Wrap Text
Reviewed condensed consolidated financial results for the year ended 28 February 2017
Value Group Limited
(Incorporated in the Republic of South Africa)
Registration number 1997/002203/06)
ISIN number: ZAE000016507 Share code: VLE
REVIEWED CONDENSED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2017
HIGHLIGHTS
REVENUE R2.453bn UP by 20%
HEADLINE EARNINGS PER SHARE 61.9 cents UP by 66%
EARNINGS PER SHARE 57.2 cents UP by 62%
NET ASSET VALUE PER SHARE 522.5 cents UP by 9%
FINAL DIVIDEND PER SHARE 18 cents UP by 50%
CASH GENERATED BY OPERATIONS R288,3m UP by 21%
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
% Reviewed Restated*
R000’s change 2017 2016
Revenue 20% 2 452 766 2 043 994
Cost of sales (1 645 066) (1 245 627)
Gross profit 807 700 798 367
Other income 25 092 17 890
Operating expenses (697 378) (730 616)
Operating profit 58% 135 414 85 641
Share of profit of equity-accounted investees 44 79
Fair value adjustment (509) 1 939
Investment income 17 751 14 060
Finance costs (32 353) (30 932)
Net profit before taxation 120 347 70 787
Taxation (36 740) (16 602)
Net profit for the year 54% 83 607 54 185
Other comprehensive income
Foreign currency translation differences (192) 355
Total comprehensive income for the year 83 415 54 540
Owners: 88 149 55 274
Net profit for the year 88 341 54 919
Other comprehensive income (192) 355
Non-controlling interest: (4 734) (734)
Net loss for the year (4 734) (734)
Other comprehensive income - -
83 415 54 540
Earnings per share (cents) (note 3)
Basic 62% 57.2 35.4
Headline 66% 61.9 37.2
Diluted basic 57.2 35.4
Diluted headline 61.9 37.1
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
% Reviewed Restated* Restated*
R000’s change 2017 2016 2015
Assets
Non-current assets 1 028 466 1 074 448 1 052 840
Property, vehicles, plant and equipment 990 573 1 039 515 1 022 644
Intangible assets 12 655 17 415 25 261
Goodwill 20 152 10 670 -
Loan receivable 1 568 1 776 1 568
Equity-accounted investees 357 313 234
Deferred tax asset 3 161 4 759 3 133
Current assets 502 371 438 562 441 644
Inventories 67 033 59 993 51 743
Trade and other receivables 298 900 276 124 262 255
Other financial assets 8 434 8 983 7 004
Current tax receivable 1 551 2 120 2 328
Cash and cash equivalents 126 453 91 342 118 314
Non-current assets held for sale 10 701 156 951
Total assets 1 541 538 1 513 166 1 495 435
Equity and liabilities
Equity 799 598 741 161 726 014
Non-current liabilities 308 336 342 956 355 447
Interest-bearing borrowings 121 341 163 346 181 230
Non interest-bearing borrowings 2 535 1 774 -
Vendor for acquisition 3 268 - -
Deferred tax 181 192 177 836 174 217
Current liabilities 433 604 429 049 413 974
Trade and other payables 345 291 323 508 311 335
Current portion of interest-
bearing borrowings 77 703 101 144 101 973
Vendor for acquisition 9 804 3 802 -
Other financial liabilities 123 - 317
Current tax payable 161 147 -
Shareholders for dividend 522 448 349
Total equity and liabilities 1 541 538 1 513 166 1 495 435
Net asset value per share (cents) 9% 522.5 480.8 458.6
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Reviewed Restated*
R000’s 2017 2016
Ordinary share capital and premium 10 829 10 829
Balance at beginning of year 10 829 10 841
Shares cancelled - (12)
A ordinary shares 10 10
Treasury shares (97 817) (97 021)
Balance at beginning of year (97 021) (134 777)
Treasury shares acquired (796) (16 440)
Treasury shares cancelled - 54 196
Share-based payment reserve 30 792 27 184
Balance at beginning of year 27 184 23 891
Share-based payment expense 3 608 3 293
Foreign currency translation reserve 179 371
Balance at beginning of year 371 16
Foreign currency translation differences (192) 355
Retained income 861 345 800 794
Previously reported balance at beginning of year 800 794 826 385
Effect of restatement* - (80)
Restated balance at beginning of year 800 794 826 305
Dividends paid (27 790) (26 246)
Shares cancelled - (54 184)
Net profit for the year 88 341 54 919
Previously reported 88 341 54 929
Effect of restatement* - (10)
Total capital and reserves
attributable to owners 805 338 742 167
Non-controlling interest (5 740) (1 006)
Balance at beginning of year (1 006) (272)
Net loss for the year (4 734) (734)
Equity 799 598 741 161
CONSOLIDATED STATEMENT OF CASH FLOWS
% Reviewed Restated*
R000’s change 2017 2016
Cash flows from operating activities 197 435 176 703
Cash generated by operations before
movements in working capital and
proceeds on disposal of rental assets 253 188 186 113
Proceeds on disposal of rental assets 35 129 52 063
Cash generated by operations 21% 288 317 238 176
Changes in working capital (14 178) (4 123)
Net finance costs (14 602) (16 872)
Taxation paid (34 386) (14 330)
Cash available from operating activities 225 151 202 851
Dividends paid (27 716) (26 148)
Cash flows from investing activities (95 603) (168 830)
Cash flows from financing activities (66 500) (35 153)
