Wrap Text
Provisional Condensed Consolidated Results For The Year Ended 31 March 2017
DENEB INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
("Deneb" or "the Group" or "the company")
Registration number: 2013/091290/06
JSE share code: DNB
ISIN: ZAE000197398
Income tax registration number: 9844426156
PROVISIONAL CONDENSED CONSOLIDATED RESULTS
FOR THE YEAR ENDED 31 MARCH 2017
Financial highlights
- REVENUE up 7% to R2,92 billion (2016: R2,72 billion)
- NET PROFIT up 35% to R72 million (2016: R53 million)
- EARNINGS PER SHARE up 46% to 14,8 cents (2016: 10,1 cents)
- HEADLINE EARNINGS PER SHARE up 22% to 9,9 cents (2016: 8,1 cents)
- NET ASSET VALUE PER SHARE up 20% to 415 cents (2016: 347 cents)
- DISTRIBUTION PER SHARE of 3 cents declared (2016: Nil)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH
Reviewed Audited
Rand thousands 2017 2016
ASSETS
Non-current assets 1 750 492 1 689 141
Plant and equipment 312 077 312 860
Owner-occupied property 458 641 434 075
Investment property 759 113 737 507
Intangible assets 48 466 22 263
Goodwill 23 764 15 023
Other investments 3 026 3 391
Long-term receivables 88 349 74 093
Deferred tax assets 57 056 89 929
Current assets 1 480 596 1 452 849
Non-current assets held for sale 1 985 2 175
Inventories 706 953 683 732
Loan receivables - 83 101
Trade and other receivables 700 195 654 396
Current tax assets 705 143
Cash and cash equivalents 70 758 29 302
Total assets 3 231 088 3 141 990
EQUITY AND LIABILITIES
Total equity 1 778 430 1 950 346
Stated capital 1 449 653 1 717 286
Reserves 328 676 232 477
Equity attributable to owners of the company 1 778 329 1 949 763
Non-controlling interest 101 583
Non-current liabilities 811 754 100 976
Deferred tax liabilities 11 882 5 160
Post-employment medical aid benefits 91 861 90 803
Interest-bearing liabilities 706 752 4 149
Operating lease accruals 1 259 864
Current liabilities 640 904 1 090 668
Current tax liabilities 3 615 1 821
Post-employment medical aid benefits 7 131 6 789
Interest-bearing liabilities 52 716 38 733
Trade and other payables 499 094 489 856
Provisions 224 5 705
Bank overdraft 78 124 547 764
Total liabilities 1 452 658 1 191 644
Total equity and liabilities 3 231 088 3 141 990
Net asset value 1 778 329 1 949 763
Net asset value per share (cents) 415 347
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH
Reviewed Audited
Rand thousands 2017 2016
Revenue 2 917 677 2 715 640
Cost of sales (2 173 993) (2 086 715)
Gross profit 743 684 628 925
Other income 31 684 59 481
Selling and distribution expenses (363 171) (326 839)
Administrative and other expenses (243 799) (228 476)
Operating profit before impairments, restructuring and
revaluation of investment property 168 398 133 091
Revaluation of investment property 30 052 30 648
Net impairments - (2 248)
Restructuring and retrenchment expenses (1 751) (5 953)
Operating profit before finance costs 196 699 155 538
Finance income 5 986 10 174
Finance expenses (85 754) (73 105)
Profit before taxation 116 931 92 607
Income tax expense (44 739) (39 156)
Profit 72 192 53 451
Other comprehensive income, net of related tax
Items that will never be reclassified to profit or loss
Revaluation of land and buildings 21 389 34 841
Revaluation 25 391 44 927
Related tax (4 002) (10 086)
Post-employment medical aid benefits - actuarial gain 941 10 359
Actuarial gain 1 307 14 387
Related tax (366) (4 028)
Items that are or may be reclassified to profit or loss
Fair value adjustment on available-for-sale financial assets - (253)
Foreign operations - foreign currency translation differences (10) -
Other comprehensive income, net of tax 22 320 44 947
Total comprehensive income for the year 94 512 98 398
Profit attributable to:
Owners of the company 73 129 56 722
Non-controlling interest (937) (3 271)
72 192 53 451
Total comprehensive income attributable to:
Owners of the company 95 449 101 669
Non-controlling interest (937) (3 271)
94 512 98 398
Basic profit per share from operations (cents) 14,78 10,11
Diluted profit per share from operations (cents) 14,78 10,09
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH
Retained
income/ Non-
Accumu- con-
Stated Other lated trolling
Rand thousands capital reserves loss Total interest Total
Balance at
31 March 2015 1 716 713 249 468 (95 202) 1 870 979 (2 252) 1 868 727
