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ANDULELA INVESTMENT HOLDINGS LTD - Reviewed provisional condensed consolidated financial results for the year ended 31 December 2013

Release Date: 31/03/2014 11:58
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Reviewed provisional condensed consolidated financial results for the year ended 31 December 2013

Andulela Investment Holdings Limited  
(Incorporated in the Republic of South Africa) 
(Registration number: 1950/037061/06)
JSE share code: AND     ISIN: ZAE000172870
(“Andulela” or “the Company” or "the Group")
www.andulelaholdings.com

Reviewed provisional condensed consolidated financial results 
for the year ended 31 December 2013

Condensed consolidated statements of financial position
                                                Reviewed      Audited
                                                   As at   Year ended
                                             31 December  31 December
                                                    2013         2012
                                      Notes        R’000        R’000
Assets
Non-current assets                               759 127      758 392
Plant and equipment                       1      318 301      326 498
Goodwill                                  2      418 679      418 679
Deferred tax asset                                22 147       13 215
Current assets                                   272 090      278 000
Inventory                                         69 689       62 960
Trade and other receivables                      163 186      181 083
Taxation                                           3 510        3 395
Cash and cash equivalents                         35 705       29 521
Non-current assets held for sale                       –        1 041
Total assets                                   1 031 217    1 036 392
Equity and liabilities
Capital and reserves                             454 051      470 906
Stated capital                            3      976 114      976 114
Revaluation reserve                                4 638        4 638
Cash flow hedge reserve                   4      (65 579)     (48 055) 
Accumulated loss                                (523 273)    (529 830) 
Non-controlling interest                          62 151       68 039
Non-current liabilities                          277 297      298 231
Redeemable preference share capital               18 361       38 327
Derivative financial liabilities          4       92 554       73 715
Borrowings                                5      111 650      133 400
Lease straightlining accrual                      14 580       12 516
Deferred tax liability                            40 152       40 273
Current liabilities                              299 869      267 255
Taxation                                           6 836       10 976
Trade and other payables                          62 413       82 505
Redeemable preference share capital               15 000       15 780
Derivative financial liabilities          4       16 408        6 130
Borrowings                                5      199 212      151 864
Total equity and liabilities                   1 031 217    1 036 392
Net asset value per share (cents)*                447,14       459,66
Net tangible asset value per share
(cents)*                                           47,84        60,35

* The December 2012 net asset value and net tangible asset value per 
ordinary share has been recalculated to take into account the share 
consolidation of 50:1, which was approved by shareholders on 
27 February 2013 and became effective on 29 April 2013.


Condensed consolidated statements of comprehensive income
                                                Reviewed      Audited
                                                   As at   Year ended
                                             31 December  31 December
                                                    2013         2012
                                      Notes        R’000        R’000
Revenue                                          902 528    1 471 972
Cost of sales                                   (711 288)  (1 281 040) 
Gross profit                                     191 240      190 932
Profit from operations                            40 665       26 230
Investment income                                  3 092        1 317
Impairment of plant and equipment         1            –      (47 262) 
Loss on scrapping of plant and
equipment                                 1            –      (20 769) 
Finance costs                                    (25 164)     (27 910)
Profit/(loss) before taxation                      8 593      (68 394) 
Taxation                                          (8 755)      18 508
Net profit/(loss)for the year                      9 838      (49 886)
Other comprehensive (loss) net of
tax                                              (20 965)     (57 488)
Loss on accrual of derivative cash
flow hedge                                3      (29 118)     (79 845)
Deferred tax reversal on derivative
cash flow hedge                           3        8 153       22 357
Total comprehensive (loss)                       (11 127)    (107 374) 
Net profit/(loss) attributable to:                 9 838     (49 886)
–  Equity holders of Andulela                      6 557     (53 212)
–  Non-controlling interest                        3 281        3 326
Total comprehensive (loss) 
attributable to:                                 (11 127)    (107 374)
–  Equity holders of Andulela                    (10 968)    (101 266)
–  Non-controlling interest                         (159)      (6 108) 
Ordinary shares in issue (millions)*               87,64        87,64
Weighted average number of ordinary
shares in issue (millions)*                        87,64        87,52
Headline earnings/(loss)                           6 198      (4 049)
– Attributable net profit/(loss)                   6 557     (53 212)
– Add back: Impairment, scrapping 
and loss of plant and equipment net
of deferred taxation                                (358)     49 163
Earnings/(loss) and diluted 
earnings/(loss) per ordinary share
(cents)*                                            7,48      (60,80)
Headline earnings/(loss) and diluted 
headline earnings/(loss) per ordinary
share (cents)*                                      7,07       (4,63) 
Dividends per ordinary share (cents)                   –           –

