Wrap Text
Group Summary Consolidated Interim Financial results announcement for the six months ended 30 June 2017
South Ocean Holdings Limited
(Registration number 2007/002381/06)
Incorporated in the Republic of South Africa
("South Ocean Holdings" and "the Group")
Share code: SOH ISIN: ZAE000092748
GROUP SUMMARY CONSOLIDATED INTERIM FINANCIAL RESULTS ANNOUNCEMENT
for the six months ended 30 June 2017
SALIENT FEATURES
Revenue decreased by 15.2% to R764.9 million
Headline loss per share increased by 5.9 cents to
10.2 cents
Loss per share increased by 15.3 cents to 19.5 cents
Tangible net asset value per share decreased by
11.4% to 314.1 cents
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT
30 June 2017 30 June 2016 31 December 2016
(Unaudited) (Unaudited) (Audited)
Notes R'000 R'000 R'000
Assets
Non-current assets 313 976 334 047 319 269
Property, plant and equipment 4 273 538 313 096 289 699
Intangible assets 4 8 212 8 483 7 783
Deferred tax 32 226 12 468 21 787
Current assets 694 405 792 417 623 873
Inventories 340 932 431 129 326 407
Trade and other receivables 333 897 332 587 275 130
Taxation receivable - 5 497 -
Cash and cash equivalents 19 576 23 204 22 336
Total assets 1 008 381 1 126 464 943 142
Equity and liabilities
Equity
Share capital and share premium 5 441 645 441 645 441 645
Reserves 1 793 2 323 1 799
Retained earnings 55 987 119 059 86 428
Total equity 499 425 563 027 529 872
Liabilities
Non-current liabilities 81 291 93 157 87 543
Interest-bearing borrowings 6 47 920 55 679 52 025
Deferred taxation 32 879 37 028 35 026
Share-based payments 492 450 492
Current liabilities 427 665 470 280 325 727
Trade and other payables 238 789 287 460 128 677
Interest-bearing borrowings 6 188 820 182 569 197 012
Taxation payable 56 251 -
Derivative financial instruments - - 38
Total liabilities 508 956 563 437 413 270
Total equity and liabilities 1 008 381 1 126 464 943 142
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Year ended
30 June 2017 30 June 2016 31 December 2016
(Unaudited) (Unaudited) Change (Audited)
Notes R'000 R'000 % R'000
Revenue 764 913 901 560 (15.2) 1 777 190
Cost of sales (701 485) (815 025) 13.9 (1 623 447)
Gross profit 63 428 86 535 (26.7) 153 743
Other operating income 5 606 1 880 6 181
Administration expenses (23 191) (27 148) (68 765)
Distribution expenses (15 858) (17 398) (25 653)
Operating expenses (60 969) (44 454) (97 344)
Operating loss (30 984) (585) (5 196.4) (31 838)
Finance income 413 395 1 005
Finance costs (12 400) (9 730) (23 273)
Loss before taxation (42 971) (9 920) (333.2) (54 106)
Taxation 7 12 530 3 412 14 967
Loss for the period (30 441) (6 508) (367.8) (39 139)
Other comprehensive income
Exchange differences on translating foreign
operation (6) (190) (714)
Total comprehensive loss attributable to
equity holders of the Group (30 447) (6 698) (354.6) (39 853)
Cents per Cents per Cents per
share share share
Loss per share - basic and diluted (19.5) (4.2) (364.3) (25.0)
Headline loss per share - basic and diluted (10.2) (4.3) (137.2) (13.1)
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months ended Year ended
30 June 2017 30 June 2016 31 December 2016
(Unaudited) (Unaudited) (Audited)
Notes R'000 R'000 R'000
Share capital
Opening and closing balance 5 1 274 1 274 1 274
Share premium
Opening and closing balance 5 440 371 440 371 440 371
Foreign currency translation reserve
Opening balance 1 799 2 513 2 513
Exchange differences on translation of foreign operation (6) (190) (714)
Closing balance 1 793 2 323 1 799
Retained earnings
Opening balance 86 428 125 567 125 567
Total comprehensive loss for the period (30 441) (6 508) (39 139)
Closing balance 55 987 119 059 86 428
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended Year ended
30 June 2017 30 June 2016 31 December 2016
(Unaudited) (Unaudited) (Audited)
R'000 R'000 R'000
Cash generated (utilised) in operating activities 12 388 (47 806) (55 746)
Cash utilised in investing activities (2 845) (8 274) (11 505)
Cash (utilised) generated in financing activities (12 297) 57 657 68 484
Net (decrease)/increase in cash and cash equivalents (2 754) 1 577 1 233
Cash and cash equivalents at the beginning of period 22 336 21 817 21 817
Effects of exchange rate movement on cash balances (6) (190) (714)
Cash and cash equivalents at the end of period 19 576 23 204 22 336
SELECTED NOTES TO THE SUMMARISED CONSOLIDATED INTERIM FINANCIAL INFORMATION
1. General information
South Ocean Holdings and its subsidiary companies manufacture and distribute electrical cables, import and distribute light fittings, lamps, electrical
accessories, audio visual hardware and accessories and have property investments. South Ocean Holdings is a public company listed on the JSE
Limited ("JSE") and is incorporated and domiciled in the Republic of South Africa.