Total comprehensive
income - 34 588 67 081 101 669 (3 271) 98 398
Profit/(loss) - - 56 722 56 722 (3 271) 53 451
Other comprehensive
income, net of tax - 34 588 10 359 44 947 - 44 947
Fair value adjustment on
available-for-sale
financial assets - (253) - (253) - (253)
Revaluation of land
and buildings - 34 841 - 34 841 - 34 841
Post-employment medical
aid benefits - actuarial
gain - - 10 359 10 359 - 10 359
Transfers to other
reserves - (41 057) 36 478 (4 579) - (4 579)
Change in capital gains
tax rate - (4 579) - (4 579) - (4 579)
Reclassification of
revaluation surplus - (36 478) 36 478 - - -
Transactions with owners
of the company 573 - (12 773) (12 200) - (12 200)
Share scheme - expense - - 4 624 4 624 - 4 624
- options
exercised 573 - (573) - - -
Distribution - - (16 824) (16 824) - (16 824)
Changes in ownership
interest - - (6 106) (6 106) 6 106 -
Acquisition of NCI without a
change in control - - (6 106) (6 106) 6 106 -
Balance at
31 March 2016 1 717 286 242 999 (10 522) 1 949 763 583 1 950 346
Total comprehensive
income - 21 389 74 060 95 449 (937) 94 512
Profit/(loss) - - 73 129 73 129 (937) 72 192
Other comprehensive
income, net of tax - 21 389 931 22 320 - 22 320
Foreign operations -
foreign currency
translation differences - - (10) (10) - (10)
Revaluation of land
and buildings - 21 389 - 21 389 - 21 389
Post-employment
medical aid benefits -
actuarial gain - - 941 941 - 941
Transfers to other
reserves - (10 932) 10 932 - - -
Reclassification of
revaluation surplus - (10 932) 10 932 - - -
Transactions with owners
of the company (267 633) - 1 205 (266 428) - (266 428)
Share buyback* (268 785) - - (268 785) - (268 785)
Share scheme - expense - - 2 357 2 357 - 2 357
- options
exercised 1 152 - (1 152) - - -
Changes in ownership
interest - - (455) (455) 455 -
Acquisition of NCI without a
change in control - - (455) (455) 455 -
Balance at
31 March 2017 1 449 653 253 456 75 220 1 778 329 101 1 778 430
* Refer to note 7
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH
Reviewed Audited
Rand thousands Notes 2017 2016
Net cash flows from operating activities 131 076 62 316
Cash generated from operating activities before
working capital changes 234 950 181 660
Cash generated/(outflow) from working capital changes 3 660 (47 882)
Net finance costs (79 768) (62 931)
Taxes paid (27 766) (8 531)
Net cash flow from investing activities (66 961) (29 531)
Acquisition of subsidiary, net of cash acquired 9 (43 590) -
Net other investing activities (23 371) (29 531)
Net cash flow from financing activities 446 981 (21 805)
Change in borrowings 65 766 (4 981)
Overdraft converted to loan facility 650 000 _
Share buyback 7 (268 785) -
Distribution - (16 824)
Net change in cash and cash equivalents 511 096 10 980
Cash and cash equivalents at the beginning of the year (518 462) (529 442)
Cash and cash equivalents at the end of the year (7 366) (518 462)
CONDENSED CONSOLIDATED SEGMENTAL REPORT
FOR THE YEAR ENDED 31 MARCH
Branded
Product Centralised
Rand thousands Property Distribution Textiles Industrial services Total
Year ended
31 March 2017
Gross revenue 150 022 1 380 071 793 398 642 741 112 2 966 344
Inter-segment
revenue (43 856) (4 811) - - - (48 667)
External revenue 106 166 1 375 260 793 398 642 741 112 2 917 677
Operating profit/
(loss) before
finance costs 134 519 14 585 14 900 56 198 (23 503) 196 699
Interest revenue - - - - 5 986 5 986
Interest expense - - - - (85 754) (85 754)
Operating profit
before taxation 134 519 14 585 14 900 56 198 (103 271) 116 931
Segment assets 1 238 511 904 240 515 801 434 585 137 951 3 231 088
Segment
liabilities 19 516 228 275 143 822 115 185 945 860 1 452 658
Branded
Product Centralised
Rand thousands Property Distribution Textiles Industrial services Total
Year ended
31 March 2016
Gross revenue 136 715 1 401 039 733 109 488 505 110 2 759 478
Inter-segment
revenue (39 003) (4 835) - - - (43 838)
External revenue 97 712 1 396 204 733 109 488 505 110 2 715 640
Operating
profit/(loss)
before finance
costs 129 444 2 219 27 108 36 638 (39 871) 155 538
Interest revenue - - - - 10 174 10 174
Interest expense - - - - (73 105) (73 105)
Operating profit
before taxation 129 444 2 219 27 108 36 638 (102 802) 92 607
Segment assets 1 196 518 899 392 529 193 304 198 212 689 3 141 990
Segment
liabilities 17 287 266 633 126 833 81 303 699 588 1 191 644
