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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")
UNAUDITED INTERIM RESULTS
for the six months ended 30 June 2014
Commentary
Update on accident at Estcourt Mill
Further to the SENS announcement published on 6 August 2014, Masonite shareholders are advised that
the Mill's boilers are all back online and the mill is now operating at approximately 80% of pre-incident
levels. The reparation work required to restore energy to the Kilns and bring the site to full capacity is
expected to be completed during the fourth quarter of 2014. The 2014 earnings impact, before any
potential insurance recovery, is estimated to be between R65 million and R75 million (before tax). The
company is insured against property loss and business interruption. The aforementioned information has
not been reviewed or reported on by the company’s auditors.
Six month financial review
Revenue fell by 10,6% to R293,2 million (2013: R327,9 million) and gross profit dropped by 46,4% to
R43,6 million (2013: R81,4 million) primarily due to increased overhead absorption costs resulting from
the Mill shut down. A further contributing factor is the revised price policy on some products to an ex-
mill price which resulted in lower gross margin but a reduced distribution cost of R36,7 million (2013:
R49,3 million).
Biological assets grew by 30,0% to R224,0 million (2013: R172,5 Million) due to increase in timber prices
in the first quarter of 2014 and improvements in yield following ongoing normalisation of timber age
class distribution. Other operating income was higher than 2013 mainly as a result of unrealised foreign
exchange gains. Administrative expenses increased by 52,6% to R10,9 million (2013: R7,2 million) due
to a once-off cost benefit of R3,0 million in 2013. Excluding this benefit administrative expenses would
have been up by 10,8%. Profit from operations increased by 15,6% to R11,2 million (2013: R9,7 million)
and headline earnings improved by 10,6% due mainly to the increase in the fair value of biological assets.
Cash and cash equivalents improved by 6,7% to R54,6 million (2013: R51,1 million) behind a 18,5%
reduction in trade and other receivables.
Looking forward
At the time of the accident, implementation of the strategic agenda was on track with our "Forestry First"
strategy gaining good traction as yields improved. In addition, our strategic focus on improving quality and
managing the product portfolio met expectations during the period. Finally, strategic productivity initiatives
(lean manufacturing) continues to be a core focus along with working closely with regulatory authorities to
fast track reparation work in order to restore full shipments to all our valued customers.
MG Leitch HJ Loring
Chairman Chief Executive Officer
11 September 2014
Condensed statement of profit or loss and other comprehensive income
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 Dec
Rand thousands Notes 2014 2013 2013
Revenue 293 203 327 918 673 236
Cost of sales (249 602) (246 497) (493 293)
Gross profit 43 601 81 421 179 943
Fair value adjustment of
biological assets 23 512 675 28 899
Other operating income 7 375 2 774 5 461
Distribution expenses (36 699) (49 296) (97 457)
Selling and marketing expenses (6 022) (6 177) (12 532)
Administrative expenses (10 965) (7 184) (19 816)
Other operating expenses (9 568) (12 495) (35 760)
Profit from operations 11 234 9 718 48 738
Finance income 722 1 029 1 551
Finance expense (1 569) (1 170) (2 926)
Profit before tax 10 387 9 577 47 363
Income tax expense 6 (2 228) (2 149) (11 656)
Profit for the period attributable
to ordinary shareholders 8 159 7 428 35 707
Other comprehensive income
Re-measurements of post-retirement
medical benefit obligation 3 (680) (666) 1 203
Decrease/(increase) of income tax 190 186 (337)
Total comprehensive income for
the period attributable to
ordinary shareholders 7 669 6 948 36 573
Earnings per share (cents)
Basic 7.1 114 104 501
Diluted 7.2 114 104 500
Condensed statement of financial position
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 Dec
Rand thousands Notes 2014 2013 2013
ASSETS
Non-current assets
Property, plant and equipment 107 490 108 606 111 665
Intangible assets 1 342 402 671