* The earnings/(loss) and the headline earnings/(loss) per ordinary 
share are calculated by dividing the earnings/(loss) and the headline 
earnings/(loss) by the weighted average number of ordinary shares in
issue during the year. The diluted earnings/(loss) and the diluted 
headline earnings/(loss) per ordinary share are calculated by 
dividing the diluted earnings/(loss) and the diluted headline 
earnings/(loss) by the weighted average number of ordinary shares in 
issue and issuable during the year. The December 2012 ordinary shares 
in issue and weighted average number of shares in issue, as well as the 
earnings/(loss) and the headline earnings/(loss) per ordinary share 
for 2012, have been recalculated to take into account the share 
consolidation of 50:1, which was approved by shareholders on 
27 February 2013 and became effective on 29 April 2013.


Condensed consolidated statements of cash flows
                                                Reviewed      Audited
                                                   As at   Year ended
                                             31 December  31 December
                                                    2013         2012
                                                   R’000        R’000
Cash flows from:
Operating activities                              18 701      (15 836)
Investing activities                              (9 196)      (9 523) 
Financing activities                              (3 321)      (3 375) 
Change in cash and equivalents                     6 184      (28 734) 
Opening cash and equivalents                      29 521       58 255
Closing cash and equivalents                      35 705       29 521



Condensed consolidated statements of changes in equity
                                                Reviewed      Audited
                                                   As at   Year ended
                                             31 December  31 December
                                                    2013         2012
                                                   R’000        R’000
Opening balances                                 470 906      584 600
Movements for the period:
– Net profit/(loss) for the year 
attributable to equity holders of
Andulela                                           6 557      (53 212)
– Cash flow hedge reserve net of
deferred tax                                     (17 524)     (48 055)
– Non-controlling interest                        (5 888)     (12 427) 
Closing balances                                 454 051      470 906


Notes to the reviewed provisional condensed consolidated financial 
results

Basis of preparation
The reviewed provisional condensed consolidated financial results for 
the year ended 31 December 2013 have been presented in accordance 
with the framework concepts and the measurement and recognition 
requirements of International Financial Reporting Standards (“IFRS”), 
the information required by IAS 34, ‘interim financial reporting’, 
the SAICA Financial Reporting Guides as issued by the Accounting 
Practices Committee and Financial Reporting Pronouncements as issued 
by the Financial Reporting Standards Council, the requirements of the 
South African Companies Act, 2008, as amended and the JSE Limited 
Listings Requirements. The reviewed provisional condensed consolidated 
financial results are presented in South African Rand, which is the 
Group’s functional currency. The results have been prepared in accordance 
with the accounting policies of the Company that are in terms of IFRS 
and that are consistent with the accounting policies of the previous 
financial year. These results were prepared under the supervision of 
Henk Engelbrecht, the Group Chief Financial Officer.


1. Plant and equipment
                                                Reviewed      Audited
                                                   As at   Year ended
                                             31 December  31 December
                                                    2013         2012
                                                   R’000        R’000
Opening balance                                  326 498      409 007
Impairment of plant and equipment                      –      (47 262) 
Loss on scrapping of plant and equipment               –      (20 769)
Transferred to non-current assets held
for sale                                               –       (1 041) 
Additions                                         11 779        9 817
Disposals                                         (2 167)        (540)
Depreciation                                     (17 809)     (22 714) 
Plant and equipment at carrying value            318 301      326 498

During the 2012 year Pro Roof Steel Merchants Proprietary Limited and 
its subsidiaries (“PRSM”) had a professional valuer re-assess the 
recoverable amounts of a specific line of plant and equipment 
resulting in an impairment of R47 million before deferred tax. PRSM 
also scrapped plant and equipment to the value of R21 million for the 
2012 year-end, which had no material future economic benefits. The plant 
and equipment of the Nelspruit operation, which was disposed of as a 
going concern with effect from 1 March 2013, was classified as non-current 
assets held for sale during the 2012 financial year.

2. Goodwill
The goodwill of R418,7 million arose from the acquisition of the 
remaining interests in Abalengani Mining Investments Proprietary 
Limited (“AMI”) and JB Platinum Holdings Proprietary Limited (“JBPH”) 
by the Company in 2010. AMI and JBPH respectively hold 49,63% and 
33,96% in Kilken Platinum Proprietary Limited (“Kilken”) as their 
only investments. The carrying amount as at 31 December 2013 has been 
tested for impairment and the board is satisfied that no impairment 
is required for the 2013 financial year.


