Wrap Text
Unaudited interim results for the six months ended 30 June 2015
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 2015
Condensed statement of profit or loss and other
comprehensive income
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 Dec
Rand thousands Notes 2015 2014 2014
Revenue 288 450 293 203 604 885
Cost of sales (271 440) (249 602) (554 910)
Gross profit 17 010 43 601 49 975
Fair value adjustment of
biological assets 9 897 23 512 52 524
Other operating income 7 22 227 7 375 51 985
Distribution expenses (31 303) (36 699) (74 637)
Selling and marketing expenses (5 888) (6 022) (11 558)
Administrative expenses (13 521) (10 965) (22 106)
Other operating expenses (10 059) (9 568) (15 883)
(Loss)/profit from operations (11 637) 11 234 30 300
Finance income 438 722 1 418
Finance expense (1 581) (1 569) (3 215)
(Loss)/profit before tax (12 780) 10 387 28 503
Income tax expense 8 3 657 (2 228) (5 763)
(Loss)/profit for the period
attributable to ordinary
shareholders (9 123) 8 159 22 740
Other comprehensive income
Items that may not be classified
subsequently to profit or loss (550) (490) (1 482)
Actuarial loss on post-retirement
medical benefit obligation 4 (764) (680) (2 059)
Decrease of income tax 214 190 577
Total comprehensive income
for the period attributable to
ordinary shareholders (9 673) 7 669 21 258
Earnings per share
Basic (cents) 9.1 (128) 114 319
Diluted (cents) 9.2 (128) 114 318
Condensed statement of financial position
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 Dec
Rand thousands Notes 2015 2014 2014
ASSETS
Non-current assets
Property, plant and equipment 105 158 107 490 112 359
Intangible assets 1 408 1 342 1 400
Biological assets 2 263 121 224 212 253 224
Investments 1 399 1 399 1 399
Total non-current assets 371 086 334 443 368 382
Current assets
Inventories 102 655 115 646 100 113
Trade and other receivables 94 486 98 121 102 002
Tax receivable 3 477 793 912
Derivative financial instruments 286 221 113
Cash and cash equivalents 48 002 54 555 65 003
Total current assets 248 906 269 336 268 143
Total assets 619 992 603 779 636 525
EQUITY
Capital and reserves
Share capital 3 570 3 568 3 570
Share premium 3 156 3 156 3 156
Share-based payment reserves 2 629 2 629 2 629
Retained earnings 438 260 434 344 447 933
Total equity 447 615 443 697 457 288
LIABILITIES
Non-current liabilities
Deferred tax liabilities 55 012 55 618 58 884
Post-retirement benefit obligations 4 37 391 33 400 35 718
Straight-line lease accrual 94 93 94
Total non-current liabilities 92 497 89 111 94 696
Current liabilities
Trade and other payables 79 092 69 930 80 691
Amounts due to fellow subsidiaries 630 698 2 070
Derivative financial instruments 119 330 1 741
Straight-line lease accrual 39 13 39
Total current liabilities 79 880 70 971 84 541
Total equity and liabilities 619 992 603 779 636 525
Condensed statement of cash flows
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 Dec
Rand thousands 2015 2014 2014
Cash flow from operating activities
(Loss)/profit from operations (11 637) 11 234 30 300
Adjusted for
Fair value adjustment of biological assets (9 897) (23 512) (52 524)
Depreciation and amortisation 10 885 12 469 24 444
IFRS 2: Share-based Payment charge – 1 1
Foreign exchange gain – unrealised (1 319) (747) (492)
(Decrease)/increase in liability
for retirement benefit obligation (607) 939 1 878
(Gain)/loss on disposal of property,
plant and equipment (2 470) 72 (3 500)
Other non-cash items – – 27
Tax payment (2 565) - –
Change in working capital 1 253 (25 047) (528)
Cash flow from operations (16 357) (24 591) (394)
Net financing income/(expense) 426 (906) (1 764)
Net cash flow from operating activities (15 931) (25 497) (2 158)
Cash flow from investing activities
Expenditure on property,
plant and equipment
Replacement (4 221) (9 122) (27 865)
Proceeds on disposal of property,
plant and equipment (3 000) 85 5 498
Net cash outflow from
investing activities (1 221) (9 037) (22 367)
Cash flow from financing activities
Proceeds from issue of ordinary shares – 2 4
Net cash flow from investing activities – 2 4
Net decrease in cash and cash equivalents (17 152) (34 532) (24 521)
Effects of exchange rates on the balance
of cash held in foreign currencies 151 382 819
Net cash and cash equivalents
at the beginning of the period 65 003 88 705 88 705
Net cash and cash equivalents
at the end of the period 48 002 54 555 65 003
Condensed statement of changes in equity
Share-based Restated
Share Share payment Retained Total
