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VALUE GROUP LIMITED - Reviewed condensed consolidated financial results for the year ended 28 February 2018

Release Date: 10/05/2018 16:30
Code(s): VLE     PDF:  
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Reviewed condensed consolidated financial results for the year ended 28 February 2018

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 2018

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
Company Secretary:    iThemba Governance and Statutory Solutions (Pty) Ltd
Transfer secretary:   Computershare Investor Services (Pty) Ltd
Registered office:    49 Brewery Road, Isando, 1600, 
                      PO Box 778, Isando, 1600, Tel: (011) 570 2000
www.value.co.za

Highlights
Revenue R2,513bn up 2%
Normalised headline earnings per share 71,1 cents up 15%
Headline earnings per share 58,7 cents down 5%
Earnings per share 54,8 cents down 4%
Net asset value per share 566,8 cents up 8%
Cash generated by operations maintained at R296m
Final dividend per share 22 cents up 22%

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                                                   %              Reviewed              Audited
R000’s                                                                        change                  2018                  2017
Revenue*                                                                          2%             2 513 241             2 468 923
Cost of sales*                                                                                 (1 726 216)           (1 653 373)
Gross profit                                                                                       787 025               815 550 
Other income                                                                                        28 364                25 092 
Operating expenses                                                                                (659 951)             (697 378)
Operating profit before once-off BBBEE equity transaction costs                   8%               155 438               143 264 
Once-off BBBEE equity transaction costs                                                            (19 003)                    -   
Operating profit                                                                                   136 435               143 264 
Share of profit of equity-accounted investees                                                           23                    44 
Fair value adjustment                                                                                  331                  (509)
Finance income*                                                                                      3 386                 1 594 
Finance costs*                                                                                     (17 553)              (24 046)
Net profit before taxation                                                                         122 622               120 347 
Taxation                                                                                           (40 648)              (36 740)
Net profit for the year                                                          (2%)               81 974                83 607 
Other comprehensive income                                                               
Foreign currency translation differences                                                               (75)                 (192)
Total comprehensive income for the year                                                             81 899                83 415 
Owners:                                                                                             83 331                88 149 
Net profit for the year                                                                             83 406                88 341 
Other comprehensive income                                                                             (75)                 (192)
Non-controlling interest:                                                                           (1 432)               (4 734)
Net loss for the year                                                                               (1 432)               (4 734)
Other comprehensive income                                                                               -                     -   
                                                                                                    81 899                83 415
Earnings per share (cents) (note 2)
Basic                                                                            (4%)                 54.8                  57.2 
Headline                                                                         (5%)                 58.7                  61.9 
Normalised headline                                                              15%                  71.1                  61.9 
Diluted basic                                                                    (4%)                 54.8                  57.2 
Diluted headline                                                                 (5%)                 58.7                  61.9 
Normalised diluted headline                                                      15%                  71.1                  61.9 
*Restated for the application of circular 2/2017 as detailed in note 6.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

                                                                                   %              Reviewed               Audited
R000’s                                                                        change                  2018                  2017 
Assets
Non-current assets                                                                               1 039 072             1 028 466 
Property, vehicles, plant and equipment                                                          1 004 903               990 573 
Intangible assets                                                                                   10 603                12 655 
Goodwill                                                                                            16 561                20 152 
Loan receivable                                                                                      1 575                 1 568 
Equity-accounted investees                                                                             380                   357 
Deferred tax asset                                                                                   5 050                 3 161 
Current assets                                                                                     553 514               502 371 
Inventories                                                                                         66 424                67 033 
Trade and other receivables                                                                        335 532               298 900 
Other financial assets                                                                               8 765                 8 434 
Current tax receivable                                                                               3 176                 1 551 
Cash and cash equivalents                                                                          139 617               126 453 
Non-current assets held for sale                                                                       116                10 701 
Total assets                                                                                     1 592 702             1 541 538 
Equity and liabilities                                                
Equity                                                                                             848 634               799 598 
Non-current liabilities                                                                            290 670               308 336 
Interest-bearing borrowings                                                                        108 601               121 341 
Non interest-bearing borrowings                                                                          -                 2 535 
Vendor for acquisition                                                                                   -                 3 268 
Deferred tax                                                                                       182 069               181 192 
Current liabilities                                                                                453 398               433 604 
Trade and other payables                                                                           379 803               345 291 
Current portion of interest-bearing borrowings                                                      69 227                77 703 
Vendor for acquisition                                                                               3 268                 9 804 
Other financial liabilities                                                                             31                   123 
Current tax payable                                                                                    464                   161 
Shareholders for dividend                                                                              605                   522
Total equity and liabilities                                                                     1 592 702             1 541 538
Net asset value per share (cents)                                                 8%                 566.8                 522.5