3. Stated capital
                                                Reviewed      Audited
                                                   As at   Year ended
                                             31 December  31 December
                                                    2013         2012
                                                   R’000        R’000
3.1 Ordinary shares
Authorised
220 000 000 ordinary shares of no par
value*                                                 –            – 
Issued
4 382 241 731 ordinary shares of 1 cent
each* (2012)                                           –      976 114
87 644 836 ordinary shares of no par
value*                                           976 114            –
3.2 Share premium
Opening balance                                        –      932 292
Transfer to stated capital                             –     (932 292) 
Closing balance                                        –            – 
Total stated capital                             976 114      976 114

* At the general meeting of shareholders held on 27 February 2013 the 
authorised share capital of 5 500 000 000 ordinary shares and issued 
share capital of 4 382 241 731 ordinary shares of no par value of the 
Company was consolidated on a 50 to 1 basis, resulting in an 
authorised share capital of 110 000 000 ordinary shares and an issued 
share capital of 87 644 836 ordinary shares of no par value. Shareholders 
also approved a further special resolution at the same general meeting to 
increase the authorised share capital of the Company to 220 000 000 
ordinary shares of no par value.


4. Derivative financial liability

In 2012, Kilken Platinum hedged 30% of its cash flow from the 
production revenue of platinum, palladium and gold in favour of a 
financier in line with its funding requirements. The hedge mitigates 
the cash flow risk related to commodity price fluctuations and 
movements in the ZAR/USD exchange rate in order to repay the funding 
facility to the financier.

In accordance with IAS 39, R79,8 million of the cash flow hedge was 
recognised as a hedging instrument at fair value in the statements of 
financial position at 31 December 2012, without taking account of any 
collateral held or other credit enhancements, over the remainder of 
the hedge contract term which started on 1 September 2012 and will 
end on 30 September 2018. This resulted in a R57,5 million loss after 
deferred taxation in other comprehensive income and a cash flow hedge 
reserve of R48,1 million, net of non-controlling interests.

For the year ended 31 December 2013 a further R21,0 million loss 
after deferred tax has been recognised in other comprehensive income 
and an increase in the cash flow hedge reserve of R17,6 million, net 
of non- controlling interests in the statement of financial position.
The fair value of the cash flow hedge is apportioned between current 
and non-current liabilities depending on the remaining maturity 
period of the derivative contract and its contractual cash flows.The 
cash flow hedge cost will be accounted for as either a profit or a 
loss as it becomes effective and the settlements are actually made 
over the duration of the term of the hedge contract.


5. Borrowings
Total borrowings of the Group amounted to R310,9 million for 2013
compared to R285,3 million for 2012, and can be summarised as 
follows:

                                                Reviewed      Audited
                                                   As at   Year ended
                                             31 December  31 December
                                                    2013         2012
                                                   R’000        R’000
Absa Bank Limited                                193 400      205 000
Reichmans Capital Proprietary Limited             72 352       41 897
Thunder Rate Investments Proprietary
Limited                                           44 480       37 737
The Rafik Mohamed Family Trust                       630          630
Total borrowings                                 310 862      285 264
Less: short term borrowings                      199 212      151 864
Non-current liabilities                          111 650      133 400



6. Material related party transactions and balances
                                                Reviewed      Audited
                                                   As at   Year ended
                                             31 December  31 December
                                                    2013         2012
                                                   R’000        R’000
Sales to related parties                          65 387      135 108
Purchases from related parties                    27 580       36 156
Administration and management fees paid to
related parties                                      972          900
Preference dividends paid to related
parties                                            2 437        3 762
Rent expenses to related parties                  13 362       16 146
Trade receivables                                 27 299       39 342
Loan accounts – owing to related parties          45 110       38 367
Cumulative redeemable preference shares           33 361       54 107
Trade payables                                         4        5 926


7. Segment reporting
The strategic steering committee is the Group’s chief operating 
decision- maker. Management has determined the operating segments 
based on the information reviewed by the strategic steering committee 
for the purposes of allocating resources and assessing performance. 
The strategic steering committee considers the business from a 
product perspective. The Group has two sources of income, namely, 
the production of platinum group metals at the Kilken tailings 
treatment facility and the processing and distribution of steel 
products by PRSM.

