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Condensed consolidated unaudited interim financial results for the six months ended 31 August 2016
Value Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1997/002203/06)
ISIN number: ZAE000016507 Share code: VLE
Directors:
C D Stein* (Chairman), S D Gottschalk (CEO), C L Sack, I M Groves*, N M Phosa*, M Padiyachy,
V W Mcobothi* * Non-executive director
Sponsor: Investec Bank Limited
condensed consolidated Unaudited interim financial results
for the six months ended 31 August 2016
highlights
REVENUE
R1.198bn
UP by 21%
HEADLINE
EARNINGS
PER SHARE
14.4 cents
UP by 31%
EARNINGS
PER SHARE
13.5 cents
UP by 34%
NET ASSET
VALUE PER SHARE
483.5 cents
UP by 5%
INTERIM DIVIDEND
PER SHARE
6 cents
UP by 20%
CASH GENERATED
BY OPERATIONS
R98.7 m
DOWN by 1%
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Restated* Restated*
% 31 August 31 August 29 February
R000’s change 2016 2015 2016
Revenue 21% 1 197 936 990 679 2 043 994
Cost of sales (810 948) (598 211) (1 245 627)
Gross profit 386 988 392 468 798 367
Other income 11 797 8 137 19 829
Operating expenses (363 401) (373 363) (730 616)
Operating profit 30% 35 384 27 242 87 580
Share of profit of equity-accounted
investees 28 50 79
Investment income 6 772 7 212 14 060
Finance costs (16 098) (14 884) (30 932)
Net profit before taxation 26 086 19 620 70 787
Taxation (6 043) (4 004) (16 602)
Net profit for the period 28% 20 043 15 616 54 185
Other comprehensive income
Foreign currency translation differences 124 333 355
Total comprehensive income for the period 20 167 15 949 54 540
Owners: 21 039 16 170 55 274
Net profit for the period 20 915 15 837 54 919
Other comprehensive income 124 333 355
Non-controlling interest: (872) (221) (734)
Net loss for the period (872) (221) (734)
Other comprehensive income - - -
20 167 15 949 54 540
Earnings per share (cents) (note 3)
Basic 34% 13.5 10.1 35.4
Headline 31% 14.4 11.0 37.2
Diluted basic 13.5 10.1 35.4
Diluted headline 14.4 11.0 37.1
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Restated* Restated*
% 31 August 31 August 29 February
R000’s change 2016 2015 2016
Cash flows from operating activities 35 625 84 552 176 703
Cash generated by operations before
movements in working capital and proceeds
on disposal of rental assets 81 655 74 058 186 113
Proceeds on disposal of rental assets 17 040 25 992 52 063
Cash generated by operations (1%) 98 695 100 050 238 176
Changes in working capital (17 506) 21 638 (4 123)
Net finance costs (9 326) (7 672) (16 872)
Taxation paid (8 023) (11 002) (14 330)
Cash available from operating activities 63 840 103 014 202 851
Dividends paid (28 215) (18 462) (26 148)
Cash flows from investing activities (56 252) (84 846) (168 830)
Cash flows from financing activities (26 435) (29 802) (35 153)
Net change in cash and cash equivalents (47 062) (30 096) (27 280)
Translation difference 4 190 308
Cash and cash equivalents at beginning of period 91 342 118 314 118 314
Cash and cash equivalents at end of period 44 284 88 408 91 342
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Restated* Restated*
31 August 31 August 29 February
R000’s 2016 2015 2016
Ordinary share capital and premium 10 829 10 829 10 829
Balance at beginning of period 10 829 10 841 10 841
Shares cancelled - (12) (12)
A ordinary shares 10 10 10
Treasury shares (97 021) (97 021) (97 021)
Balance at beginning of period (97 021) (134 777) (134 777)
Treasury shares acquired - (16 440) (16 440)
Treasury shares cancelled - 54 196 54 196
Share-based payment reserve 28 955 25 544 27 184
Balance at beginning of period 27 184 23 891 23 891
Share-based payment expense 1 771 1 653 3 293
Foreign currency translation reserve 495 349 371
Balance at beginning of period 371 16 16
Foreign currency translation differences 124 333 355
Retained income 803 182 769 431 800 794
Balance at beginning of period 800 794 826 305 826 305
Dividends paid (18 527) (18 527) (26 246)
Shares cancelled - (54 184) (54 184)
Net profit for the period 20 915 15 837 54 919
Total capital and reserves attributable to owners 746 450 709 142 742 167
Non-controlling interest (1 878) (493) (1 006)
