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Abridged Report for the year ended 31 December 2016 and notice of annual general meeting
Andulela Investment Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1950/037061/06)
JSE share code: AND
ISIN: ZAE000172870
(“Andulela” or “the Company” or “the Group”)
Abridged Report for the year ended 31 December 2016 and notice of annual general meeting
Abridged statement of financial position
Year ended Year ended
31 December 31 December
2016 2015
Notes R’000 R’000
Assets
Non-current assets 666 930 719 643
Plant and equipment 1 297 964 286 106
Goodwill 2 356 679 418 679
Deferred tax asset 12 287 14 858
Current assets 315 506 275 144
Inventory 102 399 79 746
Trade and other receivables 191 509 177 767
Taxation 4 207 4 013
Cash and cash equivalents 17 391 13 618
Total assets 982 436 994 787
Equity and liabilities
Capital and reserves 397 217 443 658
Stated capital 976 114 976 114
Cash flow hedge reserve 3 (12 561) (30 609)
Accumulated loss (622 502) (567 178)
Non-controlling interest 56 166 65 331
Non-current liabilities 112 868 154 549
Redeemable preference share
capital 5 29 182 27 529
Derivative financial
liabilities 3 10 488 37 151
Borrowings 4 19 743 39 875
Operating lease liabilities 16 343 18 113
Deferred tax liability 37 112 31 881
Current liabilities 472 351 396 580
Taxation - 546
Trade and other payables 125 557 115 271
Operating lease liabilities 2 047 479
Derivative financial
liabilities 3 10 383 13 707
Borrowings 4 334 364 266 577
Total equity and
liabilities 982 436 994 787
Net asset value per share
(cents) 389.13 431,66
Net tangible asset value per
share (cents) 48,95 32,35
Abridged statement of comprehensive income
Year ended Year ended
31 December 31 December
2016 2015
Notes R’000 R’000
Revenue 1 278 433 1 132 870
Cost of sales (1 063 190) (961 022)
Gross profit 215 243 171 848
Profit/(loss) from
operations before taking 25 691 6 154
the following into account
Investment income 1 460 1 215
Profit on sale/scrapping of
plant and equipment 1 33 365
Impairment of Goodwill (62 000) -
Impairment of plant and
equipment 1 - (8 463)
Finance costs (34 065) (28 385)
(Loss) before taxation (68 881) (29 114)
Taxation 848 6 873
Net (loss) for the year (68 033) (22 241)
Other comprehensive income
Items that may be
reclassified subsequently
to profit or loss: 21 592 28 336
Movement in derivative cash
flow hedge 3 29 988 39 356
Deferred tax charge 3 (8 396) (11 020)
Total comprehensive
(loss)/income (46 441) 6 095
Net (loss) attributable to: (68 033) (22 241)
– Equity holders of Andulela (55 324) (21 282)
– Non-controlling interest (12 709) (959)
Total comprehensive (loss)/ income
attributable to: (46 441) 6 095
– Equity holders of Andulela (37 276) 2 404
– Non-controlling interest (9 165) 3 691
Ordinary shares in issue (millions)* 87,64 87,64
Weighted average number of ordinary
shares in issue (millions)* 87,64 87,64
Headline loss
Attributable net (loss) (55 324) (21 282)
Add back: (gain) on sale/scrapping of
plant and equipment (33) (365)
Add back: loss on impairment of plant
and equipment - 8 463
Impairment of Goodwill 51 826 -
Tax effect of the above 9 (2 268)
Headline (loss) (3 522) (15 451)
(Loss) and diluted (loss) per ordinary
share (cents)* (63.12) (24,28)
Headline (loss) and diluted headline
(loss) per ordinary share (cents)* (4,02) (17,63)
Dividends per ordinary share (cents) – –
* The (loss) and diluted (loss) per ordinary share and the
headline (loss) and diluted headline (loss) per ordinary share are
calculated by dividing the (loss) and diluted (loss), and the
headline (loss) and headline diluted (loss) by the weighted
average number of ordinary shares in issue during the year.
