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VERIMARK HOLDINGS LIMITED - Unaudited Interim Results for the six months ended 31 August 2014

Release Date: 09/10/2014 07:05
Code(s): VMK     PDF:  
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Unaudited Interim Results for the six months ended 31 August 2014

Verimark Holdings Limited
(Incorporated in the Republic of South Africa)
Registration Number: 1998/006957/06
Share Code: VMK
ISIN: ZAE000068011
("Verimark" or "the Group")

UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2014

HIGHLIGHTS
- Revenue down 5,9% to R183,8 million (2013: R195,3 million)
- Operating loss R4,6 million (2013: Operating profit R3,2 million)
- Loss before tax R4,9 million (2013: R1,2 million)
- Basic loss per share at (3,7) cents (2013: (1,1) cents)
- Headline loss per share at (3,7) cents (2013: (1,2) cents)
- On-going focus to protect profit margins by aligning selling prices to the weaker exchange rate and
   controlling of costs
- Market leader position maintained

The first half of the year has been characterised by a tough retail environment due to a weaker
consumer demand, higher interest rates and negligible economic growth in South Africa. The
continued devaluation of the Rand will impact negatively on the retail trade, particularly those
businesses that import products such as Verimark.

As a result of the ongoing devaluation of the Rand against the US Dollar, it became necessary for
Verimark to increase selling prices in mid-February 2014, the second time since June 2013. Never
before has Verimark had two price increases within twelve months. These price increases were the
main reason for the negative impact on the Group’s sales volumes, revenue and profitability in the six
months ended 31 August 2014.

The Group continued to focus on improving its efficiencies, reduce foreign exchange exposures and
containing costs during the period under review.

OVERVIEW
The Group’s revenue dropped 5,9% to R183,8 million (2013: R195,3 million), mainly due to the
slowdown in sales volumes that resulted from increasing our selling prices for the second time in
twelve months. This adjustment was unfortunately necessary, given the continued devaluation of the
Rand against the US Dollar. Even though our cost of product over this period increased similarly
(±22%), we elected not to increase our selling prices to the same extent, given the impact that it would
have had on our sales volumes.

The actions taken above, together with various cost containment and operational improvement
activities, allowed Verimark to maintain its gross margin percentage.

Containing costs in the current economic climate continued to be challenging. Despite these
challenges, excluding the expansion related expenses (new Verimark Direct Stores and international
ventures), operating expenses increased by only 1%. Total operating cost growth was contained to
4% year on year.

Improved management of the US Dollar exposure levels and lower bank facility usage during the
current period resulted in foreign exchange losses and finance expenses being reduced by R 2,8
million and R1,3 million respectively.

The reduction in sales volumes and the reduction of inventories held by certain key retail partners,
resulted in an increase in the inventory balances held by Verimark as at 31 August 2014.Management
is confident that the inventory levels will return back to their normal operating levels during the second
half of the year.

As a result of the loss before tax and increased working capital noted above, cash utilised by the
operating activities amounted to R16,9 million [2013: R2,6 million cash generated from operating
activities]. The Group has taken actions to reduce the inventory balances.

REPORTING ENTITY
Verimark Holdings Limited is a company domiciled in South Africa. The condensed group financial
information as at and for the period ended 31 August 2014 comprise the results of Verimark Holdings
Limited and its subsidiaries.

INTERIM DIVIDEND
In light of the overall trading results for the six months ended 31 August 2014 the Board has
considered it prudent not to declare a dividend.
Dividend payments will be reconsidered in accordance with the existing pay-out policy on completion
of the current financial year.

BASIS OF PREPARATION
The condensed consolidated 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. The accounting policies applied in the preparation of these interim financial statements
are in terms of International Financial Reporting Standards and are consistent with those applied in
the previous annual financial statements.

The condensed group financial information has been presented on the historical cost basis, except for
financial instruments and share based payments carried at fair value, and are presented in Rand
thousands which is Verimark’s functional and presentation currency.

The interim results as reported herein have been prepared by Verimark’s Financial Director, Shaun
Beecroft CA (SA).

SEGMENTAL ANALYSIS
Per IFRS 8 Operating Segments the operations of the Group are split between South Africa and
Foreign.

CHANGES TO THE BOARD
There were no changes to the board during the period ended 31 August 2014.

SUBSEQUENT EVENTS
No events material to the understanding of this report have occurred in the period between the
reporting date and the date of this report.

PROSPECTS
Although the financial performance reported for the first six months was worse than expected,
management believes that the corrective actions taken should result in an improved performance in
the future.

An increased number of successfully tested new products are to be launched ahead of the 2014 peak
season and are anticipated to contribute to an improved revenue performance.