Balance at beginning of period (1 006) (272) (272)
Net loss for the period (872) (221) (734)
Equity 744 572 708 649 741 161
*Restated for the treatment of IFRS 10 - refer to note 6
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Restated* Restated*
% 31 August 31 August 29 February
R000’s change 2016 2015 2016
Assets
Non-current assets 1 071 850 1 069 133 1 074 448
Property, vehicles, plant and equipment 1 015 896 1 027 494 1 039 515
Intangible assets 14 668 21 795 17 415
Goodwill 27 231 10 685 10 670
Loan receivable 1 470 1 672 1 776
Equity-accounted investees 341 284 313
Deferred tax asset 12 244 7 203 4 759
Current assets 488 644 456 904 438 562
Inventories 99 600 69 177 59 993
Trade and other receivables 326 195 285 465 276 124
Other financial assets 12 760 7 088 8 983
Current tax receivable 1 738 6 766 2 120
Cash and cash equivalents 48 351 88 408 91 342
Non-current assets held for sale 668 222 156
Total assets 1 561 162 1 526 259 1 513 166
Equity and liabilities
Equity 744 572 708 649 741 161
Non-current liabilities 339 949 341 065 342 956
Interest-bearing borrowings 151 440 168 102 163 346
Non interest-bearing borrowings 2 535 1 774 1 774
Vendor for acquisition 3 268 - -
Deferred tax 182 706 171 189 177 836
Current liabilities 476 641 476 545 429 049
Trade and other payables 371 441 366 008 323 508
Bank overdraft 4 067 - -
Current portion of interest-bearing borrowings 86 874 101 739 101 144
Vendor for acquisition 9 804 3 802 3 802
Other financial liabilities 255 - -
Current tax payable 3 755 4 582 147
Shareholders for dividend 445 414 448
Total equity and liabilities 1 561 162 1 526 259 1 513 166
Net asset value per share (cents) 5% 483.5 459.0 480.8
SEGMENT INFORMATION
* *
Unaudited Restated** Restated**
31 August 31 August 29 February
R000’s 2016 2015 2016
Total segment revenue 1 277 422 1 074 414 2 215 526
General distribution 781 843 816 740 1 675 620
Truck rental and other 194 573 191 299 406 491
Retail logistics 240 095 1 388 7 798
Head office and other 60 911 64 987 125 617
Less: Inter-segment revenue 79 486 83 735 171 532
General distribution 3 820 3 820 9 707
Truck rental and other 15 307 17 459 41 066
Retail logistics - - -
Head office and other 60 359 62 456 120 759
External segment revenue 1 197 936 990 679 2 043 994
General distribution 778 023 812 920 1 665 913
Truck rental and other 179 266 173 840 365 425
Retail logistics 240 095 1 388 7 798
Head office and other 552 2 531 4 858
Business segment results
General distribution 26 436 43 101 93 947
Truck rental and other 13 829 3 794 31 840
Retail logistics 226 (4 466) (11 585)
Head office and other (5 107) (15 187) (26 622)
Operating segment results 35 384 27 242 87 580
Share of profit of equity-accounted investees 28 50 79
Investment income 6 772 7 212 14 060
Finance costs (16 098) (14 884) (30 932)
Net profit before taxation 26 086 19 620 70 787
Total segment assets
General distribution 749 661 732 229 744 916
Truck rental and other 601 280 606 164 618 942
Retail logistics 71 112 4 148 5 204
Head office and other 110 556 160 705 126 153
Segment assets 1 532 609 1 503 246 1 495 215
Loan receivable 1 470 1 672 1 776
Equity-accounted investees 341 284 313
Deferred tax asset 12 244 7 203 4 759
Other financial assets 12 760 7 088 8 983
Current tax receivable 1 738 6 766 2 120
Total assets 1 561 162 1 526 259 1 513 166
** Restated for introduction of new segment - refer to note 6
Notes
1. Basis of preparation
The condensed consolidated interim financial results are prepared in accordance with IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, 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 condensed consolidated interim financial results are in terms of International Financial Reporting Standards and are consistent with those applied in the previous consolidated annual financial statements, other than the deconsolidation of the Group’s insurance operations as detailed in note 6. The condensed consolidated interim financial results have been prepared under the supervision of the Group Financial Director, Mr CL Sack. These condensed consolidated interim financial results have not been audited nor reviewed by the Group’s auditor.
