3 156 2 980
Share-based payment gain - - (1 207)
Net profit for the year attributable
to ordinary shareholders - - -
Other comprehensive income for the year,
net of tax - - -
Balance at 31 December 2012 (restated) 3 562 3 156 1 773
Issue of ordinary shares under the share
incentive scheme 4 - -
Share-based payment charge - - 855
Net profit for the year attributable
to ordinary shareholders - - -
Other comprehensive income for the year,
net of tax - - -
Balance at 31 December 2013 3 566 3 156 2 628
Retained Total
Rand thousands income equity
Balance at 1 January 2012
(as previously reported) 360 280 369 978
Re-measurement of post-retirement medical
aid benefit (1 491) (1 491)
Balance as at 1 January 2012 (restated) 358 789 368 487
Share-based payment gain - (1 207)
Net profit for the year attributable
to ordinary shareholders 31 879 31 879
Other comprehensive income for the year,
net of tax (566) (566)
Balance at 31 December 2012 (restated) 390 102 398 593
Issue of ordinary shares under the share
incentive scheme - 4
Share-based payment charge - 855
Net profit for the year attributable
to ordinary shareholders 35 707 35 707
Other comprehensive income for the year,
net of tax 866 866
Balance at 31 December 2013 426 675 436 025
Notes
1. Basis of preparation
The summarised financial information has been prepared in accordance with the
framework concepts and measurement requirements of International Financial
Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by
the Accounting Practices Committee and the information as required by IAS 34:
Interim Financial Reporting and the requirements of the Companies Act of South
Africa. This preliminary 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 2012, except for the
application of IAS 19:Employee Benefits as revised in 2011.
In compliance with the disclosure requirements of the Companies Act No 71 of 2006, the annual financial
statements have been prepared under the supervision of Mr N M Stromnes on behalf of Masonite (Africa)
Limited.
2. Auditor's opinion
The auditors, Deloitte & Touche, have issued their opinion on the company's financial statements for the year
ended 31 December 2013. The audit was conducted in accordance with International Standards on Auditing. They
have issued an unmodified opinion. A copy of the auditor's report together with a copy of the audited
financial statements is available for inspection at the company's registered office. These summarised
financial statements have been derived from the company's financial statements and are consistent in all
material respects with the company's financial statements. These summarised financial statements have been
audited by the company's auditors who have issued an unmodified opinion. The auditor's report does not
necessarily report on all of the information contained in this announcement. Any reference to future
financial information included in this announcement has not been reviewed or reported on by the auditors.
Shareholders are advised that in order to obtain a full understanding of the nature of the auditor's
engagement they should obtain a copy of that report together with the accompanying summarised financial
information from the company's registered office.
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 2013 2012
Timber plantations
Establishment costs 45 203 41 007
Immature timber 70 653 55 130
Mature timber 77 018 66 256
Total 192 874 162 393
Sugar cane
Establishment costs 2 985 2 456
Immature sugar cane 2 441 3 942
Mature sugar cane 2 400 3 010
Total 7 826 9 408
Total biological assets 200 700 171 801
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. All actuarial gains and losses are recognised immediately through
other comprehensive income in order for the net plan asset or liability recognised in the statement of
financial position to reflect the full value of the plan deficit or surplus. There are no plan assets held.
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 2013 2012
7. Income tax expense
Current tax 3 591 9 397
Deferred tax 8 065 753
Total 11 656 10 150
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 35 707 31 879
Weighted average number of ordinary shares in issue 7 130 892 7 124 225
Basic earnings per share (cents) 501 447
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 to acquire 210 000 (2012:
210 000) ordinary shares at a weighted average price of R29,69 per share on or before 30 September 2020. The
calculation of diluted earnings per share at 31 December 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 outstanding share options. The number of shares calculated as above is compared with the number
of shares that would have been issued assuming the exercise of the share options.
Rand thousands 2013 2012
Profit attributable to ordinary shareholders 35 707 31 879
Weighted average number of ordinary shares in issue 7 130 892 7 124 225
Adjusted for weighted average share options outstanding 4 837 14 075
Weighted average number of ordinary shares (diluted)
at 31 December 7 135 729 7 138 300
Diluted earnings per share 500 447
8.3 Headline earnings
Reconciliation of headline earnings
Profit for the year 35 707 31 879
Adjusted for:
Profit on disposal of assets (51) (36)
Tax effect of profit on disposal of assets 14 10
Headline earnings 35 670 31 853
Headline earnings per share (cents) 500 447
Diluted headline earnings per share (cents) 500 446
9. Change in accounting policy
In the current year, the company has applied IAS: 19 Employee Benefits (as revised in 2011) and the related
consequential amendments. The company has applied IAS 19 (as revised in 2011) retrospectively and in
accordance with the transitional provisions as set out in IAS 19.173 (as revised in 2011). The opening
balance of the earliest comparative period presented (1 January 2012) has been restated.