Rand thousands capital premium reserve income equity
Balance as at 1 January 2014 – 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 income for the period, net of tax – – – (490) (490)
Balance as a 30 June 2014 – unaudited 3 568 3 156 2 629 434 344 443 697
Issue of ordinary shares under the share incentive scheme 2 – – – 2
Net profit for the period attributable to ordinary shareholders – – – 14 581 14 581
Other comprehensive income for the period, net of tax – – – (992) (992)
Balance as a 31 December 2014 – audited 3 570 3 156 2 629 447 933 457 288
Net loss for the period attributable to ordinary shareholders – – – (9 123) ( 9 123)
Other comprehensive income for the period, net of tax – – – (550) (550)
Balance as a 30 June 2015 – unaudited 3 570 3 156 2 629 438 260 447 615
Commentary
Six month financial review
The first six months was difficult for Masonite. The mill experienced start up delays following
a major refit to the primary door press, extended boiler maintenance and intermittent
problems with the refiner. As production ramped up, our largest customer experienced a
four week strike which impacted our sales. A strike at the mill further reduced output.
Market pricing continued to be very competitive. Revenue was flat at R288,5 million
(2014: R293,2 million) and gross profit dropped by 61,0%. Mill performance improved
in quarter two resulting in improved margins and higher revenue. Operating profit was
impacted by a quality claim of R7,0 million and a R8,0 million increase in slow moving and
obsolete finished goods inventory provision.
Administrative expenses increased largely due to an increase in provision for bad debts.
Cash and cash equivalents declined by 12% and we are targeting a number of initiatives to
strengthen the cash position.
Our forestry performance continues to improve, with good results being seen from our
silviculture plan. The “Forestry First” strategy has a long investment horizon, our strategy to
maximise the forestry assets remains on track.
Looking forward
Market conditions are not expected to improve in the next 18 months. We are confident
that the mill performance will continue to improve; allowing us some volume recovery but
margins will remain under pressure. Inventory and cash will remain a key focus.
MG Leitch HJ Loring
Chairman Chief Executive Officer
29 September 2015
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 2014. The condensed
interim financial statements have been prepared under the supervision of the Chief Financial Officer,
Mr WRC Holmes.
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. The
fair value of biological assets is a level 3 measure in terms of the fair value measurement hierarchy
and this category is consistent with prior years. The fair value of biological assets is calculated on
the basis of future expected net cash flows arising on the Company’s owned biological assets,
discounted using a discount rate for immature timber.
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
Rand thousands 2015 2014 2014
Timber plantations
Establishment costs 61 877 40 260 65 287
Immature timber 85 536 87 556 73 232
Mature timber 105 830 87 503 104 252
Total 253 243 215 319 242 771
Sugar cane
Establishment costs 3 430 2 802 3 759
Immature sugar cane 3 861 3 206 4 195
Mature sugar cane 2 587 2 885 2 499
Total 9 878 8 893 10 453
Total biological assets 263 121 224 212 253 224
Sensitivity analysis
As changes to estimated prices, the discount rate and volume and growth assumptions applied in the
valuation of timber and sugar cane may impact the calculated fair value, the company has calculated
the sensitivity of a change in each of these assumptions as tabled below:
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
Rand thousands 2015 2014 2014
Fair value of biological assets at 31 December 263 121 224 212 253 224
Market price changes
1% increase in market prices 1 978 1 812 3 600
1% decrease in market prices (1 978) (1 812) (3 600)
Discount rate (for immature timber)
1% increase in discount rate (646) (814) (622)
1% decrease in discount rate 646 814 622
Growth/volume assumptions
1% increase in growth/volume assumptions 1 968 1 802 1 831
1% decrease in growth/volume assumptions (1 968) (1 802) (1 831)
3.Financial instruments measurement
Trade receivables and trade payables include foreign receivables and foreign payables respectively.
Foreign receivables and foreign payables are initially measured at fair value and are re-measured to
fair value at reporting dates with changes reflected in profit or loss.