Abridged statement of cash flows
Year ended Year ended
31 December 31 December
2016 2015
R’000 R’000
Cash flows from operating activities:
Loss for the year (68 881) (29 114)
Adjusted for:
Depreciation of plant and equipment 19 734 19 565
Finance charges 34 065 28 386
Investment income (1 460) (1 215)
Profit on disposal of plant and
equipment (33) (365)
Impairment of Goodwill 62 000 -
Impairment of plant and equipment - 8 463
Working capital changes:
Increase in inventories (22 654) (191)
Increase in trade and other receivables (13 742) (19 179)
Increase in trade and other receivables 10 287 1 318
Decrease/(increase) in operating lease
liabilities (201) 1 318
Cash generated by operating activities 19 115 27 006
Investment income 1 460 1 215
Finance costs (32 344) (26 837)
Income tax paid – prior years (487) (5 437)
Net cash from operating activities (12 256) (4 052)
Cash flow from investing activities:
Acquisition of plant and equipment (32 962) (11 245)
Proceeds on disposal of plant and
equipment 1 403 1 154
Net cash utilised in investing
activities (31 559) (10 091)
Cash flow from financing activities:
Borrowings raised 92 544 48 294
Borrowings repaid (44 889) (39 875)
Preference dividend paid (68) (161)
Net cash generated by financing
activities 47 587 8 258
Increase/(decrease) in cash and cash
equivalents 3 772 (5 885)
Cash and cash equivalents at the
beginning of the year 13 619 19 504
Cash and cash equivalents at the end of
the year 17 391 13 619
Abridged statement of changes in equity
Year ended Year ended
31 December 31 December
2016 2015
R’000 R’000
Opening balances 443 658 437 562
Movements for the period:
– Net (loss) for the year attributable
to equity holders of Andulela (55 324) (21 282)
– Cash flow hedge reserve net of
deferred tax 18 048 23 687
– Non-controlling interest (9 165) 3 691
Closing balances 397 217 443 658
Notes
Basis of preparation
The abridged financial statements are prepared in accordance with the
requirements of the JSE Listings Requirements for abridged reports, and
the requirements of the Companies Act applicable to summary financial
statements. The JSE Listings Requirements require abridged reports to be
prepared in accordance with the framework concepts and the measurement
and recognition requirements of 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 annual
financial statements, from which this abridged report were derived, are
in terms of IFRS and are consistent with the accounting policies
applied in the preparation of the previous consolidated annual
financial statements, except for the measurement of plant and equipment
which has been changed from the revaluation model to the historical
cost basis (Refer note 1 below for more detail). The directors take
full responsibility for the preparation of the abridged reports and the
financial information has been correctly extracted from the underlying
annual financial statements. These results were prepared under the
supervision of Henk Engelbrecht CA(SA), the Group Chief Financial
Officer.
Audit conclusion
This abridged report is extracted from audited information, but is not
itself audited. The directors take responsibility for the preparation
of this abridged report based on the underlying audited annual
financial statements. The annual financial statements were audited by
BDO South Africa Incorporated, who expressed an unmodified opinion
thereon. The audited annual financial statements and the auditor’s
report thereon are available for inspection at the Company’s registered
office.
1. Plant and equipment
Year ended Year ended
31 December 31 December
2016 2015
R’000 R’000
Opening balance 286 106 303 678
Additions 32 961 11 245
Disposals on scrapping of plant and
equipment (1 369) (789)
Impairment of plant and equipment - (8 463)
Depreciation (19 734) (19 565)
Plant and equipment at carrying value 297 964 286 106
The Group changed its basis of accounting for plant and equipment
from the revaluation model to the historical cost basis with
effect from 1 January 2016. The reason for this change is to
align the policy with the industry norm of measuring plant and
equipment on a cost basis and to facilitate comparison with other
similar entities, which was not achievable under the revaluation
model as the Group was one of a few entities to apply the
revaluation model to its plant and equipment.
