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Abridged Report for the year ended 31 December 2017 and notice of annual general meeting
Andulela Investment Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1950/037061/06)
JSE share code: AND
ISIN: ZAE000172870
("Andulela" or "the Company" or "the Group")
Abridged Report for the year ended 31 December 2017
and notice of annual general meeting
Abridged statement of financial position
Year ended Year ended
31 December 31 December
2017 2016
Notes R'000 R'000
Assets
Non-current assets 366 366 666 931
Plant and equipment 1 293 505 297 965
Goodwill 2 56 679 356 679
Deferred tax asset 16 182 12 287
Current assets 328 467 315 505
Inventory 130 317 102 399
Trade and other receivables 185 487 191 508
Taxation 509 4 207
Cash and cash equivalents 12 154 17 391
Total assets 694 833 982 436
Equity and liabilities
Capital and reserves 92 486 397 216
Stated capital 976 114 976 114
Cash flow hedge reserve 3 (6 315) (12 561)
Accumulated loss (882 550) (622 502)
Non-controlling interest 5 237 56 165
Non-current liabilities 83 590 112 869
Redeemable preference share
capital 5 30 845 29 182
Derivative financial liabilities 3 - 10 488
Borrowings 4 - 19 744
Operating lease liabilities 12 359 16 343
Deferred tax liability 40 386 37 112
Current liabilities 518 757 472 351
Trade and other payables 99 886 125 558
Operating lease liabilities 4 015 2 047
Derivative financial liabilities 3 10 492 10 383
Borrowings 4 387 497 334 363
Bank overdraft 16 867 -
Total equity and liabilities 694 833 982 436
Net asset value per share (cents) 99,55 389,13
Net tangible asset value per
share (cents) 45,49 48,95
Abridged statement of comprehensive income
Year ended Year ended
31 December 31 December
2017 2016
Notes R'000 R'000
Revenue 1 397 895 1 278 433
Cost of sales (1 180 819) (1 063 189)
Gross profit 217 076 215 244
Profit from operations before
taking the following into account 21 835 25 724
Investment income 1 231 1 460
Impairment of Goodwill (300 000) (62 000)
Finance costs (38 795) (34 065)
(Loss) before taxation (315 729) (68 881)
Taxation 3 526 848
Net (loss) for the year (312 203) (68 033)
Other comprehensive income
Items that may be reclassified
subsequently to profit or loss: 7 473 21 591
- Movement in derivative
cash flow hedge 3 10 379 29 988
- Deferred tax charge 3 (2 906) (8 397)
Total comprehensive (loss) (304 730) (46 442)
Net (loss) attributable to: (312 203) (68 033)
- Equity holders of Andulela (260 048) (55 325)
- Non-controlling interest (52 155) (12 708)
Total comprehensive (loss)/income
attributable to: (304 730) (46 442)
- Equity holders of Andulela (253 802) (37 277)
- Non-controlling interest (50 928) (9 165)
Total and weighted average number of
ordinary shares in issue (millions)* 87,64 87,64
Headline loss
Attributable net (loss) (260 048) (55 325)
Add back: (gain) on sale of
plant and equipment (6) (33)
Tax effect of the above 2 9
Impairment of Goodwill 250 770 51 826
Headline (loss) (9 282) (3 523)
(Loss) per ordinary share (cents)* (296,71) (63,12)
Headline (loss) per ordinary
share (cents)* (10,59) (4,02)
Dividends per ordinary share (cents) - -
* The (loss) per ordinary share and the headline (loss) per ordinary
share are calculated by dividing the (loss) and the headline (loss)
by the weighted average number of ordinary shares in issue during
the year. The Company does not have any dilutive instruments in issue.
