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Reviewed condensed provisional results for the year ended 31 December 2013
RBA Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 1999/009701/06)
Share Code: RBA ISIN Code: ZAE000104154
RBA Holdings Limited
(“RBA” or “the company”)
REVIEWED CONDENSED PROVISIONAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2013
HEADLINES
- Project delays on a number of development sites in 2013 resulted in
lower than anticipated construction volumes with revenue down 13% to
R 198,1 million (2012 – R 227,4 million);
- The operating loss of R 28,2 million (2012 - R 8,3 million operating
profit) was negatively impacted by one-off non-cash write downs of R
11,6 million;
- Together, these contributed to a basic loss of 6.60 cents per share of
which 2.96 cents per share relates to non-cash write downs and
impairments;
- Although the business turn around has proceeded more slowly than
expected, significant progress has been made during 2013 in increasing
the number of serviced stands available for sale; improving the
business’s development pipeline; building additional construction
capacity and achieving better sales and marketing performance;
- With these building blocks increasingly in place, the business’s
prospects look positive.
OVERVIEW
Established in 1997, RBA is a supplier of affordable homes in South Africa.
Our business model encompasses the complete property development process viz.
the acquisition of land, town planning, project management of services
installation, marketing, sale and construction of quality affordable homes.
The bulk of RBA’s revenue is generated through:
- The marketing and sale of building packages to prospective clients; and
- The subsequent construction of houses for clients who have approved home
loans once all town planning approvals have been achieved on a development
site.
Revenue is received and recognised as the construction process progresses.
The Company expected construction volumes in excess of 850 freehold homes for
2013 from an anticipated seven developments. Delays in council approvals;
availability of bulk services; and delays in services installations resulted
in the Company being unable to construct houses and receive progress payments
on five development sites in 2013. As a result, the Company only constructed
611 homes in 2013 (2012 – 643 homes) despite the fact that sales and
marketing performance improved. Revenue generated was thus significantly
lower than anticipated at R198,1 million (2012 – R227,4 million).
Gross profit margins on each development are dependent on a number of
factors, including:
- Selling prices of competitive product in the surrounding area;
- The size of the houses being constructed;
- The costs of building material and labour in constructing the house;
- The cost of the land;
- The costs of bulk service contributions;
- The costs of providing infrastructure e.g. roads, water, sewerage,
electricity; and
- In cases where the Company is not the land owner, the profit participation
agreement reached with the owner of the land.
Gross profit margins on different developments can vary substantially.
The mix of developments that RBA was able to execute in 2013 had lower
average selling prices and lower margins than the developments that were
constructed in 2012.
In anticipation of significant growth expected in the business, the Company
has been building operational capacity and improved systems. As a result the
Company is currently highly operationally geared and thus particularly
sensitive to the volume of houses built and gross profit margins achieved.
Thus, the combined effect of lower volumes and tighter margins was that gross
profit at R 44,1 million was well below what was anticipated (2012 – R75,8
million).
This was the major contributing factor to the Company’s overall loss of R33,6
million for the year (2012 – loss of R 9,4 million).
In order to fund these losses, the Company raised funding through various
mechanism including the sale of non-core assets, a rights issue and the
placement of shares.
The Company is cognisant of the fact that the results for 2013 will be very
disappointing to shareholders as indications were that the business turn
around would occur in 2013. The delays on developments highlighted above
unfortunately had the effect of also delaying the turn around.
As such, the company is positive that, although it has taken longer than
expected, the actions taken by the Company to return to profitability should
begin to bear fruit in 2014 as these have already resulted in an increase in
the number of serviced stands available for sale, a significant improvement
in the business’s project pipeline, an increase in construction capacity and
better sales and marketing performance.
In order to further facilitate the turn around and future growth of the
business the Company has raised an additional R 16,2 million from its major
shareholders in March 2014 as detailed in the SENS announcement issued on 7
March 2014.
Once the turn around is further cemented the Company anticipates raising
additional capital to recapitalize the Company to secure an appropriate land
bank, expand its financial services offering and improve its BEE credentials.
