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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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