The amendments to IAS 19 change the accounting for defined benefit plans and termination benefits. The most
significant changes relate to accounting for changes in defined benefit obligations and plan assets. The
amendments require the recognition of changes in defined benefit obligations and in fair value of plan assets
when they occur, and hence eliminate the “corridor approach” permitted under the previous version of IAS 19
and accelerate the recognition of past service costs. All actuarial gains and losses are recognised
immediately through other comprehensive income in order for the net plan asset or liability recognised in the
statement of financial position to reflect the full value of the plan deficit or surplus. Furthermore, the
interest cost and expected return on plan assets used in the previous version of IAS: 19 is replaced with a
“net-interest” amount under IAS 19 (as revised in 2011), which is calculated by applying the discount rate to
the net defined benefit liability or asset. IAS 19 (as revised in 2011) introduces certain changes in the
presentation of the defined benefit cost, including more extensive disclosures.
The effect on the statement of financial position was as follows:
Post-retirement
benefit Deferred tax Retained
Rand thousands obligation liability income
Balance as reported at 1 January 2012 24 967 45 757 360 280
Effect of adoption of
IAS 19 (as revised in 2011) 2 071 (580) (1 491)
Restated balance as at 1 January 2012 27 038 45 177 358 789
Balance as reported at 31 December 2012 26 357 46 510 393 528
Effect of adoption of
IAS 19 (as revised in 2011) 2 071 (580) (1 491)
Effect on other comprehensive income 2 688 (753) (1 935)
Balance as reported at 31 December 2012 31 116 45 177 390 102
The effect on the statement of comprehensive income was as
follows:
Previously reported total comprehensive income, for the year
ended 31 December 2012, attributable to ordinary shareholders 33 248
Effect of adoption of IAS 19 (as revised in 2011) (2 688)
Deferred tax on the effect of adoption of
IAS 19 (as revised in 2011) 753
Restated total comprehensive income for the year 31 313
10. Change in directorate
Mr AG Venton (executive director) resigned from the board on 23 May 2013 and retired from the company with
effect 30 June 2013.
11. Annual general meeting
Shareholders are advised that the seventy first 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
16 May 2014 at 13:00.
12. Subsequent events
No material fact or circumstance has occurred between the end of the year and the date of this report.
Report to Stakeholders
Introduction
2013 was a year of great change for Masonite. We instituted a broad based restructuring of our mill and began
a sweeping assessment of our forestry operations which we believe, over time, will dramatically increase the
yield from our plantations. We also strengthened the Executive Team with the appointment of a lean
manufacturing team and an experienced technical and operations head. As a result of these changes, we are
confident that we have the basis for an integrated focus on common goals designed to create shareholder
value. The cornerstones of our strategy are to:
- Align capacity to demand;
- Manage our product portfolio to optimise profitability;
- Reduce costs, improve quality and increase productivity through implementation of lean manufacturing
processes;
- Invest in silviculture to optimise our forestry assets for long term improvement in yield; and
- Drive a high performance orientated team culture throughout the company.
Year under review
Revenue was flat versus a year ago (R673 million versus R674 million) behind a construction market that
reflected the slow South African economy and strong price pressure from imports which negatively impacted
domestic volumes. These headwinds were partially offset by strong export growth, despite port strikes and
congestion, as a rapid decline in the Rand relative to major currencies made exports more attractive.
While top-line performance was muted, the mill restructuring increased productivity and improved our
competitiveness. Combined with a disciplined market approach, these factors and other strategic actions
taken by management improved second half margins allowing headline earnings per share to grow by 11,9%.
Working capital was also a key focus and inventory was reduced by 11%.
We are at the beginning of a multi-stage mill optimisation process. The first stage of that process was
instituted during 2013 and focused on driving a continuous improvement agenda designed to increase
productivity and lower costs. During 2014 we plan to continue to drive additional productivity efforts while
simultaneously making dramatic improvement in product quality.
Despite the short-term impact of government actions which dramatically increased labour costs throughout the
forestry and wood products industry, the performance of our Forestry assets has begun to improve through our
“Forestry First” initiative. Importantly, our strategic forestry plans have begun to deliver some early
gains resulting in the improvement of our biological assets. We are focused on improving our plantation
revenue models, normalising our age class distribution and strengthening our silviculture practices which is
expected to drive up the Mean Annual Increment (MAI) resulting, over time, in improvement in timber yields.
The company is committed to a strong safety culture. During 2013 Masonite maintained its excellent safety
record, FSC™ certification, NOSA and NOSCAR ratings. The Board and the executive team appointed a new
Corporate Safety Manager and focused extensively on strengthening the corporate governance agenda. Our
agenda is being further strengthened by the controls being implemented for the introduction of the Sarbanes-
Oxley Act (“SOX”) in 2014.
LOOKING FORWARD
We believe that the actions we have taken in the last year towards driving a high performance culture,
strengthening our core business and setting the platform for our continuous improvement agenda will allow us
to optimise our investments and maximise future earnings. We continue to face a number of strategic market
risks, exchange rate volatility and uneasy labour markets. 2014 will see the continued delivery of our plans
which are expected to improve mill optimisation, quality and inventory controls. We believe that the
combination of these actions will further strengthen our working capital position and improve our ability to
generate sustainable shareholder value.
M G Leitch HJ Loring
Chairman Chief Executive Officer
27 March 2014
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)
COMPANY SECRETARY
MP Govender
TRANSFER SECRETARIES
Computershare Investor Services (Proprietary) Limited
70 Marshall Street, Johannesburg, 2001
SPONSOR
Nedbank Capital
135 Rivonia Road, Sandton, 2196
Date: 27/03/2014 02:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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