Despite the tough environment, Verimark has been through worse periods in its thirty seven year
history and remains committed to further entrench its position as the leading innovator, improving
operational efficiencies, increasing product development and management capability and expanding
internationally.

The Board is confident that the medium- and long-term prospects of Verimark remain positive.

RESULTS
The interim results for the period ended 31 August 2014, together with the statements regarding the
prospects of the Group, have not been reviewed or audited by the Group`s auditors.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                        Unaudited        Unaudited   Audited twelve
                                                       six months       six months     months ended
                                                         ended 31         ended 31      28 February
                                                      August 2014      August 2013             2014
                                                            R’000            R’000            R’000
Revenue                                                   183 801          195 291          430 473
Operating (loss) / profit before net finance expense       (4 650)           3 228           29 644
and taxation
Finance income                                              1 065              229            4 107
Foreign exchange gains realised                             1 056              225            4 071
Interest income from financial assets                           9                4               36
Finance expense                                            (1 288)         (4 605)         (10 340)
Foreign exchange losses realised                             (842)         (2 817)          (7 138)
Interest expense from financial liabilities                  (446)         (1 788)          (3 202)
(Loss) / profit before taxation                            (4 873)         (1 148)           23 411
Income tax                                                    899             (27)          (5 750)
(Loss) / profit for the period                             (3 974)         (1 175)           17 661
Foreign currency translation reserve movement                  51             (17)            (181)
Total comprehensive (loss) / income for the period         (3 923)         (1 192)           17 480
attributable to owners of the Company
(Loss) / earnings per share (EPS)                            (3,7)           (1,1)             17,0
Headline (loss) / earnings per share (HEPS)                  (3,7)           (1,2)             17,0

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                            Unaudited       Unaudited   Audited twelve
                                                           six months      six months     months as at
                                                             as at 31        as at 31      28 February
                                                          August 2014     August 2013             2014
                                                                R’000           R’000            R’000
Assets
Plant and equipment                                            11 788          16 867           13 527
Intangible assets                                              14 798          14 998           14 893
Deferred taxation asset                                         4 535           3 198            3 637
Non-current assets                                             31 121          35 063           32 057
Inventories                                                    79 373          60 862           66 280
Trade and other receivables                                    67 982          69 320           60 229
Prepayments                                                       618             363              419
Prepaid taxation                                                  648               0                0
Bank and cash balances                                          1 598             995            1 394
Current assets                                                150 219         131 540          128 322
Total assets                                                  181 340         166 603          160 379
Equity and liabilities
Share capital                                                     360             346              360
Share premium                                                  32 269          21 378           32 269
Share based payment reserve                                       436             409              468
Foreign currency translation reserve                             (117)             (4)           (168)
Retained earnings                                              78 274          63 412           82 248
Equity attributable to the equity holders of the parent       111 222          85 541          115 177
Interest-bearing liabilities                                    4 210           5 147            4 384
Non-current liabilities                                         4 210           5 147            4 384
Trade and other payables                                       36 268          26 119           29 454
Preference share liability                                          0          17 589                0
Short-term portion of interest bearing liabilities              1 706          11 704            2 548
Bank overdraft                                                 27 934          20 472            8 424
Taxation payable                                                    0              31              392
Current liabilities                                            65 908          75 915           40 818
Total equity and liabilities                                  181 340         166 603          160 379
            
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                  Share       Share       Foreign        Share        Retained       Total
                                Capital     Premium      currency        based        earnings
                                                      translation      payment
                                                        reserve /      reserve
                                                        (deficit)
                                  R’000       R’000         R’000        R’000           R’000         R’000
Balance at 28 February              346      21 378             -          788          69 734        92 246
2012
Comprehensive Income
Profit for the year                   -           -             -            -           8 878         8 878
Transactions with                     -           -            13            -               -            13
owners recorded in
equity
IFRS 2 share-based
payment transaction
Contributions by and                  -           -             -          336               -           336
distributions to owners
of the Company
Dividend paid to equity                                                                (14 025)      (14 025)
owners
Balance at 29 February              346      21 378            13        1 124          64 587        87 448
2013
Comprehensive Income
Profit for the year                                                                     17 661        17 661
Foreign currency                                             (181)                                      (181)
translation reserve
Transactions with
owners recorded in
equity
IFRS 2 share-based                                                        (656)                        (656)
payment transaction
Treasury shares                      14      10 891                                                  10 905
transferred on settlement
of preference share liability
Balance at 28 February              360      32 269          (168)         468          82 248      115 177
2014
Comprehensive Income
Loss for the period                                                                     (3 974)      (3 974)
Foreign currency                                               51                                        51
translation reserve
movement
Transactions with
owners recorded in
equity
IFRS 2 share-based                                                         (32)                          (32)
payment transaction
Balance at 31 August                360      32 269          (117)         436          78 274       111 222
2014

