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Unaudited Consolidated Condensed Carve-out Interim Results for the six months ended 30 September 2014
DENEB INVESTMENTS LIMITED
Registration number: 2013/091290/06
(Incorporated in the Republic of South Africa)
JSE share code: DNB ISIN: ZAE000197398
("Deneb" or "the Group")
UNAUDITED CONSOLIDATED CONDENSED CARVE-OUT INTERIM RESULTS
for the six months ended 30 September 2014
CARVE-OUT STATEMENT OF FINANCIAL POSITION
30 Sep 2014 30 Sep 2013 31 March 2014
Rand thousands Unaudited Unaudited Audited
ASSETS
Non-current assets 1 740 574 1 530 966 1 549 070
Plant and equipment 303 774 286 783 286 364
Owner-occupied property 334 409 368 587 335 718
Investment property 690 340 598 385 669 619
Intangible assets 17 987 10 697 9 197
Goodwill 17 743 14 016 14 204
Other investments 3 644 3 673 3 644
Long-term receivables 156 299 51 697 50 208
Net receivable from discontinued operations 74 979 38 717 38 717
Deferred tax 141 399 158 411 141 399
Current assets 1 429 804 1 222 442 1 082 332
Non-current assets held for sale 54 437 1 785 54 536
Net receivable from discontinued operations - 37 914 13 670
Inventories 672 235 579 729 540 472
Trade and other receivables 695 444 592 909 471 060
Current tax asset 7 210 7 378 103
Cash and cash equivalents 478 2 727 2 491
Total assets 3 170 378 2 753 408 2 631 402
EQUITY AND LIABILITIES
Total equity 1 698 088 1 489 271 1 564 280
Stated capital 433 929 304 635 304 635
Reserves 1 264 492 1 184 636 1 259 645
Equity attributable to owners
of the parent 1 698 421 1 489 271 1 564 280
Non-controlling interests (333) - -
Non-current liabilities 112 408 108 181 113 423
Deferred tax 6 059 8 400 6 059
Post-employment medical aid benefits 91 055 85 567 91 180
Interest-bearing liabilities 13 674 13 986 15 944
Operating lease accruals 1 620 228 240
Current liabilities 1 359 882 1 155 956 953 699
Current tax payable 204 - 151
Net liabilities from discontinued operations 4 654 4 654 -
Post-employment medical aid benefits 6 205 5 116 6 280
Interest-bearing liabilities 32 397 30 541 3 193
Trade and other payables 533 447 453 559 404 949
Bank overdrafts 782 975 662 086 539 126
Total liabilities 1 472 290 1 264 137 1 067 122
Total equity and liabilities 3 170 378 2 753 408 2 631 402
Net asset value 1 698 421 1 489 271 1 564 280
Net asset value per share after
treasury shares (cents) 315 276 290
CONDENSED CARVE-OUT STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
30 Sep 2014 30 Sep 2013
6 months 6 months
Rand thousands Unaudited Unaudited % change
Revenue 1 244 457 1 078 842 15,4
Gross profit 289 410 273 141 6,0
Operating profit before finance costs 21 452 58 366 (63,2)
Once-off litigation settlement - 40 421 -
Finance income 4 145 862 380,9
Finance expenses (19 459) (21 778) (10,6)
Profit before tax 6 138 77 871 (92,1)
Income tax (expense)/income (1 624) 496
Total comprehensive income for the period 4 514 78 367 (94,2)
Profit attributable to:
Owners of the parent 4 847 78 367
Non-controlling interests (333) -
4 514 78 367
Total comprehensive income attributable to:
Owners of the parent 4 847 78 367
Non-controlling interests (333) -
4 514 78 367
CONDENSED CARVE-OUT STATEMENT OF CASH FLOWS
30 Sep 2014 30 Sep 2013
Rand thousands Unaudited Unaudited
Net cash flow from operating activities (209 558) (143 598)
Net cash flow from investing activities (66 119) (54 572)
Net cash flow from financing activities 29 815 1 846
Net decrease in cash and cash equivalents (245 862) (196 324)
Cash and cash equivalents at the beginning of the period (536 635) (463 035)
Cash and cash equivalents at the end of the period (782 497) (659 359)
CARVE-OUT STATEMENT OF CHANGES IN EQUITY