The unaudited summarised consolidated interim financial information was prepared by Ms MK Lehloenya CA(SA) and was approved for issue by the
directors on 11 August 2017.
2. Basis of preparation
The summary consolidated interim Financial Statements of South Ocean Holdings have been prepared in accordance with the JSE Listings
Requirements for provisional reports, and the requirements of the Companies Act, 2008 of South Africa applicable to summary Financial Statements.
The summary consolidated interim Financial Statements should be read with the audited Financial Statements for the year ended 31 December
2016. The JSE 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 consolidated
Financial Statements from which the summary consolidated Financial Statements were derived are in terms of IFRS and are consistent with those
accounting policies applied in the preparation of the previous summary consolidated Financial Statements.
3. Accounting policies
The accounting policies adopted are consistent with those applied in the audited Financial Statements for the year ended 31 December 2016, except
where indicated. There were no new standards or amendments that were issued since the last Annual Report that are applicable to the Group or that
is expected to have a material impact on the reported results or future results of the Group.
4. Property, plant and equipment and intangible assets
During the first six months, the Group invested R3.2 million (2016: R8.6 million) in capital expenditure mainly relating to the acquisition of a conduit
plant at South Ocean Electric Wire Company Proprietary Limited ("SOEW") as well as the replacement of vehicles at SOEW and infrastructure
enhancements to the ERP system at Radiant Group Proprietary Limited ("Radiant"). An impairment charge of R10.3 million (2016: Rnil) was raised
against the manufacturing plant and machinery at SOEW due to the value in use of the subsidiary being lower than the enterprise value. The details
of changes in tangible and intangible assets are as follows:
Tangible assets Intangible assets
(Unaudited) (Unaudited)
R'000 R'000
Six months ended 30 June 2017
Opening net carrying amount 289 699 7 783
Additions 2 226 997
Disposals and write-offs (342) -
Impairment (10 326) -
Depreciation/amortisation (7 719) (568)
Closing net carrying amount 273 538 8 212
Six months ended 30 June 2016
Opening net carrying amount 313 633 8 780
Additions 7 541 1 068
Disposals and write-offs (147) -
Depreciation/amortisation (7 931) (1 365)
Closing net carrying amount 313 096 8 483
Year ended 31 December 2016 (Audited) (Audited)
Opening net carrying amount 313 633 8 780
Additions 12 318 997
Disposals and write-offs (1 638) (64)
Impairment (18 743) -
Depreciation/amortisation (15 871) (1 930)
Closing net carrying amount 289 699 7 783
5. Share capital and share premium
Number of Ordinary Share
shares issued shares premium Total
(R'000) (R'000) (R'000)
At 30 June 2017 (Unaudited)
Opening and closing balance 156 378 794 1 274 440 371 441 645
At 30 June 2016 (Unaudited)
Opening and closing balance 156 378 794 1 274 440 371 441 645
At 31 December 2016 (Audited)
Opening and closing balance 156 378 794 1 274 440 371 441 645
6. Interest-bearing borrowings
The current portion of the interest-bearing borrowings includes the bank overdraft balance of R177.4 million (2016: R163.6 million). The details of the total
interest-bearing borrowings balance are as follows:
As at As at
30 June 2017 30 June 2016 31 December 2016
(Unaudited) (Unaudited) (Audited)
Secured loans R'000 R'000 R'000
Non-current 47 920 55 679 52 025
Current 188 820 182 569 197 012
236 740 238 248 249 037
The movement in borrowings is analysed as follows:
Opening balance 249 037 180 593 180 593
Additional loans utilised 19 363 62 555 83 620
Finance costs 12 400 9 730 23 141
Repayments (44 060) (14 630) (38 317)
Closing balance 236 740 238 248 249 037
The Group's bankers, First National Bank Limited ("FNB") had renewed the bank overdraft facility of R274.0 million in May 2017. Due to the negative
financial performance of the Group, FNB had indicated that they will review the facilities again in September 2017 based on the June 2017 results.
