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ANDULELA INVESTMENT HOLDINGS LIMITED - Unauditedconsolidatedinterimfinancialstatements forthesixmonthsended30June2018

Release Date: 25/09/2018 11:15
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Unaudited consolidated interim financial statements  for the six months ended 30 June 2018

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")

Unaudited consolidated interim financial statements 
for the six months ended 30 June 2018

Consolidated statements of financial position
                                                                        Restated
                                                          Restated       Audited
                                           Unaudited     Unaudited          Year
                                               as at         as at         ended
                                             30 June       30 June        31 Dec
                                                2018          2017          2017
                                   Notes       R'000         R'000         R'000
Assets
Non-current assets                           386 224       400 505       398 633
- Plant and equipment                  1     286 222       292 117       293 505
- Right of use assets                  2      26 400        38 133        32 267
- Goodwill                             3      56 679        56 679        56 679
- Deferred tax asset                          16 923        13 576        16 182
Current assets                               428 074       385 795       328 467
- Inventory                                  228 797       126 622       130 317
- Trade and other receivables                190 276       248 038       185 487
- Taxation                                       509         4 208           509
- Cash and cash equivalents                    8 492         6 927        12 154
Total assets                                 814 298       786 300       727 100
Equity and liabilities
Capital and reserves                          91 270        93 479        96 529
- Stated capital                             976 114       976 114       976 114
- Cash flow hedge reserve               4     (1 928)       (9 939)       (6 315)
- Accumulated loss                          (887 841)     (879 038)     (878 507)
- Non-controlling interest                     4 925         6 342         5 237
Non-current liabilities                      115 395       107 090       101 528
- Redeemable preference share capital         31 654        30 040        30 845
- Derivative financial liabilities      4          -         3 346             -
- Borrowings                            5     21 204             -             -
- Operating lease liabilities                 21 022        36 053        28 725
- Deferred tax liability                      41 515        37 651        41 958
Current liabilities                          607 633       585 731       529 043
- Trade and other payables                   220 669       163 799        99 886
- Operating lease liabilities                 15 031        13 607        14 301
- Derivative financial liabilities      4      3 205        13 169        10 492
- Borrowings                            5    351 927       395 156       387 497
- Bank overdraft                              16 801             -        16 867
Total equity and liabilities                 814 298       786 300       727 100
Net asset value per share (cents)              98,52         99,42        104,16
Net tangible asset value per 
share (cents)                                  44,46         45,36         50,10

Consolidated statements of comprehensive income
                                                          Restated      Restated
                                           Unaudited     Unaudited       Audited
                                            6 months      6 months          Year
                                               ended         ended         ended
                                             30 June       30 June        31 Dec
                                                2018          2017          2017
                                   Notes       R'000         R'000         R'000
Revenue                                      674 732       723 458     1 397 895
Cost of sales                               (569 413)     (626 058)   (1 180 819) 
Gross profit                                 105 319        97 400       217 076
Profit from operations                         8 723         6 383        26 046
Investment income                                 40           524         1 231
Impairment of goodwill                             -      (300 000)     (300 000)
Finance costs                                (21 982)      (22 170)      (43 810) 
(Loss) before taxation                       (13 219)     (315 263)     (316 533) 
Taxation                                       2 712         3 766         3 751
Net (loss) after tax                         (10 507)     (311 497)     (312 782)
Other comprehensive income
Items that may be reclassified
subsequently to profit or loss:                5 247         3 136         7 473
Movement in cash flow hedge             4      7 288         4 356        10 379
Deferred tax charge                     4     (2 041)       (1 220)       (2 906)
Total comprehensive (loss)                    (5 260)     (308 361)     (305 309) 
Net (loss) attributable to:                  (10 507)     (311 497)     (312 782)
- Equity holders of Andulela                  (9 334)     (261 158)     (260 627)
- Non-controlling interest                    (1 173)      (50 339)      (52 155) 
Total comprehensive (loss)
attributable to:                              (5 260)     (308 361)     (305 309)
- Equity holders of Andulela                  (4 948)     (258 537)     (254 381)
- Non-controlling interest                      (312)      (49 824)      (50 928)
Ordinary shares in issue (millions)*           87,64         87,64         87,64
Weighted average number of ordinary
shares in issue (millions)*                    87,64         87,64         87,64
Attributable net (loss)                       (9 334)     (261 158)     (260 627)
- Profit on sale of plant and 
equipment                                        (38)            -            (6)
- Tax effect of the above                         11             -             2
- Impairment of goodwill                           -       300 000       300 000
- Non-controlling interest in
goodwill impairment                                -       (49 230)      (49 230) 
Headline (loss)                               (9 361)      (10 388)       (9 861) 
Basic and diluted (loss) per 
ordinary share (cents)*                       (10,65)      (297,97)      (297,37)
Headline and diluted headline (loss)
per ordinary share (cents)*                   (10,68)       (11,85)       (11,25)
Dividends per ordinary share (cents)               -             -             -

*The basic and diluted (loss) per ordinary share and the headline and diluted 
headline (loss) per ordinary share are calculated by dividing the basic and diluted 
(loss) and the headline and diluted headline (loss) by the weighted average number 
of ordinary shares in issue during the year.

