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Unaudited consolidated interim financial results for the six months ended 31 December 2013
ALERT STEEL HOLDINGS LIMITED
INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA
REGISTRATION NUMBER: 2003/005144/06
JSE CODE: AET
ISIN: ZAE000092847
UNAUDITED CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013
The condensed consolidated interim financial results for the period ended 31 December 2013 were prepared under the supervision of
MSI Gani - CA (SA), Chief Financial Officer. This interim report for the six months ended 31 December 2013 was published on 31 March
2014.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Notes Unaudited Restated
FOR THE PERIOD ENDED December 2013 December 2012
R'000 R'000
Continuing operations
Revenue 404,930 374,233
Cost of sales (320,085) (298,103)
Gross profit 84,845 76,130
Other income 1,826 1,187
Selling, distribution and admin expenses (115,587) (97,100)
Results from operating activities (28,916) (19,783)
Finance income 3 -
Finance costs (6,809) (8,675)
Loss before taxation (35,722) (28,458)
Taxation - -
Loss from continuing operations (35,722) (28,458)
Profit from discontinued operations - 484
Loss and total comprehensive income for the period (35,722) (27,974)
Total comprehensive loss attributable to:
Equity holders of Alert Steel Holdings Ltd (36,011) (27,675)
Non-controlling interest 289 (299)
Weighted average shares in issue on which earnings are based ('000) 52,000 44,546
Diluted weighted average shares in issue on which earnings
are based ('000) 52,000 44,622
Basic loss per share (cents) (69.3) (62.1)
- Continuing operations (69.3) (62.1)
- Discontinued operations - -
Diluted loss per share (cents) (69.3) (62.0)
- Continuing operations (69.3) (62.0)
- Discontinued operations - -
HEADLINE EARNINGS
Reconciliation of loss and headline loss for the period
Loss attributable to equity holders (36,011) (27,675)
Impairment of Goodwill 5,720 -
(Profit)/loss on disposal of property, plant and equipment (1,488) 147
Loss on disposal of businesses - 378
Tax effect - -
Headline loss attributable to equity holders (31,779) (27,150)
Headline loss per share (cents) (61.1) (60.9)
- Continuing operations (61.1) (60.9)
- Discontinued operations - -
Diluted headline loss per share (cents) (61.1) (60.8)
- Continuing operations (61.1) (60.8)
- Discontinued operations - -
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes Unaudited Restated
AS AT December 2013 June 2013
R'000 R'000
ASSETS
Non-current assets 71,617 62,130
Property, plant and equipment 71,617 56,410
Goodwill - 5,720
Current assets 189,651 174,544
Inventories 143,612 120,133
Trade and other receivables 33,549 48,569
Taxation receivable 201 201
Cash and cash equivalents 12,289 5,641
Assets held for sale - 294
Total assets 261,268 236,968
EQUITY AND LIABILITIES
Total equity (59,382) (23,660)
Equity attributable to owners of the company (59,572) (23,561)
Non-controlling interest 190 (99)
Non-current liabilities 5,601 141,143
Loans and borrowings 2 - 136,810
Straight-lining lease accrual 5,601 4,333
Current liabilities 315,049 119,485
Loans and borrowings 2 177,459 -
Provisions - 1,224
Straight-lining lease accrual 562 550
Trade and other payables 137,028 117,711
Total equity and liabilities 261,268 236,968
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Notes Unaudited Restated
FOR THE PERIOD ENDED December 2013 December 2012
R'000 R'000
Balance at the beginning of the period (23,660) (2,148)
Shares issued - 29,887
Loss and total comprehensive income for the period (35,722) (27,974)
Balance at the end of period (59,382) (235)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Notes Unaudited Restated
December 2013 December 2012
FOR THE PERIOD ENDED R'000 R'000
Cash used in operating activities 3 (3,820) (13,289)
Cash (used in)/from investing activities 3 (23,400) 11,677
Cash from financing activities 3 33,873 1,430
Increase/(decrease) in cash and cash equivalents 6,653 (182)
Cash and cash equivalents at the beginning of the period 5,636 (19,700)
Cash and cash equivalents at the end of the period 12,289 (19,882)
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
Unaudited Restated
FOR THE PERIOD ENDED December 2013 December 2012
R'000 R'000
External revenues
Branches 333,860 333,212
Containers & Express Stores 71,070 41,021
404,930 374,233
Reportable segment loss before tax
Branches (39,776) (32,313)
Containers & Express Stores 4,054 3,855
(35,722) (28,458)
Unaudited Restated
AS AT December 2013 June 2013
R'000 R'000
Segment assets
Branches 227,959 210,717
Containers & Express Stores 33,309 26,251
261,268 236,968
Segment liabilities
Branches 320,650 260,628
320,650 260,628
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS
1. Basis of preparation and accounting policies
The condensed consolidated unaudited interim financial results for the six months ended 31 December 2013 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 2013 and are in terms of International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board except for the change in accounting
policy as set out below.