2. Business combination effected during the reporting period
The Group acquired 100% of the ordinary share capital of Key Distributors (Pty) Ltd (Key), the effective date for the transaction being 1 March 2016. Key carries on the business of warehousing, distributing and wholesaling a variety of fast moving consumer goods (FMCG) into the formal and informal trade, including independent traders, fuel forecourts and small retailers. The acquisition offers the Group sought after access into the informal market and will facilitate the opportunity for the Group to diversify its business.
Notes
2. Business combination effected during the reporting period (continued)
The cash consideration for the acquisition is R 32.7 million, payable in three tranches. The second and third payments are subject to Key achieving certain profit warranties.
As part of the business combination, the following assets and liabilities were recognised at the acquisition date:
R000’s
- Goodwill 16 561
- Property, plant and equipment 14 034
- Inventories 36 816
- Fair value of trade receivables 14 736
- Other current assets 9 433
- Total liabilities (58 900)
32 680
Summary financial information for the six months ended 31 August 2016:
- Revenue 232 810
- Net profit before tax 3 698
Unaudited Restated* Restated*
31 August 31 August 29 February
R000’s 2016 2015 2016
3. Headline earnings
3.1. Reconciliation between basic and headline earnings
Basic earnings attributable to owners 20 915 15 837 54 919
Loss on disposal of property, vehicles,
plant and equipment less taxation 1 331 1 381 2 777
Headline earnings 22 246 17 218 57 696
3.2. Number of ordinary shares of R 0.001 each in issue
Shares in issue 186 427 478 186 427 478 186 427 478
Shares in issue excluding treasury shares 154 389 406 154 389 406 154 389 406
Weighted average shares in issue 154 389 406 156 034 937 155 216 667
Diluted shares in issue 154 454 833 156 949 040 155 356 074
3.3. Number of A ordinary shares of R 0.001 each in issue
Shares in issue 10 429 010 10 429 010 10 429 010
4. Supplementary information
Depreciation 53 527 51 850 102 911
Amortisation of intangible assets 5 105 6 113 11 618
Depreciation and amortisation 58 632 57 963 114 529
5. Fair value measurement of financial instruments
5.1. Financial assets/(liabilities)
Cash and cash equivalents (Level 1) 44 284 88 408 91 342
The carrying value of cash and cash equivalents
is considered to reflect its fair value.
Investment in insurance cell captive (Level 2) 12 760 5 707 8 942
The carrying value of the investment in the
insurance cell captive is considered to
reflect its fair value.
Foreign currency forward contracts (Level 2) (255) 1 381 41
The Group’s foreign currency forward contracts
are not traded on active markets. These have been
fair valued using observable forward exchange
rates corresponding to the maturity of the contracts.
6.Restatement of prior period reported items
With the acquisition of Key Distributors on 1 March 2016, the Retail logistics segment has been introduced to enhance segmental reporting. The comparative segmental information has accordingly been restated for other operations involved in the wholesaling of beverage products.
The Group’s insurance operations are conducted in conjunction with a registered insurer, as governed by various contractual arrangements. In the current period the Group sought clarity on certain clauses contained in this agreement, and found that clauses protecting the Group’s rights from other parties in respect of the insurance operation’s assets, were not as originally interpreted. These operations therefore now do not qualify for consolidation, in accordance with the requirements of IFRS 10, Consolidated Financial Statements. As a result, the Group has deconsolidated the insurance component of its operations retrospectively, and raised a financial instrument to reflect its interest therein. There was no impact on earnings or headline earnings per share, or on net asset value per share. The effect of the restatement is as follows:
Impact of change 31 August 2015: Previously Impact Restated
R000’s stated of change
Effect on statement of comprehensive income
Revenue 999 762 (9 083) 990 679
Cost of sales (603 943) 5 732 (598 211)
Other income 5 511 2 626 8 137
Investment income 7 493 (281) 7 212
Taxation (5 020) 1 016 (4 004)
Net profit for the period 15 606 10 15 616
Effect on statement of financial position
Trade and other receivables 285 921 (456) 285 465
Other financial asset 1 381 5 707 7 088
Current tax receivable 6 406 360 6 766
Cash and cash equivalents 96 348 (7 940) 88 408
Retained income 826 385 (80) 826 305
Trade and other payables 368 267 (2 259) 366 008
Effect on statement of cashflows
Cash flows from operating activities 84 789 (237) 84 552
Cash and cash equivalents at end of period 96 348 (7 940) 88 408