Unaudited Stated Other Retained
Rand thousands capital reserves income
Balance at 1 April 2013 304 635 298 669 807 600
Total comprehensive profit for the period - - 78 367
Balance at 30 September 2013 304 635 298 669 885 967
Balance at 1 April 2014 304 635 315 963 943 682
Total comprehensive profit for the period - - 4 847
Transactions with owners
Capitalisation of shareholder's loan 129 294 - -
Balance at 30 September 2014 433 929 315 963 948 529
Non-
Unaudited controlling Total
Rand thousands Total interest equity
Balance at 1 April 2013 1 410 904 - 1 410 904
Total comprehensive profit for the period 78 367 - 78 367
Balance at 30 September 2013 1 489 271 - 1 489 271
Balance at 1 April 2014 1 564 280 - 1 564 280
Total comprehensive profit for the period 4 847 (333) 4 514
Transactions with owners
Capitalisation of shareholder's loan 129 294 - 129 294
Balance at 30 September 2014 1 698 421 (333) 1 698 088
30 Sep 2014 30 Sep 2013
Rand thousands Unaudited Unaudited
Composition of other reserves
Revaluation of investments 2 912 2 861
Capital redemption reserve fund 70 440
Surplus on disposal of subsidiary and associated companies 7 923 7 923
Surplus on revaluation of land and buildings 305 058 287 445
315 963 298 669
CONDENSED CARVE-OUT SEGMENTAL REPORT
Branded
Unaudited Product Industrial
Rand thousands Properties Distribution manufacturing
2014
Segment revenue
Gross sales 64 851 631 952 225 585
Inter-segment sales (these transactions
are at arm's length) (17 905) - -
46 946 631 952 225 585
Segment results
Operating profit/(loss) from operations 44 076 2 202 9 836
2013
Segment revenue
Gross sales 56 166 419 408 215 023
Inter-segment sales (these transactions
are at arm's length) (23 557) - -
32 609 419 408 215 023
Segment results
Operating profit from operations 37 188 14 809 14 546
Head
Office,
Centralised
Textile Services
Rand thousands manufacturing and Other Total
2014
Segment revenue
Gross sales 334 384 5 590 1 262 362
Inter-segment sales (these transactions
are at arm's length) - - (17 905)
334 384 5 590 1 244 457
Segment results
Operating profit/(loss) from operations (12 326) (22 336) 21 452
2013
Segment revenue
Gross sales 400 272 11 530 1 102 399
Inter-segment sales (these transactions
are at arm's length) - - (23 557)
400 272 11 530 1 078 842
Segment results
Operating profit from operations 10 869 (19 046) 58 366
STATISTICS PER SHARE
30 Sep 2014 30 Sep 2013
In cents, where applicable Unaudited Unaudited
Weighted average number of shares ('000) 539 776 539 776
Total number of shares ('000) 539 776 539 776
Diluted weighted average number of shares ('000) 539 776 539 776
Basic earnings per share (cents) 0,9 14,5
Headline earnings per share (cents) 0,9 14,5
Diluted earnings per share (cents) 0,9 14,5
Diluted headline earnings per share (cents) 0,9 14,5
Rand thousands
Reconciliation between profit and headline earnings
Income attributable to shareholders 4 847 78 367
Surplus on disposal of property, plant and equipment (205) (173)
Loss on disposal of property, plant and equipment - 131
Total tax effect of adjustments 25 16
Headline earnings 4 667 78 341
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED RESULTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014
1 BACKGROUND
At 30 September 2014 Deneb Investments Limited ("Deneb", "the Group" or "the company")
was a wholly- owned subsidiary of Seardel Investment Corporation Limited (Seardel).
On 1 December 2014 Deneb unbundled and listed on the securities exchange operated by
the JSE Limited. Deneb is an investment holding company whose subsidiaries have
investments in property, branded product distribution and manufacturing assets.