STATISTICS PER SHARE
FOR THE YEAR ENDED 31 MARCH
Reviewed Audited
2017 2016
Number of shares in issue ('000) 428 622 561 490
Weighted-average number of shares ('000) 494 817 561 207
Diluted-average number of shares ('000) 494 817 562 263
Basic earnings (cents) 14,78 10,11
Diluted earnings (cents) 14,78 10,09
Headline earnings (cents) 9,85 8,07
Diluted headline earnings (cents) 9,85 8,06
Reconciliation between profit and headline earnings
Profit attributable to equity holders of the parent (R'000) 73 129 56 722
Impairment of assets (R'000) - 2 248
Remeasurement of investment property (R'000) (23 320) (23 783)
Changes in the deferred tax balance resulting from
the change in CGT rates that relates to previous
remeasurement of investment property (R'000) - 10 040
Surplus on disposal of property, plant and equipment (R'000) (1 089) (367)
Loss on disposal of property, plant and equipment (R'000) 41 422
Headline earnings (R'000) 48 761 45 282
NOTES TO THE PROVISIONAL CONDENSED CONSOLIDATED RESULTS
FOR THE YEAR ENDED 31 MARCH
1. Basis of preparation
The provisional condensed consolidated financial statements 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 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 provisional condensed consolidated financial statements are in terms of IFRS
and are consistent with those applied in the previous consolidated annual financial
statements.
These results have been prepared under the supervision of the Financial Director,
Gys Wege CA(SA). The directors take responsibility for the preparation of this report
and that the information has been correctly extracted from the underlying annual financial
statements.
2. Significant accounting policies and estimates
The accounting policies adopted in the preparation of the provisional condensed
consolidated financial statements are consistent with those followed in the preparation
of the Group's annual financial statements for the year ended 31 March 2016, except for the
adoption of new standards and interpretations effective as at 1 April 2016.
The new standards have no impact on the financial information.
3. Review report of the independent auditor
The provisional condensed consolidated financial statements for the year ended 31 March 2017
have been reviewed by KPMG Inc., who expressed an unmodified review conclusion. The
auditor's report does not necessarily report on all of the information contained in the
financial results. Shareholders are therefore advised that in order to obtain a full
understanding of the nature of the auditor's engagement they should obtain a copy of the
auditor's report together with the accompanying financial information from the issuer's
registered office.
4. Capital expenditure and commitments
Capital Contractual
expenditure commitments
Reviewed Audited Reviewed Audited
Rand thousands 2017 2016 2017 2016
Investment property 5 889 20 807 - -
Land and buildings 3 279 27 778 - -
Plant and equipment 34 973 36 979 9 609 140
Intangible assets 1 838 2 539 - 3 253
Business combinations 77 897 - - -
123 876 88 103 9 609 3 393
The capital commitments are expected to be incurred during the next financial year.
Commitments will be funded through banking facilities.
5. Post period-end events
There are no material post year-end events at the date of signing this report.
6. Financial instruments
The fair value of financial assets and liabilities approximate their carrying value as
disclosed in the condensed consolidated statement of financial position.
Measurement of fair values
The following table shows the valuation techniques used in measuring Level 2 fair
values for financial instruments measured at fair value in the condensed consolidated
statement of financial position, as well as significant unobservable inputs used.
Inter-relationship
Significant between significant
unobservable unobservable inputs
Type Valuation technique inputs and fair value measurement
Equity securities Quoted prices for the Not applicable Not applicable
instrument
Forward exchange Forward pricing: Not applicable Not applicable
contracts The fair value is
determined using
quoted prices
7. Share buyback
Deneb repurchased 133 507 226 Deneb ordinary shares from the Southern African Clothing
and Textile Workers' Union at a price of R2,00 per Deneb share on 30 September 2016.
