Wrap Text
Audited summary consolidated financial results announcement for the year ended 31 December 2016
South Ocean Holdings Limited
(Registration number 2007/002381/06)
Incorporated in the Republic of South Africa
("South Ocean Holdings" and "the Group")
Share code: SOH ISIN: ZAE000092748
AUDITED
SUMMARY
CONSOLIDATED
FINANCIAL
RESULTS
ANNOUNCEMENT
for the year ended
31 December
2016
("Financial Statements")
SALIENT FEATURES
Revenue increased by 7,2% to R1,777 billion
Loss per share of 25,0 cents
Headline loss per share of 13,1 cents
Tangible net asset value per share decreased by 6,9%
to 333,9 cents
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
31 December 2016 31 December 2015
(Audited) (Audited)
Notes R'000 R'000
Assets
Non-current assets 319 269 331 390
Property, plant and equipment 4 289 699 313 633
Intangible assets 4 7 783 8 780
Deferred tax 21 787 8 977
Current assets 623 873 578 274
Inventories 326 407 321 305
Trade and other receivables 275 130 229 596
Current tax receivable - 5 556
Cash and cash equivalents 22 336 21 817
Total assets 943 142 909 664
Equity and liabilities
Equity
Share capital 5 441 645 441 645
Reserves 1 799 2 513
Retained earnings 86 428 125 567
Total equity 529 872 569 725
Liabilities
Non-current liabilities 87 543 101 082
Interest-bearing borrowings 6 52 025 63 899
Share-based payments 492 -
Deferred taxation 35 026 37 183
Current liabilities 325 727 238 857
Trade and other payables 128 677 122 163
Interest-bearing borrowings 6 197 012 116 694
Derivative financial instruments 38 -
Total liabilities 413 270 339 939
Total equity and liabilities 943 142 909 664
SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended
31 December 2016 31 December 2015
(Audited) Change (Audited)
Note R'000 % R'000
Revenue 1 777 190 7,2 1 657 358
Cost of sales (1 623 447) (1 499 277)
Gross profit 153 743 (2,7) 158 081
Other operating income 6 181 11 647
Administration expenses (68 765) (75 038)
Distribution expenses (25 653) (25 822)
Operating expenses (97 344) (68 430)
Operating (loss)/profit (31 838) 438
Finance income 1 005 1 037
Finance costs (23 273) (20 397)
Loss before taxation (54 106) (185,9) (18 922)
Taxation 7 14 967 5 003
Loss for the year (39 139) (181,2) (13 919)
Other comprehensive (loss)/income
Exchange differences on translation
of foreign operations (714) 1 486
Total comprehensive loss attributable to
equity holders of the Group (39 853) (220,5) (12 433)
Cents Cents
per share per share
Loss per share - basic and diluted (25,0) (180,9) (8,9)
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended
31 December 2016 31 December 2015
(Audited) (Audited)
R'000 R'000
Share capital
Opening and closing balance 1 274 1 274
Share premium
Opening and closing balance 440 371 440 371
Foreign currency translation reserve
Opening balance 2 513 1 027
Exchange differences on translation of foreign operations (714) 1 486
Closing balance 1 799 2 513
Retained earnings
Opening balance 125 567 139 486
Total comprehensive loss for the year (39 139) (13 919)
Closing balance 86 428 125 567
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOW
For the year ended
31 December 2016 31 December 2015
(Audited) (Audited)
R'000 R'000
Cash flows from operating activities (55 747) 67 539
Cash flows from investing activities (11 504) (15 806)
Cash flows from financing activities 68 484 (67 792)
Net increase/(decrease) in cash and cash equivalents 1 233 (16 059)
Cash and cash equivalents at the beginning of year 21 817 36 390
Effects of exchange rate movement on cash balances (714) 1 486
Total cash and cash equivalents at the end of year 22 336 21 817
SELECTED NOTES TO THE SUMMARISED CONSOLIDATED FINANCIAL INFORMATION
1. General information
South Ocean Holdings and its subsidiaries manufacture and distribute electrical cables, import and distribute light fittings, lamps, electrical
accessories and audio visual hardware and accessories, and hold investments in a light fittings assembly operation and property investment company.
South Ocean Holdings is a public company listed on the JSE Limited ("JSE") and is incorporated and domiciled in the Republic of South Africa.