Net change in cash and cash equivalents 35 332 (27 280)
Translation difference (221) 308
Cash and cash equivalents at beginning of year 91 342 118 314
Cash and cash equivalents at end of year 126 453 91 342
SEGMENT INFORMATION
Reviewed Restated*
R000’s 2017 2016**
Total segment revenue 2 603 030 2 215 526
General distribution 1 586 974 1 675 620
Truck rental and other 400 552 406 491
Retail Logistics 500 786 7 798
Head office and other 114 718 125 617
Less: Inter-segment revenue 150 264 171 532
General distribution 6 103 9 707
Truck rental and other 29 850 41 066
Retail Logistics - -
Head office and other 114 311 120 759
External segment revenue 2 452 766 2 043 994
General distribution 1 580 871 1 665 913
Truck rental and other 370 702 365 425
Retail Logistics 500 786 7 798
Head office and other 407 4 858
Business segment results
General distribution 96 253 93 947
- Trading profit 103 332 93 947
- Goodwill impairment (7 079) -
Truck rental and other 38 505 31 840
Retail Logistics 3 509 (11 585)
Head office and other (2 853) (28 561)
Operating segment results 135 414 85 641
Share of profit of equity-accounted investees 44 79
Fair value adjustment (509) 1 939
Investment income 17 751 14 060
Finance costs (32 353) (30 932)
Net profit before taxation 120 347 70 787
Total segment assets
General distribution 711 629 744 916
Truck rental and other 585 509 618 942
Retail Logistics 94 187 5 204
Head office and other 135 142 126 153
Segment assets 1 526 467 1 495 215
Loan receivable 1 568 1 776
Equity-accounted investees 357 313
Deferred tax asset 3 161 4 759
Other financial assets 8 434 8 983
Current tax receivable 1 551 2 120
Total assets 1 541 538 1 513 166
* Restated for the treatment of the Group’s insurance cell in terms of IFRS 10 - refer to note 6
** Restated for the introduction of a new segment - refer to note 6
NOTES
1. Basis of preparation
The reviewed condensed consolidated financial results are prepared in accordance with the
requirements of the JSE Limited Listings Requirements for provisional reports and the requirements of
the Companies Act of South Africa. The Listings Requirements require provisional 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 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 reviewed
condensed consolidated financial results are in terms of IFRS 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. These results have been prepared under the
supervision of the Group Financial Director, Mr CL Sack.
The Group’s auditor, Baker Tilly SVG has reviewed these results. A copy of their unmodified review
report is available for inspection at the Company’s registered office.
2. Business combination effected during the reporting period
The Group acquired 100% of the ordinary share capital of Key Distributors (Pty) Ltd (Key), the
acquisition date being 1 March 2016 being the date on which management and ownership control passed.
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. The
goodwill raised on acquisition has been confirmed by reference to the future projected cash flows of
the business.
The cash consideration for the acquisition is R32.7 million, which is payable in three tranches. The
first tranch of R19.6 million was paid during the financial year. The second and third payments are
subject to Key achieving profit warranties and have been accrued for as vendor liabilities as they
are fully expected to be achieved.
As part of the business combination, the following assets and liabilities were recognised at fair
value on 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 year ended 28 February 2017:
- Revenue 483 969
- Net profit before tax 8 522
Reviewed Restated*
R000’s 2017 2016
3. Headline earnings
3.1. Reconciliation between basic and
headline earnings
Basic earnings attributable to owners 88 341 54 919
Loss on disposal of property, vehicles,
plant and equipment 2 100 3 672
Less: tax effect of loss on disposal
of property, vehicles, plant and equipment (541) (895)
Goodwill impairment 7 079 -
Less: minority interest effect
of goodwill impairment (1 416) -
Headline earnings 95 563 57 696
3.2. Number of ordinary shares of
R 0.001 each in issue
Shares in issue 186 427 478 186 427 478
Shares in issue excluding treasury shares 154 145 746 154 389 406
Weighted average shares in issue 154 388 749 155 216 667
Diluted shares in issue 154 388 749 155 356 074
3.3. Number of A ordinary shares of
R 0.001 each in issue
Shares in issue 10 429 010 10 429 010
4. Supplementary information
Depreciation 99 247 102 911
Amortisation of intangible assets 9 801 11 618
Depreciation and amortisation 109 048 114 529
5. Fair value measurement of financial instruments
5.1. Financial assets/(liabilities)
Cash and cash equivalents (Level 1) 126 453 91 342
Due to the short-term nature of cash and
cash equivalents, and the fact that the
Group only deposits cash with reputable
banks with high credit ratings, the face
value of the balances are considered to
reflect its fair value.