AUDITORS REVIEW REPORT
The condensed provisional financial information for the year ended 31
December 2013 has been reviewed by the Company’s auditors, Logista CA (SA)
Incorporated. The review was conducted in accordance with ISRE 2410 Review of
Interim Financial Information performed by the Independent Auditor of the
Entity. The auditors unmodified review report does not necessarily cover all
the information in this announcement. Shareholders are therefore advised that
in order to obtain a full understanding of the nature of the auditors work
they should obtain a copy of that report together with the accompanying
financial information from the registered office of the Company. Any
reference to future financial performance included in this announcement has
not been reviewed or reported on by the Company’s auditors.
REVIEWED CONDENSED PROVISIONAL RESULTS
The reviewed condensed provisional annual results for the year ending 31
December 2013 are presented below.
Condensed Consolidated Statement of Financial Position
31-Dec-13 31-Dec-12
Reviewed Audited
R’000 R’000
Assets
Non-Current Assets 161,163 144,154
Investment property 10,731 11,431
Investment property - Rental Portfolio 108,130 74,881
Property, plant and equipment 1,309 14,467
Goodwill - 1,530
Stands held for trading 11,826 15,766
Investment in associate 639 -
Deferred tax 28,528 22,112
Deposits for land and stand allocations - 3,967
Available for Sale - 78,774
Investment property – Rental Portfolio - 78,774
Current Assets 100,603 101,042
Inventories 2,132 934
Stands held for trading 66,948 54,936
Revenue recognition in excess of billings 12,675 11,194
Trade and other receivables 12,396 16,100
Deposits for land and stand allocations 3,305 15,278
Cash and cash equivalents 3,147 2,600
Total Assets 261,766 323,970
Equity and Liabilities
Equity 38,544 58,422
Share capital 61,470 46,976
Reserves 2,768 2,543
(Accumulated loss)/Retained income (26,042) 7,664
Non-controlling interest 348 1,239
Liabilities
Non-Current Liabilities 140,173 112,053
Financial liabilities 65,300 53,013
Financial liabilities - Rental Portfolio 68,767 49,956
Finance lease obligation 661 925
Deferred tax 5,445 8,159
Available for Sale - 53,404
Financial liabilities – Rental Portfolio - 53,404
Current Liabilities 83,049 100,091
Other financial liabilities 19,894 28,053
Current tax payable 1,098 1,321
Finance lease obligation 268 249
Trade and other payables 54,020 64,986
Billings in excess of revenue recognition 520 754
Loans from directors - 34
Bank overdraft 7,249 4,694
Total Equity and Liabilities 261,766 323,970
Shares in issue – Excl share incentive scheme 599,182,577 429,976,189
Net asset value per share (cents) 6.43 13.59
Net tangible asset value per share (cents) 6.43 13.23
Condensed Consolidated Statement of Comprehensive Income
31-Dec-13 31-Dec-12
Reviewed Audited
R’000 R’000
Revenue 198,116 227,449
Cost of sales (154,000) (151,573)
Gross profit 44,116 75,876
Other income 1,022 539
Profit on disposal of sectional title units
through business combination 2,442 -
Operating expenses (75,814) (68,125)
Operating (loss)/profit (28,234) 8,290
Investment revenue 44 25
Impairment of Goodwill (1,530) (6,073)
Fair value adjustment (2,000) -
Share on profit of Associate 639 -
Profit on disposal of Business Combination (71) -
Profit on sale of non-current assets 4,335 187
Finance costs (16,319) (15,006)
Loss before taxation (43,136) (12,577)
Taxation 8,291 2,149
Total comprehensive Loss (34,845) (10,428)
Attributable to:
Equity holders of the parent (33,669) (9,400)
Non-controlling interest (1,176) (1,028)
(34,845) (10,428)
Weighted average number of shares in issue 509,961,449 400,162,625
Basic loss per share (cents) (6.60) (2.35)
Headline loss per share (cents)
(7.08) (0.88)
Condensed Consolidated Statement of Cash Flows
31 Dec 2013 31 Dec 2012
