Wrap Text
Reviewed condensed consolidated financial results for the year ended 31 March 2017
BSI Steel Limited
(Incorporated in the Republic of South Africa)
(Registration number 2001/023164/06)
(JSE code: BSS ISIN: ZAE000125134)
("BSI" or "the company" or "the group")
Salient features
- Revenue down 6%
- HEPS decreased 73.6% to 1.4 cents
- EPS increased 72.3% to 8.1 cents
- NAV per share down to 102.7 cents
- R16m Profit after tax from continued operations
REVIEWED CONDENSED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR
ENDED 31 MARCH 2017
Condensed consolidated statement of profit and loss
Reviewed Audited
year year
ended ended
31 March 2017 31 March 2016
R`000 R`000
Restated
Revenue 2 376 821 2 528 687
Gross profit 271 372 302 285
Other costs (212 802) (189 677)
Earnings before interest,
taxation, depreciation and
amortisation 58 570 112 608
("EBITDA")
Depreciation and (17 443) (22 885)
amortisation
Operating profit 41 127 89 723
Income from equity accounted investments (36)
Interest received 24 314 35 797
Interest paid (33 849) (51 476)
Impairment of iron ore (*) (13 083) (39 952)
Profit before taxation 18 509 34 056
Taxation (2 223) (19 301)
Profit for the year from
Continuing operations 16 286 14 755
Profit from discontinued
operations(**) 39 926 18 530
Profit for the year 56 212 33 285
Profit attributable to ordinary
shareholders 56 212 33 285
Basic and diluted earnings per share
(cents)- continued operations 2.4 2.1
Basic and diluted earnings per share
(cents) – discontinued operations 5.7 2.6
Total basic and diluted earnings per
Share 8.1 4.7
Reconciliation of headline earnings:
Profit attributable to ordinary
shareholders 56 212 33 285
Loss on disposal of property,
plant and equipment (2) 1 428
Impairment of intangible and 6 480 -
financial assets
Impairment of plant and machinery 3 767 -
Impairment of goodwill 5 716
Tax impact on adjustments (4 469) (400)
Profit on sale of subsidiaries (10 127) -
Realisation of foreign currency
translation reserve on discontinued
operations (47 681) 2 781
Headline earnings attributable
to ordinary shareholders(basic
and diluted) 9 896 37 094
Weighted average shares inissue on
which earnings are based („000) 695 653 700 336
Headline earnings per share 1.4 5.3
(cents) (basic and diluted)
(*) This represents the final impairment loss provided for on
the iron ore held by Sentinel Bridge
(**) This represents the result of the discontinuation of The
Democratic Republic of Congo operations (2016: Mozambique
operation) during the year and includes R47.7 million gain
(2016: R2.8 million loss) related to the realisation of the
foreign currency translation reserve
Condensed consolidated statement of comprehensive income
Reviewed Audited
31 March 31 March
2017 2016
R`000 R`000
Profit for the year 56 212 33 285
Other comprehensive income – items
that may not be reclassified to
profit or loss
Foreign currency translation
Reserve (83 506) 72 254
Cash flow hedge 5 200 (12 342)
Total comprehensive income (22 094) 93 197
Attributable to ordinary shareholders (22 094) 93 197
Condensed consolidated statement of financial position
Reviewed Audited
31 March 2017 31 March 2016
R`000 R`000
ASSETS
Non-Current Assets
Property, plant and 299 547 331 644
equipment
Goodwill 8 990 14 706
Intangible assets 4 095 10 452
Investment in joint ventures 11 912 13 165
Loans to group companies 195 257 182 165
Other financial assets - 5 795
Deferred taxation 16 164 17 172
535 965 575 099
Current Assets
Inventories 333 659 377 998
Loans to group companies 24 368 14 290
Other financial assets 9 000 827
Trade and other receivables 520 106 528 618
Current tax receivable 10 077 6 658
Cash and cash equivalents 31 072 53 131
928 282 981 522
Non-current assets held for sale 29 195 28 698
Total assets 1 493 442 1 585 319