The audited summary consolidated financial information was prepared by MK Lehloenya CA(SA) and was approved for issue by the directors on
10 March 2017.
2. Basis of preparation
The summary consolidated Financial Statements of South Ocean Holdings have been prepared in accordance with the JSE Listings Requirements
for provisional reports and the requirements of the Companies Act of South Africa applicable to summary Financial Statements. This should be read
with the audited Financial Statements for the year ended 31 December 2016. The Listings Requirements require provisional reports to be prepared
in accordance with the framework concept and the measurement and recognition requirements of the International Financial Reporting Standards
("IFRS") and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued, by
the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 "Interim Financial Reporting". The
accounting policies applied in the preparation of the consolidated Financial Statements from which the summary consolidated Financial Statements
were derived are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated Financial
Statements.
3. Accounting policies
The accounting policies adopted are consistent with those applied in the Financial Statements for the year ended 31 December 2016, except where
indicated. There are no new standards or amendments that were issued since the last annual report that will result in a material impact in the reported
or future results of the Group.
4. Property, plant and equipment and intangible assets
During the year, the Group invested R13,3 million (2015: R16,7 million) in capital expenditure. An impairment charge of R18,7 million (2015: Rnil)
was raised against the manufacturing plant and machinery at South Ocean Electric Wire Company Proprietary Limited ("SOEW") due to the value in
use of the subsidiary being lower than the enterprise value. The details of changes in tangible and intangible assets are as follows:
Tangible assets Intangible assets
(Audited) (Audited)
R'000 R'000
Year ended 31 December 2016
Opening net carrying amount 313 633 8 780
Additions 12 318 997
Disposals (1 638) (64)
Impairment (18 743) -
Depreciation/amortisation (15 871) (1 930)
Closing net carrying amount 289 699 7 783
Year ended 31 December 2015
Opening net carrying amount 315 993 9 994
Additions 15 002 1 697
Disposals (587) -
Depreciation/amortisation (16 775) (2 911)
Closing net carrying amount 313 633 8 780
5. Share capital and share premium
Number Ordinary Share
of shares shares premium Total
R'000 R'000 R'000
At 31 December 2016
Opening and closing balance 156 378 794 1 274 440 371 441 645
At 31 December 2015
Opening and closing balance 156 378 794 1 274 440 371 441 645
6. Interest-bearing borrowings
31 December 2016 31 December 2015
(Audited) (Audited)
Secured loans R'000 R'000
Non-current 52 025 63 899
Current 197 012 116 694
249 037 180 593
The movement in borrowings is analysed as follows:
Opening balance 180 593 248 385
Additional loans raised 83 620 5 888
Finance costs 23 141 20 298
Repayments (38 317) (93 978)
Closing balance 249 037 180 593
7. Taxation
The effective tax rate is 27,7% (2015: 26,4%).
8. Reconciliation of headline loss
31 December 2016 31 December 2015
(Audited) (Audited)
R'000 R'000
Loss attributable to equity holders of the Group (39 139) (13 919)
Profit on disposal of property, plant and equipment (108) (306)
Impairment of plant and machinery 18 743 -
Headline loss (20 504) (14 225)
Headline loss per share (cents) (13,1) (9,1)
9. Weighted average number of shares
31 December 2016 31 December 2015
(Audited) (Audited)
R'000 R'000
Number of shares in issue 156 378 794 156 378 794
Weighted average number of shares in issue at
beginning and end of the year 156 378 794 156 378 794
10. Net asset value
31 December 2016 31 December 2015
(Audited) (Audited)
Net asset value per share (cents) 338,8 364,3
Tangible net asset value per share (cents) 333,9 358,7
11. Derivative financial instruments
The notational principal amount of the outstanding forward exchange contract at 31 December 2016 was R6 961 070 (2015: Rnil). Trading
derivatives are classified as a current asset or current liability. The fair value of the derivatives is determined with reference to observable market
data and rely as little as possible on entity specific estimates. The maximum exposure to credit risk at the reporting date is the fair value of the
derivative liability in the statement of financial position. The fair values are within level 2 of the fair value hierarchy.
12. Final dividend declaration
No final dividend has been declared.
13. Audit opinion
These summary consolidated Financial Statements for the year ended 31 December 2016 have been audited by PricewaterhouseCoopers Inc.,
who expressed an unmodified opinion thereon. The auditor also expressed an unmodified opinion on the Financial Statements from which these
summary consolidated Financial Statements were derived.