Impact of change 29 February 2016: Previously Impact Restated
R000’s stated of change
Effect on statement of comprehensive income
Revenue 2 062 413 (18 419) 2 043 994
Cost of sales (1 256 458) 10 831 (1 245 627)
Other income 13 967 5 862 19 829
Investment income 14 631 (571) 14 060
Taxation (18 889) 2 287 (16 602)
Net profit for the period 54 195 (10) 54 185
Effect on statement of financial position
Trade and other receivables 276 124 - 276 124
Other financial asset 41 8 942 8 983
Current tax receivable 2 831 (711) 2 120
Cash and cash equivalents 101 279 (9 937) 91 342
Retained income 826 385 (80) 826 305
Trade and other payables 325 124 (1 616) 323 508
Effect on statement of cashflows
Cash flows from operating activities 175 702 1 001 176 703
Cash and cash equivalents at end of period 101 279 (9 937) 91 342
INTRODUCTION
Value Group Limited (“the Group”) and its subsidiaries provide a comprehensive range of tailored logistical solutions throughout southern Africa. The operating divisions specialise in providing a diversified range of supply chain services, which encompass distribution, transport, clearing and forwarding, warehousing, container and fleet management, forklift and commercial vehicle rental and leasing. The Group’s retail segment supplies FMCG products into the convenience, formal and informal market.
FINANCIAL REVIEW
Group revenue improved by 21% to R1,198 billion as a result of the inclusion of Key Distributors (Pty) Ltd (“Key”) effective 1 March 2016. Excluding revenue derived from Key, revenue reduced by 3% from R990,7 million to R965,1 million. Trading conditions in the logistics environment are tough and have impacted customer rates, volumes and growth of the customer base. The difficulties experienced necessitated an extensive restructuring exercise where operational cost savings on labour, maintenance and fuel costs were realised. In addition, certain smaller depots have been consolidated into existing branches. Reduced revenue, however, has had the effect of reducing pre Key gross profits by R22,7 million to R369,8 million and gross profit margins from 39,6% to 38,3%. With the inclusion of Key, gross profits reduced marginally by R5,5 million to R387 million.
Notwithstanding the inclusion of Key in the Group’s results, operating expenses reduced by R10 million. This sustainable cost reduction was achieved by instituting the following:
- Non replacement of staff resignations by combining and re-organising job functions;
- Restructuring of departments and responsibilities;
- Automation of previous manual processes;
- Revisiting all overhead costs in order to reduce expenditure where possible.
Consequently, profit before tax increased by 33% from R19,6 million to R26,1 million. The inclusion of the after tax fair value adjustment in other income arising on the investment of the captive insurance cell has the effect of reducing the effective tax rate. The effective tax rate, however, has increased from 20,4% to 23,2% due to a reduction in tax allowances derived from learnerships. Accordingly, net profit after tax improved by 28% to R20 million resulting in basic earnings per share increasing by 34% to 13,5 cents per share and headline earnings per share increasing by 31% to 14,4 cents per share.
Cash generated by operations reduced by 1% from R100,1 million to R98,7 million. Net working capital funding, however, was negatively affected by poor collections at the interim period end which contributed to a reduction in cash available from operations. Accounts receivable collections have subsequently normalised.
Capital expenditure incurred during this period was substantially reduced. Total expenditure amounted to R40,7 million and comprised R3,8 million for vehicles, R20,1 million for forklifts, R7,4 million for plant and equipment, R7,8 million for IT hardware and software and the balance of R1,6 million for various other assets. This expenditure was funded by R19,2 million realised on the disposal of assets and internally generated cash flows.
Interest bearing borrowings reduced by R26,2 million to R238,3 million. The Group’s debt:equity ratio remains low at 34%. Reduced future capital expenditure will result in further reductions in interest bearing debt.
Cash balances reduced due to the funding of the acquisitions of Nucleus Chain Stores and Key.
OPERATIONAL REVIEW
General distribution segment
Poor GDP growth and right sizing of the logistics and freightpak break bulk operation has resulted in muted organic growth of the customer base and further volume decline. Accordingly, revenue reduced by 4,3% from R812,9 million to R778 million. Notwithstanding the reduction in operating profit from
R43,1 million to R26,4 million, the extensive restructuring exercise which commenced at the beginning of the 2016 financial year has started to yield sustainable overhead and operating cost savings.