EQUITY AND LIABILITIES
Equity
Total shareholders` equity 699 875 743 062
Non-controlling interest (143) (143)
699 732 742 919
Non-Current Liabilities
Other financial liabilities 19 120 38 630
Deferred taxation 21 081 21 641
Other liabilities 155 612 85 821
195 813 146 092
Current Liabilities
Trade and other payables 339 932 428 467
Current tax payable 469 3 472
Other financial liabilities 25 370 43 967
Bank overdraft 228 214 214 502
593 985 690 408
Liabilities of disposal group 3 912 5 900
Total Liabilities 793 710 842 400
Total equity and liabilities 1 493 442 1 585 319
Capital commitments - 13 786
Number of shares in issue 681 495 696 871
(000)
Net asset value per share 102.7 106.6
(cents)
Net tangible asset value per 100.8 103.0
share (cents)
Condensed consolidated statement of changes in equity
Reviewed Audited
31 March 31 March
2017 2016
R`000 R`000
Balance at beginning of year 743 062 665 549
Share based payment (1 079) 418
Dividends paid (14 006) (14 090)
Purchase of treasury shares (6 008) (2 012)
Total comprehensive income (22 094) 93 197
Profit for the year 56 212 33 285
Foreign currency translation reserve (83 506) 72 254
Cash flow hedge 5 200 (12 342)
Attributable to ordinary 699 875 743 062
shareholders at end of year
Attributable to non-controlling
interest (143) (143)
Total equity 699 732 742 919
Condensed consolidated statement of cash flows
Reviewed Audited
31 March 31 March
2017 2016
R`000 R`000
Operating activity cash flows (24 900) 252 456
Cash flows from operations 7 560 304 842
Interest and taxation (32 460) (52 386)
Investing activity cash flows (33 378) (65 180)
Financing activity cash flows 24 795 (23 242)
Total cash movement for the year (33 483) 164 034
Cash at beginning of year (161 371) (329 724)
Effect of exchange rate movement
on cash balances (2 288) 4 319
Total cash at end of year (197 142) (161 371)
Condensed consolidated segment report
Reviewed Audited
31 March 31 March
2017 2016
R`000 R`000
Net revenue
SA Trading 1 573 065 1 608 050
Exporting 626 490 881 054
Other 177 266 39 583
2 376 821 2 528 687
Operating profit
SA Trading 33 841 46 549
Exporting 9 856 (457)
Other 1 790 26 528
45 487 72 620
Net interest
SA Trading (27 062) (23 253)
Exporting 6 487 13 462
Other 11 040 (5 888)
(9 535) (15 679)
Depreciation and amortisation
SA Trading (707) (2 439)
Exporting (5 303) (7 425)
Other (11 433) (13 021)
(17 443) (22 885)
Taxation
SA Trading (4 163) (1 690)
Exporting (1 341) (10 543)
Other 3 281 (7 068)
(2 223) (19 301)
Total assets
SA Trading 398 810 425 411
Exporting 609 732 662 843
Other 491 434 518 308
Eliminations (6 534) (21 243)
1 493 442 1 585 319
OVERVIEW
The directors of BSI present the financial results for the year
ended 31 March 2017 ("the 2017 year").
The group operates in the steel and associated industries with
strategically located operations in South Africa, Mauritius and
Zambia. BSI markets through two distinct channels, being SA
Trading and Exports; these divisions are supported by a steel
distribution and processing centre in Gauteng.
It has been a challenging year; we experienced many unforeseen
events. The decision was taken to close the roofing and tubing
processing lines. Certain roofing lines remain specifically to
compliment the product mix for the Namibian market.
Markets have changed substantially and we do believe that BSI
has been ahead of the curve in effecting change compared to a
great many of our peers, although we still have some way to go.
FINANCIAL RESULTS
Whilst the 2017 financial year started off on a positive trend
gross margins came under threat during the second half of the
year seeing the gross profit for the year drop to 10.2% below
that of 2016. An exchange loss of R1.2 million in our Exports
segment contributed to this.