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).
Change in accounting policies
Alert Steel has adopted the new suite of consolidation standards:
IFRS 10: Consolidated Financial Statements (“IFRS 10”), IFRS 11: Joint Agreements (“IFRS 11”), IFRS 12 Disclosure of Interests in Other
Entities, IAS 27: Separate Financial Statements and IAS 28: Investment in Associates and Joint Ventures, which all became effective in
the interim period ended 31 December 2013.
As a result of adopting IFRS 10, Alert Steel has changed its accounting policy for evaluating control over its investees. IFRS 10 introduces
a new control model that is applicable to all investees, by focusing on whether Alert Steel has power over an investee, exposure or rights
to variable returns from its involvement with the investee and ability to use its power to affect those returns.
Alert Steel has re-evaluated its involvement in its joint venture with Alert Steel Tshwane Proprietary Limited. Alert Steel Tshwane has
been reclassified from a jointly controlled entity that was previously accounted for using the equity method to a subsidiary.
As required by IFRS 10, the comparative period has been restated. Please refer to note 5 for more details on the restatement.
2. Loans and borrowings Unaudited Restated
December 2013 June 2013
R'000 R'000
Southern Palace Investments 265 Proprietary Limited 153,114 127,004
Cannistraro Investments 282 Proprietary Limited 24,345 9,806
177,459 136,810
Reflected as:
Non-current liabilities - 136,810
Current liabilities 177,459 -
Loans and borrowings from Cannistraro Investments 282 Proprietary Limited and Southern Palace Investments 265 Proprietary Limited
bear interest at the prime lending rate and are repayable on 31 October 2014. Loans are secured with a cession over all assets.
Southern Palace Investments 265 Proprietary Limited Investments 265 Proprietary Limited will continue to support Alert Steel. Should
the group not be able to repay the loan on 31 October 2014, the loan can be repaid over a period of nine months thereafter.
Subsequent to the reporting period, Mercantile Bank Limited entered into an agreement to take over the Southern Palace Investments
265 Proprietary Limited loan, which increased to R104 million. Please refer to the subsequent events note for more information.
R96 million of the loans and borrowings were converted to equity on 10 March 2014 as a result of the Claw-back offer. Southern Palace
Investments 265 Proprietary Limited has assigned an amount of R71,3 million to Cannistraro Investments 282 Proprietary Limited to
enable it to exercise its rights in terms of the Claw-back offer.
3. Notes to cash flow statement Unaudited Restated
December 2013 December 2012
R'000 R'000
Cash effects of operating activities
Loss before taxation (35,722) (27,974)
Adjustment for:
Depreciation 9,980 7,675
(Profit)/loss on disposal of property, plant and equipment (1,488) 147
Impairment of Goodwill 5,720 -
Loss on disposal of businesses - 378
Interest received (3) -
Interest paid 6,809 8,675
Movement in provisions (1,224) -
Lease accrual adjustment 1,280 (8,266)
Working capital changes:
Inventories (23,479) 46,596
Trade and other receivables 15,020 19,142
Trade and other payables 19,317 (50,957)
Cash used in operations (3,790) (4,584)
Interest received 3 -
Interest paid (33) (8,675)
Taxation paid - (30)
Cash used in operating activities (3,820) (13,289)
Cash effects of investing activities
Purchase of property, plant and equipment (29,137) (3,235)
Proceeds on disposal of property, plant and equipment 5,443 3,806
Proceeds form disposal of non-current assets held for sale 294 -
Proceeds on disposal of business - 11,106
Cash (used in)/from investing activities (23,400) 11,677
Cash effects of financing activities
Repayment of bonds on properties - (579)
Advances of bonds on properties - 330
Repayments of instalment sale agreements - (3,493)
Loans received from bank - 1,176
Loans repaid to bank - (1,667)
Loans received from shareholders 33,873 -
Loans repaid to shareholders - (24,224)
Proceeds from shares issued - 29,887
Cash from financing activities 33,873 1,430
4. 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:
Unaudited Restated
December 2013 December 2012
R'000 R'000
Purchases from/(sales to) related parties
Build Kwik Wholesalers Proprietary Limited (5,100) -
Build Kwik Trading Proprietary Limited 14,147 -