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                                            Reviewed               Audited
R000’s                                                                          2018                  2017
Ordinary share capital and premium                                            10 829                10 829 
A ordinary shares                                                                 10                    10 
Treasury shares                                                             (113 408)              (97 817)
Balance at beginning of year                                                 (97 817)              (97 021)
Treasury shares acquired                                                     (16 481)                 (796)
Treasury shares sold                                                             890                     -   
Share-based payment reserve                                                   20 146                30 792 
Balance at beginning of year                                                  30 792                27 184 
Share-based payment expense                                                   21 591                 3 608 
Transfer to retained income                                                  (32 237)                    -   
Foreign currency translation reserve                                             104                   179 
Balance at beginning of year                                                     179                   371 
Foreign currency translation differences                                         (75)                 (192)
Retained income                                                              934 283               861 345 
Balance at beginning of year                                                 861 345               800 794 
Dividends paid                                                               (39 573)              (27 790)
Profit on disposal of treasury shares                                            710                     -   
Transfer from share-based payment reserve                                     32 237                     -   
Net profit for the year                                                       83 406                88 341 
Non-controlling interest acquired by owners                                   (3 842)                    -   
Total capital and reserves attributable to owners                            851 964               805 338 
Non-controlling interest                                                      (3 330)               (5 740)
Balance at beginning of year                                                  (5 740)               (1 006)
Net loss for the year                                                         (1 432)               (4 734)
Non-controlling interest acquired by owners                                    3 842                     -   
Equity                                                                       848 634               799 598

CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                                   %              Reviewed               Audited
R000’s                                                                        change                  2018                  2017 
Cash flows from operating activities                                                               194 694               197 435 
Cash generated by operations before movements in working capital 
and proceeds on disposal of rental assets *                                                        268 848               261 038 
Proceeds on disposal of rental assets                                                               27 370                35 129 
Cash generated by operations                                                                       296 218               296 167 
Changes in working capital                                                                          (4 895)              (14 178)
Net finance costs *                                                                                (14 167)              (22 452)
Taxation paid                                                                                      (42 972)              (34 386)
Cash available from operating activities                                          4%               234 184               225 151 
Dividends paid                                                                                     (39 490)              (27 716)
Cash flows from investing activities                                                               (88 928)              (95 603)
Purchase of property, vehicles, plant and equipment                                                (88 854)              (81 027)
Purchase of intangible assets                                                                       (4 851)               (5 050)
Proceeds on disposal of property, vehicles, plant and equipment                                      2 883                 3 622 
Proceeds on disposal of non-current assets held for sale                                            11 498                   829 
Payment of vendor - Core Logistix acquisition                                                            -                (3 802)
Payment of vendor - Key Distributors acquisition                                                    (9 804)                    -   
Acquisition of subsidiaries                                                                              -               (10 175)
Decrease in loan receivable                                                                            200                     -   
Cash flows from financing activities                                                               (92 438)              (66 500)
Repayment of loans                                                                                 (77 557)              (66 467)
Loans raised                                                                                             -                   761 
Treasury shares acquired                                                                           (16 481)                 (794)
Proceeds on disposal of treasury shares                                                              1 600                     -   
Net change in cash and cash equivalents                                                             13 328                35 332 
Translation difference                                                                                (164)                 (221)
Cash and cash equivalents at beginning of year                                                     126 453                91 342 
Cash and cash equivalents at end of year                                                           139 617               126 453