Consolidated statements of cash flows
                                                          Restated      Restated
                                           Unaudited     Unaudited       Audited
                                            6 months      6 months          Year
                                               ended         ended         ended
                                             30 June       30 June        31 Dec
                                                2018          2017          2017
                                               R'000         R'000         R'000
Operating activities
Operating profit/(loss)                        8 723      (293 617)     (273 954)
Depreciation and amortisation                 16 073        16 315        32 528
Impairment of goodwill                             -       300 000       300 000
Profit on disposal of plant and equipment        (38)            -            (6) 
(Increase) in inventories                    (98 479)      (24 224)      (27 918) 
(Increase)/decrease in trade receivables      (4 789)      (56 529)        6 021
Increase/(decrease) in trade payables        122 098        38 244       (25 692) 
Operating lease payments                     (10 808)       (8 980)      (17 960) 
Cash generated/(utilised) by 
operating activities                          32 780       (28 791)       (6 981) 
Finance income                                    40           524         1 231
Finance costs                                (19 166)      (18 644)      (37 063) 
Income tax received – prior years                  -             -         3 697
Net cash from operating activities            13 654       (46 911)     (39 116)
Investing activities
Plant and equipment acquired                  (2 944)       (5 088)     (16 370) 
Proceeds on disposal of plant and equipment       60           488           41
Net cash utilised in investing activities     (2 884)       (4 600)     (16 329)
Financing activities
Borrowings raised                             23 313        73 950      110 099
Borrowings repaid                            (37 679)      (32 903)     (76 689) 
Preference dividend paid                           -             -          (69) 
Net cash (utilised)/generated by 
financing activities                         (14 366)       41 047       33 341
Change in cash and equivalents                (3 596)      (10 464)     (22 104) 
Opening cash and equivalents                  (4 713)       17 391       17 391
Closing cash and equivalents                  (8 309)        6 927       (4 713)

Consolidated statements of changes in equity
                                                          Restated      Restated
                                           Unaudited     Unaudited       Audited
                                            6 months      6 months          Year
                                               ended         ended         ended
                                             30 June       30 June        31 Dec
                                                2018          2017          2017
                                               R'000         R'000         R'000
Balance previously reported                   96 529       397 216       397 216
Adjustment for change in accounting
policy (Refer note 2)                              -         4 622         4 622
Adjusted opening balances                     96 529       401 838       401 838
Movements for the period:
- Net loss attributable to equity
holders of Andulela                           (9 334)     (261 158)     (260 627)
- Cash flow hedge reserve net of
deferred tax                                   4 387         2 623         6 246
- Non-controlling interest                      (312)      (49 824)      (50 928) 
Closing balances                              91 270        93 479        96 529

Notes to the consolidated interim financial statements
Basis of preparation
The unaudited consolidated interim financial statements for the six months ended
30 June 2018 were prepared in accordance with the JSE Listings Requirements for 
provisional reports and the requirements of the Companies Act of South Africa. 
The JSE Listings Requirements require 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 interim 
financial statements for the six months ended 30 June 2018 are in terms of IFRS and 
consistent with those of the annual financial statements for the year ended
31 December 2017, except for the adoption of the following statements and amendments 
which became effective during the period:
- IFRS 9 Financial Instruments; and
- IFRS 15 Revenue from Contracts with Customers.

These standards and amendments had no material impact on the results reported on 
for the six months ended 30 June 2018.

The Group elected to early adopt IFRS 16 Leases, with effect from 1 January
2018. Refer to note 2 for detail on the financial effects of the adoption of this 
statement.

The directors are not aware of any matters or circumstances arising subsequent to 
30 June 2018 that require additional disclosure or adjustments to the financial 
statements. The directors take responsibility for the preparation of the 
consolidated interim financial statements based on the underlying financial 
information. These results were prepared by Henk Engelbrecht CA(SA), the Group 
Chief Financial Officer. The interim financial statements have not been reviewed 
or reported on by the Group's auditors.

1. Plant and equipment
                                           Unaudited     Unaudited       Audited
                                            6 months      6 months          Year
                                               ended         ended         ended
                                             30 June       30 June        31 Dec
                                                2018          2017          2017
                                               R'000         R'000         R'000
Opening balance                              293 505       297 964       297 964
Additions                                      2 944         5 088        16 370
Disposals                                        (21)         (488)          (34) 
Depreciation                                 (10 206)      (10 447)      (20 795)
Plant and equipment at carrying value        286 222       292 117       293 505

Pro Roof Steel Merchants ("PRSM") invested R2,9 million in plant and equipment 
during the past six months as part of its strategy to replace ageing equipment and
to expand its business.

2. Lease assets and liabilities - change in accounting policy
IFRS 16, dealing with leases, becomes effective on 1 January 2019, but companies are 
permitted to adopt the standard before then.