7. Taxation
Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full
financial year. The effective tax rate calculated is 29.2% (2016: 34.4%).
8. Reconciliation of headline loss
Six months ended Year ended
30 June 2017 30 June 2016 31 December 2016
(Unaudited) (Unaudited) (Audited)
R'000 R'000 R'000
Loss attributable to the equity holders of the Group for the period (30 441) (6 508) (39 139)
Profit on disposal of property, plant and equipment (38) (188) (108)
Impairment loss of investment in subsidiaries 14 491 - 18 743
Headline loss for the period (15 988) (6 696) (20 504)
Headline loss per share (cents) (10.2) (4.3) (13.1)
9. Weighted average number of shares
Six months ended Year ended
30 June 2017 30 June 2016 31 December 2016
(Unaudited) (Unaudited) (Audited)
Number of shares in issue 156 378 794 156 378 794 156 378 794
Weighted average number of shares in issue at
the beginning and end of the period 156 378 794 156 378 794 156 378 794
Weighted average number of shares in issue
for diluted earnings per share 156 378 794 156 378 794 156 378 794
10. Net asset value
As at As at
30 June 2017 30 June 2016 31 December 2016
(Unaudited) (Unaudited) (Audited)
Net asset value per share (cents) 319.4 360.0 338.8
Tangible net asset value per share (cents) 314.1 354.6 333.9
11. Impairment of assets in subsidiaries
To comply with IAS 36, the Group performed an impairment test of its assets in subsidiaries, as a result a net impairment after tax of R14.5 million
was recognised in the Statement of Comprehensive Income. The impairment was due to the value in use of the subsidiaries being lower than the
subsidiaries' enterprise value. This is partly attributable to the difficult trading conditions that are being experienced in the South African economy.
Management is hopeful that trading conditions will improve in the second part of the year such that the impairment could be reversed. Historically
the Group has performed better in the second part of the year.
12. Going concern
In assessing the Group's ability to continue in operational existence as a going concern, management prepared a cash flow forecast for a
period in excess of 12 months. Various scenarios have been considered to test the Group's resilience against operational risks. Management has
concluded that the Group's ability to continue to meet its financial obligations as they fall due is dependent on FNB renewing its current banking facility.
13. Interim dividend declaration
The Company's policy is to consider the declaration of a final dividend after its financial year-end.
14. Segment reporting
The chief operating decision-makers review the Group's internal reporting in order to assess performance and have determined the operating
segments based on these reports. The business performance of the operating segments: electrical cables manufacturing, lighting and electrical
accessories and property investments, are evaluated from the market and product performance perspective.
The segment information has been prepared in accordance with IFRS 8 - "Operating Segments", which defines the requirements for the
disclosure of financial information of an entity's segments.
The Standard requires segmentation on the Group's internal organisation and reporting of revenue and adjusted EBITDA based upon internal
accounting presentation.
The segment revenue and EBITDA generated by the Group's reportable segments are summarised as follows:
Six months ended
Adjusted Segment Segment
Revenue EBITDA assets liabilities
R'000 R'000 R'000 R'000
30 June 2017 (Unaudited)
Electrical cables manufacturing 622 729 8 042 577 796 344 904
Lighting and electrical accessories 142 424 (10 196) 225 519 69 229
Property investments 11 425 9 468 170 108 53 696
776 578 7 313 973 423 467 829
30 June 2016 (Unaudited)
Electrical cables manufacturing 743 945 13 278 604 435 339 507
Lighting and electrical accessories 163 596 (3 891) 309 671 121 005
Property investments 10 639 8 165 186 454 59 654
918 180 17 552 1 100 560 520 166
Year ended
31 December 2016 (Audited)
Electrical cables manufacturing 1 437 154 15 881 473 164 239 216
Lighting and electrical accessories 344 987 (14 028) 259 106 77 091
Property investments 21 798 17 486 187 648 56 588
1 803 939 19 339 919 918 372 895
A reconciliation of the total segment report to the statement of financial position and statement of
comprehensive income is provided as follows:
Six months ended Year ended
30 June 2017 30 June 2016 31 December 2016
(Unaudited) (Unaudited) (Audited)
R'000 R'000 R'000
Revenue
Reportable segment revenue 776 578 918 180 1 803 939
Inter-segment revenue (property rentals) (10 692) (10 376) (21 068)
Inter-segment revenue - other (973) (6 244) (5 681)
Revenue per consolidated statement of
comprehensive income 764 913 901 560 1 777 190
Loss before tax
Adjusted EBITDA 7 313 17 552 19 339