SEGMENT INFORMATION
                                                                            Reviewed               Audited
R000’s                                                                          2018                  2017
Total segment revenue *                                                    2 663 570             2 619 187 
General distribution                                                       1 555 912             1 600 180 
Truck rental and other                                                       414 943               403 487 
Retail Logistics                                                             583 077               500 800 
Head office and other                                                        109 638               114 720 
Less: Inter-segment revenue                                                  150 329               150 264 
General distribution                                                           5 342                 6 103 
Truck rental and other                                                        37 747                29 850 
Retail Logistics                                                                   -                     -   
Head office and other                                                        107 240               114 311 
External segment revenue *                                                 2 513 241            2 468 923 
General distribution                                                       1 550 570             1 594 077 
Truck rental and other                                                       377 196               373 637 
Retail Logistics                                                             583 077               500 800 
Head office and other                                                          2 398                   409 
Business segment results *                                
General distribution                                                          98 172               103 473 
 - Trading profit                                                            101 763               110 552 
 - Goodwill impairment                                                        (3 591)               (7 079)
Truck rental and other                                                        55 498                39 611 
Retail Logistics                                                               8 011                 3 484 
Head office and other                                                         (6 243)               (3 304)
Operating segment results *                                                  155 438               143 264 
Once-off BBBEE equity transaction costs                                      (19 003)                    -   
Share of profit of equity-accounted investees                                     23                    44 
Fair value adjustment                                                            331                  (509)
Finance income *                                                               3 386                 1 594 
Finance costs *                                                              (17 553)              (24 046)
Net profit before taxation                                                   122 622               120 347 
Total segment assets                                
General distribution                                                         754 677               711 629 
Truck rental and other                                                       578 252               585 509 
Retail Logistics                                                              80 934                94 187 
Head office and other                                                        159 893               135 142 
Segment assets                                                             1 573 756             1 526 467 
Loan receivable                                                                1 575                 1 568 
Equity-accounted investees                                                       380                   357 
Deferred tax asset                                                             5 050                 3 161 
Other financial assets                                                         8 765                 8 434 
Current tax receivable                                                         3 176                 1 551 
Total assets                                                               1 592 702             1 541 538

1. Basis of preparation
The reviewed condensed consolidated financial results are prepared in accordance with IAS 34 Interim Financial Reporting, the SAICA Financial 
Reporting Guides as issued by the Accounting Practices Committee, Financial Pronouncements as issued by the Financial Reporting Standards Council and 
the requirements of the Companies Act of South Africa. The accounting policies applied in the preparation of these reviewed condensed consolidated 
financial results are in terms of International Financial Reporting Standards and are consistent with those applied in the previous consolidated 
annual financial statements. 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.

                                                                            Reviewed               Audited
R000’s                                                                          2018                  2017
2.  Headline earnings                               
2.1.  Reconciliation between basic and headline earnings                               
      Basic earnings attributable to owners                                   83 406                88 341 
      Loss on disposal of property, vehicles, 
      plant and equipment                                                      3 063                 2 100 
      Less: tax effect of loss on disposal of property, 
      vehicles plant and equipment                                              (787)                 (541)
      Goodwill impairment                                                      3 591                 7 079 
      Less: minority interest effect of goodwill impairment                        -                (1 416)
      Headline earnings                                                       89 273                95 563 
      Once-off BBBEE equity transaction costs                                 19 003                 -   
      Normalised headline earnings                                           108 276                95 563 
2.2.  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                          150 302 979           154 145 746 
      Weighted average shares in issue                                   152 191 958           154 388 749 
      Diluted shares in issue                                            152 191 958           154 388 749 
2.3.  Number of A ordinary shares of R 0.001 each in issue                               
      Shares in issue                                                     10 429 010            10 429 010 
3.    Supplementary information                               
      Depreciation                                                            96 148                99 247 
      Amortisation of intangible assets                                        6 976                 9 801 
      Depreciation and amortisation                                          103 124               109 048 

                                                                            Reviewed               Audited
R000’s                                                                          2018                  2017
4. Fair value measurement of financial instruments                              
4.1.  Financial assets/(liabilities)                               

      Cash and cash equivalents (Level 1)                                    139 617               126 453 
      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
      is considered to reflect its fair value.                              

      Investment in insurance cell captive (Level 2)                           8 765                 8 434 
      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)                               (31)                 (123)
      Forward exchange contracts are marked to market at 
      period 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 period end.                              

5. Related party transactions                               
   Significant transactions with related parties comprise of 
   market related rentals paid to companies controlled by 
   Mr. SD Gottschalk, CEO of Value Group Limited.                            190 050               175 993

6.  Restatement of prior period reported items
6.1  Application of Circular 2/2017
In prior years the Group applied the guidance in Circular 9/2006 to determine the fair value of revenue and purchases. It
was concluded that revenue, cost of sales and other expenditure included an interest element which was separately disclosed in finance income and 
finance costs.