8. Distribution
Notice is hereby given that a final distribution of 3 cents (gross) per ordinary share
in respect of the 12 months ended 31 March 2017 has been declared and approved by the
board of directors out of stated capital through the reduction of contributed tax
capital (distribution).
In compliance with the requirements of Strate and the JSE Limited, the following
dates are applicable:
Distribution declared Wednesday 24 May 2017
Last day to trade cum distribution Monday 12 June 2017
Shares trade ex distribution Tuesday 13 June 2017
Record date Thursday 15 June 2017
Payment date Monday 19 June 2017
Share certificates may not be dematerialised or rematerialised between Tuesday 13 June 2017
and Thursday 15 June 2017, both days inclusive.
Additional information
The directors have determined that this capital reduction distribution will be paid
out of qualifying contributed tax capital as contemplated in the definition of "contributed
tax capital" in section 1 of the Income Tax Act, 1962.
As the distribution will be regarded as a return of capital and may have potential capital
gains tax consequences, Deneb shareholders are advised to consult their tax advisors
regarding the impact of the distribution.
The directors have reasonably concluded that the company will satisfy the solvency and
liquidity requirements of sections 4 and 46 of the Companies Act, 2008, immediately
after the capital distribution.
The number of issued ordinary shares is 428 621 716 as at the date of this declaration.
9. Business combinations
The Group acquired the entire issued share capital of Premier Rainwatergoods Proprietary
Limited ("Premier"). The acquisition is in line with the Group's growth strategy and has
allowed Deneb to deepen its distribution channels within the industrial manufacturing
segment. Premier is a manufacturer of galvanised steel roofing accessories.
Reviewed
Rand thousands 2017
Total identifiable net assets acquired 69 156
Goodwill 8 741
Total consideration 77 897
Cash paid 67 897
Contingent consideration 10 000
Cash outflow from this investing activity
Cash consideration transferred (67 897)
Add cash and cash equivalents in the business acquired 24 307
Net cash outflow from investing operations (43 590)
COMMENTARY
We are pleased to report good growth for the year with EPS up 46%, HEPS up 22% and NAV
per share up 20% to 415 cents. These results reflect that within Deneb there are a
number of businesses that continue to deliver good solid results even in difficult
economic conditions.
In overall terms, turnover grew by 7% to just over R2,9 billion. Gross profit increased
by 18% on the back of improved margins whilst overheads grew by 9%. As a result, operating
profit before finance costs grew by 26%. The Group completed a share buyback in September 2016
which saw it buy back 24% of its shares in issue for R268 million. This, coupled with the
funds spent on the acquisition of Premier Rainwatergoods, resulted in net finance costs
increasing by 27% to R80 million.
Deneb's underlying subsidiaries can be categorised into four main groups.
In the first instance, we have good solid businesses that continue to grow strongly. Over
the past five years on a compounding basis, these businesses have grown turnover by 16%
and core operating profit by 22% per annum. They are now responsible for over R1,9 billion
of turnover and deliver net operating margins in excess of 10% after accounting
for all centralised head office costs.
The second set of businesses are mostly start-ups that are being developed with an eye
to the future. These businesses have largely delivered on expectations and are coming
along well. Although they may not all make it to become mature businesses, we are
optimistic that most will join the first group and become good contributors in time.
The third group of businesses have poor fundamental economics but have strong
management teams and muddle through eking out small profits. These businesses are not
likely to shoot the lights out anytime soon but they don't cost the Group very much to
maintain them. We are working on opportunities to shift them into areas that would
enable them to deliver better returns and moving them into the first group.
The final group has, disappointingly, not been able to find the required traction. This
failure is due to a combination of the general poor economics in the industries they
serve and our own inability to strategically reposition them onto a more sustainable path.
Both of these factors are exacerbated by the challenging economic environment. We had
hoped that these businesses could be fixed over time by following a growth strategy.
However, given the general state of the economy we may need to be a bit more pragmatic
in our outlook towards them.
Although the results overall represent another good step forward for the Group, we are
cognisant of the fact that in absolute terms they do not represent a suitable return on
the asset base. The plans to remedy the fourth group of businesses above will make a
marked difference to the operating margins and return on equity calculations.
SEGMENTAL RESULTS
PROPERTY SEGMENT
The value of the Group's property portfolio increased by R46 million (4%) to R1,22 billion.
This growth incorporates R9 million spent on development costs, R51 million of upwards
revaluation, offset by disposals totalling R14 million.
Revenue increased by 10% to R150 million with revenue from external tenants representing
71% of the total. Operating profit before finance costs increased by 4% to R135 million.