A copy of the auditor's report on the summary consolidated Financial Statements and of the auditor's report on the Consolidated Financial
Statements are available for inspection at the Company's registered office, together with the Financial Statements identified in the respective
auditor's reports.
14. Segment reporting
The chief operating decision-maker reviews the Group's internal reporting in order to assess performance and has determined the operating
segments based on these reports.
The business performance of the operating segments: electrical cables manufacturing, lighting and electrical accessories, and property
investments, is evaluated from the market and product performance perspective.
The segment information has been prepared in accordance with IFRS 8 - "Operating Segments", which defines the requirements for the
disclosure of financial information of an entity's segments.
The standard requires segmentation on the Group's internal organisation and reporting of revenue and adjusted EBITDA based upon internal
accounting presentation.
The segment revenue and adjusted EBITDA generated by the Group's reportable segments are summarised as follows:
Year ended
Adjusted Segment Segment
Revenue EBITDA assets liabilities
R'000 R'000 R'000 R'000
31 December 2016
Electrical cables manufacturing 1 437 154 15 881 473 164 239 216
Lighting and electrical accessories 344 987 (14 028) 259 106 77 091
Property investments 21 798 17 486 187 648 56 588
1 803 939 19 339 919 918 372 895
31 December 2015
Electrical cables manufacturing 1 342 336 26 654 431 881 148 535
Lighting and electrical accessories 326 094 (7 906) 275 982 89 784
Property investments 19 280 15 664 185 749 61 490
1 687 710 34 412 893 612 299 809
Reconciliation of total segment report to the statement of financial position and statement of comprehensive income is provided as
follows:
31 December 2016 31 December 2015
(Audited) (Audited)
R'000 R'000
Revenue
Reportable segment revenue 1 803 939 1 687 710
Inter-segment revenue (property rentals) (21 068) (19 280)
Inter-segment revenue - other (5 681) (11 072)
Revenue per consolidated statement of
comprehensive income 1 777 190 1 657 358
(Loss)/profit before tax
Adjusted EBITDA 19 339 34 412
Corporate and other overheads (14 633) (14 288)
Depreciation (15 870) (16 775)
Impairment of plant and machinery (18 743) -
Amortisation of intangible assets - lighting and electrical accessories (1 931) (2 911)
Operating (loss)/profit (31 838) 438
Finance income 1 005 1 037
Finance cost (23 273) (20 397)
Loss before tax per consolidated statement of comprehensive income (54 106) (18 922)
Assets
Reportable segment assets 919 918 893 612
Corporate and other assets 1 437 1 519
Deferred taxation 21 787 8 977
Taxation receivable - 5 556
Total assets per statement of financial position 943 142 909 664
Liabilities
Reportable segment liabilities 372 895 299 809
Corporate and other liabilities 5 349 2 947
Deferred taxation 35 026 37 183
Total liabilities per statement of financial position 413 270 339 939
15. Director changes
Mr JH Yeh was appointed an independent non-executive director on 18 February 2016. Mr JP Bekker was appointed Chief Executive Officer on
4 August 2016. Ms MK Lehloenya was appointed Chief Financial Officer on 4 August 2016. Ms L Stephens resigned as an independent non-
executive director on 10 August 2016. Mr EHT Pan resigned as a director and Deputy-Vice Chairman on 18 February 2016 and was replaced
by Mr HL Li as Deputy-Vice Chairman effective 18 February 2016. Ms DJC Pan replaced Mr CH Pan, who resigned as a director effective
18 February 2016, as alternate director to Mr HL Li.
16. Competition Commission
As noted in the previous financial statements, the case arises from a complaint that the Competition Commission ("Commission") first initiated
on 16 March 2010 and which was referred to in the South Ocean Holdings' SENS announcement dated 6 May 2010. SOEW has engaged the
services of specialist competition lawyers and economists to advise SOEW in respect of the Commission's referral. SOEW has cooperated with
the Commission during its investigation of the complaint and continues to do so now that the complaint has been referred to the Tribunal. In terms
of IAS 37 no further disclosures are made as this would unfairly prejudice SOEW in its current dealings with the Commission.
17. Subsequent events
Notwithstanding the above, the directors are not aware of any other significant events arising since the end of the financial year, which would
materially affect the operations of the Group or its operating segments.