Statement of cash flows
Year ended Year ended
31 December 31 December
2017 2016
R'000 R'000
Cash flows from operating activities:
Loss for the year (315 729) (68 881)
Adjusted for:
Depreciation of plant and equipment 20 795 19 734
Finance charges 38 795 34 065
Investment income (1 231) (1 460)
Profit on disposal of plant and equipment (6) (33)
Impairment of Goodwill 300 000 62 000
Working capital changes:
Increase in inventories (27 918) (22 654)
Decrease/(increase) in trade and other
receivables 6 021 (13 742)
(Decrease)/increase in trade and other
payables (25 692) 10 287
(Decrease) in operating lease liabilities (2 016) (201)
Cash (utilised in)/generated by
operating activities (6 981) 19 115
Investment income 1 231 1 460
Finance costs (37 063) (32 344)
Income tax received/(paid) 3 697 (488)
Net cash from operating activities (39 116) (12 257)
Cash flow from investing activities:
Acquisition of plant and equipment (16 370) (32 962)
Proceeds on disposal of plant and
equipment 41 1 402
Net cash utilised in investing
activities (16 329) (31 560)
Cash flow from financing activities:
Borrowings raised 110 099 92 544
Borrowings repaid (76 689) (44 886)
Preference dividend paid (69) (69)
Net cash generated by financing activities 33 341 47 589
Increase/(decrease) in cash and cash
equivalents (22 104) 3 772
Cash and cash equivalents at the
beginning of the year 17 391 13 619
Cash and cash equivalents at the end of
the year (4 713) 17 391
Abridged statement of changes in equity
Year ended Year ended
31 December 31 December
2017 2016
R'000 R'000
Opening balances 397 216 443 658
Movements for the year:
- Net (loss) for the year attributable
to equity holders of Andulela (260 048) (55 325)
- Cash flow hedge reserve net of
deferred tax 6 246 18 048
- Non-controlling interest (50 928) (9 165)
Closing balances 92 496 397 216
Notes
Basis of preparation
The abridged financial statements are prepared in accordance with
the requirements of the JSE Listings Requirements for abridged reports,
and the requirements of the Companies Act applicable to summary financial
statements. The JSE Listings Requirements require abridged reports to be
prepared in accordance with the framework concepts and the measurement
and recognition requirements of International Financial Reporting
Standards (IFRS) and the SAICA Financial Reporting Guides as issued by
the Accounting Practices Committee and Financial Pronouncements as
issued by the Financial Reporting Standards Council and to also,
as a minimum, contain the information required by IAS 34 Interim
Financial Reporting.
The accounting policies applied in the preparation of the annual
financial statements, from which this abridged report were derived,
are in terms of IFRS and are consistent with the accounting policies
applied in the preparation of the previous consolidated annual financial
statements. The directors take full responsibility for the preparation
of the abridged reports and the financial information has been correctly
extracted from the underlying annual financial statements. These results
were prepared under the supervision of Henk Engelbrecht CA(SA), the
Group Chief Financial Officer.
Audit conclusion
This abridged report is extracted from audited information, but is not
itself audited. The directors take responsibility for the preparation
of this abridged report based on the underlying audited annual financial
statements. The annual financial statements were audited by BDO South
Africa Incorporated, who expressed an unmodified opinion thereon.
The audited annual financial statements and the auditor's report
thereon are available for inspection at the Company's registered office.
1. Plant and equipment
Year ended Year ended
31 December 31 December
2017 2016
R'000 R'000
Opening balance 297 965 286 106
Additions 16 370 32 962
Disposals on scrapping of plant and
equipment (35) (1 369)
Impairment of plant and equipment - -
Depreciation (20 795) (19 734)
Plant and equipment at carrying value 293 505 297 965
2. Goodwill
The goodwill arose from the acquisition of the remaining interests in
Abalengani Mining Investments Proprietary Limited ("AMI") and
JB Platinum Holdings Proprietary Limited ("JBPH") by the Company in
2010. AMI and JBPH respectively hold 49,63% and 33,96% in Kilken Platinum
Proprietary Limited ("Kilken") as their only investments.
A discounted cash flow ("DCF") model was constructed by management based
on the value in use to determine the recoverable amount for the
cash-generating operations of the Kilken Imbani Joint Venture,in which
Kilken is a 70% partner, using a discount rate of 17,4% (2016: 17,7%),
based on the risk-free rate adjusted for market, sector and
project-specific risks and an annual Platinum Group Metals (“PGM”)
production rate of 12 539 ounces (2016: 15 862 ounces) (extrapolated
from historic production volumes). Forecast PGM metals prices and the
USD/ZAR exchange rates were derived from a consensus forecast from
reputable external market analysts. The DCF valuation model takes into
account attributable net cash flows from the operation for 35 years,
which is consistent with the industry standard for this type of valuation
and is also consistent with the extended life-of-mine agreement in place
with Rustenburg Platinum Mines ("RPM"). The tailings head feed is based
on the average monthly feed received from the mine.
Production levels at the Kilken plant decreased over the last year as
the quality of the ore received from the mine resulted in lower head
grades due to less reef and higher wastage tons.
The profitability of the Kilken operations was furthermore negatively
affected by the increased chrome content penalties, as a result of the
increased chrome fines in the tailings, following the commissioning
of a chrome plant by RPM in the latter part of 2016.