This change in accounting policy did not have a quantitative nor
qualitative material effect on the financial statements of the Group,
but to enable users of the financial statements to understand the
amounts disclosed in the current year and to follow it from the prior
year annual financial statements, the effects are set out below for
information purposes:
A. Adjustment of opening balances – 1 January 2015
Statements of financial position Before After Change
- Plant and equipment 302 816 298 051 (4 765)
- Revaluation reserve (4 638) - 4 638
- Deferred tax asset 22 271 23 605 1 334
- Accumulated loss 546 904 545 895 (1 009)
- Non-controlling interest (61 442) (61 640) (198)
B. Adjustment of financial results – 31 December 2015
Statements of financial position Before After Change
- Plant and equipment 284 861 280 681 (4 180)
- Revaluation reserve (4 638) - 4 638
- Deferred tax asset 13 688 14 858 1 170
- Accumulated loss 568 539 567 178 (1 361)
- Non-controlling interest (65 064) (65 331) (267)
Statements of comprehensive income
- Depreciation for the year 20 150 19 565 (585)
- Deferred tax expense (7 037) (6 873) 164
- Net loss for the year 22 662 22 241 (421)
- Loss and diluted loss per share (cent) (24.68) (24.24) 0.40
- Headline and diluted headline
loss per share (cent) (18.03) (17 63) 0.40
2. Goodwill
The Goodwill of R418.7 million arose from the acquisition of the
remaining interests in Abalengani Mining Investments Proprietary
Limited (“AMI”) and JB Platinum Holdings Proprietary Limited
(“JBPH”) by the Company in 2010. AMI and JBPH respectively hold
49,63% and 33,96% in Kilken Platinum Proprietary Limited
(“Kilken”) as their only investments. The carrying amount as at 31
December 2016 was tested for impairment and based on, amongst
other factors, the lower production levels compared to previous
years and the softening of the rand based commodity prices over
the year, a Goodwill impairment of R62 million was recognised.
3. Derivative financial liability
In 2012 Kilken entered into a hedge agreement for 30% of its cash
flow from the production revenue of platinum, palladium and gold
at the request of a financier in line with its funding
requirements. The hedge is intended to mitigate the cash flow risk
related to commodity price fluctuations and movements in the
ZAR/USD exchange rate in order to repay the funding facility to
the financier.
In accordance with IAS 39, the cash flow hedge was recognised as a
hedging instrument at fair value for the first time in the
statement of financial position at 31 December 2012, without
taking account of any collateral held or other credit enhancements
over the remainder of the hedge contract term which started on 1
September 2012 and will end on 30 September 2018.
For the year ended 31 December 2016, a R21.6 million gain (2015:
R28.3 million) after deferred tax has been recognised in other
comprehensive income and a decrease in the cash flow hedge reserve
of R 18.0 million, net of non-controlling interests, in the
statement of financial position. The loss realised and netted off
against the revenue was R16.6 million for the year ended 31
December 2016(2015: R12.1 million).
The fair value of the cash flow hedge is apportioned between
current and non-current liabilities depending on the remaining
maturity period of the derivative contract and its contractual
cash flows. The cash flow hedge cost will be accounted for as
either a profit or a loss as it becomes effective and the
settlements are actually made over the duration of the term of the
hedge contract.
4. Borrowings
Total borrowings of the Group amounted to R354.1 million as at 31
December 2016 compared to R306.5 million as at 31 December 2015,
and can be summarised as follows:
Year ended Year ended
31 December 31 December
2016 2015
R’000 R’000
Absa Bank Limited* 94 861 139 750
Reichmans Capital Proprietary Limited 229 141 136 597
Thunder Rate Investments Proprietary
Limited 29 397 29 397
The Rafik Mohamed Family Trust 708 708
Total borrowings 354 107 306 452
Less: Short-term borrowings 334 364 266 577
Non-current liabilities 19 743 39 875
* The facilities with Absa have been restructured into term loans
with monthly settlement payments to December 2017 for facility A
and June 2018 for facility B.
5. Redeemable preference share capital
The Company and the preference shareholder mutually agreed to suspend
the repayment of the redeemable preference share capital and the accrued
preference dividends until at least 1 January 2019. The redeemable
preference share capital and the accrued preference dividends are
therefore classified as non-current liabilities.
6. Financial instruments
The following table shows the carrying amounts and fair values of
financial assets and financial liabilities, including their levels in
the fair value hierarchy for financial instruments measured at fair
value. It does not include fair value information for financial assets
and liabilities which are not measured at fair value if the carrying
amount approximates the fair value.
