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VERIMARK HOLDINGS LIMITED - Condensed Unaudited Consolidated Results for the Six Months Ended 31 August 2015

Release Date: 12/10/2015 07:05
Code(s): VMK     PDF:  
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Condensed Unaudited Consolidated Results for the Six Months Ended 31 August 2015

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

CONDENSED UNAUDITED CONSOLIDATED RESULTS FOR THE SIX MONTHS ENDED 31
AUGUST 2015
 SALIENT FEATURES

 -   Revenue up 0.5% to R183.5 million (2014: R182.6 million)
 -   Operating loss reduced by 26.5% to R2.98 million (2014: Loss R4.1 million)
 -   Headline loss per share at (3.6) cents (2014: (3.7) cents)
 -   Cash position improved by R4.4 million from 28 February 2015 and by R17.9 million from 31
     August 2014
 -   Sales revenue through retail outlets (through the till) showing improvement
 -   Reduction in operating loss following efficiency gains as well as a reduction in expenses

 The first half’s trading conditions remained challenging as consumer confidence weakened further due
 higher interest rates, negligible economic growth and disruptions due to erratic power supply as a result
 of load shedding.

 The continued devaluation of the Rand against the US Dollar again made it necessary to adjust selling
 prices. Sales volumes, revenue and profitability have been affected but, pleasingly, the efforts
 introduced over the last year to enhance sales are beginning to take effect with the value of products
 sold to consumers, through the till, at retail level increasing by nearly 6%. The Group, however,
 experienced different levels of sales growth of the various retail chains, with the majority of outlets
 showing good growth, whilst one other reported a slowdown. This resulted in the Group’s total sales
 increasing by only 0.5%.

 As with all other South African importers, Verimark continues to experience the harsh and difficult
 effects of the significant devaluation of the South African Rand against the US Dollar. The Rand
 devalued by 12.3% over the last six month period; and since March 2011 to the date of this report, it
 has lost almost half of its value against the Dollar, moving from R6.87/USD (March 2011) to around
 R13.90/USD at the end of September 2015.

 Despite the demanding external factors, the Group remains focused on improving those internal factors
 over which it has some control, including the implementation of a stringent cost containment process
 and improving operating efficiencies. Although this has been managed carefully over the last eighteen
 months, the recent acceleration of the currency’s weaknesses resulted in a higher than expected net
 foreign exchange loss of R1.5 million, compared to a R212 000 net foreign exchange profit reported in
 the same period last year.

 OVERVIEW
 The Group’s total revenue increased 0.5% to R183.5 million (2014: R182.6 million). Despite the average
 cost of product increasing over the period, Verimark has again elected not to increase selling prices to
 the same extent, given the impact that it would have had on sales volumes.

 Containing costs has proved challenging, but success has been achieved with selling and operating
 expenses reducing by 0.8% which is commendable in the current, demanding, operating environment.

 It was mentioned during the release of the annual results for the year ended 28 February 2015 that the
 inventory levels, at year end, were increased to ensure sufficient cover for the closure of factories during
 the Chinese New Year holidays. As expected, the inventory held within the Group has returned to
 normal operating levels. Cash generated by the operating activities amounted to R7.3 million (2014:
 R16.9 million cash utilised by operating activities).

The operating loss for the six months ended 31 August 2015 reduced significantly by 26.5% to R2.98
million from the R4.1 million reported in the same period last year.

The Group’s headline loss per share reduced marginally to 3.6 cents from 3.7 cents as reported in the
same period last year.

In addition to cost improvement initiatives, Verimark continues to drive improvements in working capital
management in order to strengthen its overall cash position. These efforts ensured that the cash
position improved by R4.4 million since 28 February 2015 and by R17.9 million from 31 August 2014.

The discontinuation of Verimark’s Singapore operation is in progress and should reach completion
within the next few months. The Group remains committed to limit losses during this period. Losses
reported in the current period from this operation amounted to R367 000 and is significantly less than
the R602 000 loss reported in 2014.

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 2015 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 2015 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 consolidated financial information has been presented on the historical cost basis,
except for financial instruments 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 2015.