Investment in insurance cell captive (Level 2) 8 434 8 942
The net asset value is used as a valuation
technique where the underlying assets and
liabilities have been assessed to represent
the fair value of the investment. Due
to the nature of the investment,
specifically the significant composition
of the liquid assets and liabilities, the
net asset value is seen to be the most
appropriate representation of fair value.
Foreign currency forward contracts (Level 2) (123) 41
Forward exchange contracts are marked to
market at year end. The inputs used in the
calculation are the foreign currency amounts
stated in the contract, the equivalent Rand
amount at the start of the contract
and the Rand revaluation rate at year end.
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 February 2016: Previously Impact Restated
R’000’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 3 923 17 890
Fair value adjustment - 1 939 1 939
Investment income 14 631 (571) 14 060
Taxation (18 889) 2 287 (16 602)
Net profit for the year 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 at beginning of the year 826 385 (80) 826 305
Trade and other payables 325 124 (1 616) 323 508
Effect on statement of cash flows
Cash flows from operating activities 175 702 1 001 176 703
Cash and cash equivalents at end of year 101 279 (9 937) 91 342
Impact of change February 2015: Previously Impact Restated
R’000’s stated of change
Effect on statement of financial position
Trade and other receivables 262 861 (606) 262 255
Other financial asset - 7 004 7 004
Current tax payable 1 151 (1 151) -
Cash and cash equivalents 127 314 (9 000) 118 314
Retained income at beginning of the year 793 694 (131) 793 563
Trade and other payables 312 706 (1 371) 311 335
COMMENTARY
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, 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
In line with the Group’s strategy to grow revenue organically and by acquisition, Group revenue
improved by 20% to R2,453 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 3,4% from R2,04
billion to R1,97 billion. 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, subcontractor
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
R41,7 million to R756,7 million and gross profit margins from 39,1% to 38,4%. With the inclusion of
Key, gross profits increased marginally by R9,3 million to R807,7 million.
Notwithstanding the inclusion of Key in the Group’s results and the R7,1 million impairment of
goodwill arising on the future projected cash flows of the Core Logistix business being less than its
carrying value, operating expenses reduced by R33,2 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, net profit before tax increased by 70% from R70,8 million to R120,3 million. The
effective tax rate, however, has increased from 23,5% to 30,5% due to a reduction in tax allowances
derived from learnerships, the impairment of goodwill and the reversal of deferred tax assets within
loss making subsidiaries. Accordingly, net profit after tax attributable to the Group improved by 61%
to R88,3 million resulting in basic earnings per share increasing by 62% to 57,2 cents per share and
headline earnings per share increasing by 66% to 61,9 cents per share.
Although proceeds on disposal of rental assets reduced from R35,1 million, cash generated by
operations increased by 21% from R238,2 million to R288,3 million. Cash available from operations
increased by 11% to R225,2 million. The reduced increase arises from increased taxation payments and
the Group's additional investment in working capital.
Capital expenditure incurred during this year was substantially reduced. Total expenditure amounted
to R86,1 million and comprised R11,3 million for vehicles, R46,4 million for forklifts, R13,5 million
for plant and equipment, R10,9 million for IT hardware and software and the balance of R4 million for
various other assets. This expenditure was funded by R39,6 million realised on the disposal of assets
and internally generated cash flows. Accordingly, cash balances improved by 38,6% to R126,5 million.
Interest bearing borrowings reduced by R65,4 million to R199 million. The Group’s debt:equity ratio
remains low at 26%. The Group anticipates further reductions in interest bearing debt.
OPERATIONAL REVIEW
General distribution segment
Poor trading conditions 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. Volume was also
impacted by the termination of non-profitable break bulk business due to customers demanding below
market rates. Accordingly, revenue reduced by 5,1% from R1,666 billion to R1,581 billion. The
extensive restructuring exercise which commenced approximately 18 months ago has yielded sustainable
overhead and operating cost savings which counteracted the reduction in revenue. Notwithstanding
trading losses and the R7,1 million goodwill impairment charge attributable to the Core Logistix
operation which negatively affected the segment’s results, operating profit improved by 2,6% to R96,3
million.