As changes to exchange rates applied at re-measurement may impact the re-measured fair value,
the company has calculated the sensitivity of a change in each of these assumptions as follows:
Sensitivity analysis
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
Rand thousands 2015 2014 2014
Foreign receivables
1% increase in exchange rates 334 269 337
1% decrease in exchange rates (334) 269 (337)
Foreign payables
1% increase on exchange rates (10) (19) (61)
1% decrease in exchange rates 10 19 61
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 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.
5.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.
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.
6.Segmental reporting continued
Segment revenue 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 Dec 30 June 30 June 31 Dec
Rand thousands 2015 2014 2014 2015 2014 2014
Segment revenue
Hardboard 229 530 210 309 443 959 (11 788) (6 456) (8 012)
Other products 12 990 31 766 71 855 (530) (1 347) 249
Forestry 64 717 61 385 125 210 10 668 28 326 54 504
Intersegment (18 787) (13 852) (36 139) – – –
Unallocated – 3 595 – 3 534 1 676 5 665
Total 288 450 293 203 604 885 1 884 24 118 52 406
Administrative expenses (13 521) (10 965) (22 106)
Loss)/profit from operations (11 637) 11 234 30 300
Finance income 438 722 1 418
Finance expense (1 581) (1 569) (3 215)
(Loss)/profit before tax (12 780) 10 387 28 503
Income tax expense 3 657 (2 228) (5 763)
(Loss)/profit for the period attributable
to ordinary shareholders (9 123) 8 159 22 740
7.Other operating
Other operating income includes R15,0 million (June 2014: Nil, FY 2014: R39,2) insurance proceeds
in respect of the explosion at the mill in June 2014.
8.Income tax expense
Unaudited Unaudited Audited
Interim Interim Year ended
30 June 30 June 31 December
Rand thousands 2015 2014 2014
Current tax – – (119)
Deferred tax (3 657) 2 228 5 882
Total (3 657) 2 228 5 763
9. Earnings per share
9.1. 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.
(Loss)/profit for the period attributable to
ordinary shareholders (9 123) 8 159 22 740
Weighted average number of ordinary
shares in issue 7 139 558 7 134 892 7 136 392
Basic earnings per share (cents) (128) 114 319
9.Earnings per share continued
9.2 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 2015: 96 333 (2014: 99 666) 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 2015 2014 2014
(Loss)/profit for the period attributable
to ordinary shareholders (9 123) 8 159 22 740
Weighted average number of ordinary
shares in issue 7 139 558 7 134 892 7 136 392
Adjusted for weighted average share
options outstanding 6 995 8 059 5 149
Weighted average number of
ordinary shares (diluted) 7 146 553 7 142 951 7 141 541
Diluted earnings per share (cents) (128) 114 283
9.3. Headline earnings
Reconciliation of headline earnings
(Loss)/profit for the year (9 123) 8 159 22 740
Adjusted for:
Loss/(profit) on disposal of assets 530 72 (3 500)
Insurance proceeds in respect of
assets damaged in the mill explosion (3 000) – –
Tax effect of (profit)/loss on disposal
of assets and insurance proceeds 692 (20) 980
Headline earnings (10 901) 8 211 20 220
Headline earnings per share (cents) (153) 115 283
Diluted headline earnings per share (cents) (153) 115 283
10.Land claims
There are currently land claims on approximately 6 056 hectares of a total of 22 548 hectares
owned by the company (4 874 hectares relate to claims currently referred to court and the balance
is still being investigated). While the directors do not believe that these claims are valid and have
consequently been opposing the claims, the Land Claims Commission had tabled a settlement
agreement to the courts which may result in a sale of approximately 571 hectares at market-related
prices. The court has granted an interim order that any interested party must show cause as to
why the settlement agreement should not be made a final order of court. If all parties accept, the
settlement agreement will be made a final order of the court by the end of October 2015.
DIRECTORS
MG Leitch (Chairman), HJ Loring (Chief Executive Officer),
WRC Holmes (Chief Financial Officer), WP Coetzee, N Maharajh,
CA Virostek (Canadian), LP Repar (Canadian), RE Lewis (USA), G Coulter (USA)
COMPANY SECRETARY
MP Govender
TRANSFER SECRETARIES
Computershare Investor Services (Proprietary) Limited
70 Marshall Street, Johannesburg, 2001
SPONSOR
Nedbank CIB
135 Rivonia Road, Sandton, 2196
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