CONSOLIDATED STATEMENT OF CASH FLOWS
                                                              Unaudited          Unaudited     Audited twelve
                                                             six months         six months       months ended
                                                               ended 31           ended 31        28 February
                                                            August 2014        August 2013               2014
                                                                  R’000              R’000              R’000
Net cash (outflows) / inflows from operating activities         (16 887)             2 559             26 733
Cash (utilised by) / generated from operations                  (15 622)             8 008             39 194
Dividends paid                                                        0                  0                  0
Finance income                                                    1 064                229              4 107
Finance costs                                                    (1 290)            (4 028)            (9 132)
Taxation paid                                                    (1 039)            (1 650)            (7 436)

Cash outflows from investing activities                          (1 403)            (2 453)            (4 238)
Acquisition of plant and equipment                               (1 284)            (3 131)            (5 407)
Acquisition of intangible assets                                   (181)                (6)                 -
Proceeds from disposal of plant and equipment                        62                684              1 169

Cash (outflows) / inflows from financing activities              (1 016)             7 427             (2 515)
Interest-bearing liabilities raised                                   0              9 329                484
Interest-bearing liabilities repaid                              (1 016)            (1 902)            (2 999)
Net (decrease) / increase in cash and cash                      (19 306)             7 533             19 980
equivalents
Cash and cash equivalents at beginning of period                 (7 030)           (27 010)           (27 010)
Cash and cash equivalents at end of period                      (26 336)           (19 477)            (7 030)


SEGMENTAL INFORMATION
                             South Africa      Foreign      Group Elimination        Total
                                    R’000        R’000                  R’000        R’000
Revenue                           182 640        1 161                      0      183 801
Loss before tax                    (4 258)        (602)                   (13)      (4 873)
Loss after tax                     (3 362)        (602)                   (10)      (3 974)
Segment assets                    178 801        2 555                    (16)     181 340
Segment liabilities                65 624        3 991                 (3 707)      65 908

DETERMINATION OF ATTRIBUTABLE EARNINGS AND HEADLINE EARNINGS
                                                          Unaudited      Unaudited       Audited twelve
                                                         six months     six months         months ended
                                                           ended 31       ended 31          28 February
                                                        August 2014    August 2013                 2014
                                                              R’000          R’000                R’000
Attributable (loss) / profit (after tax)                     (3 974)        (1 175)              17 661
Loss / (profit) on sale of plant and equipment                    2           (104)                (100)
Tax on (loss) / profit on sale of plant and equipment            (1)            29                   28
Headline (loss) / earnings                                   (3 973)        (1 250)              17 589

Shares in issue                                         114 272 328    114 272 328          114 272 328
Treasury shares - VEET                                            -     (4 000 000)          (3 989 041)
Shares held by subsidiary                                (6 380 870)    (6 380 870)          (6 380 870)
Number of shares at period end                          107 891 458    103 891 458          103 902 417
Share options dilutive portion                                    -        702 861                9 986
Diluted weighted average shares                         107 891 458    104 594 319          103 912 403
Basic (loss) / earnings per share                              (3,7)          (1,1)                17,0
Headline (loss) / earnings per share                           (3,7)          (1,2)                16,9
Diluted basic (loss) / earnings per share                      (3,7)          (1,1)                17,0
Diluted (loss) / headline earnings per share                   (3,7)          (1,2)                16,9
Net asset value per share                                     103,1           82,3                110,9
Net tangible asset value per share                             89,4           67,9                 96,5

Net asset value per share
Shareholders’ equity divided by the weighted average number of shares in issue at the end of the
year. Shareholders’ equity is the equity attributable to equity holders of the parent (which is basically
total assets less total liabilities).

Net tangible asset value per share
The net asset value of the tangible assets divided by the weighted average number of shares in issue
at the end of the year.

On behalf of the Board
Michael van Straaten             Shaun Beecroft
Chief Executive Officer          Financial Director
Johannesburg
9 October 2014

Directors:
Dr J T Motlatsi (Chairman)*, J M Pieterse*, M J van Straaten (CEO), S R Beecroft, M Patel*
 *Independent Non-executive
Company Secretary:
Premium Corporate Consulting Services (Pty) Ltd

Registered office:
50 Clairwood Avenue
Hoogland Ext 55,
Randburg 2194

Postal address:
Verimark Holdings Limited
PO Box 78260, Sandton 2146

Email address:
investors@verimark.co.za
www.verimark.co.za

Transfer Secretaries:
Computershare Investor Services (Pty) Limited

Auditors:
KPMG Incorporated

Sponsor:
Grindrod Bank Limited

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