Reviewed Audited
R’000 R’000
Cash flows from operating activities (45,633) 10,670
Cash generated from operations (31,631) 27,341
Interest received 44 25
Interest paid (14,046) (12,675)
Taxation paid - (4,021)
Cash flows from investing activities 63,907 (28,423)
Proceeds on disposal of Investment Property –
45,510 -
Rental Portfolio held as available for sale
Acquisition of property, plant and equipment (307) (1,593)
Proceeds on disposal of property, plant and
17,594 -
equipment
Additions to investment property - (29,151)
Business combination 150
Sale of investment property 960 2,321
Cash flows from financing activities (20,283) 17,744
Proceeds on share issue 13,219 10,678
Loans raised/(repaid) (33,087) 10,254
Loans from directors (34) (4,312)
Movements in finance lease obligations (381) 1,124
Cash flows for the year (2,009) (9)
(2,093) (2,084)
Cash and cash equivalents at beginning of year
(4,102) (2,093)
Cash and cash equivalents at end of year
Condensed Consolidated Statement of Changes in Equity
Share option
Share Reval reserve Minority
Capital reserve R’000 Accum profit interest Total
R’000 R’000 R’000 R’000 R’000
Balance at 01 Jan 2012 30,345 2,543 - 16,889 2,442 52,221
Loss for the year - - - (9,400) (1,028) (10,428)
Issue of shares 16,631 - - - - 16,631
Change in shareholding - - - 176 (176) -
Balance at 01 Jan 2013 46,976 2,543 - 7,664 1,239 58,422
Loss for the year - - - (33,669) (1,176) (34,845)
Realisation of Reserve (2,543) - 2,543 - -
Change in shareholding - 2,885 (2,885) - -
Share option expense 857 - - 857
Share options cancelled 974 (974) - - -
Issue of shares 13,520 - - - - 13,520
Change in shareholding - - - 305 285 590
Balance at 31 Dec 2013 61,470 - 2,768 (26,042) 348 38,544
Notes to the Condensed Financial Statements
1. Basis of preparation
The condensed consolidated financial information for the year ended 31
December 2013 has been prepared in accordance with the requirements of
International Financial Reporting Standards on Interim Financial Reporting
(IAS 34), the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee, the Companies Act 71 of 2008 of South Africa and the
listings requirements of the JSE Limited. The accounting policies used to
prepare these reviewed condensed provisional annual financial statements are
consistent with those applied for the financial statements for the year ended
31 December 2012 except for the application of IFRIC 15 Agreements for the
Construction of Real Estate for the accounting for Revenue Recognition. The
application has no financial impact when compared to historic revenue
recognition principles. The reviewed condensed provisional annual financial
statements have been prepared by the CFO, Mr. JL Mortimer (CA) SA and were
approved by the board on 28 March 2014.
2. Condensed segmental report
Property Development Rental Portfolio Consolidated
31-Dec-13 31-Dec-12 31-Dec-13 31-Dec-12 31-Dec-13 31-Dec-12
R’000 R’000 R’000 R’000 R’000 R’000
Revenue 186,443 216,817 11,673 10,632 198,116 227,449
Cost of Sales (154,000) (151,573) - - (154,000) (151,573)
Gross Profit 32,443 65,244 11,673 10,632 44,116 75,876
Profit on disposal of
sectional title units
through business
combination 2,442 - - - 2,442 -
Operating Expenses (69,995) (63,435) (5,819) (4,690) (75,814) (68,125)
Profit on sale of
non-current assets 4,335 187 - - 4,335 187
Impairment – goodwill (1,530) (6,073) - - (1,530) (6,073)
Fair value adjustment - - (2,000) - (2,000) -
Finance cost (9,631) (8,076) (6,688) (6,930) (16,319) (15,006)
Loss before tax (39,637) (11,589) (3,499) (988) (43,136) (12,577)
Total assets 151,117 246,640 110,649 77,330 261,766 323,970
Total liabilities 148,020 209,695 75,202 55,853 223,222 265,548
*available for sale assets and liabilities are included in property
development activities for purposes of segmental reporting.