Aucor (Sandton) Proprietary Limited (4,224) -
Capital Africa Steel Proprietary Limited - 3,500
Reinforcing & Mesh Solutions, a division of Capital Africa Steel Proprietary Limited - 2,515
Transactions with key management personnel
Directors emoluments 2,526 1,808
5. Change in accounting policies
Prior period adjustments relate to the adoption of IFRS 10. Please refer to note 1 for more information.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes Audited Adjustments Restated
AS AT June 2013 June 2013 June 2013
R'000 R'000 R'000
ASSETS
Non-current assets 60,494 1,636 62,130
Property, plant and equipment 54,774 1,636 56,410
Goodwill 5,720 - 5,720
Current assets 176,242 (1,698) 174,544
Inventories 119,573 560 120,133
Trade and other receivables 45,257 3,312 48,569
Amount owing by equity accounted investee 5,575 (5,575) -
Taxation receivable 201 - 201
Cash and cash equivalents 5,636 5 5,641
Assets held for sale 294 - 294
Total assets 237,030 (62) 236,968
EQUITY AND LIABILITIES
Total equity (23,462) (198) (23,660)
Equity attributable to owners of the company (23,462) (99) (23,561)
Non-controlling interest - (99) (99)
Non-current liabilities 141,143 - 141,143
Loans and borrowings 2 136,810 - 136,810
Straight-lining lease accrual 4,333 - 4,333
Current liabilities 119,349 136 119,485
Loans and borrowings 2 - - -
Provisions 1,224 - 1,224
Straight-lining lease accrual 550 - 550
Trade and other payables 117,575 136 117,711
Total equity and liabilities 237,030 (62) 236,968
Unaudited Restated
December 2013 December 2012
R'000 R'000
6. Salient features
* Actual number of shares in issue ('000) 52,000 52,014
* Net asset value per share (cents) (114.2) (45.5)
* Net tangible asset value per share (cents) (114.2) (56.5)
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
* Settlement of onerous lease - 5,554
* Significant items in loss before taxation
- Depreciation 9,980 7,675
- Directors emoluments 2,526 1,808
- Employee cost 44,667 45,108
- Impairment of goodwill 5,720 -
- Retrenchment costs 2,315 1,621
- Professional fees 2,872 1,650
OVERVIEW
The trading for the six months under review continued to be challenging. The difficult trading conditions experienced in the first half of
the calendar year in Limpopo province where the group has a significant presence continued in the second half of the calendar year. The
group's split between cash business and credit continues to grow and the cash business has increased to more than 65% of the group's
revenue. We have however seen a slowdown in contracting and credit business during the period as a result of tighter credit control. The
group changed its focus from rolling out containers to rather concentrating on the opening of express stores. This is to accommodate the
re-introduction of hardware and building supplies into the group. The group now comprises of 15 branches, 14 express stores and 31
containers.
Selling, distribution and admin costs increased by R18,5 million. Included in this amount are impairment of goodwill (R5,7 million),
retrenchment costs (R2,3 million), professional fees relating to corporate actions (R1,6 million), and increased
depreciation on property, plant and equipment (R2,3 million). The monthly overhead cost continues to be a key focus area to ensure
that Alert becomes the lowest cost supplier in the industry and this will continue to be one of the main focus areas in the next six
During the period under review, the group introduced hardware and building supplies together with steel and steel related products to
offer customers a complete range of products required for the building industry. In line with this decision to expand the product range,
the group acquired all the trading stock from Build Kwik Wholesalers Proprietary Limited, a retailer in the building and hardware supplies
industry to the value of R23,6 million during December 2013. The full benefit of these additional stores will come to fruition during the
next six months. This resulted in an increase in the group's inventory holding to R143,6 million. The group also acquired certain fixed
assets from Build Kwik amounting to R6,1 million. Other additions to property, plant and equipment included relocating it's distribution
centre to accommodate the increase in stock holding, refitting most of its major stores with new shelving to accommodate the new
product ranges, as well as opening of new stores. This amounted to R23,0 million.