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
While the economic environment is expected to remain challenging over the next 18 months,
Verimark’s continued focus and proven record of expanding its innovative product range should
benefit its sales growth.

Efforts to improve the Group’s performance are becoming evident with the increased rate of new
product introductions, containment of supply chain and operating costs, strengthening in the cash
position and focus on making the business more efficient. The Board is therefore confident that the
medium- and long-term prospects of Verimark remain positive.

RESULTS
The interim results for the period ended 31 August 2015, 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 2015     August 2014              2015
                                                                           (Restated)
                                                                R’000           R’000             R’000
 Continuing operations
 Revenue                                                      183 514         182 640           415 374
 Operating (loss) / profit before net finance expense          (2 976)         (4 047)           18 108
 and taxation
 Finance income                                                    616           1 063            2 376
 Foreign exchange gains realised                                   515           1 054            2 365
 Interest income from financial assets                             101               9               11
 Finance expense                                               (2 472)         (1 288)           (3 480)
 Foreign exchange losses realised                              (2 055)           (842)           (1 935)
 Interest expense from financial liabilities                     (417)           (446)           (1 545)
 (Loss) / profit before taxation                               (4 832)         (4 272)           17 004
 Tax credit / (expense)                                          1 190             899           (5 010)
 (Loss) / profit for the period                                (3 642)         (3 373)           11 994
 Discontinued operations
 Loss for the period from discontinued operations                (367)           (602)            (736)
 (after tax)
 (Loss) / profit for the period                                (4 009)         (3 975)           11 258
 Other comprehensive income
 Items that are or may be reclassified subsequently to
 profit or loss
 Foreign currency translation reserve movement                   (245)              51                1
 Total comprehensive income for the period                     (4 254)         (3 924)           11 259
 attributable to owners of the Company
 (Loss) / earnings per share (EPS) – continuing                  (3,4)           (3,1)             11.1
 operations
 (Loss) / earnings per share (EPS) – discontinued                (0,3)           (0,6)            (0.7)
  operations
 Headline (loss) / earnings per share (HEPS)                     (3.6)           (3,7)             10.4
 Headline (loss) / earnings per share (EPS) –                    (3,3)           (3,1)             11.1
 continuing operations
 Headline (loss) / earnings per share (EPS) –                    (0,3)           (0,6)            (0.7)
 discontinued operations

* Restated – the results for 31 August 2015 have been restated to separately reflect the impact and
results of the discontinued operation.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                     Unaudited as    audited as    Audited as at
                                                     at 31 August  at 31 August      28 February
                                                             2015          2014             2015
                                                                     (Restated)
                                                            R’000         R’000            R’000
Assets
Plant and equipment                                         9 836        11 517           11 264
Intangible assets                                          14 589        14 798           14 623
Deferred taxation asset                                     6 151         4 535            4 961
Non-current assets                                         30 576        30 850           30 848
Inventories                                                70 380        78 552           79 531
Trade and other receivables                                61 678        67 744           64 073
Prepayments                                                   662           618              496
Prepaid taxation                                              498           672              498
Assets held for sale                                        1 037         2 555            2 632
Cash and cash equivalents                                     391           373              444
Current assets                                            134 646       150 514          147 674
Total assets                                              165 222       181 364          178 522
Equity and liabilities
Share capital                                                 360           360              360
Share premium                                              32 269        32 269           32 269
Foreign currency translation deficit                        (412)         (117)            (167)
Share based payment reserve                                     0           436                0
Retained earnings                                          83 868        78 274           93 506
Equity attributable to the equity holders of the parent   116 085       111 222          125 968
Interest-bearing borrowings                                 3 686         4 210            4 085
Non-current liabilities                                     3 686         4 210            4 085
Trade and other payables                                   35 458        35 983           33 327
Liabilities directly associated with assets held for           83           285              301
sale
Current portion of interest-bearing borrowings                966         1 706            1 422
Bank overdraft                                              8 810        27 934           13 285
Taxation payable                                              134            24              134
Current liabilities                                        45 451        65 932           48 469
Total liabilities                                          49 137        70 142           52 554
Total equity and liabilities                              165 222       181 364          178 522
            