2 CARVE-OUT ACCOUNTS
The results presented in this publication are a carve-out of the interim results of
Seardel for the six months ended 30 September 2014 as published on SENS on
20 November 2014. As the Deneb Group was established following an internal restructure
within Seardel, the company did not prepare separate financial statements. These
carve-out financial statements aim to provide shareholders with insight into the
performance of Deneb on a standalone basis.
3 BASIS OF PREPARATION
The interim carve-out results for the six months to 30 September 2014 have been
prepared by:
- extracting the relevant historical assets, liabilities, revenues and expenses as
contained in the unaudited consolidated condensed interim results of Seardel for
the six months to 30 September 2014; and
- applying the assumptions and estimates as noted in point 4 below.
The interim carve-out results have been prepared in accordance with and containing
the information as required by International Accounting Standard (IAS) 34: Interim
Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee, and the Financial Reporting Pronouncements as issued by the
Financial Reporting Accountants Council, and are in compliance with the Listings
Requirements of the JSE Limited and the Companies Act. These results do not include
all the information required for a complete set of IFRS financial statements. However,
selected explanatory notes are included to explain events and transactions that are
significant to an understanding of the changes in the Group's financial position and
performance since the carve-out historical financial information that was published
in the Deneb Pre-listing Statement for the year ended 31 March 2014.
These results have been prepared under the supervision of the Financial Director,
Gys Wege (CA) SA, and have not been audited or reviewed by the Group's auditors,
KPMG Inc.
4 SIGNIFICANT ACCOUNTING POLICIES, ASSUMPTIONS AND ESTIMATES
The Group interim results have been prepared under the historical cost convention,
except for the revaluation of certain properties and financial instruments. The
accounting policies adopted are in terms of IFRS and are consistent with those
followed in the preparation of the Group's carve-out historical financial information
for the year ended 31 March 2014, except for the adoption of new standards and
interpretations effective as at 1 April 2014. The new standards have no impact on
the carve-out historical financial information.
Taxation
The directors have considered the future profitability of the entities which contain
computed tax losses and to the extent that the entities are projected to produce
taxable income in the foreseeable future, a deferred tax asset has been recognised.
It is assumed that Seardel Group Trading Proprietary Limited (SGT), a wholly-owned
subsidiary of Deneb, will mainly comprise of the Group's property investments and
therefore the directors are of the view that the deferred tax asset is fully
recoverable. The assumption has been applied retrospectively from 31 March 2011.
Owner-occupied buildings and investment property
All buildings previously occupied by the apparel manufacturing businesses
(discontinued operations), previously disclosed as owner-occupied buildings, have
been disclosed as investment properties and the related income shown as revenue
from third parties.
Share incentive
With effect from 1 October 2014 the participants of the Seardel Share Incentive
Scheme have no further rights under the scheme and all unvested share options issued
in terms of the scheme have lapsed. This is as a result of the change in control of
the relevant employer company which came about as a result of the internal restructure
(refer note 9 below). The Deneb Investments Long Term Incentive Plan was established
on 10 October 2014 and adopted by the Company and the employer companies on
13 October 2014. An initial tranche of first allocation Deneb options totalling
22 351 660 have been granted to selected participants who were holders of unvested
Seardel share options at 30 September 2014. Accordingly, as the Seardel Share
Incentive Scheme liability will be settled through equity of Deneb, the scheme was
accounted for as equity settled in the carve-out results of Deneb. The salient terms
and conditions relating to the Deneb Investments Long Term Incentive Plan are set out
in Annexure 6 of the Deneb Pre-listing Statement.
Discontinued operations
Operations classified as discontinued operations on 30 September 2014 in the
consolidated interim financial statements of Seardel consist of the apparel
manufacturing businesses which were disposed of to a third party as a going concern.
For the purposes of the carve-out results it was assumed that the sale of the
apparel businesses took place retrospectively on 31 March 2011. In terms of the
disposal agreement the business was sold as a going concern, excluding the trade
debtors, trade creditors and provisions. The assets and liabilities, which were
excluded in the disposal agreement, have been disclosed as "Net receivable from
discontinued operations" in the carve-out results and measured at the net realisable
value on 30 September 2014.