COMMENTARY
Introduction
The Board of South Ocean Holdings announced its summary consolidated results for the year ended 31 December 2016 ("the year").
South Ocean Holdings is an investment holding company, comprising four operating subsidiaries namely: South Ocean Electric Wire Company
Proprietary Limited ("SOEW"), a manufacturer of low voltage electrical cables, Radiant Group Proprietary Limited ("Radiant"), an importer and distributor
of light fittings, lamps, electrical accessories and audio visual hardware and accessories, Anchor Park Investments 48 Proprietary Limited ("Anchor
Park"), a property holding company, and Icembu Services Proprietary Limited ("Icembu"), a light fittings assembly company.
Financial overview
Earnings
Group revenue for the year ending 31 December 2016 increased by 7,2% (2015: 3,4%, decrease) to R1,777 billion (2015: R1,657 billion). The Group's
gross profit decreased by 2,7% (2015: 39,7%, decrease) to R153,7 million (2015: R158,1 million) and operating profit decreased from R438 000 to a
loss of R31,8 million for the current year.
Group loss before tax increased by 185,9% (2015: 132,2%, decrease in profit) resulting in a loss of R54,1 million (2015: R18,9 million, decrease). The
basic loss per share increased by 180,9% (2015: 137,1%, decrease) to a loss per share of 25,0 cents (2015: 8,9 cents) compared to the prior period
2015. Headline loss per share increased by 44,0% (2015: 137,9%, decrease in headline earnings) to a headline loss of 13,1 cents (2015: 9,1 cents).
The increase in the loss was partly a result of the net impairment charge of R13,5 million to the plant and machinery of SOEW due to the subsidiary's
value in use being lower than the enterprise value and an additional net provision against Radiant's inventory to the value of R6,4 million. The impairment
and the additional provision were performed to comply with IFRS. Furthermore, SOEW undertook a section 189 retrenchment process in the 4th quarter
of 2016 to save costs. The after tax cost amounted to R2,4 million. The benefits of the cost savings will be realised in 2017.
The above expenses contributed R22,3 million to the Group's loss after tax, which negatively impacted the Group's profitability. Management is
confident that the upside benefit of the cost saving will be realised in 2017 and in succeeding years. Management is of the view that these once-off extra
ordinary items which will not re-occur in the near future as management remains committed to maximising the returns and benefits to its shareholders.
The electrical cable segment saw production volumes increase due to a stable power supply in 2016, however, the decline in economic environment
led to gross profit margins being under pressure and this negatively affected the Company's profitability.
The lighting and electrical accessories segment has increased revenues for the first time in three years. Subdued market conditions and increased
competition have resulted in lower gross profits, this in turn had a direct effect on the overall profitability of the Company.
Cash flow and working capital management
The cash utilised from operations amounted to R55,7 million (2015: R67,5 million, cash generated), declining by R123,2 million compared to the
prior year. Working capital increased by R44,1 million, primarily due to an increase in inventory, and an increase in trade receivables. Working capital
investment is currently at 26,6% (2015: 25,8%) of revenue.
The Group invested R13,3 million (2015: R16,7 million) in capital expenditure which was mainly financed through long-term borrowings. The Group
utilised R38,3 million (2015: R94,0 million) to repay its interest-bearing borrowings.
The Group generated a new cash increase during 2016 of R1,2 million (2015: R16,1 million, net cash outflow) increasing the bank balance to
R22,3 million (2015: R21,8 million, decrease) as at year-end.
Segment results
Electrical cables manufacturing - SOEW
Revenue increased by 7,1% (2015: 3,4%, decrease) to R1,437 billion (2015: R1,342 billion). The increase in SOEW revenue was mainly attributable to
increased production volumes. In 2015 SOEW experienced power outages which affected production in that year. There was stable power supply in
2016. Aggressive pricing by competitors put gross profit margins under severe pressure. The volatility in the Rand Copper Price ("RCP") exacerbated
the negative impact on gross profit margins as customers held back orders when RCP declines were anticipated and placed orders ahead of RCP
increases.
Working capital increased by R29,9 million for the year compared to a decrease of R64,3 million for the prior year. A section 189 retrenchment process
was undertaken during the 4th quarter of the year to reduce costs. The effect of cost saving will only be seen in the 2017 year.