While the Kilken operations at the Joint Venture level are still
profitable at these lower production levels, the above factors did
have a negative effect on the carrying value of the underlying investment
of the Group in this operation, and consequently the goodwill had to be
re-assessed and impaired further. An impairment of R300 million was
therefore recorded against goodwill for the year under review.
3. Derivative financial liability
In 2012 Kilken entered into a hedge agreement for 30% of its cash
flow from the production revenue of platinum, palladium and gold at
the request of a financier in line with its funding requirements.
The hedge is intended to mitigate the cash flow risk related to
commodity price fluctuations and movements in the ZAR/USD exchange
rate in order to repay the funding facility to the financier.
In accordance with IAS 39, the cash flow hedge was recognised as a
hedging instrument at fair value for the first time in the statement
of financial position at 31 December 2012, without taking account of
any collateral held or other credit enhancements over the remainder
of the hedge contract term which started on 1 September 2012 and
will end on 30 September 2018.
For the year ended 31 December 2017, a R7,5 million gain (2016:
R21,6 million) after deferred tax has been recognised in other
comprehensive income and a decrease in the cash flow hedge reserve of
R6,2 million, net of non-controlling interests, in the statement of
financial position. The loss realised and netted off against the
revenue was R13,2 million for the year ended 31 December 2017
(2016: R16,9 million).
The cash flow hedge cost will be accounted for as either a profit or
a loss as it becomes effective and the settlements are actually made
over the duration of the term of the hedge contract.
4. Borrowings
Total borrowings of the Group amounted to R387,5 million as at
31 December 2017 compared to R354,1 million as at 31 December
2016, and can be summarised as follows:
Year ended Year ended
31 December 31 December
2017 2016
R'000 R'000
Absa Bank Limited 33 647 94 862
Reichmans Capital Proprietary Limited 339 240 229 141
Thunder Rate Investments Proprietary
Limited 13 903 29 397
The Rafik Mohamed Family Trust 707 707
Total borrowings 387 497 354 107
Less: Short-term borrowings 387 497 334 363
Non-current liabilities - 19 744
The facilities with Absa Bank have been restructured into term loans
with monthly settlement payments to December 2018.
The Reichmans facility to PRSM is an asset based and working capital
facility, which is structured as a current facility, even though
capital expenditure to acquire plant and equipment has been
funded from this facility. Over the last five years, total capital
expenditure of R89 million has been funded through this facility.
5. Redeemable preference share capital
The Company and the preference shareholder mutually agreed to suspend
the repayment of the redeemable preference share capital and the accrued
preference dividends until at least 1 January 2019. The redeemable
preference share capital and the accrued preference dividends are
therefore classified as non-current liabilities.
6. Financial instruments
The Derivative financial instrument – cash flow hedge is measured at
fair value. The fair value of the derivative financial liability is a
level 2 recurring fair value measurement and is obtained directly from
the service provider, calculated as the present value of the estimated
future cash flows based on the observable commodity prices and current
exchange rates. Refer to note 3 above for more information on the
cash flow hedge.
All other financial assets and liabilities are measured at amortised cost
which approximates their carrying values.
7. Material related-party transactions and balances
Year ended Year ended
31 December 31 December
2017 2016
R'000 R'000
Sales to related parties (80 600) (141 830)
Purchases from related parties 24 772 49 445
Administration and management fees
paid to related parties 286 1 247
Preference dividend expense 1 732 1 721
Rent expenses paid to related parties 22 906 18 200
Trade receivables 33 183 32 534
Trade payables (7 880) (4 483)
Borrowings from related parties (14 611) (30 105)
Cumulative redeemable preference shares (30 845) (29 182)
8. Segment reporting
The Group Chief Executive Officer is the Group's chief operating
decision-maker. Management has determined the operating segments
based on the information reviewed by the Group Chief Executive Officer
for the purposes of allocating resources and assessing performance and
risk. The Group has two main reportable segments, namely the production
of Platinum Group Metals at the Kilken Platinum tailings treatment
facility and the processing and distribution of steel products by the
Pro Roof Steel Merchants group.
Year ended Year ended
31 December 31 December
2017 2016
R'000 R'000
Revenue
Tailings treatment facility 45 067 38 661
Steel processing plants 1 352 828 1 239 772
Total revenue 1 397 895 1 278 433
There are no sales between segments.