5 CAPITAL EXPENDITURE AND COMMITMENTS
30 Sep 2014 30 Sep 2013 30 Sep 2014 30 Sep 2013
Capital Capital Contractual Contractual
expenditure expenditure commitments commitments
Rand thousands Unaudited Unaudited Unaudited Unaudited
Investment property 20 721 23 844 40 000 -
Land and buildings 436 216 - -
Plant and equipment 31 832 28 360 - 600
Intangible assets 9 690 5 060 - -
Total 62 679 57 480 40 000 600
The above includes amounts acquired through business combinations (refer to note 6).
The capital commitments are expected to be incurred during the remainder of the
financial year ended 31 March 2015.
6 BUSINESS COMBINATIONS
Subsidiaries acquired during the six-month period to 30 September 2014
Net profit/
Revenue (loss)
contributed contributed
% voting to the to the
Subsidiary Acquisition interest Group Group
name date Segment acquired Description R'000 R'000
Limtech 1 April 2014 Branded 100 Provider of 4 458 198
Biometric Product access security
Solutions Distribu- solutions,
Proprietary tion specialising in
Limited biometric
fingerprint
recognition
Deneb Invest 1 Aug 2014 Branded 51 Distributor of 1 913 (680)
141 Holdco Product stationery
Proprietary Distribution
Limited
Consideration transferred
The following table summarises the consideration paid for the entities and the amount
of the assets acquired and liabilities assumed recognised at the acquisition date.
Rand thousands
Consideration
Cash -
Contingent consideration 1 400
Total consideration 1 400
Recognised amounts of identifiable assets acquired and liabilities assumed:
Rand thousands
Property, plant and equipment 355
Inventories 752
Trade and other receivables 3 744
Cash and cash equivalents 478
Non-current loan (1 316)
Trade and other payables (6 083)
Bank overdrafts (69)
Total identifiable net assets (2 139)
Minority share -
Goodwill 3 539
Total consideration 1 400
7 RELATED PARTIES
The note below is an explanation of transactions and balances with related parties
that have significantly changed from note 30 in the carve-out historical financial
information in the Pre-listing Statement for the year ended 31 March 2014.
Transactions with Hosken Consolidated Investments Limited (HCI) (ultimate holding
company), entities in which HCI has an interest and Sactwu (shareholder in Deneb
and HCI)
Income/(Expenses)
Transaction values for Balances receivable/(owing)
the period ending Balance outstanding as at
30 Sep 2014 31 March 2014 30 Sep 2014 31 March 2014
Rand thousands 6 months 12 months 6 months 12 months
Sactwu - disposal of apparel
manufacturing operation 4 061 - 74 979 107 588
Sactwu - loan advance relating
to the disposal of the apparel
manufacturing operation - (957) - (30 957)
HCI loan at prime, repayable
on demand 537 - 69 580 -
Trade Call Investments Apparel
Proprietary Limited (a subsidiary
of Sactwu) - - (1 810) -
Business combinations with related parties
Deneb acquired 100% of the issued share capital of Limited Biometric Solutions
Proprietary Limited, which was previously majority owned by HCI, for a purchase
price of R1.
Refer to note 6 for further detail on the business combinations.
8 DEFERRED TAXATION
Based on the assumptions as contained in the basis of preparation (refer to note 3),
the deferred tax asset in SGT was fully recognised retrospectively from the beginning
of the reporting period.
The following table represents a reconciliation between the net deferred tax asset
of SGT recognised in the carve-out interim results of Deneb to 30 September 2014 and
the net deferred tax asset recognised in the interim results of Seardel to
30 September 2014:
30 Sep 2014
Rand thousands Unaudited
Deferred tax asset of SGT as included in the Deneb carve-out
interim results to 30 September 2014 129 842
Deferred tax asset of SGT as included in the Seardel interim
results to 30 September 2014 47 180
Estimated tax credit expected to flow through Deneb's statement
of profit and loss 82 661
It is expected that the recognition of the deferred tax asset will occur within the
current financial year.