In June 2017 SAICA issued Circular 2/2017 which replaces Circular 9/2006. Circular 2/2017 stipulates the factors to be considered, at a transaction 
level, in determining whether a transaction contains a financing element.
No transactions have been identified which contained a financing element when applying the factors contained in Circular 2/2017.
The comparative figures have therefore been restated as follows:  

Impact of change: 2017                                             
R000’s                                                             Previously stated      Impact of change              Restated
Effect on statement of comprehensive income                                              
Revenue                                                                    2 452 766                16 157             2 468 923 
Cost of sales                                                             (1 645 066)               (8 307)           (1 653 373)
Finance income                                                                17 751               (16 157)                1 594 
Finance costs                                                                (32 353)                8 307               (24 046)
Effect on statement of cash flows                                             
Cash generated by operations before movements in working capital and 
proceeds on disposal of rental assets                                        253 188                 7 850               261 038 
Net finance costs                                                            (14 602)               (7 850)              (22 452)
COMMENTARY

INTRODUCTION
Value Group Limited and its subsidiaries ("the Group") 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, materials handling and commercial vehicle rental and full maintenance leasing. The Group’s retail segment 
supplies FMCG products into the convenience, formal and informal market. 

FINANCIAL REVIEW
The Board is pleased to announce an improvement in the Group’s pre BBBEE equity transaction earnings notwithstanding the economic and political 
conditions which continued to impact the local environment. These market conditions negatively affected rates and volumes which resulted in Group 
revenue improving by a marginal 2% to R2,513 billion. However, the proactive and innovative approach by the management team in undertaking an ongoing 
extensive restructuring exercise resulted in operational efficiencies improving whilst simultaneously saving costs. 

Notwithstanding operating cost reductions, a decrease in revenue in the breakbulk operations of the general distribution segment contributed to gross 
profits reducing by R28,6 million from R815,6 million to R787 million. 

The Group successfully reduced its overheads by realigning costs and reducing its staff complement. This entailed restructuring of workloads and 
activities within each division. Accordingly, operating costs decreased by R37,4 million from R697,4 million to R660 million which contributed to 
operating profit before once-off BBBEE equity transaction costs increasing by 8% to R155,4 million.

Subsequent to shareholder’s approval of an extension of the Group’s BBBEE ownership transaction, a once-off IFRS 2 non-cash flow share based payment 
charge of R18,2 million was incurred. This charge, in addition to R0,8 million in transaction costs, resulted in a once-off R19 million BBBEE 
transaction cost which reduced operating profit by 5% from R143,3 million to R136,4 million. 

Reduction in average debt levels, improvement in daily working capital management and cash generated contributed to net finance costs reducing from 
R22,5 million to R14,2 million. Management’s ongoing focus on conversion of profits into sustainable cash flows has yielded positive results. After 
an R8,6 million increase in tax payments, cash available from operating activities increased by R9 million to R234,2 million. 

The effective tax rate has increased from 30,5% to 33,1% primarily due to the BBBEE costs which are not tax deductible. Overhead, interest and 
variable cost savings partially offset the once-off BBBEE costs resulting in basic earnings per share reducing by 4% to 54,8 cents per share and 
headline earnings reducing by 5% to 58,7 cents per share. 

Excluding the BBBEE transaction costs, normalised headline earnings improved by 15% from 61,9 cents to 71,1 cents per share. 
Capital expenditure incurred during the year increased by R61,4 million to R147,5 million. This expenditure comprised R104,8 million for vehicles, 
R18,2 million for materials handling equipment, R11,6 million for plant and equipment, R8,6 million for IT hardware and software and the balance of 
R4,3 million for various other assets. This expenditure, in addition to the settlement of an instalment pertaining to the acquisition of Key 
Distributors (Pty) Ltd (Key), was funded by R41,7 million realised on the disposal of assets, internally generated cash flows and positive cash 
balances. Positive cash balances were also utilised to fund the R16,5 million spent on share repurchases and R21,2 million net reduction in interest 
bearing borrowings. The Group’s debt:equity ratio (net of intangibles) remains low at 21,6%. 

OPERATIONAL REVIEW
General distribution segment
Poor GDP growth and customer and competitor rate pressures resulted in a decrease in volumes and revenue in the breakbulk operations. Revenue reduced 
by 3% from R1,594 billion to R1,551 billion. This was partially countered by the extensive ongoing restructuring exercise which yielded sustainable 
overhead and operating cost savings and improved results in the warehousing and freightpak operations. Operating profit, however, reduced marginally 
to R98,2 million after the R3,6 million goodwill impairment attributable to the Core Logistix operation. Further restructuring in the breakbulk 
operations is currently underway. The remaining operations comprising a significant portion of the segment, being dedicated distribution and express 
performed to expectation. 