If the property revaluations are excluded, operating profit for the current year was up
6% to R104 million.
We have said in previous reports that we are looking to grow our property portfolio
and this remains the case despite the fact that in reality we have been a net seller of
property. We seem to have a different view to other buyers as to what fair acquisition
yields should be. However, rather than changing our expectations, we will continue to
look for opportunities that fit into our model even if it means being a bit more patient.
We see our ability to remain patient as the fundamental strength of a diversified portfolio.
INDUSTRIAL MANUFACTURING SEGMENT
The Industrial Manufacturing segment continued to power ahead.
The acquisition of Premier Rainwatergoods earlier in the year has proven to be
successful and the management team has assimilated themselves seamlessly into the
Group. In return, we hope and expect to be a good shareholder for them in the long
term. The results of this business as well as strong growth in the existing
operations saw revenue up 32% to R643 million and operating profit up 53% to R56 million.
This growth comes on the back of 49% growth in the previous reporting period and this
segment is now becoming a very meaningful contributor to the Group.
BRANDED PRODUCT SEGMENT
Revenue for this segment was down R21 million (1%) to R1,38 billion, however, operating
profit before finance costs increased to R15 million from the R2 million recorded in the
prior period.
The Prima Group, which comprises Prima Toys, Prima Interactive, the Empire Group
and some smaller start-ups, had a very strong year with operating profit up 47% over
the prior year. These businesses continue to deliver very good returns, which is
testament to the efforts of the competent management teams within them.
On the other hand, the performance of our office automation business has been very
disappointing. The new management team, appointed halfway through the year, have
been working tirelessly to clean it all up. As part of this clean-up we have taken
a number of large write-offs on the chin, which have affected the overall results
of this segment.
Our sporting goods business, Brand ID, had a little stutter on its growth path. This
business sells quite high-value discretionary durable goods and the segment of the
market that it serves has undoubtedly been under pressure. Towards the end of the
year it took a decision to exit some of its lower margin product ranges and
consolidate its management structures to reduce its break-even point. If one excludes
the once-off costs incurred in this business then it remained profitable for the
period under review.
TEXTILE SEGMENT
The general economics of the businesses within this sector remain challenging. Although
revenue was up 8%, operating profit was down R12 million (45%) to R15 million. The main
reason for the decline in operating profit was a R19 million forex loss in the
current year compared to a small profit in the previous year. It is the Group's policy
to cover forward any currency exposure once the selling prices have been established
in order to lock in the cash margin. Ordinarily, if forex losses are recorded up to
the time that the goods are delivered, it will result in higher margins when the goods are
sold. This will be true in this instance as well, but the long lead times inherent
in these businesses mean that a large portion of the countervailing gross profit improvement
will only take place in the next financial year.
As we have mentioned in previous reports, the general poor economics of the textile
sector means making even a modest return incredibly hard work and requires an enormous
amount of skill from the respective management teams. We are fortunate that we have strong
people at the head of each of these businesses. The work done in our home textile
business justifies a specific mention. Over the past five years the turnover of this
business has remained relatively flat, but five years ago some 80% of the turnover
came from selling unbranded products to the major retail chains. This year that
percentage was down to a little over 50% with the difference coming out of areas that
are more dependent on the quality of service rather than price. We believe that
this is an altogether more sustainable business model.
DISTRIBUTION
We are pleased to be able to re-introduce a distribution of 3 cents per share. We did
not pay a distribution in the previous year as we reserved funds to complete the share
buyback mentioned above.
On behalf of the board
Stuart Queen Gys Wege
Chief executive officer Financial director
Cape Town
24 May 2017
CORPORATE INFORMATION
Registered office:
5th Floor, Deneb House, Cnr Main and Browning Roads, Observatory 7925,
Cape Town PO Box 1585, Cape Town 8000
Directors:
J A Copelyn* (Chairperson), M H Ahmed*^ (Lead Independent Director), D Duncan,
T G Govender*, L Govender*^, N Jappie*^, A M Ntuli, S A Queen (Chief Executive Officer),
Y Shaik*, R D Watson*^, G D T Wege (Financial Director)
(* Non-executive ^ Independent)
Company Secretary:
C Philips
Transfer Secretaries:
Computershare Investor Services Proprietary Limited, 15 Biermann Avenue, Rosebank 2196
PO Box 61051, Marshalltown 2107
Auditors:
KPMG Inc.
Sponsors:
PSG Capital Proprietary Limited
www.deneb.co.za
Date: 24/05/2017 08:00:00 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.
Sharenet Sites 