The ongoing restructuring exercise undertaken included the following:
- Customers’ rates were carefully evaluated and adjusted where necessary;
- Termination of non-profitable business;
- Right sizing and downscaling of the logistics and freightpak break bulk operations in line with the
reductions in activity and volumes;
- Delivery destinations and routes are continuously planned, monitored and optimised;
- Restructure of various activities and reporting lines.
The full effects of the restructuring was realised in the second half. Although volumes were below
that of the prior period, the reduced cost base contributed significantly to the improvement in
second half earnings.
The remaining operations comprising warehousing, dedicated distribution and express, which
constituted 47% of the segment’s revenue, performed to expectation due to increased activity in the
second half.
Truck rental and other segments
Revenue growth in the truck rental and material handling division offset minor reductions in the
clearing and forwarding division. Accordingly, the segment’s revenue increased marginally by R5,3
million to R370,7 million. The strategy to grow truck rental revenue streams and provide cost
effective materials handling solutions in specialised 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 8,7% to
10,4% with operating profit increasing from R31,8 million to R38,5 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 during the 2017 financial year expanded into the Western Cape by utilising the
Value infrastructure.
Segmental revenue increased by R493 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 wholesaling initiatives in the wine
and non-alcoholic beverages sector. Losses incurred in these businesses have been addressed.
SHARE REPURCHASES
Prior to year end, the Group procured 243 660 shares for the Group’s Share Incentive Scheme. No other
share repurchases were made during the course of the 2017 financial year. Subsequent to year end,
1,86 million shares were acquired and are currently held in treasury. R7,3 million was spent on all
the above share repurchases. The Group will continue to repurchase shares as the opportunities arise.
BLACK ECONOMIC EMPOWERMENT("BEE") TRANSACTION
The BEE ownership transactions which were concluded almost seven years ago mature in the current
financial year. Due to the Group's depressed share price, however, the BEE entities’ funding
liabilities exceeds the equity values. Consequently, the Board intends to propose a 5 year extension
to the transactions which will require shareholder approval. The remaining BEE transaction terms will
remain the same. This will provide an opportunity for the BEE individuals concerned to participate in
the equity of the Group once the share price improves. In addition the Group will retain its BEE
ownership status. Further information will be made available to shareholders in due course.
FUTURE CAPITAL EXPENDITURE
Capital expenditure for the 2018 financial year has been reduced in comparison to previous years.
This will facilitate a further reduction in interest bearing debt. Capital expenditure for the
remainder of the 2018 financial year is budgeted to approximate R116 million consisting primarily of
forklift and vehicle additions. This capital expenditure will be funded by internally generated cash
flows and interest bearing debt.
PROSPECTS
The recent downgrade of the country’s sovereign credit rating by the major credit rating agencies to
junk status, political uncertainty and poor growth rates do not bode well for a short term
improvement in the economy. The logistics break bulk and freightpak operations are experiencing
volume decline. Management, however, is actively pursuing organic and acquisitive revenue growth
opportunities to counteract the decline. The remaining divisions are operating in accordance with
expectation. Further restructuring opportunities are being pursued to reduce operational and overhead
costs. The significant cost cutting exercise undertaken to date, places the Group in a favourable
position to benefit from any increase in revenue streams which may materialise.
Key’s operations have recently been incorporated into Value’s Johannesburg facility. Value’s facility
will provide Key with the infrastructure requirements to expand its volumes and extract synergies and
cost savings between the two businesses. The existing Key facility in Johannesburg will be sold. Key
has further potential to grow into areas not currently serviced.
The Group continues to pursue acquisition opportunities that will complement and improve revenue
streams in the existing divisions.
DECLARATION OF DIVIDEND (NUMBER 21)
The Board resolved to declare a gross final dividend for the year ended 28 February 2017, of 18 cents
(2016: 12 cents)per ordinary share which will be paid out of distributable reserves. The dividend is
covered 2,64 times by second half headline earnings. 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
20% which amounts to 3,6 cents per share. This will result in a net dividend of 14,4 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 Thursday, 11 May 2017
Last day to trade cum dividend Tuesday, 27 June 2017
Trading ex-dividend commences Wednesday, 28 June 2017
Record date Friday, 30 June 2017
Payment date Monday, 3 July 2017
Share certificates may not be dematerialised or rematerialized between Wednesday, 28 June 2017 and
Friday, 30 June 2017, both days inclusive.
For and on behalf of the Board
C D Stein S D Gottschalk
Chairman Chief Executive Officer
Johannesburg
11 May 2017
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
Date: 11/05/2017 04:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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