3. Headline earnings
Reconciliation of headline loss
Loss attributable to ordinary shareholders (33,669) (9,400)
Profit on disposal of non-current asset (4,335) (187)
Impairment of goodwill 1,530 6,072
Profit on disposal of business combination 71 -
Profit on disposal of Res 3 Units through business
combination (2,442) -
Re-measurement included in equity-accounted earnings of
associates (181)
Fair value adjustment of investment properties 2,000 -
Total tax effect of adjustments 911 -
Headline loss to ordinary shareholders (36,115) (3,515)
4. Subsequent events
Shareholders were advised in the SENS announcement and trading update
released on 12 February 2014, that the company had decided to raise capital
to improve its liquidity position, to support growth, further reduce short
term debt, improve skills levels in the company and implement an ERP system.
RBA’s major shareholders are Riskowitz Capital Management LLC, Protea Asset
Management LLC and Midbrook Lane (Pty) Ltd (“the subscribers”), which hold a
total of 20,01% of the shares in issue.
On 7 March 2014 RBA entered into a Loan, Debenture Subscription and Share
Option Agreement with the subscribers as set out in the SENS announcement
issued on that date.
The salient terms and conditions of the transaction are as follows:
- The Subscribers have lent an amount of R16,2 million to the company;
- The loan shall be repayable by the company by issuing 135 million
Debentures to the Subscribers by not later than 31 July 2014;
- The company shall redeem the Debentures by not later than the third
anniversary of the subscription date;
- The Subscribers will have the right to subscribe for 135 million ordinary
shares in RBA at 12 cents per share;
- The option will be exercisable by the Subscribers at any time before the
redemption of the debentures;
- Upon exercise of the option the obligation to pay the option price shall
be deemed to have been settled by the automatic set-off of the obligation
against the company’s obligation to redeem an equivalent number of
debentures held by the Subscribers;
- The company will be entitled to call for the earlier redemption of all or
some of the debentures.
REVIEW OF 2013 ANNUAL RESULTS
The Company would like to highlight the following key items in relation to
the 2013 results:
- Revenue was down was down 13% to R198,1 million (2012 - R227,4
million) due to the reduction in the number of freehold houses built
during the period.
- The Company had previously secured certain rights to acquire and
develop Kirkney extension 40 representing 1300 residential housing
opportunities. The Company concluded a financing and land allocation
agreement during 2013 whereby these rights have been transferred to a
third party for a consideration of R10,5 million that is included in
revenue.
- The gross profit margin reduced to 22,3% (2012 - 33,4%).
- Other income includes an amount of R2,4 million that relates to the
sale of a subsidiary company that owned 148 sectional title units in
Protea Glen. The net consideration received for the sale was R6,1
million and the Company had previously recognised a net revaluation
surplus on the units of R3,7 million which reduced the profit
recognised in the current year.
- Operating costs increased to R75,8 million (2012 - R68,1 million)
including one off impairments of R7,9 million. These impairments
include a deposit of R3,9 million that was made to a land developer who
has been placed into liquidation and it is unlikely that the deposit
will be recovered.
- A fair value adjustment write down of R2,0 million was recognised
against the Company’s rental portfolio.
- Goodwill of R1,5 million (2012 - R6,1 million) was impaired during the
year.
- The Company successfully concluded a rights offer of 125 000 000 shares
at 8 cents per share raising R10,0 million.
- The Company concluded the sale of its office building situated in
Braamfontein, Johannesburg, which realised a profit on sale of R5,2
million.
- Available for Sale Investment Property of R33,7 million (2012 – R35,7
million) has been reclassified to Investment Property – Rental
Portfolio as it no longer meets the classification criteria of IFRS 5
Non-current Assets Held for Sale at year end.
- Reduction in total liabilities of R42,3 million.
- The net asset value of the Company at 31 December 2013 was 6.43 cents
(2012 – 13.59 cents) per share.
BUSINESS REVIEW
Key Activity Indicators
The table below highlights the fact that the number of houses constructed in
2013 fell while sales activity improved, particularly in the second half of
2013 when 392 net home loan approvals were achieved compared to 298 in the
first half.
