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Preliminary audited results for the year ended 31 December 2014
MASONITE (AFRICA) LIMITED
Incorporated in the Republic of South Africa
Registration number: 1942/015502/06
Share code: MAS ISIN: ZAE000004289
("Masonite" or "the company")
PRELIMINARY AUDITED RESULTS
for the year ended 31 December 2014
Summarised statement of profit or loss and other comprehensive income
Audited Audited
Rand thousands Notes 2014 2013
Revenue 604 885 673 236
Cost of sales (554 910) (493 293)
Gross profit 49 975 179 943
Fair value adjustment of biological assets 3 52 524 28 899
Other income 51 985 5 461
Distribution expenses (74 637) (97 457)
Selling and marketing expenses (11 558) (12 532)
Administrative expenses (22 106) (19 816)
Other operating expenses (15 883) (35 760)
Results from operations 30 300 48 738
Finance income 1 418 1 551
Finance cost (3 215) (2 926)
Profit before tax 28 503 47 363
Income tax expense 7 (5 763) (11 656)
Net profit for the year 22 740 35 707
Other comprehensive income
Items that may not be classified subsequently
to profit or (loss) (1 482) 866
Actuarial(loss)/gain on post-retirement
medical benefit obligation (2 059) 1 203
Decrease/(increase) of income tax 577 (337)
Total comprehensive income for the year
attributable to ordinary shareholders 21 258 36 573
Earnings per share (cents)
Basic 8.1 319 501
Diluted 8.2 318 500
Summarised statement of financial position
Audited Audited
Rand thousands Notes 2014 2013
ASSETS
Non-current assets
Property, plant and equipment 112 359 111 665
Intangible assets 1 400 671
Biological assets 3 253 224 200 700
Investments 1 399 1 399
Total non-current assets 368 382 314 435
Current assets
Inventories 100 113 102 180
Trade and other receivables 102 002 93 103
Tax receivable 912 793
Derivative financial instruments 113 62
Cash and cash equivalents 65 003 88 705
Total current assets 268 143 284 843
Total assets 636 525 599 278
EQUITY AND LIABILITIES
Capital and reserves
Share capital 3 570 3 566
Share premium 3 156 3 156
Share-based payment reserve 5 2 629 2 628
Retained income 447 933 426 675
Total equity 457 288 436 025
Non-current liabilities
Deferred tax 58 884 53 579
Post-retirement benefit
obligation 4 35 718 31 781
Straight-lining lease accrual 94 93
Total non-current liabilities 94 696 85 453
Current liabilities
Trade and other payables 80 691 71 208
Amounts payable to fellow subsidiaries 2 070 4 809
Derivative financial instruments 1 741 1 770
Straight-lining lease accrual 39 13
Total current liabilities 84 541 77 800
Total equity and liabilities 636 525 599 278
Net asset value per share (cents) 6 405 6 114
Summarised statement of cash flows
Audited Audited
Rand thousands 2014 2013
Cash flow from operating activities
Operating profit 30 300 48 738
Adjusted for:
Movement in fair value of biological assets (52 524) (28 899)
Depreciation and amortisation 24 444 22 738
IFRS 2 Share-based payment charge 1 855
Foreign exchange (gain)/loss - unrealised (492) 3 398
Increase in liability for retirement benefit obligation 1 878 1 868
Profit on disposal of property, plant and equipment (3 500) (51)
Other non-cash items 27 (11)
Change in working capital (528) (28 260)
Cash(utilised in)/generated from operations (394) 20 376
Taxation refund - 99
Net financing expense (1 764) (1 335)
Net cash (utilised in)/generated from operating activities (2 158) 19 140
Cash flow from investing activities
Replacement of property, plant, and equipment and
intangible assets (27 865) (22 006)
Proceeds on disposal of property, plant and equipment 5 498 144
Net cash outflow from investing activities (22 367) (21 862)
Cash flow from financing activities 4 4
Net cash flow from financing activities 4 4
Net decrease in cash and cash equivalents (24 521) (2 718)
Effects of exchange rates on the balance of cash held in
foreign currencies 819 (2 479)
Net cash and cash equivalents at the beginning of
the year 88 705 93 902
Net cash and cash equivalents at the end of the year 65 003 88 705
Summarised segment revenues and results
Segment revenue Segment profit
Rand thousands 2014 2013 2014 2013
Hardboard 443 959 517 983 (8 012) 24 610
Other products 71 855 82 216 249 1 856
Forestry 125 210 111 060 54 504 40 236
Intersegment (36 139) (39 825) - -
Unallocated - 1 802 5 665 1 852