Lighting and electrical accessories - Radiant
Radiant reported revenue of R345,0 million (2015: R326,1 million) which is an increase of 5,8% (2015: 2,8%, decrease) when compared to the prior
year. Radiant has turned the corner into a positive revenue growth trajectory. Revenue has grown for the first time in three years. However, Radiant faced
challenging economic factors in 2016, the weakening Rand and volatility impacted on the gross profit margins significantly.
A general negative business sentiment that persisted, market pressure and stringent competition put Radiant's gross profit margins under severe
pressure. Changing market trends led to an additional provision of inventory of R8,9 million before tax which further negatively impacted company
profitability.
Radiant is confident that the Company is well positioned for growth. It has seen an improvement in customer confidence and loyalty from the
implementation of its turnaround strategy.
Property investments - Anchor Park
Anchor Park's revenue is derived mainly from Group companies, as it leases its properties to fellow subsidiaries. The increase in revenue of 13,1% in
rental income was due to increased rental premiums and from renting out additional space to third parties.
Seasonality
The Group's earnings are affected by seasonality as earnings for the second half of the year are historically higher than the first six months. Management
expects the traditional seasonality trend to continue in future. However, in 2016, earnings in the second half were lower due to subdued market
conditions.
Prospects
The International Monetary Fund has forecasted a growth of 0,8% in the South African economy, while the South African Reserve Bank has forecasted
a growth of 1,1%. These forecasts signal an improvement in South Africa's economic environment and the Group is planning to take full advantage of
the improved trading conditions.
During 2016 the Group enhanced its effort on improving its Black Economic Empowerment ("BEE") rating for 2017. The Group plans to utilise the
improved BEE rating to grow its business in the Public and Private Sector focusing on State Owned Entities and Municipalities, while maximising on
existing market opportunities. The Group is reenforcing its sales strategy and strengthening its sales teams in order to gain new markets and increase
revenue. In line with this, the Group will be aggressive in implementing its Africa growth strategy to increase its footprint in Sub-Saharan Africa to further
grow revenue.
Improving operational efficiencies remains a focal point for management. In 2014, the Group implemented a Warehouse Management System at Radiant.
The benefits of this system were realised in 2016 through increased operational effeciencies and cost savings.
Radiant is also in the process of implementing a master stock planning tool which will ensure that optimal stock levels are maintained.
This will assist in managing working capital requirements of the subsidiary. SOEW has streamlined its processes and procedures to improve
operational efficiencies and reduce costs in order to provide products at competitive prices to customers.
Management is confident that the above actions will return the Group to profitability.
Appreciation
The directors would like to express their appreciation towards the management and staff as well as all our valued customers, suppliers, advisors,
business partners, stakeholders and shareholders for their continued support.
Forward-looking information included in this announcement has not been reviewed and reported on by the Group's independent auditors.
On behalf of the Board
KH Pon CA(SA) JP Bekker CA(SA)
Chairman Chief Executive Officer
10 March 2017
CORPORATE INFORMATION
Directors
KH Pon# (Chairman)
HL Livi (Deputy-Vice Chairman)
JP Bekker* (Chief Executive Officer)
MK Lehloenya* (Chief Financial Officer)
M Chong#
N Lalla#
WP LiviA
DJC Panv@A
CY Wuvi
JH Yeh#
* Executive
# Independent Non-executive
v Non-executive
i Taiwanese
@ Brazilian
A Alternate
Registered Office
12 Botha Street, Alrode, 1451
(PO Box 123738, Alrode, 1451)
Telephone: +27(11) 864 1606
Telefax: +27(86) 628 9523
Website: www.southoceanholdings.com
Company Secretary
WT Green, 21 West Street, Houghton, 2198
(PO Box 123738, Alrode, 1451)
Sponsor
Investec Bank Limited
(Registration number 1969/004763/06)
Second Floor, 100 Grayston Drive, Sandown, Sandton, 2196
Share Transfer Secretary
Computershare Investor Services Proprietary Limited
70 Marshall Street, Ground Floor, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107, South Africa)
Telephone: +27(11) 370 5000
Telefax: +27(11) 688 5200
Website: www.computershare.com
Auditors
PricewaterhouseCoopers Inc.
32 Ida Street, Menlo Park, 0102
Telephone: +27(12) 429 0000
Telefax: +27(11) 797 5800
Website: www.pwc.co.za
Date: 13/03/2017 04:30:00 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
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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