Truck rental and other segments
Revenue increased by 1% from R373,6 million to R377,2 million. The increase was driven by revenue growth in the truck rental division. In the 
previous financial year, the truck rental footprint was reviewed which resulted in the closure of smaller non-viable depots. In addition, staff 
reductions and the disposal of older vehicles have culminated in reduced overheads, containment of maintenance costs and a more efficient operation. 
Strategic changes in the materials handling division contributed to a significant improvement in performance. Accordingly, operating margins improved 
from 10,6% to 14,7% with operating profit increasing by 40% from R39,6 million to R55,5 million. 

Retail logistics segment 
Key was acquired effective 1 March 2016. The business undertakes the warehousing, distribution and wholesaling of a variety of FMCG products into the 
convenience, formal and informal sector, consisting primarily of independent traders, fuel forecourts, and small retailers. Key operates in the 
Gauteng, Polokwane, Nelspruit, Bloemfontein and Western Cape areas. In March 2017, the business’s core operations moved into Value’s facility in 
Johannesburg which provides the infrastructure necessary to grow its revenue and footprint. Key’s management continues to drive and grow the business 
and outperform expectations. 
Increased Key revenue contributed to segmental revenue growth of 16,4% to R583,1 million. Reduced losses in existing wholesaling initiatives, in 
addition to Key’s growth, contributed to the segment’s improvement in operating results which more than doubled from R3,5 million to R8 million. 

SHARE REPURCHASES
During the current year 4,3 million shares were acquired at a cost of R16,5 million. Subsequent to year end, 3,3 million shares were repurchased at a 
cost of R14,4 million. On 8 May 2018, 9 618 378 treasury shares were cancelled against reserves and delisted. Subsequent to this cancellation, the 
number of ordinary shares in issue amounts to 176 809 100. The Group’s subsidary currently holds 7 156 829 ordinary shares in treasury. The Group 
will continue to repurchase shares as the opportunities arise.

BBBEE
The BBBEE ownership transactions which were concluded in mid-2010 matured in the current financial year. Due to the depressed share price, the BBBEE 
entities’ funding liabilities exceeded the equity values. Consequently, the Board proposed a 5 year extension to the transactions which was 
subsequently approved by shareholders on 21 July 2017. 

FUTURE CAPITAL EXPENDITURE 
Anticipated increase in volumes from an expanding customer base will necessitate capital expenditure of approximately R120 million consisting 
primarily of vehicle additions and replacements. This capital expenditure will be funded by internally generated cash flows and interest bearing 
debt. 

PROSPECTS
The recent change in the leadership of the ANC has invoked positive sentiment in the economy. However, marginal volume improvement in only a few of 
the existing customers continues to highlight ongoing pressure on pricing and growth rates. Nonetheless, the Group has procured new business in its 
distribution segment which should curtail any further decline in volumes. The remaining logistics divisions are operating according to expectation. 
An improvement in revenue off a reduced cost base, including reduced debt levels and strong cash flows, should contribute to an improvement in 
earnings in the new financial year. This statement has not been reviewed nor audited by the Group’s auditors. 

The incorporation of Key’s core operations into Value’s Johannesburg facility has enabled the rapid expansion of Key’s business. Now that the 
business is settled, management will focus on extracting synergies and cost savings. In addition, progress has been made in expanding the business 
into new markets and areas. 

The Group continues to pursue acquisition opportunities that will complement and improve revenue streams in the existing divisions. 

DECLARATION OF DIVIDEND (NUMBER 23)
The Board resolved to declare a gross final dividend for the year ended 28 February 2018, of 22 cents per ordinary share which will be paid out of 
distributable reserves. The dividend is covered 2,4 times by second half headline earnings (prior to BBBEE transaction costs). The total dividend for 
the 2018 financial year has thus increased by 25% over the previous financial year. The number of ordinary shares in issue at the date of this 
declaration is 176 809 100. The dividend will be subject to dividend withholding tax of 20% which amounts to 4,4 cents per share. This will result in 
a net dividend of 17,6 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, 10 May 2018
Last day to trade cum dividend                                 Tuesday, 26 June 2018
Trading ex-dividend commences                                Wednesday, 27 June 2018
Record date                                                     Friday, 29 June 2018
Payment date                                                     Monday, 2 July 2018

Share certificates may not be dematerialised or rematerialized between Wednesday, 27 June 2018 and Friday, 29 June 2018, both days inclusive.


For and on behalf of the Board

C D Stein                                S D Gottschalk
Chairman                                 Chief Executive Officer

Johannesburg 
10 May 2018


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