The ongoing restructuring exercise undertaken included the following:
- Customers’ rates were carefully evaluated and adjusted where necessary;
- Right sizing and downscaling of the logistics and freightpak break bulk operations in line with the reductions in activity and volumes;
- Fleet and delivery frequencies are continuously planned, monitored and changed where required;
- Restructure of various activities and reporting lines.
Certain, but not all of the benefits of the restructuring were realised during the course of this interim period. Consequently, costs have subsequently reduced, which should improve profitability. Further restructuring may be required based on future market conditions.
The remaining operations comprising warehousing, dedicated distribution and express performed below expectation due to margin pressures arising primarily from increased costs.
Truck rental and other segments
Revenue growth in the truck rental and material handling division offset minor reductions in the clearing and forwarding and container handling divisions. Accordingly, revenue increased marginally by R5,4 million to R179,3 million. The strategy to grow truck rental revenue streams and provide costs effective materials handling solutions in specialist sectors has contributed to an improvement in the quality of revenue. The truck rental footprint was reviewed and necessitated the closure of smaller non-viable depots. In addition, staff reductions and the disposal of older vehicles has resulted in reduced maintenance and fixed costs. Accordingly, operating margins improved from 2,2% to 7,7% with operating profit increasing from R3,8 million to R13,8 million.
Retail logistics segment
With the acquisition of Key, the retail logistics segment has been introduced to enhance segmental reporting. Key undertakes the warehousing, distribution and wholesaling of a variety of FMCG products into the convenience, formal and informal sector, which consist primarily of independent traders, fuel forecourts, and small retailers. Key currently operates in the Gauteng, Polokwane, Nelspruit and Bloemfontein areas and recently expanded into the Western Cape by utilising the Value infrastructure.
Segmental revenue increased by R238,7 million mainly due to the inclusion of Key. Notwithstanding the low margins and the additional expansionary costs incurred, the business has outperformed expectations. The results of Key, however, have been offset by existing wholesaling initiatives in the wine and non-alcoholic beverages sector. Losses incurred in these businesses have subsequently been reduced.
FUTURE CAPITAL EXPENDITURE
Capital expenditure for the 2017 financial year has been materially reduced. This will facilitate a large reduction in interest bearing debt. Capital expenditure for the remainder of the 2017 financial year is expected to approximate R18,9 million consisting primarily of forklift and vehicle additions. This capital expenditure will be funded by internally generated cash flows and interest bearing debt.
PROSPECTS
Political uncertainty, low economic growth and the prospect of a ratings downgrade do not bode well for an improvement in the economy. In line with prior years, however, the Group anticipates an increase in second half volumes due to festive season trade. Volumes within the Key business are also expected to increase. In addition, ongoing cost savings, as highlighted above, are bearing positive results. In order to extract further savings, various facilities, including Key’s, are under investigation for consolidation into strategic remaining facilities. Consequently, increased activity and cost savings initiatives should contribute positively to the Group’s financial position. This forecast has not been audited nor reviewed by the Group’s auditors.
The Group continues to pursue acquisition opportunities that will complement and improve revenue streams in the existing divisions.
DECLARATION OF DIVIDEND (NUMBER 20)
The Board resolved to declare a gross interim dividend for the six months ended 31 August 2016, of
6 cents per ordinary share which will be paid out of distributable reserves. The number of ordinary shares in issue at the date of this declaration is 186 427 478. The dividend will be subject to dividend withholding tax of 15% which amounts to 0,9 cents per share. This will result in a net dividend of 5,1 cents per share payable to those shareholders who are not exempt from paying dividend withholding tax. The tax reference number of Value Group Limited is 9319054715. The dividend is payable to shareholders as follows:
Declaration date Wednesday, 19 October 2016
Last day to trade cum dividend Tuesday, 17 January 2017
Trading ex-dividend commences Wednesday, 18 January 2017
Record date Friday, 20 January 2017
Payment date Monday, 23 January 2017
Share certificates may not be dematerialised or rematerialized between Wednesday, 18 January 2017 and Friday, 20 January 2017, both days inclusive.
For and on behalf of the Board
C D Stein S D Gottschalk Johannesburg
Chairman Chief Executive Officer 19 October 2016
Date: 19/10/2016 04:48:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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