Carrying value 2016
Loans
and
receiv- Amortised Fair
ables cost value Total
R’000 R’000 R’000 R’000
Financial assets not
measured at fair
value
Cash and cash
equivalents 17 391 17 391
Trade and other
receivables 188 186 188 186
Financial liabilities
measured at fair
value
Derivative financial
instrument – cash
flow hedge* (20 871) (20 871)
Financial liabilities
not measured at fair
value
Preference shares (29 181) (29 181)
Borrowings (354 107) (354 107)
Trade and other
payables (122 338) (122 338)
Total 205 577 (505 626) (20 871) (320 920)
Carrying Value 2015
Financial assets not
measured at fair
value
Cash and cash
equivalents 13 618 13 618
Trade and other
receivables 177 410 177 410
Financial liabilities
measured at fair
value
Derivative financial
instrument – cash
flow hedge* (50 858) (50 858)
Financial liabilities
not measured at fair
value
Preference shares
plus dividend (27 529) (27 529)
Borrowings (306 451) (306 451)
Trade and other
payables (114 762) (114 762)
Total 191 028 (448 742) (50 858) (308 572)
* Derivative financial instrument – cash flow hedge: The fair
value of the derivative financial liability is a level 2 recurring
fair value measurement. The fair value of the cash flow hedge is
obtained directly from the service provider and is calculated as
the present value of the estimated future cash flows based on the
observable commodity prices and current exchange rates.
7. Material related-party transactions and balances
Year ended Year ended
31 December 31 December
2016 2015
R’000 R’000
Sales to related parties (138 701) (101 622)
Purchases from related parties 49 443 67 597
Administration and management fees
paid to related parties 1 247 850
Management fees received from
related parties - (1 662)
Preference dividends expense 1 721 1 548
Rent expenses paid to related
parties 16 798 17 961
Trade receivables 28 900 34 376
Borrowings from related parties (30 105) (30 105)
Cumulative redeemable preference
shares (29 181) (27 529)
Trade payables (4 481) (18 558)
8. Segment reporting
The Strategic Committee is the Group’s chief operating decision-
maker. Management has determined the operating segments based on
the information reviewed by the Board for the purposes of
allocating resources and assessing performance. The Board considers
the business from a product perspective. The Group has two sources
of income, namely the production of Platinum Group Metals (“PGMs”)
at the Kilken Platinum tailings treatment facility and the
processing and distribution of steel products by Pro Roof Steel
Merchants and its subsidiaries (“PRSM”).
Year ended Year ended
31 December 31 December
2016 2015
R’000 R’000
Revenue
Tailings treatment facility 38 662 47 690
Steel processing plants 1 239 771 1 085 180
Total revenue 1 278 433 1 132 870
There are no sales between segments.
Profit/(Loss) after tax
Tailings treatment facility (15 441) (5 843)
Steel processing plants 13 349 (14 332)
Goodwill impairment – tailings
treatment facility (62 000) -
Other unallocated (3 941) (2 066)
Total (loss) after tax (68 033) (22 241)
Assets
Tailings treatment facility 107 438 176 346
Steel processing plants 571 746 510 664
Inter-group eliminations (53 427) (110 902)
Reportable segment assets 625 757 576 108
Goodwill – tailings treatment
facility 356 679 418 679
Total assets 982 436 994 787
Liabilities
Tailings treatment facility 127 119 202 177
Steel processing plants 478 442 430 709
Other unallocated liabilities 2 902 965
Inter-group eliminations (52 424) (110 251)
Reportable segment liabilities 556 039 523 600
Year ended Year ended
31 December 31 December
2016 2015
R’000 R’000
Redeemable preference shares 29 181 27 529
Total liabilities 585 220 551 129
9. Going concern
The annual financial statements have been prepared on the basis of
accounting policies applicable to a going concern. This basis
presumes that funds will be available to finance future operations
and that the realisation of assets and settlement of liabilities,
contingent obligations and commitments will occur in the ordinary
course of business.