Overall revenue dropped by 6% in comparison to 2016 whilst
operating expenses increased by 8%. Included in operating
expenses are certain restructure costs related to the closure of
the tube processing line, being R3.8 million in the form of an
impairment on plant and machinery and R3.5 million attributable
to retrenchments. Other once off impairments such as R2.9
million on computer software and R3.6 million on a write off
related to assets sold in a prior year contributed to the
increase in costs.
It was decided to impair R5.7 million in goodwill, related to
the ex Stockists segment held, in light of the recent move in
the market on margins to those associated with the Bulk sales
segment.
Investment income includes a gain of R10.1 million related to
the sale of the Pro Steel subsidiary in the Democratic Republic
of the Congo. The group will continue to supply the Pro Steel
business as dictated by a franchise agreement.
A final impairment was made on the iron ore held as many offers
were received but none were delivered upon. The directors are
pursuing legal action against the quantity surveying company
responsible for the loss.
The strengthening in the SA Rand to the US Dollar at R13.46 at
year end resulted in a decrease of R83.5 million in equity
during the year, inclusive of a reserve realisation gain of
R47.7 million allocated to discontinued operations. The
reallocation relates to the disposal of the shares held in the
Pro Steel business.
A significant decrease in interest rates afforded on US Dollar
borrowings contributed to the 34% drop in finance costs compared
to 2016, along with less borrowing required due to lower
inventory levels and continued focus on collections.
Non-current assets held for sale comprise of the business
property held in Richards Bay previously occupied by the BSI
Plate Solutions which was closed down during 2015. The disposal
liability consists of the associated Nedbank bond and Hire
Purchase agreement balances.
Our minority shareholding in Qinisa Steel Solutions was sold on
31 March 2017 and the payment settlement is expected to occur on
31 March 2018.
A significant amount of attention was devoted to the
recoverability of the Tower Trade Group (TTG) loan of R219
million given both the materiality thereof and the level of
uncertainty as to the probability and timing of capital
repayments as anticipated in the loan agreement. This is by far
the most significant judgement call in relation to the financial
statements. TTG significantly underperformed against budget for
the year to March 2017 and the budget for the next 3 years were
perused properly, which are based on significant revisions to
its business model, including reduced reliance on any one
business partner. The audit committee noted that although TTG
was in breach of the loan agreement in respect of interest
payments at year end, this situation was subsequently remedied
by the receipt of US$1.8 million in June 2017, representing
settlement of arrear interest and a prepayment of interest to 31
December 2017. The directors concluded that, notwithstanding
some uncertainty as to the timing of recoverability, the TTG
loan should not be impaired.
RESTATEMENT
The prior year figures were restated due to the reclassification
of losses incurred due to discontinued operations in terms of
IFRS5.
DIVIDEND
A dividend of 2 cents per share (1.7 cents per share net of
dividends tax) was paid on 15 August 2016.
Shareholders are advised that the board has assessed the
financial results for the year ended 31 March 2017 and other key
drivers with regard to declaring a dividend for the year ended
31 March 2017. The board has resolved, following such
assessment, that no dividend will be declared for the year ended
31 March 2017.
BASIS OF PREPARATION
The condensed consolidated financial statements have been
prepared in accordance with the JSE Limited Listings
Requirements (“Listings Requirements”) for provisional reports
and the requirements of the Companies Act of South Africa
applicable to financial statements. In terms of the Listings
Requirements the condensed consolidated financial statements are
to be prepared in accordance with the conceptual framework and
the measurement and recognition requirements of International
Financial Reporting Standards (IFRS), the SAICA Financial
Reporting Guides as issued by the Accounting Practices
Committee, and also, as a minimum, to contain the information
required by IAS 34 Interim Financial Reporting. The accounting
policies applied in the preparation of the condensed
consolidated financial statements are in terms of IFRS and are
consistent with the accounting policies applied in the
preparation of the previous consolidated annual financial
statements. The condensed consolidated financial results have
been prepared by JB McGrath (CA(SA)) under the supervision of E
Vermaak (CA(SA)), the group Financial Director.