Total 604 885 673 236 52 406 68 554
Administrative expenses (22 106) (19 816)
Results from operations 30 300 48 738
Finance income 1 418 1 551
Finance expense (3 215) (2 926)
Profit before tax 28 503 47 363
Income tax expense (5 763) (11 656)
Total per statement of
comprehensive income 22 740 35 707
Summarised segment assets
2014 2013
Rand thousands
Hardboard 260 948 240 925
Other products 23 852 38 265
Forestry 281 373 217 209
Unallocated 70 352 102 879
Total segment assets 636 525 599 278
Summarised statement of changes in equity
Share-
based
Share Share payment
Rand thousands capital premium reserve
Balance as at 1 January 2013 Audited 3 562 3 156 1 773
Issue of ordinary shares under the share
incentive scheme 4 - -
Share-based payment charge - - 855
Net profit for the year attributable
to ordinary shareholders - - -
Other comprehensive income for the year,
net of tax - - -
Balance at 31 December 2013 Audited 3 566 3 156 2 628
Issue of ordinary shares under the share
incentive scheme 4 - -
Share-based payment charge - - 1
Net profit for the year attributable
to ordinary shareholders - - -
Other comprehensive income for the year,
net of tax - - -
Balance at 31 December 2014 Audited 3 570 3 156 2 629
Retained Total
Rand thousands income equity
Balance as at 1 January 2013 Audited 390 102 398 593
Issue of ordinary shares under the share
incentive scheme - 4
Share-based payment charge - 855
Net profit for the year attributable
to ordinary shareholders 35 707 35 707
Other comprehensive income for the year,
net of tax 866 866
Balance at 31 December 2013 Audited 426 675 436 025
Issue of ordinary shares under the share
incentive scheme - 4
Share-based payment charge - 1
Net profit for the year attributable
to ordinary shareholders 22 740 22 740
Other comprehensive income for the year,
net of tax (1 482) (1 482)
Balance at 31 December 2014 Audited 447 933 457 288
Notes
1. Basis of preparation
The summarised financial statements has been prepared in accordance with the
Listings Requirements of the JSE Limited for summarised financial statements
and the requirements of the South African Companies Act, 71 of 2008 applicable
for summarised financial statements. The Listing Requirements of the JSE
Limited for the preliminary reports require them to be prepared in accordance
with the framework concepts and measurement and recognition requirements of
International Financial Reporting Standards (IFRS), the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and financial
reporting pronouncements as issued by the Financial Reporting Standards
Council, and also, as a minimum, to contain the information as required by IAS
34:Interim Financial Reporting.
The audited summarised financial statements have been prepared under the
supervision of Mr N M Stromnes CA(SA) on behalf of Masonite (Africa) Limited.
Accounting policies
The accounting policies applied in the preparation of the full financial
statements from which these summarised financial statements were derived are
in terms of IFRS and are consistent with those of the previous full financial
statements.
2. Auditor's opinion
These summarised financial statements for the year ended 31 December 2014 have
been audited by Deloitte & Touche, who have expressed an unmodified opinion
thereon. The auditor also expressed an unmodified opinion on the full
financial statements for the year ended 31 December 2014 from which these
summarised financial statements have been derived. A copy of the auditor's
report on the summarised financial statements and of the auditor's report on
the full financial statements are available for inspection at the company's
registered office together with the financial statements identified in the
respective auditor's reports. Deloitte & Touche has not audited future
financial performance and expectations expressed by management included in the
commentary in the accompanying preliminary report and accordingly do not
express an opinion thereon. The auditor's report does not necessarily report
on all of the information contained in this preliminary report. Shareholders
are advised that in order to obtain a full understanding of the nature of the
auditor's engagement they should obtain a copy of that report together with
the accompanying summarised financial statements from the company's registered
office.