The Group incurred a net loss for the year ended 31 December 2016
of R6.0 million (excluding the impairment of Goodwill) and as at
that date its current liabilities exceeded its current assets due
to amongst other factors, the short-term nature of some of its
debt facilities with financial institutions.
The Company and the preference shareholder have mutually agreed to
suspend the repayment of the preference shares and the accrued
dividends until at least 1 January 2019. The Group furthermore
has facilities available to meet its cash flow requirements in the
short term, should it be required.
While market conditions are expected to remain tough, the Group expects
improved efficiencies and increased production levels at Kilken which
should result in increased revenue and cash flows, as well as further
improvements at PRSM continuing from its achievements in the past
financial year. Both operational subsidiaries continue to improve their
trading results and continue to service their borrowings and other
financial obligations as they become due. The directors are satisfied
with applying the going concern principle.
Nature of the business
The Company is an investment holding company with controlling interests
in the group companies.
Directorate and company secretary
There were no changes to the board of directors during the past
financial year. Ms GH Miller was appointed as company secretary with
effect from 8 March 2016 in place of Mrs HI Kazi who resigned on 7 March
2016. The current directors of the Company at the date of this report
are as follows:
Name Appointment
MJ Husain (Chairman)# 26 February 2010
A Kaka (CEO) 26 February 2010
JHP Engelbrecht (CFO) 1 October 2015
BW Smith# 1 October 2014
PE du Preez# 1 October 2011
NMS Hadjee# 1 July 2014
#Independent non-executive
Financial review
The Group’s turnover increased to R1.28 billion in 2016 from R1.13
billion in 2015 with PRSM having an exceptional first half of 2016 with
revenue increasing by 20% over the comparable period in 2015, but the
second six months saw a contraction of the market as prices came under
pressure again.
Andulela posted an operating profit (excluding the impairment of
Goodwill) of R25.7 million in 2016, compared to an operating loss of
R1.9 million in 2015. Excluding the fair value adjustment on the cash
flow hedge through other comprehensive income, the Group posted a net
loss after tax of R6.0 million for 2016 compared to a net loss after tax
of R22.2 million in 2015. In the steel industry, steel prices were
adjusted upwards by the major raw material supplier during the first
half of the year, which contributed to the improved results from PRSM.
Overall secured interest-bearing borrowing levels increased to R354.1
million as at 31 December 2016 (2015: R306.5 million) with PRSM still
being the main borrower, having external debt of R259.2 million as at 31
December 2016 (2015: R166.7 million). PRSM incurred capital expenditure
of R32.9 million during the year under review which contributed to the
increase in its borrowings. Kilken reduced its debt to Absa from R139.8
million in 2015 to R94.9 million as at 31 December 2016.
Trading conditions continued to be tough during the past financial year,
with political and other events contributing to increased uncertainty
about the future direction of the country. The result of the above was
continued volatility in currency and commodity prices, affecting the
trading results of the Group negatively.
The South African economy experienced various political and economic
challenges during the 2016 year which, with high volatility in commodity
prices and currencies, cheap imports and dumping of products by major
international players negatively affected the operations of local
businesses. Various requests have been made to the South African
Government to implement tariff protections and import duties on cheap
imports to support local operations and minimise job losses, and some
relief came through during the last quarter of 2016 for the steel
industry.
South Africa managed to avert a downgrading of its credit rating to junk
status during the year, but the risks in the system still remain high
and may lead to a downgrade in 2017, with a resultant negative impact on
the local economy. The current uncertain political climate in South
Africa also contributed to negative sentiment towards the country with
foreign investors withdrawing funds at an increasing rate, as evidenced
by the sale of shares on the JSE by these investors.
Kilken
The volatility of commodity prices and local currency as a result of the
current political environment continued to have an impact on the
company’s revenue. This, together with production problems at the plant,
contributed to Kilken’s revenue (after the realised effects of the cash
flow hedge) decreasing from R47.7 million in 2015 to R38.7 million in
2016, with the cash flow hedge reducing revenue by R16.9 million (2015:
R12.1 million). The loss before interest increased from R4.2 million in
2015 to R15.4 million in 2016, mainly due to the decrease in revenue.