Biological assets 2 224 212 172 476 200 700
Investments 1 399 1 399 1 399
Total non-current assets 334 443 282 883 314 435
Current asset
Inventories 115 646 119 206 102 180
Trade and other receivables 98 121 120 380 93 103
Tax receivable 793 2 760 793
Derivative financial instruments 221 567 62
Cash and cash equivalents 54 555 51 128 88 705
Total current assets 269 336 294 041 284 843
Total assets 603 779 576 924 599 278
EQUITY
Capital and reserves
Share capital 3 568 3 566 3 566
Share premium 3 156 3 156 3 156
Share-based payment reserves 2 629 1 923 2 628
Retained earnings 434 344 397 050 426 675
Total equity 443 697 405 695 436 025
LIABILITIES
Non-current liabilities
Deferred tax liabilities 55 618 45 212 53 579
Post-retirement benefit obligations 3 33 400 32 731 31 781
Straight lining lease accrual 93 107 93
Total non-current liabilities 89 111 78 050 85 453
Current liabilities
Trade and other payables 69 930 85 673 71 208
Amounts due to fellow subsidiaries 698 4 416 4 809
Derivative financial instruments 330 3 080 1 770
Straight lining lease accrual 13 10 13
Total current liabilities 70 971 93 179 77 800
Total equity and liabilities 603 779 576 924 599 278
Condensed statement of cash flows
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 Dec
Rand thousands 2014 2013 2013
Cash flow from operating activities
Profit from operations 11 234 9 718 48 738
Adjusted for:
Fair value adjustment of biological assets (23 512) (675) (28 899)
Depreciation and amortisation 12 469 11 231 22 738
IFRS 2: Share-based payment charge 1 150 855
Foreign exchange (gain)/loss – unrealised (747) 2 635 3 398
Increase in liability for retirement
benefit obligation 939 949 1 868
Loss/(gain) on disposal of property,
plant and equipment 72 – (51)
Other non-cash items – – (11)
Tax (payments)/refund – (206) 99
Change in working capital (25 047) (57 980) (28 260)
Cash flow from operations (24 591) (34 178) 20 475
Net financing expense (906) (68) (1 335)
Net cash flow from operating activities (25 497) (34 246) 19 140
Cash flow from investing activities
Expenditure on property,
plant and equipment
Replacement (9 122) (7 078) (22 006)
Proceeds on disposal of property,
plant and equipment 85 – 144
Net cash outflow from
investing activities (9 037) (7 078) (21 862)
Cash flow from financing activities
Proceeds on issue of ordinary shares 2 4 4
Net cash flow from financing activities 2 4 4
Net decrease in cash and cash equivalents (34 532) (41 320) (2 718)
Effects of exchange rates on the balance
of cash held in foreign currencies 382 (1 454) (2 479)
Net cash and cash equivalents
at the beginning of the period 88 705 93 902 93 902
Net cash and cash equivalents
at the end of the period 54 555 51 128 88 705
Condensed statement of changes in equity
Share-based
Share Share payment Retained Total
Rand thousands capital premium reserve income equity
Balance as at 1 January 2013 – audited 3 562 3 156 1 773 390 102 398 593
Issue of ordinary shares under the share incentive scheme 4 – – – 4
Share-based payment charge – – 150 – 150
Net profit for the period attributable to ordinary shareholders – – – 7 428 7 428
Other comprehensive loss attributable to ordinary shareholders – – – (480) (480)
Balance as at 30 June 2013 – unaudited 3 566 3 156 1 923 397 050 405 695
Share-based payment charge – – 705 – 705
Net profit for the period attributable to ordinary shareholders – – – 28 279 28 279
Other comprehensive income attributable to ordinary shareholders – – – 1 346 1 346
Balance as at 31 December 2013 – audited 3 566 3 156 2 628 426 675 436 025
Issue of ordinary shares under the share incentive scheme 2 – – – 2
Share-based payment charge – – 1 – 1
Net profit for the period attributable to ordinary shareholders – – – 8 159 8 159
Other comprehensive loss attributable to ordinary shareholders – – – (490) (490)
Balance as at 30 June 2014 – unaudited 3 568 3 156 2 629 434 344 443 697
Notes
1. Basis of preparation
The condensed interim financial statements are prepared in accordance with International Financial
Reporting Standard, IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as
issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial
Reporting Standards Council and the requirements of the Companies Act of South Africa.