9 POST PERIOD-END EVENTS
Internal restructure
Deneb was party to an internal restructure on 1 October 2014 in terms of which Deneb
acquired Seardel's non-media companies comprising Brits Automotive Systems, Custom
Extrusion, Frame Industrials, Gold Reef Speciality Chemicals, Nyenye, Seardel 16,
Seardel 17, Seardel Brand ID, Seardel Group Trading, Seartec, Seartec Trading, the
Prima Group and Val Hau in exchange for the issue of 539 776 349 ordinary no par
value shares.
For the purposes of preparing the carve-out interim accounts to 30 September 2014,
the internal restructure is assumed to have occurred at the beginning of the
reporting period, being 1 April 2014.
Appointments to the board of Deneb
In addition to the current directors, Stuart Queen (Chief Executive Officer) and
Gys Wege (Financial Director) who were both appointed on 21 June 2013, the following
members were appointed to the board on 10 October 2014:
John Copelyn Chairman and Non-executive Director
Mohamed Ahmed Lead Independent Non-executive Director
David Duncan Executive Director
Kevin Govender Non-executive Director
Naziema Jappie Independent Non-executive Director
Amon Ntuli Executive Director
Yunis Shaik Non-executive Director
Rachel Watson Independent Non-executive Director
Issue of shares
On 10 November 2014, Deneb issued 18 115 848 shares in exchange for R52.5 million to
ensure that Deneb was appropriately capitalised prior to the unbundling and listing.
Separate listing and unbundling of Deneb
Deneb unbundled and listed on 1 December 2014 on the securities exchange operated by
the JSE Limited. The Deneb Pre-listing Statement was published on SENS on
21 November 2014 and is available on Deneb's website, www.deneb.co.za.
Signed for and on behalf of the board in Cape Town on 18 December 2014.
Stuart Queen Gys Wege
Chief Executive Officer Financial Director
COMMENTARY
Deneb listed on the Main Board of the securities exchange operated by the JSE Limited
on 1 December 2014 by way of an unbundling from Seardel Investment Corporation
Limited (Seardel).
The results presented in this publication are a carve-out of the interim results of
Seardel for the six months ended 30 September 2014 published on SENS on
20 November 2014. As the Deneb Group was established following an internal restructure
within Seardel, the company did not prepare separate financial statements. These
carve-out financial statements aim to provide shareholders with insight into the
performance of Deneb on a standalone basis.
FINANCIAL OVERVIEW
Revenue for the six months to September is up 15,4%, with most of the growth coming
through the branded product segment. Even though gross profit increased by 6%, Deneb
reported reduced operating profits due to a variety of reasons which are better
explained in the segmental analysis presented below.
The following general observations on the numbers should be considered:
1 The first half of the financial year is traditionally weaker than the second. In a
number of the businesses, particularly in the branded product space, increased costs
have been incurred in the pursuit of growth. These costs will be better amortised
over the full financial year.
2 Government incentives are only recognised when they either have been received or
when it is certain that they will be received. No incentives were recognised in
the first half of the year nor in the comparative period, but it is likely that,
as in the past, these incentives will be able to be recognised in the second half
of the year.
3 Some of the textile manufacturing businesses derive a significant portion of their
revenue from public procurement programmes. These businesses experienced delayed
tender awards in the first quarter of the financial year which coincided with national
general elections. As the operations are fixed costs businesses, reduced revenue has
a significant influence on the overall results of these businesses.
4 The increased incidences and prolonged nature of industrial action in the economy
had a negative effect on a number of the manufacturing businesses.
We are mindful that the Group's manufacturing businesses in particular, operate in a
difficult space. Industrial action across the various sectors of the economy cannot be
seen as non-recurring events but have become part and parcel of the operating
environment. Most of the Group's manufacturing businesses are high volume low margin
businesses and any events that disrupt operations, including the recent spate of load
shedding, in our own businesses or within our supply or customer base have a negative
effect on the results. Having said that, we are working diligently to diversify each
of the businesses into other markets and territories so as to be better positioned to
weather these setbacks and are confident that the businesses are incrementally becoming
stronger businesses over time. Management will retain its pragmatism and any business
that doesn't have reasonable prospects of delivering suitable returns on the shareholder
funds invested therein over the medium to long term will be divested of to protect the
relatively strong asset base that has been built up over the past
few years.