The net loss after tax increased from R5.8 million in 2015 to R15.4 million
in 2016 as a result of the above mentioned factors.
The cash flow hedge has another 21 months to run until September 2018.
During the current financial year revenue was reduced by R16.9 million
(2015: R12.1 million) and a liability of R21 million (2015:R50 million)
is reflected on the Statement of Financial Position of the Group. The
cash flow hedge reserve was reduced by R21.6 million (2015: R28.3
million) after tax as a result of the decrease in commodity prices and
the reduced quantity of PGMs that are still subject to the cash flow
hedge.
The company further reduced its exposure to Absa from R139.7 million in
2015 to R94.9 million during 2016.
Commodity prices and the volatility of the Rand have an impact on the
business, and are constantly monitored by management.
The company improved production levels during the last quarter of the
2016 year and this trend continued into the 2017 financial year. The
company continues to manage its costs and cash flows tightly and expects
improved results for the 2017 financial year.
The financial information on which the prospects are based has not been
reviewed or reported on by the Company’s auditors.
PRSM
Continued overcapacity in the Chinese steel market and lower steel
prices continued to affect the global steel market negatively
during the year, and expectations are that this will not improve
in the 2017 year.
The local market remained under pressure during the year under
review with an oversupply of steel products, especially from China.
Import levies and other protection mechanisms have been
implemented by the Government in South Africa in an effort to
protect the local market against the dumping of these cheaper
products.
The main local producer implemented regular price increases during
the first half of the 2016 year. These price increases however
resulted in an overstocking of raw materials as customers bought
bulk quantities in anticipation of further price increases. The
second half of the 2016 year saw a marked decrease in sales due to
the overstocking referred to above and the fact that no further
price increases materialised during this period.
PRSM Group’s revenue for the year ended 31 December 2016 improved to
R1.2 billion from R1.1 billion in 2015. Earnings before interest for the
year improved to R43.2 million compared to R11.1 million in 2015.
The improvement in the earnings before interest is attributable to
increased revenue and margins, as well as improvements in production
efficiencies. The net profit after tax improved to R13.3 million from a
loss of R14.3 million in 2015.
The Pro Roof Group’s interest expense for 2016 increased to R25.6
million compared to R22.3 million for 2015 due to increased interest-
bearing debt levels during the year.
Capital expenditure of R32.9 million was incurred during 2016 to replace
old plant and equipment with newer technology which reduced production
costs and improved profitability.
Trading conditions are expected to remain tough in 2017. The continued
focus on cost management, plant upgrade and new customers and product
ranges drive management’s strategy to increase revenue and profitability.
Events subsequent to the year-end
No events occurred subsequent to year-end up to the date of this
announcement which could have a material effect on the results of
the Group or its subsidiaries.
Notice of annual general meeting
The integrated annual report contains a notice of annual general
meeting which will be held at the offices of Andulela, 10 Sloane
Street, Bryanston on Thursday, 15 June 2017 at 09h30.
The last day to trade in order to be eligible to participate in
and vote at the annual general meeting is Tuesday, 6 June 2017 and
the record date for voting purposes is Friday, 9 June 2017.
The integrated annual report including the notice of the annual
general meeting will be distributed to shareholders and will be
available on the Company's website, www.andulelaholdings.com, on
Friday, 31 March 2017.
For and on behalf of the Board
Mohamed J Husain Ashruf Kaka
Independent Non-executive Chairman Chief Executive Officer
Sandton
27 March 2017
Registered Office
108 4th Street, Parkmore, Sandton 2196
Directors
MJ Husain# (Chairman), A Kaka (CEO), JHP Engelbrecht (CFO), BW
Smith#, PE du Preez#, NMS Hadjee#
#Independent non-executive
Company Secretary
Ms GH Miller
Auditors
BDO South Africa Incorporated
22 Wellington Road
Parktown
Johannesburg, 2193
Transfer Secretaries
Terbium Financial Services
Beacon House
31 Beacon Road
Florida North, 1709
Sponsor
Java Capital,
6A Sandton Valley Crescent
Sandton, 2196
www.andulelaholdings.com
Date: 27/03/2017 09:28:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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