                                                Reviewed      Audited
                                                   As at   Year ended
                                             31 December  31 December
                                                    2013         2012
                                                   R’000        R’000
Tailings treatment                                91 729       99 084
Steel processing                                 810 799    1 372 888
Total revenue                                    902 528    1 471 972
There are no sales between segments
Profit/(loss) after tax
Tailings treatment                                19 994       20 266
Steel processing                                  (3 703)     (65 010)
Other unallocated                                 (6 453)      (5 142) 
Total profit/(loss) after tax                      9 838      (49 886)
Assets
Tailings treatment                                270 242     292 765
Steel processing                                  528 090     500 607
Steel processing – assets held for sale                 –       1 041
Inter-group eliminations                         (197 387)   (183 413) 
Reportable segment assets                         600 045     611 000
Goodwill                                          418 679     418 679
Other unallocated assets                           11 593       6 713
Total assets                                    1 031 217   1 036 392
Liabilities
Tailings treatment                                 310 813    297 466
Steel processing                                   427 062    396 915
Inter-group eliminations                          (194 328)  (183 317) 
Reportable segment liabilities                     543 547    511 064
Redeemable preference shares                        33 361     54 107
Other unallocated liabilities                          258        316
Total liabilities                                  577 166    565 487


Review opinion
These results have been reviewed by the Company’s auditors, BDO South 
Africa Incorporated, whose unmodified review opinion is available for 
inspection at the Company’s registered office. The auditor’s report 
does not necessarily report on all of the financial information 
contained in this announcement. Shareholders are therefore advised 
that in order to gain a full understanding of the nature of the 
auditor’s engagement, they should obtain a copy of the auditor’s 
report together with the accompanying financial information from the 
Company’s registered office. The directors take full responsibility 
for the preparation of this provisional report.


Nature of the business
The Company is an investment holding company. 

Going concern
The financial information has been prepared on a going concern basis. 

Directorate
I Kajee resigned as a non-executive director on 9 May 2013. PC de 
Jager resigned as Chief Financial Officer on 30 June 2013, but 
remains on the board of directors as a non-executive director. JHP 
Engelbrecht was appointed as Chief Financial Officer with effect from 
1 July 2013. The current directors of the Company at the date of this 
report are as follows:

Name                             Date of appointment
MJ Husain (Chairman)#            Appointed as Chairman 26 February 2010
A Kaka (CEO)                     Appointed as CEO 26 February 2010
JHP Engelbrecht (CFO)            Appointed as CFO 1 July 2013
PC de Jager*                     Appointed 25 October 2010
GR Rosenthal#                    Appointed 26 February 2010
PE du Preez#                     Appointed 1 October 2011
CWN Molope#                      Appointed 1 July 2012

#Independent non-executive
*Non-executive

Financial review
Andulela’s results for the year ended 31 December 2013 reflect a 
headline profit of R6,2 million compared to a headline loss of 
R4,0 million for the year ended 31 December 2012. Kilken produced 
excellent results for the year, but the strike and downtime at the 
tailings suppliers significantly affected the results of the second
six-month period, while PRSM’s loss reduced from R16,0 million 
(before the impairment of plant and equipment) for the year ended 
31 December 2012 to R3,7 million for the current year. 
The weakening of the Rand against the US Dollar had a negative effect 
on the cash flow hedge over the last year, resulting in a further 
provision of mark-to-market loss of R21 million over the remaining 
lifetime of the cash flow hedge being recognised against other 
comprehensive income for the year.
Working capital management throughout the Group contributed to 
improved cash flow with cash flow from operations increasing from an 
outflow of R15,8 million in 2012 to an inflow of R18,7 million in 
2013. Debt levels however remain high at R310,9 million compared to 
R285,3 million for 2012, with PRSM the main borrower, with debt of 
R281,1 million in 2013 (2012: R265,0 million).
Andulela redeemed a further R20,7 million of its preference share 
obligations during the period under review, with a balance of 
R33,4 million outstanding as at 31 December 2013.


Kilken
Over the 2013 financial year the US Dollar commodity prices continued 
to decrease by around 20%, but this was mostly offset by the 
weakening of the Rand against the US Dollar by 20%, resulting in a 
modest increase in the Rand commodity prices over the period. US 
Dollar based commodity
prices increased after year-end due to, inter alia, the ongoing 
strike at the three major platinum producers since January 2014.
While the first six months of the 2013 financial year produced 
excellent results, the second half of the financial year was marred 
by industry wide labour actions during October 2013, as well as an 
increase in unplanned downtime at the tailings suppliers. The effect 
of this was lower production, revenue and profitability compared to 
the first six months. Various cost saving plans that were implemented 
in the latter part of the first six months contributed to reduced costs
for Kilken during the second half.
Kilken’s revenue decreased from R99,0 million in 2012 to 
R91,7 million in 2013, with the cash flow hedge reducing revenue by 
R11,2 million for 2013 (2012: R1,1 million). Earnings before interest, 
tax, depreciation and amortisation decreased from R40,8 million in 2012 
to R33,4 million in 2013, mainly due to the decrease in revenue. 
Operating expenses showed a marginal decrease from R29,7 million to 
R27,9 million for 2013. Net profit after tax decreased marginally from 
R20,3 million in 2012 to R20,0 million in 2013.