SEGMENTAL RESULTS
Property segment
Revenue increased 15% to R65 million with revenue from external tenants now representing
72% of the total revenue for this segment. Operating profit before finance costs increased
by 19% to R44 million, up from R37 million in the prior period.
The Group is currently developing its property in Observatory, Cape Town which is
scheduled to be completed early in the new year. This development is currently 61% let
and there is good interest in the remaining portion.
The Group also has some owner-occupied and vacant property in Epping, Cape Town which
it will be looking to refurbish and develop in the new year. Once completed these
properties should add to the revenue and cash- generating ability of the property segment.
Branded product segment
The branded product segment recorded revenue growth of 51% to R632 million. The revenue
growth is mainly as a result of:
- the launch of Microsoft's XBox One;
- the acquisition, by Prima Interactive, of the distribution rights for Electronic Arts
games; and
- the acquisition, by Brand ID, of the distribution rights for a number of sporting
brands, most notably Canterbury, Mizuno, Skins, Dunlop and Slazenger.
Despite the pleasing revenue growth, operating profit before finance costs declined from
R15 million in the prior period to R2 million in the current period. The decline in
profitability is due to the performance of Seartec, which is predominantly a distributor
of the Sharp range of office automation products and calculators. We identified Seartec
as a business that has underperformed on its potential and thus made a decision to
invest heavily into the management structures, facilities and IT infrastructure of the
business. The underlying performance of this business is largely on track with
expectations with revenue and gross margins slightly up on the prior year, but the
incremental costs resulted in profitability dropping off. We only expect the benefit of
these extra costs to be fully evident over the next few financial years.
It should be noted that the first half of the financial year in this segment has
historically been weaker than the second half. The extra costs associated with
investments into Seartec and the acquisition of the additional distribution rights
should be better amortised over the full-year revenues.
Textile segment
Trading conditions for the businesses within this sector were tough throughout the
current financial period. The extended industrial action which took place in our
customer and supplier bases, compounded by shorter industrial action in one of our
own businesses, coupled with a reduction in government tender awards around general
election time, saw revenue drop by 16% to R334 million. The turnover decline resulted
in an operating loss of R12 million which was down from a R11 million profit in the
prior period. Most of the losses were recorded in the first quarter of the financial
year with the performances stabilising from that point on.
Industrial segment
The performance of the industrial segment is a reflection of the tough environment
that the manufacturing businesses faced in the period under review.
Revenue grew by 5% to R226 million, although this was entirely due to the acquisition
of the Custom Bulk Bag business not being effective for the full six months in the
comparative period. Operating profit declined from R15 million in the prior period to
R10 million in the period under review. This decline was as a result of industrial
action in the automotive sector from which one of our businesses derives the majority
of its revenue and the industrial action which took place in our own Polypropylene
business.
On behalf of the board in Cape Town on 18 December 2014
Stuart Queen Gys Wege
Chief Executive Officer Financial Director
CORPORATE INFORMATION
Deneb Investments Limited
The company's shares are listed under the Financial Services - Speciality
Finance sector.
Registered office: 1 Moorsom Avenue, cnr Bofors Circle and Moorsom Avenue,
Epping Industria II 7460
PO Box 524, Eppindust 7475, South Africa
Directors: J A Copelyn* (Non-executive Chairperson), M H Ahmed*^ (Lead Independent
Director), D Duncan, T G Govender*, N Jappie*^, A M Ntuli,
S A Queen (Chief Executive Officer), Y Shaik*, R D Watson*^,
G D T Wege (Financial Director)
(* Non-executive ^ Independent)
Company secretary: HCI Managerial Services Proprietary Limited
Transfer secretaries: Computershare Investor Services Proprietary Limited,
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown 2107
Auditors: KPMG Inc.
Sponsors: PSG Capital Proprietary Limited
www.deneb.co.za
Date: 18/12/2014 05:00:00 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
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