Profit/(Loss) after tax
Tailings treatment facility (17 824) (15 441)
Steel processing plants 8 321 13 349
Goodwill impairment – tailings
treatment facility (300 000) (62 000)
Other unallocated (2 700) (3 941)
Total (loss) after tax (312 203) (68 033)
Assets
Tailings treatment facility 56 310 107 438
Steel processing plants 601 521 571 747
Inter-group eliminations (19 677) (53 428)
Reportable segment assets 638 154 625 757
Goodwill - tailings treatment facility 56 679 356 679
Total assets 694 833 982 436
Liabilities
Tailings treatment facility 87 836 127 119
Steel processing plants 499 894 478 442
Other unallocated liabilities 6 557 2 902
Inter-group eliminations (22 784) (52 425)
Reportable segment liabilities 571 503 556 038
Redeemable preference shares 30 845 29 182
Total liabilities 602 348 585 220
9. Events subsequent to the year-end
Subsequent to year end the Company entered into a loan agreement
with Waleed Investment Holdings Proprietary Limited, in terms of which
Waleed will advance up to R45 million to the Company over the next twelve
months, to finance the working capital requirements of the Company
and Kilken Platinum.
No other events occurred subsequent to year-end up to the date of this
announcement which could have a material effect on the results of the
Group or its subsidiaries.
10. Going concern
The annual financial statements have been prepared on the basis of
accounting policies applicable to a going concern. This basis presumes
that funds will be available to finance future operations and that the
realisation of assets and settlement of liabilities, contingent
obligations and commitments will occur in the ordinary course of business.
The Group incurred a net loss for the year ended 31 December 2017 of
R12,2 million (excluding the impairment of Goodwill) and as at that
date its current liabilities exceeded its current assets due to amongst
other factors, the short-term nature of some of its debt facilities
with financial institutions.
The Company and the preference shareholder have mutually agreed to
suspend the repayment of the preference shares and the accrued dividends
until at least 1 January 2019. The Group has access to sufficient
financial facilities to meet its obligations as and when they become
due over the next twelve months. Both operating subsidiaries continue
to service their borrowings and other financial obligations as and when
they become due. Management is therefore satisfied with applying the
going concern principle.
Nature of the business
The Company is an investment holding company with controlling
interests in the group companies.
Directorate and company secretary
There were no changes to the board of directors during the past
financial year. The current directors of the Company at the date
of this report are as follows:
Name Appointment
MJ Husain (Chairman)# 26 February 2010
A Kaka (CEO) 26 February 2010
JHP Engelbrecht (CFO) 1 October 2015
BW Smith# 1 October 2014
PE du Preez# 1 October 2011
NMS Hadjee# 1 July 2014
#Independent non-executive
Financial review
Kilken Platinum experienced a challenging year as the continued
shift from the Merensky reef to the UG2 reef at the tailings
supplier led to reduced head grades per ton of tailings treated.
Average kilogram production of the Platinum Group Metals ("PGM")
consequently reduced from around 40 kilograms per month in
previous years to an average of 33 kilograms per month in the
year under review. The volatility and consequent weakening of
the Rand on average against the US Dollar mitigated the reduced
production to an extent through an increase in the average
basket price per kilogram of PGMs. The commissioning of a chrome
plant at the tailings supplier late in 2016 negatively impacted
the business as the chrome fines content in the tailings
increased with a consequent increase in the chrome content
penalty for the year.
The changed operational environment referred to above at
Kilken Platinum required a re-assessment of goodwill during
the year. Whilst Kilken Imbani Joint Venture remains profitable
at the lower levels of production, the level of profitability
did not support the current goodwill or investment in
subsidiaries, and further impairments of R300 million against
goodwill on Group level and R261 million against the investment
in some of the subsidiaries were required.
PRSM had a tough first six months for the year under review as
the poor market conditions of the last six months of the 2016
financial year continued into the year under review. The second
six month period to December 2017 proved to be favourable for
PRSM as it managed to increase market share and together with
some industry price increases and improved efficiencies,
reported a profit before tax for the year.
Revenue increased from R1,28 billion in 2016 to R1,40 billion
in 2017 as both PRSM and Kilken managed to increase revenues
year on year. The cash flow hedge reduced revenue by
R13,24 million for the year (2016: R16,95 million). The
increase in revenue was however negated by lower gross
profit margins, especially in the steel industry where
competition remained fierce.
Against this background, the Group posted a loss after tax,
excluding the effect of the goodwill impairment, of
R12,2 million (2016: R6,0 million).
Debt levels continued to increase from 2016 to 2017 with Kilken
Platinum reducing its exposure to Absa Bank, but having to secure
funding from other sources to meet its obligations, due to the
reduced production levels at its operations and lower cash flow
generation as a result thereof. Cash flow at Kilken Platinum
should improve once the cash flow hedge is settled in September
2018 and the Absa Bank facilities are repaid by December 2018.