PRSM
The 2013 financial year was a challenging year for PRSM, with demand 
for steel and steel prices remaining depressed throughout this 
period. The unplanned shutdown by its main supplier in February 2013, 
due to severe damage at its Vanderbijlpark plant, led to a number of 
industry players importing additional material to deal with the 
resultant inventory shortage. This, together with the supplier 
clearing its back-orders, resulted in the industry having a 
substantial oversupply and consequently inventory being sold at or 
below cost.
PRSM’s revenue decreased from R1,372 million in 2012 to R810 million 
for the current year, but earnings before interest, tax, depreciation 
and amortisation improved from R9,7 million in 2012 to R28,6 million 
for 2013, while the loss after tax improved from R16,0 million in 2012 
to R3,7 million in 2013. The results includes an insurance payout of 
R8 million as a result of the unplanned shutdown of the main supplier 
referred to above. The improvement in the earnings before interest, tax, 
depreciation and amortisation is attributable to, inter alia, improved 
margins and cost savings from the closure of the Polokwane operations, 
the sale of the Nelspruit operations and the restructuring of the KZN 
operations to a distribution centre only, as well as a restructuring at 
the Vereeniging operations during July 2013, further reducing costs. 
Depreciation decreased from R19,2 million for 2012 to R14,2 million for 
2013 due to the impairment of plant and equipment at the end of the 2012 
financial year, while the interest expense increased from R16,5 million 
in 2012 to R19,4 million in 2013 due to higher average interest bearing 
debt levels in the PRSM Group during 2013.
Overall the domestic steel market remained weak as a result of the 
global slowdown and this is expected to continue in the short term 
and hence impact the local demand for steel and PRSM’s sales volumes. 
The above factors, together with other operational restructuring 
initiatives of PRSM, contributed to the decline in overall revenue in 
the year to December 2013, compared to the same period in 2012.
Andulela entered into an agreement to dispose of PRSM in December 
2013, as was announced on 4 December 2013 and details of which were 
contained in the circluar to shareholders dated 13 February 2014. The 
disposal was subject to, inter alia, the approval of shareholders and 
the consent of third parties to the transaction. The Company was not 
able to secure this consent and consequently the disposal agreement 
lapsed in March 2014. An announcement to this effect was released on 
6 March 2014 to cancel the general meeting at which the disposal was 
to be tabled for shareholders’ approval.

Events subsequent to the year-end
During February and March 2014 mineworkers in the platinum industry 
embarked on a strike, which resulted in limited production at Kilken 
for these months. The cash flow effect of these months will be felt 
in June and July 2014 when payment is due to Kilken. Management is 
monitoring the impact of the strike on its operations and revenue, 
and will take appropriate action to manage the Group’s cash flows and 
cash resources during this period of uncertainty.
As indicated above, the PRSM disposal could not be successfully 
implemented. Andulela’s board is reconsidering its options with 
regard to its investment in PRSM and will revert to shareholders in 
due course on this matter.
No other material event occurred subsequent to the year-end up to the
date of this results announcement which could have an effect on the 
results of the Group or its subsidiaries.


Commitments
The Group has no outstanding capital commitments at year-end.

For and on behalf of the board
Mohamed J Husain                            Ashruf Kaka
Independent non-executive chairman          Chief executive officer

Sandton
31 March 2014


Registered Office
108 4th Street, Parkmore, Sandton 2196

Directors
MJ Husain# (Chairman), A Kaka (CEO), JHP Engelbrecht (CFO), 
GR Rosenthal#, PE du Preez#, CWN Molope#, PC de Jager*
#Independent non-executive
*Non-executive

Company Secretary
H Kazi

Auditors
BDO South Africa Incorporated
Building C, Riverwalk Office Park, 41 Matroosberg Road, 
Ashlea Gardens, Pretoria

Transfer Secretaries
Link Market Services Proprietary Limited
13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein

Sponsor
Java Capital, 2 Arnold Road, Rosebank
Date: 31/03/2014 11:58:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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