3. 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
the statement of comprehensive income. 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.
Rand thousands 2014 2013
Timber plantations
Establishment costs 65 287 45 203
Immature timber 73 232 70 653
Mature timber 104 252 77 018
Total 242 771 192 874
Sugar cane
Establishment costs 3 759 2 985
Immature sugar cane 4 195 2 441
Mature sugar cane 2 499 2 400
Total 10 453 7 826
Total biological assets 253 224 200 700
4. 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 Projected Unit Credit Method.
All actuarial gains and losses are recognised immediately through other
comprehensive income in order for the net plan asset or liability recognised
in the statement of financial position to reflect the full value of the plan
deficit or surplus. There are no plan assets held.
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.
5. 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 option 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.
6. 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.
Rand thousands 2014 2013
7. Income tax expense
Current tax (119) 3 591
Deferred tax 5 882 8 065
Total 5 763 11 656
8. Earnings per share
8.1 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 attributable to ordinary shareholders 22 740 35 707
Weighted average number of ordinary shares in issue 7 136 392 7 130 892
Basic earnings per share (cents) 319 501
8.2 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: 99 499 (2013: 111 249) 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.
Rand thousands 2014 2013
Profit attributable to ordinary shareholders 22 740 35 707
Weighted average number of ordinary shares in issue 7 136 392 7 130 892
Adjusted for weighted average share options outstanding 5 149 4 837
Weighted average number of ordinary shares (diluted)
at 31 December 7 141 541 7 135 729
Diluted earnings per share 283 500
8.3 Headline earnings
Reconciliation of headline earnings
Profit for the year 22 740 35 707
Adjusted for:
Profit on disposal of assets (3500) (51)
Tax effect of profit on disposal of assets 980 14
Headline earnings 20 220 35 670
Headline earnings per share (cents) 283 500
Diluted headline earnings per share (cents) 283 500
9. Annual general meeting
Shareholders are advised that the seventy second annual general meeting of
shareholders of the company will be held at Masonite's offices at Block 2,
Island Office Park, 35-37 Island Circle, Riverhorse Valley, Durban on 2 June
2015 at 12:00.
10. Subsequent events
No material fact or circumstance has occurred between the end of the year and
the date of this report.
Report to Stakeholders
For Masonite 2014 was strategically important yet challenging. It was
strategically important because it marked the advancement of several
comprehensive business initiatives designed to maximize shareholder value.
2014 was challenging as we experienced a serious explosion at our Mill which
impacted severely on all our stakeholders.
The mill explosion, on 6 June, resulted in injuries to eight of our employees.
Our first priority was to ensure that our injured employees and their families
were given the best possible treatment and care. We are pleased to report
that, with the exception of two employees who are receiving counselling, the
remainder have made a full recovery. Currently, the mill is running at 100%
of pre-incident levels. During the re-commissioning process, we effected a
number of additional improvements in equipment and policy to further enhance
safety.
After the explosion the management team reached out to our customers informing
them of the incident and providing them with timely updates regarding product
availability and our recovery efforts. Our thanks go out to our customers for
their understanding and support during this period of supply disruption and,
particularly, for their thoughts and concerns for the impacted employees and
their families.
From a Governance standpoint, the Board's top priorities were to debate and
agree on a business strategy, hold the executive team accountable for its
implementation and strengthen the internal control environment. On all three
counts the Board conducted itself in a highly professional manner.
Consistent with the Board's responsibility, to provide management oversight,
the Board actively supported the restructuring of the Masonite executive team
and the recruitment of the best possible people to fill key positions and is
satisfied that the management team in place is suitably equipped to deliver
the strategy.