The group's trade payables have increased as a result of the increase in inventory, but also a result of extended terms negotiated with its
suppliers.
It is the company's intention to develop a further 28 stores between now and April 2015, which will be sited in the
Greater Johannesburg and Pretoria areas. These areas have an added benefit of limiting the distribution costs as they are very close to
the distribution center in Pretoria. The result of these additional stores will have a positive effect on the financial position of the
FINANCIAL RESULTS
When comparing the results for the 6 months ended December 2013 to the six months ended December 2012, the following items can be
noted:
Revenue increased by 8.2% to R404,9 million (December 2012: R374,2 million). The gross profit increased by 11.4% to R84,8 million
(December 2012: R76,1 million).
Selling, distribution and admin expenses increased by 19.0% to R115,6 million (December 2012: R97,1 million).
The loss after tax increased by 27.7% to R35,7 million (December 2012: R28,0 million)
Headline loss increased by 14.7% to R31,8 million (December 2012: R27,1 million). Headline loss per share decreased by 0.27% to 61.1
cents per share (December 2012: 60.9 cents).
Loss per share increased by 11.6% to 69.3 cents per share (December 2012: 62.1 cents).
SUBSEQUENT EVENTS
Subsequent to 31 December 2013, the following events occurred:
During 2013, an underwriting agreement was concluded between Cannistraro Investments 282 Proprietary Limited Investments 282
Proprietary Limited and the company where Cannistraro Investments 282 Proprietary Limited agreed to underwrite an amount of R96
million of a right issue to be undertaken by the company, subject to the fulfilment of various suspensive conditions. As a result a
renounceable Claw-back offer of 48 million Claw-back shares of no-par value at a subscription price of 200 cents per Claw-back share
were offered to shareholders recorded in the share register on 17 February 2014. On 10 March 2014 R96 million of the loans and
borrowings were converted to equity as a result of this Claw-back offer.
In March 2014 , Alert Steel entered into agreement with Mercantile Bank Limited, to take over the Southern Palace Investments 265
Proprietary Limited loan of R104 million, which was repayable in October 2014, on the following terms and conditions:
- Interest will be charged at prime overdraft lending rate less 2% and will be serviced monthly.
- Repayment terms of R45 million in February 2018 and R59 million in February 2020
- The loan is secured by a notarial special and general covering bond.
STATEMENT OF GOING CONCERN
The group incurred a loss for the period ended 31 December 2013 of R35,7 million (31 December 2012: R28,0 million) and at that date,
the group's liabilities exceeded its assets by R59,3 million (30 June 2013: R23,5 million). However, had the Claw-back offer taken place on
31 December 2013, the net asset value of the group would have been R36,6 million.
Notwithstanding the loss for the period, there have been considerable improvements in the group's cash flows with the cash used in
operating activities improving from R13,3 million to R3,8 million.
Southern Palace Investments 265 Proprietary Limited provided a letter of support to Alert Steel Proprietary Limited and confirmed that if
the loan cannot be repaid on the repayment date, the loan can be repaid over an extended period of 9 months. Subsequent to the
reporting period, Mercantile Bank Limited entered into an agreement to take over the Southern Palace Investments 265 Proprietary
Limited loan of R104 million. The effect of the new negotiated terms with Mercantile Bank Limited would be to reclassify this loan as a
non-current liability.
As stated in the overview, the group is operating in a very difficult trading environment. The financial statements have been prepared on
the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future
operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the
ordinary course of business.
The directors have assessed the group's cash flow requirements for the next twelve months. The directors view that the group has
sufficient cash resources to meet its obligations as they fall due.
CHANGES TO THE BOARD OF DIRECTORS
The following changes to the Board of directors occurred during the period and afterwards:
* MJ Gani was appointed as chief operations officer on 10 December 2013
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 31 March 2014
ANNUAL FINANCIAL STATEMENTS
The previous signed audited annual financial statements of the Group for the period ended 30 June 2013 are available for inspection at
the registered address found below.
CORPORATE INFORMATION
Non executive directors M Patel (Chairman), AE Loonat, BS Mahuma, WP van der Merwe
Executive directors PN Dodson, MSI Gani, MJ Gani 9
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 Proprietary Limited
Designated adviser Exchange Sponsors (2008) Proprietary Limited
Auditors KPMG Inc.
Date: 31/03/2014 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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