As at As at
31-Dec-13 30-Dec-12
Freehold houses completed in the period 611 643
Bank approved sales less cancellations for the period 690 612
This has resulted in the following work in progress:
As at As at
31-Dec-13 30-Dec-12
Individual houses under construction at year end 210 315
Anticipated approved sales not yet under construction at 262 130
year end
Land
RBA’s new board was appointed in late 2012 and during 2013 it became evident
that the Company’s stock of available serviced land for sale was
insufficient. Due to current balance sheet constraints, in addition to
continuing to look for opportunities to build the Company’s land bank through
purchases of land, the Company has also embarked on a programme to build
stronger business partnerships with existing landowners who do not have RBA’s
land development, sales or construction capabilities and to leverage business
opportunities off these relationships.
The positive results of these activities do take time to achieve but the
projected available opportunities pipeline has already improved since the
beginning of 2013 as per the tables below.
Land bank position at the beginning of 2013 - freehold houses
Opening Expected to Total Expected Remaining Total
Serviced be Serviced Available to be Balance
Stands in 2013 in 2013 Available Expected
in 2014 after 2014
Secured* 370 478 848 462 200 1 510
Prospect** - 535 535 630 4 530 5 695
Total 370 1 013 1 383 1 092 4 730 7 205
Land bank position at the beginning of 2014 - freehold houses
Opening Expected to Total Expected Remaining Total
Serviced be Serviced Available to be Balance
Stands in 2014 in 2014 Available Expected
in 2015 after 2015
Secured* 662 1 178 1 840 784 1 296 3 920
Prospect** - 250 250 1 650 6 138 8 038
Total 662 1 428 2 090 2 434 7 434 11 958
* Opportunities are reflected as secured opportunities where the Company
directly or indirectly owns the land or in the case of external land
developers an allocation agreement has already been entered into with a
landowner.
** Opportunities are reflected as prospects where negotiations are already
underway and an agreement is expected to be reached with the current
landowner within a period of approximately six months or where an agreement
has already been finalised but finance has not yet been secured but is
expected to be secured within approximately six months.
The tables above show that the risk of underperformance due to a lack of
available land is already considerably lower than in 2013 and that this risk
is set to continue decreasing in the future. Indicative of this is the fact
that at the beginning of 2013 the Company had secured 848 opportunities for
the 2013 year of which 370 were serviced. The position at the beginning of
2014 is that the Company has secured 1840 opportunities for the 2014 year of
which 662 are already serviced and, thus, available for sale and
construction.
In addition to the above opportunities the Company also increased its total
sectional title unit opportunities from 1900 to 3452 opportunities during
2013. However, in this market the current constraint is not land availability
but rather securing finance and offtake agreements with institutional
investors and funders. The Company is making good progress in this area but
only expects this side of the business to start making a more notable
contribution to results in 2015.
Sales and marketing
Sales and marketing performance has improved over the course of 2013 and this
improvement in performance is expected to contribute to improved revenue in
2014.
This improved sales performance has been supported by:
- Restructuring of the sales and marketing division;
- More competitive pricing of the Company’s product offering;
- Improved marketing and sales strategies aimed at its target market
through radio advertising campaigns, its call centre and a new sales
website;
- More projects available for sale; and
- Increased credit appetite from banks with the Company now having six
banks willing to grant 100% loans to clients compared to two banks at
the start of 2013.
Human capital
At 31 December 2013 the workforce consisted of 178 permanent employees and
493 construction staff employed on a contract basis. The decision to employ
construction staff on this basis rather than use sub-contractors is aimed at
improving the quality of workmanship and on-time delivery of houses to
clients.
The board is committed to investing in staff training and ensuring it has an
appropriately skilled workforce to meet its future opportunities.
Green policy
The Company continues with various initiatives in compliance with the new
SANS building standards aimed at improving the energy efficiency of housing
in South Africa. These initiatives are in line with our commitment to
operating our business in an environmentally friendly manner.