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 1 March 2013        346    21 378         13       1 124       64 587     87 448
Comprehensive Income
Profit from continuing                                                    18 627     18 627
operations
Loss from discontinued                                                     (966)      (966)
operations
Other comprehensive                                (181)                              (181)
income
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
Profit from continuing                                                   11 994     11 994
operations
Loss from discontinued                                                    (736)      (736)
operations
Other comprehensive                                   1                                 1
income
Transactions with
owners recorded in
equity
IFRS 2 share-based                                            (468)                  (468)
payment reversal
Balance at 28 February         360    32 269       (167)         0      93 506    125 968
2015
Comprehensive Income
Loss from continuing                                                    (3 642)    (3 642)
operations
Loss from discontinued                                                    (367)      (367)
operations
Other comprehensive                                (245)                             (245)
income
Distributions to
shareholders
Dividends paid                                                          (5 629)    (5 629)
Balance at 31 August          360     32 269       (412)         0       83 868    116 085
2015

CONSOLIDATED STATEMENT OF CASH FLOWS
                                                              Unaudited       Unaudited    Audited twelve
                                                             six months      six months      months ended
                                                               ended 31        ended 31       28 February
                                                            August 2015     August 2014              2015
                                                                  R’000           R’000             R’000

Net cash inflows / (outflows) from operating activities           7 279         (16 887)              486
Cash generated / (utilised by) from operations                   14 764         (15 622)            8 679
Dividends paid                                                   (5 629)              0                 0
Finance income received                                             616           1 064             2 378
Finance costs paid                                               (2 472)         (1 290)           (3 480)
Taxation paid                                                         0          (1 039)           (7 091)

Cash outflows from investing activities                          (1 653)         (1 403)           (3 791)
Acquisition of plant and equipment                               (1 622)         (1 284)           (3 690)
Acquisition of intangible assets                                    (37)           (181)             (181)
Proceeds from disposal of plant and equipment                         6              62                80

Cash outflows from financing activities                            (855)         (1 016)           (1 425)
Interest-bearing borrowings repaid                                 (855)         (1 016)           (1 425)
Net increase / (decrease) in cash and cash                         4 771        (19 306)           (4 730)
equivalents
Cash and cash equivalents at beginning of period                (12 841)         (7 030)           (7 030)
Cash and cash equivalents held for sale                            (349)              0            (1 081)
Cash and cash equivalents at end of period                       (8 419)        (26 336)          (12 841)


SEGMENTAL INFORMATION
                                   South Africa    Foreign     Group Elimination        Total
                                          R’000      R’000                 R’000        R’000
Revenue                                 183 092        422                     0      183 514
Loss before tax                          (4 832)      (367)                    0       (5 199)
Loss after tax                           (3 642)      (367)                    0       (4 009)
Segment assets                          164 185      1 037                     0      165 222
Segment liabilities                     (49 220)    (3 271)                3 188      (49 137)
 

DETERMINATION OF ATTRIBUTABLE (LOSS) / EARNINGS AND HEADLINE (LOSS) / EARNINGS
                                                          Unaudited        Unaudited   Audited twelve
                                                         six months       six months     months ended
                                                           ended 31         ended 31      28 February
                                                        August 2015      August 2014             2015
                                                              R’000            R’000            R’000
 Attributable (loss) / profit (after tax)                    (4 009)          (3 975)          11 258
 Loss / (profit) on sale of plant and equipment                 138                2              (14)
 Tax on (loss) / profit on sale of plant and equipment          (38)              (1)               4
 Headline (loss) / earnings                                  (3 909)          (3 974)          11 248

  Shares in issue                                       114 272 328      114 272 328       114 272 328
  Shares held by subsidiary                              (6 380 870)      (6 380 870)       (6 380 870)
  Number of shares at period end                        107 891 458      107 891 458       107 891 458
  Basic (loss) / earnings per share                            (3.7)            (3,7)             10,4
  Headline (loss) / earnings per share                         (3.6)            (3,7)             10,4
  Net asset value per share                                   107,6            103,1             116,8
  Net tangible asset value per share                           94,1             89,4             103,2

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
 12 October 2015
 
 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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