Corporate and other overheads (9 883) (8 841) (14 632)
Depreciation (7 719) (7 931) (15 871)
Impairment of investment in subsidiaries (note 4 and 11) (20 127) (18 743)
Amortisation of intangible assets - lighting and electrical
accessories (568) (1 365) (1 931)
Operating loss (30 984) (585) (31 838)
Finance income 413 395 1 005
Finance cost (12 400) (9 730) (23 273)
Loss before income tax per consolidated statement
of comprehensive income (42 971) (9 920) (54 106)
Assets
Reportable segment assets 973 423 1 100 560 919 918
Corporate and other assets 2 732 7 939 1 437
Deferred taxation 32 226 12 468 21 787
Taxation receivable - 5 497 -
Total assets per statement of financial position 1 008 381 1 126 464 943 142
Liabilities
Reportable segment liabilities 467 829 520 166 372 895
Corporate and other liabilities 8 192 5 992 5 349
Deferred taxation 32 879 37 028 35 026
Taxation payable 56 251 -
Total liabilities per statement of financial position 508 956 563 437 413 270
15. Director changes
Mr JH Yen resigned as a director effective 17 May 2017. Mr WP Li, an alternate director resigned as director effective 17 May 2017. These
directors have not been replaced. Ms M Chong resigned from the SOH board with effect from 11 August 2017.
16. Competition Commission
As noted in the previous Financial Statements, the case arose from a complaint that the Competition Commission ("Commission") first initiated
on 16 March 2010 and which was referred to in the South Ocean Holdings' SENS announcement dated 6 May 2010. SOEW has since agreed
to settle the case and a fine of R13 362 855, which is a percentage of SOEW's annual turnover for the financial year ended 31 December 2010,
was imposed by the Commission, which has been confirmed by the tribunal.
17. Subsequent events
Notwithstanding the above, the directors are not aware of any other significant events arising since the end of the financial period, which would
materially affect the operations of the Group or its operating segments, not dealt with in the financial results.
COMMENTARY
Introduction
The Board of South Ocean Holdings hereby announces its summary consolidated results for the six months ended 30 June 2017 ("the period").
South Ocean Holdings is an investment holding company, comprising four operating subsidiaries namely: SOEW a manufacturer of low voltage
electrical cables; Radiant, an importer and distributor of light fittings, lamps, electrical accessories, audio visual hardware and accessories; Anchor
Park Investments 48 Proprietary Limited ("Anchor Park") a property holding company and Icembu Services Proprietary Limited, a light fittings assembly
company.
Financial overview
Earnings
Group revenue for the period ended 30 June 2017 decreased by 15.2% (2016: 4.9 %, increased) to R764.9 million (2016: R901.6 million). The Group's
gross profit decreased by 26.7% (2016: 17.5%, decreased) to R63.4 million (2016: R86.5 million) and operating loss increased by R30.4 million to a
loss of R31.0 million (2016: R0.6 million) compared to the prior period.
Group loss before tax increased by 333.2% (2016: 188.2%, decrease in profit before tax) to a loss of R43.0 million (2016: R9.9 million) compared to
the prior period. Basic loss per share increased by 364.3% (2016: 182.4%, decrease in earnings) to a loss of 19.5 cents (2016: 4.2 cents, loss) with
headline loss per share increasing by 137.2% (2016: 189.6%, decrease in headline earnings) to a loss of 10.2 cents (2016: 4.3 cents, loss) compared
to the prior period. Headline loss for the period amounted to R16.0 million (2016: R6.7 million, loss).
Group's earnings were negatively impacted by its low B-BBEE rating. Management is working hard to improve this situation, which will enable the Group
to do business in the Public Sector with a specific focus on state-owned entities and municipalities.
Cash flow and working capital management
Cash generated from operations amounted to R12.4 million (2016: R47.8 million, utilised) during the period. Working capital decreased by R27.0 million
(2016: R47.5 million, increased) primarily due to increases in accounts payable of both the electrical cables manufacturing and lighting and electrical
accessories segments. The trade receivables book continues to be well managed in an increasingly challenging credit environment. Working capital
investment is currently at 29.1% (2016: 26.4%) of revenue.
The Group invested R3.2 million (2016: R8.6 million) in capital expenditure which was mainly financed by long-term borrowings during this period and
utilised R44.1 million (2016: R14.6 million) to repay its long-term interest-bearing borrowings.
The Group's net cash utilised during the period amounted to R2.8 million (2016: R1.6 million, net cash inflow), decreasing the bank balance to
R19.6 million (2016: R23.2 million) as at end of the financial period.