FINANCIAL INSTRUMENTS
The fair values of financial instruments are determined by using
quoted prices in active markets for identical assets or
liabilities and therefore fall into the level 2 fair value
category as per IFRS 13.
2017 2016
Level 2 Level 2
Financial liabilities, fair value
through profit and loss 834 11 511
The values were calculated by way of a market to market
valuation at year end. There have been no transfers between
levels during the financial year. The fair values approximate
their carrying values.
CHANGES TO THE BOARD
K Paxton stepped down on 19 June 2017 as Chief Operations
Officer however remains on the board as an executive director.
SUBSEQUENT EVENTS
No material change has taken place in the affairs of the group
between the end of the financial year and the date of this
report.
PROSPECTS
The year has been difficult, and certainly the latter half
exceptionally so. The group however remains steadfast in the
drive to reduce costs and close non-contributing operations. We
achieved what we set out to in getting costs down from R27
million to R22 million per month.
Improved efficiencies across the group are front of mind, as can
be seen from the drop in costs. We remain committed to bringing
our costs down even further in the coming months.
Margins across the industry remain stubbornly low, hence the
need to operate in the lowest quartile of cost per ton amongst
our peers whilst stock management has received considerable
focus and we are pleased with the results and will continue to
exert the necessary pressure in order to achieve excellence in
this critical area of our business.
The possibility of a strike in the coming weeks looms and we
have taken all possible steps to mitigate the effects of the
stoppage to our business.
The policy of "steady as she goes" remains for the coming year
and along with ensuring that we have a lean operating structure.
STATEMENT ON GOING CONCERN
The condensed consolidated financial statements have been
prepared on the going-concern basis since the directors have
every reason to believe that the company has adequate resources
in place to continue in operation for the foreseeable future.
QUALIFIED REVIEW OPINION
The auditors, Deloitte & Touche, have issued their qualified
review opinion on the condensed financial results for the year
ended 31 March 2017. The review was conducted in accordance
with International Standards on Review Engagements 2410. A copy
of their ISRE 2410 review report is available for inspection at
the company's registered office. Any reference to future
financial performance included in this announcement, has not
been reviewed or reported on by the company's auditors.
BASIS FOR QUALIFIED OPINION
An extract from the “Basis for Qualified Opinion” section of the
review opinion is set out below.
“The condensed consolidated statement of financial position
reflects a loan receivables of R219.6 million (non-current
R195.3 million and current R24.4 million) from an associate
company, Tower Trade Group, for the year ended 31 March 2017.
Subsequent to year end an amount of R24.4 million was received,
relating to both arrear interest and prepayment of future
interest to 31 December 2017.
Management were unable to provide sufficient appropriate
evidence regarding the recoverability of the non-current portion
of this loan receivable as at 31 March 2017 and therefore we
were unable to independently corroborate the assumptions and
estimates used by management in their recoverability assessment.
Consequently, we are unable to conclude whether any impairment
to the non-current portion of this loan receivable is
necessary.”
By order of the Board
14 July 2017
C Parry E Vermaak
Chief Executive Officer Financial Director
CORPORATE INFORMATION
Chairman W L Battershill
Non executive directors: B M Khoza (Alternate - N M Anderson),
N G Payne; R G Lewis
Executive directors: C Parry, K Paxton, E Vermaak
Registered address: 46 Eden Park Drive, Mkondeni,
Pietermaritzburg 3201
Postal address: P O Box 101096, Scottsville, 3209
Company secretary: S J Hackett
Telephone: (033) 846 2208
Facsimile: (033) 846 2233
Transfer secretaries: Computershare Investor Services (Pty)
Limited
Pietermaritzburg
14 July 2017
Designated Advisor
Sasfin Capital (A division of Sasfin Bank Limited)
Date: 14/07/2017 01:06:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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