PRSM incurred further capital expenditure of R16,4 million
during the year to replace aging plant and equipment. Trade
receivables collections at year end were slower than in previous
years and this amongst others, contributed to the higher debt
levels at year end. The current debt levels are being reviewed by
the board and management to reduce it to more acceptable levels
during 2018.
Kilken
The past year saw a significant year on year increase in the
average prices of palladium and rhodium, which contributed to
the increase in the average basket price per kilogram of PGMs
and revenue for 2017. Post year end palladium's price reduced to
around $1 000 per ounce again, but rhodium continued to increase
to around $1,800 per ounce.
The increase in gross revenue was mainly due to improved commodity
prices in Rand terms compared to 2016. Lower production levels
and increased chrome content penalties contributed to the loss
before interest and tax for the year.
The lower production levels are a result of changes in the quality
of the tailings feed received from the mine as more UG2 reef and
waste were fed through the plant. Chrome content in the tailings
remained high during the year despite efforts to reduce this through
the extraction process.
The cash flow hedge expires in September 2018, which will have a
significant positive impact on the results of Kilken Platinum going
forward. The company would have reported operating profits
before interest in the past two years without the cash flow hedge.
The company reduced its exposure to Absa Bank from R94,9 million
in 2016 to R33,6 million by 31 December 2017. The loan facilities
with Absa Bank have furthermore been restructured as a term loan
with a final settlement date of December 2018, details of which
are set out in the annual financial statements of the Group.
Cash flow remained tight as the operations did not produce
sufficient cash flows to meet its debt obligations, necessitating
the restructuring of the Absa Bank debt as mentioned above and
the arrangement of alternative funding sources to cover monthly
cash flow requirements.
PRSM
The local market remained under pressure during the year under
review, with limited construction activity as the political
uncertainty continued to impact business confidence and investment
by local corporates in infrastructure and related projects.
The change in leadership of the ruling party during the end of
2017 and the appointment of the new President of South Africa
recently are expected to boost business confidence and investment
in project investment, which bodes well for the company.
The main local supplier of raw material remained under pressure
and implemented some price restructurings and increases during the
second half of the 2017 year.
Revenue increased by 9,1% from 2016 to 2017, mainly due to an
increase in the average price per ton of 8% and a 1% increase in
volume sales during the year. The cost of sales per ton however
increased by 16,1% from 2016 to 2017, resulting in lower gross
profit margins.
Interest expense increased due to increased interest-bearing debt
levels during the year.
Capital expenditure of R16,4 million was incurred during 2017 to
replace old plant and equipment with newer technology which
contributed to reduce production costs and improve profitability.
Notice of annual general meeting
The integrated annual report contains a notice of annual general
meeting which will be held at the offices of Andulela, 10 Sloane
Street, Bryanston on Monday, 18 June 2018 at 09h00.
The last day to trade in order to be eligible to participate in
and vote at the annual general meeting is Tuesday, 5 June 2018 and
the record date for voting purposes is Friday, 8 June 2018.
The annual report including the notice of the annual general meeting
will be distributed to shareholders and will be available on the
Company's website, www.andulelaholdings.com, by Friday,
30 March 2018.
BEE certificate and compliance
Kilken Imbani Joint Venture has been issued with a BEE certificate,
with a Level 3 rating. A copy of the BEE certificate is available
on the Company's website.
Pro Roof Steel Merchants is in the process of finalising its BEE
certification and its BEE certificate will be posted on the Company's
website once it is available.
For and on behalf of the Board
Mohamed J Husain Ashruf Kaka
Independent Non-executive Chairman Chief Executive Officer
Sandton
26 March 2018
Registered Office
108 4th Street, Parkmore, Sandton 2196
Directors
MJ Husain# (Chairman), A Kaka (CEO), JHP Engelbrecht (CFO), BW Smith#,
PE du Preez#, NMS Hadjee#
#Independent non-executive
Company Secretary
Ms GH Miller
Auditors
BDO South Africa Incorporated
Building 5, Summit Place
221 Garsfontein Road
Menlyn 0181
Transfer Secretaries
Terbium Financial Services Proprietary Limited
Beacon House
31 Beacon Road
Florida North 1709
Sponsor
Bridge Capital Advisors Proprietary Limited
50 Smits Street
Dunkeld, Sandton 2196
Date: 26/03/2018 11:46:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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