In addition, the implementation of improvements to key controls and business
processes was a major priority during the year. By strengthening our
processes, we have introduced a more robust control environment which will
allow us to run our business more effectively and efficiently.
Key Business Initiatives
Key business initiatives which were advanced during the year include:
- Strengthening our customer relationships;
- Investing in our "Forestry First" program;
- Optimizing our Mill to improve productivity and quality;
- Transforming end-to-end business planning; and
- Creating a high performance management team.
Customer Relationships. The value we place on our customers cannot be
overstated. We are committed to providing high quality products into the
marketplace at competitive prices behind a strong service proposition.
Forestry First. With a renewed focus on the role and importance of our
plantations we developed plantation specific plans to improve our biological
assets. We have been hard at work implementing plans to maximize the timber
yield and revenue streams in each of our plantations. This focus has led to
new silviculture and harvesting plans and improved practices—which we believe
have the potential to significantly increase biological asset values in the
future.
Mill Optimization. Through 2014 we continued to improve quality through
strategic investment in capex, improved process controls and by strengthening
our "culture of quality". The overhaul of the primary press at the end of 2014
is a significant investment which will allow us to continue to bring high
quality products to market.
Business Planning. In order to strengthen the core business we recognized the
need to change our manufacturing strategy to better align our demand forecast,
capacity and production plans, capex agenda and continuous improvement
priorities. Throughout 2014 we were engaged in laying the foundation for
these improvements through introducing new computerised planning tools,
improving process controls and optimizing inventory management practices. As
part of our renewed focus on business planning we also embarked on a
comprehensive review of our strategic supply contracts and re-negotiated our
distribution contracts behind improved service delivery measures and cost
improvements.
High Performance Management Team. At Masonite we believe that people are
central to our success and that ongoing improvements in our recruitment,
development and retention practices are a key driver of future success.
Upgrading talent and training at all levels of the Company is a priority to
attain a culture of continuous improvement in all areas of the business. Most
importantly, we remain committed to a strong culture of safety and compliance.
During 2014 Masonite maintained its certification under the Forestry
Stewardship Certification Program, NOSA AND NOSCAR ratings.
Although the construction industry showed some early signs of improvement,
trading conditions remained challenging throughout much of the year. We have
yet to see the full potential of our end markets with furniture, housing,
glass and packaging markets all depressed. Against this backdrop, our market
volumes were constrained.
At the time of the mill explosion gross margin was improving behind local
price gains and improved export margins as a result of the falling Rand.
Mill operating costs negated some of these gains. The explosion at the mill
had a major impact on volumes during the second half of the year. Our
"forestry first" strategy resulted in a 26% improvement in our biological
assets during the period under review. Earnings per share decreased as fixed
overheads were under-recovered.
As we look to 2015 our first priority is to fully regain customer confidence
following the explosion at the mill which impacted customer shipments through
the second half of the year. Consistent with this, 2015 will see the
introduction of our new "Customer Service Promise" with the mission of both
improving customer service and allowing us to pivot our strategy to top line
growth. In addition, we will be investing behind our "Forestry First"
program, optimising our Mill to improve productivity and quality, transforming
end-to-end business planning and creating a high performance management team
committed to continuous improvement and safety.
While the financial impact of the explosion has been profound as evidenced by
our full year results, Masonite (Africa) Limited came together during 2014 to
assist the affected employees and their families and worked as a team to
ensure that production resumed as soon as possible. For that we are truly
thankful and proud. We would like to offer our sincere thanks to the Board,
the executive team, managers and employees for their commitment and support,
and, of course, to all of our customers who have partnered so successfully
with us over the year.
M G Leitch HJ Loring
Chairman Chief Executive Officer
26 March 2015
DIRECTORS MG Leitch (Chairman), HJ Loring (CEO),NM Stromnes (CFO), WP Coetzee,
N Maharajh, MJ Erceg (USA), LP Repar (Canadian),CA Virostek (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: 26/03/2015 02:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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