PROSPECTS
The Company expects that the losses incurred in 2013 will not be repeated in
2014, for the following reasons:
Demand for affordable housing remains high
The number of clients wanting to purchase freehold houses and applying for
home loans improved dramatically over the course of 2013 with levels in the
second half growing by 33% compared to the first half.
Construction system beginning to deliver results
In June/July 2013 RBA piloted a new construction management system in the
Bram Fischerville project where it was able to achieve considerably faster
construction times - reducing these from around four to five months to around
two months while also achieving improved consistency in terms of delivery
times and quality. This new system was rolled out to all of the Company’s
larger projects in the latter part of the year and early 2014 and it is
expected to boost construction performance markedly as it will be bedded down
across the Company during the first half of this year.
Land availability has improved and downside risks reduced
It is in the nature of the land development industry that delays can and will
occur despite efforts to prevent these or minimise the effects of these.
Thus, the board has determined that beyond ensuring that there are effective
project management systems in place, the most effective way to mitigate these
risks is to have more projects under way at all times. This would limit the
financial effect of delays that may occur on any particular project as
happened in 2013. In order to achieve this the Company has focused on
building a larger and better quality land pipeline. 2014 has begun with the
Company having five projects (Southern Gateway, Kirkney, Orchards, Lehae and
Bram Fischerville projects) and expects to add three more projects during the
course of the year: Devland and Atteridgeville projects where installation of
services has already begun and a further project in Protea Glen. This is in
contrast to the position in 2013 where the Company began the year with only
two projects and the expectation that five additional projects would be added
at various times through 2013 - in the end only one additional project was
fully underway by year end.
Although land availability will continue to be a key constraint on the
businesses performance in 2014 the land that is already serviced and
available and expected to be available will allow the business to operate at
well above break even levels for the first time since 2007.
Turnaround Strategy Implementation
The projects that the Company intends executing in 2014 provide the
opportunity for the Company to significantly increase sales and construction
volumes.
In addition, the increased number of projects should allow the Company to
selectively increase prices to end users while still managing the risk that
this might have on sales volumes. Increased volumes will also put the Company
in a position to negotiate reduced material costs with key suppliers.
Together this provides the Company with the opportunity to return to
profitability in 2014.
To ensure that the turn around is then sustained, strategic focus areas for
management are:
- Continuing to build an improved land bank/project pipeline to ensure
sufficient serviced stands are always available for sale and
construction;
- Growing additional sources of revenue from clients through the sale of
financial service offerings e.g. home owners cover, credit life
policies and home loan origination fees;
- Improving the Company’s BEE credentials.
In order to fund these strategic initiatives and cement the turn around it is
anticipated that further capital will be raised to recapitalise the business
once the Company has identified opportunities for the deployment of this
capital that will be value enhancing to shareholders.
DIVIDENDS
No dividend has been declared for the year. The dividend policy of RBA will
be reviewed annually in light of RBA’s cash flow, gearing and capital
requirements.
APPRECIATION
The Company recognises the value of its management teams and staff and thanks
them for their loyalty and work ethic during the year. We also thank our
bankers, suppliers, business partners, advisors, clients and shareholders for
their support and faith in the Company.
By order of the Board
28 March 2014
L Mokhesi A J Rothman
Chairman Chief Executive Officer
CORPORATE INFORMATION
Executive directors: A J Rothman, J L Mortimer, B A Stegmann, F S le Roux
Independent non-executive directors: L Mokhesi (Chairman), M Thompson, K M
Maroga, V Thembekwayo.
Company Secretary: Ronelle Kleyn
Registration number: 1999/009701/06
Registered address: Nedbank Building, Cnr Biccard & Jorissen Street,
Braamfontein, 2017
Postal address: P.O Box 30885, Braamfontein, 2017
Telephone: 011 483 5000
Facsimile: 086 516 0873
Web address: www.rbaholdings.co.za
Transfer secretaries: Computershare Investor Services (Pty) Limited
Auditors: Logista CA (SA) Inc. Chartered Accountants and Registered Auditors
Designated Adviser: Exchange Sponsors (2008) (Pty) Limited
Date: 28/03/2014 03:52:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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