This 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 2013. The condensed
interim financial statements have been prepared under the supervision of the Chief Financial Officer
(Mr NM Stromnes).
2. 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 profit or loss. 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.
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
Rand thousands 2014 2013 2013
Timber plantations
Establishment costs 40 260 55 489 45 203
Immature timber 87 556 50 631 70 653
Mature timber 87 503 56 943 77 018
Total 215 319 163 063 192 874
Sugar cane
Establishment costs 2 802 2 513 2 985
Immature sugar cane 3 206 2 842 2 441
Mature sugar cane 2 885 4 058 2 400
Total 8 893 9 413 7 826
Total biological assets 224 212 172 476 200 700
3. 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 Project Unit Credit Method. All actuarial gains and losses are
recognised immediately through other comprehensive income in order for the liability recognised in
the statement of financial position to reflect the full value of the plan deficit or surplus.
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.
4. Masonite 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 options 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.
5. 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.
Segment revenues and results Segment revenue Segment PBIT
Unaudited Unaudited Audited Unaudited Unaudited Audited
Interim Interim Year ended Interim Interim Year ended
30 June 30 June 31 December 30 June 30 June 31 December
Rand thousands 2014 2013 2013 2014 2013 2013
Segment revenue
Hardboard 210 309 255 098 517 983 (6 456) 13 407 24 610
Other products 31 766 38 475 82 216 (1 347) 12 1 856
Forestry 61 385 52 919 111 060 28 326 2 082 40 236
Intersegment (13 852) (19 975) (39 825) – – –
Unallocated 3 595 1 401 1 802 1 676 1 401 1 852
Total 293 203 327 918 673 236 24 118 16 902 68 554
Administrative expenses (10 965) (7 184) (19 816)
Profit from operations 11 234 9 718 48 738
Finance income 722 1 029 1 551
Finance expense (1 569) (1 170) (2 926)
Profit before tax 10 387 9 577 47 363
Income tax expense (2 228) (2 149) (11 656)
Profit for the period attributable to ordinary shareholders 8 159 7 428 35 707
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
Rand thousands 2014 2013 2013
6. Income tax expense
Current tax – 1 929 3 591
Deferred tax 2 228 220 8 065
Total 2 228 2 149 11 656
7. Earnings per share
7.1 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 for the period attributable
to ordinary shareholders 8 159 7 428 35 707
Weighted average number
of ordinary shares in issue 7 134 892 7 129 558 7 130 892
Basic earnings per share (cents) 114 104 501
7.2 Diluted
Diluted earnings per share are calculated to reflect the potential dilution that could occur if all
of the company's outstanding share options were exercised by the option holders. The number
of shares in issue has been adjusted by the weighted average number of shares outstanding
in terms of outstanding options 2014: 99 666 (2013: 103 666) 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, on 4 January 2011, to acquire) shares at a weighted average price of
R29,69 per share on or before December 2020.
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
Rand thousands 2014 2013 2013
Profit attributable to
ordinary shareholders 8 159 7 428 35 707
Weighted average number
of ordinary shares in issue 7 134 892 7 129 558 7 130 892
Adjusted for weighted average
share options outstanding 8 059 8 413 4 837
Weighted average number of
ordinary shares (diluted) at 30 June 7 142 951 7 137 971 7 135 729
Diluted earnings per share (cents) 114 104 500
7.3 Headline earnings
Reconciliation of headline earnings
Profit for the year 8 159 7 428 35 707
Adjusted for:
Loss/(profit) on disposal of assets 72 – (51)
Tax effect of loss/(profit) on
disposal of assets (20) – 14
Headline earnings 8 211 7 428 35 670
Headline earnings per share (cents) 115 104 500
Diluted headline earnings
per share (cents) 115 104 500
Corporate information
DIRECTORS
MG Leitch (Chairman), HJ Loring (Chief Executive Officer),
NM Stromnes (Chief Financial Officer), WP Coetzee, N Maharajh,
CA Virostek (Canadian), MJ Erceg (USA), LP Repar (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: 11/09/2014 02:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
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