Segment results
Electrical cables manufacturing - SOEW
SOEW reported revenue of R622.7 million (2016: R743.9 million), which is a decrease of 16.3% (2016: 4.8%, increase in revenue) when compared to
the same period in the prior year. The decrease in SOEW's revenue is attributed mainly to a lower demand due to an unstable Rand Copper Price (RCP)
and subdued market conditions. Production levels decreased in line with the decreased demand by 15.5% in the first six months of the year. The Rand
Copper Price (RCP) was volatile during the period, fluctuating between increases of 3.3% and decreases of 3.9%.
The market conditions were very weak during the first six months of the year and margins were under severe pressure due to the competitive
environment and tough trading conditions.
Lighting and electrical accessories - Radiant
Radiant reported revenue of R142.4 million (2016: R163.6 million), which is a decrease of 13.0% (2016: 5.5%, increase in revenue) when compared to
the same period in the prior year. Revenue was under severe pressure in the first half of 2017 due to low demand and tough trading conditions. This
situation is expected to abate in the second half of the year.
Gross profit margins are under pressure as Radiant is competing with products of lesser quality and there is a subdued appetite for high end products
as consumers have less disposable income and are thus extremely cost sensitive.
Radiant has managed to curtail expenditure reflecting a decrease of 6.1% in expenses when compared to the same period in the prior year.
Radiant is confident that the company is well positioned for growth. It has seen an improvement in customer confidence and loyalty from the
implementation of its turnaround strategy.
Property investments - Anchor Park
Anchor Park's revenue is derived from Group companies, as it leases its properties to fellow subsidiaries.
Seasonality
The Group's earnings are affected by seasonality as earnings for the second half of the year are historically higher than the first six months. Management
expects the historic seasonal trend to continue in future.
Prospects
With the South African economy being in a technical recession, trading conditions are expected to continue to be challenging. This is exacerbated by
a decline in mining, agriculture and manufacturing activities with limited spending in infrastructure. The Group is aggressively implementing its Africa
growth strategy to increase its footprint in sub-Saharan Africa to grow revenue and increase gross profit, to counter the slump in the South African
economy.
The Group remains committed to increasing shareholders' value and will explore all possible avenues to ensure that this objective is attained.
In line with past trends, revenue from the Lighting and Electrical Division is expected to increase in the second six months even though profit margins
will still be under pressure.
Improving operational efficiencies remains a focal point for management. Management will continue to maintain a disciplined approach to reduce costs
as far as possible, improve working capital management and increase margins where possible.
Appreciation
The directors would like to express their appreciation towards the management and staff as well as all our valued customers, suppliers, advisors,
business partners, shareholders and stakeholders for their continued support.
The above information, including any projections, included in this announcement have not been reviewed or reported on by South Ocean Holdings'
independent external auditors.
On behalf of the Board
KH Pon CA(SA) JP Bekker CA(SA)
Chairman Chief Executive Officer
11 August 2017
CORPORATE INFORMATION
Directors
KH Pon# (Chairman)
HL Liv� (Deputy-Vice Chairman)
JP Bekker* (Chief Executive Officer)
MK Lehloenya* (Chief Financial Officer)
N Lalla#
CY Wuv�
DJC Panv@A
*Executive
#Independent Non-executive
vNon-executive
�Taiwanese
@Brazilian
AAlternate
Registered Office
12 Botha Street, Alrode, 1451
(PO Box 123738, Alrode, 1451)
Telephone: +27(11) 864 1606
Telefax: +27(86) 628 9523
Website: https://protect-za.mimecast.com/s/xVaMBkTJvNkJCM
Company Secretary
WT Green, 21 West Street, Houghton, 2198
(PO Box 123738, Alrode, 1451)
Sponsor
Investec Bank Limited
(Registration number 1969/004763/06)
Second Floor, 100 Grayston Drive, Sandown, Sandton, 2196
Share Transfer Secretary
Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank
Johannesburg, 2196
(PO Box 61051, Marshalltown, 2107, South Africa)
Telephone: +27(11) 370 5000
Telefax: +27(11) 688 5200
Website: https://protect-za.mimecast.com/s/MDN4BOIQmp4Qt7
Auditors
PricewaterhouseCoopers Inc.
32 Ida Street, Menlo Park, 0102
Telephone: +27(12) 429 0000
Telefax: +27(12) 429 0100
Website: https://protect-za.mimecast.com/s/O20vBWf2g5Q2h8
Date: 15/08/2017 04:52:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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