The operating leases of the Group relate to properties rented by the PRSM group 
of companies, in terms of 10-year leases which expire on 30 September 2020. Due 
to the leases being in the latter part of their respective terms, the Audit 
Committee and the Board resolved that it would be appropriate to apply IFRS 16 
fully retrospectively to allow for comparability with the historical results 
of the Group.

The adoption of IFRS 16 did not have a material effect on the trading results of 
the Group, but resulted in the recognition of additional assets and liabilities in 
the statement of financial position. The financial effects of adopting IFRS 16 with 
effect from 1 January 2018, with regard to the historical results for the six months 
ended 30 June 2017 and the year ended 31 December 2017, are set out below:

Adjustment of financial results - 30 June 2017
                                              Before         After        Change
                                               R'000         R'000         R'000
Statements of financial position
- Right of use assets                              -        38 133        38 133
- Operating lease liabilities                (17 548)      (49 660)      (32 112)
- Deferred tax liability                     (35 966)      (37 651)       (1 685)
- Accumulated loss                           883 372       879 038        (4 334) 
Statements of comprehensive income
- Operating expenses                          94 311        92 043        (2 268)
- Finance costs                               19 502        22 170         2 668
- Deferred tax expense                        (3 654)       (3 766)         (112)
- Net loss for the period                    311 208       311 497           288
- Loss and diluted loss per share (cents)    (297,64)      (297,97)        (0,33)
- Headline and diluted headline loss per
share (cents)                                 (11,52)       (11,85)        (0,33)

Adjustment of financial results - 31 December 2017
                                              Before         After        Change
                                               R'000         R'000         R'000
Statements of financial position
- Right of use assets                              -        32 267        32 267
- Operating lease liabilities                (16 374)      (43 026)      (26 652)
- Deferred tax liability                     (40 386)      (41 958)       (1 572)
- Accumulated loss                           882 550       878 507        (4 043) 
Statements of comprehensive income
- Operating expenses                         197 177       192 966        (4 211)
- Finance costs                               38 795        43 810         5 015
- Deferred tax expense                        (3 526)       (3 751)         (225)
- Net loss for the period                    312 203       312 782           579
- Loss and diluted loss per share (cents)    (296,71)      (297,37)        (0,66)
- Headline and diluted headline loss per
share (cents)                                 (10,59)       (11,25)        (0,66)

3. 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 
pre-tax real discount rate of 12,26% (2017: 11,99%), based on the risk-free rate 
adjusted for market, sector and project-specific risks and an annual Platinum 
Group Metals ("PGM") production rate of 11 574 ounces (2017: 11 574 ounces) 
(extrapolated from historic production volumes). Forecast PGM 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. The 
tailings head feed is based on the average monthly feed received from the mine.

The profitability of the Kilken operations continues to be negatively affected by 
the increased chrome content in the tailings and the consequent increased chrome 
content penalties.

Based on the assumptions above, no further impairment of goodwill is required at
30 June 2018. The directors will assess the goodwill again at year-end.

4. Cash flow hedge
In June 2012, Kilken entered into a hedge agreement for 30% of its cash flow 
from the production revenue of platinum, palladium and gold at that date, in 
favour of a financier. The hedge, in terms of which specific monthly quantities 
and pricing of the three commodities mentioned above have been agreed on for 
the period to September 2018, was 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 six months ended 30 June 2018, a gain of R5,2 million (2017:
R3,1 million) after deferred tax was recognised in other comprehensive income
and a decrease in the cash flow hedge reserve from December 2017 to June 2018 
of R4,4 million, net of non-controlling interests, in the statement of 
financial position. The loss realised and netted off against the revenue was 
R4,8 million for the six months ended 30 June 2018 (2017: R5,8 million).

The cash flow hedge cost will be accounted for as either a profit or a loss as 
it becomes effective and the cash settlements are actually made over the 
duration of the term of the hedge contract.

5. Borrowings
Total borrowings of the Group amounted to R373,1 million at 30 June 2018 
compared to R395,2 million at 30 June 2017, and can be summarised as follows:
                                           Unaudited     Unaudited       Audited
                                            6 months      6 months          Year
                                               ended         ended         ended
                                             30 June       30 June        31 Dec
                                                2018          2017          2017
                                               R'000         R'000         R'000
Absa Bank Limited                             17 267        61 959        33 647
Reichmans Capital Proprietary Limited        332 551       303 092       339 240
Thunder Rate Investments
Proprietary Limited                                -        29 397        13 903
The Rafik Mohamed Family Trust                     -           708           707
Waleed Investment Holdings
Proprietary Limited                           21 204             -             - 
Kilken Imbani JV                               2 109             -             - 
Total borrowings                             373 131       395 156       387 497
Current liabilities                          351 927       395 156       387 497
Non-current liabilities                       21 204             -             -

The Reichmans facilities to PRSM are working capital and asset finance facilities
which have been structured as short-term facilities.

The Absa Bank facilities will be settled by 31 December 2018.

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 4 above for more 
information on the cash flow hedge.

All other financial assets and liabilities are measured at amortised cost which 
approximate their carrying values.

7. Material related party transactions and balances
                                           Unaudited     Unaudited       Audited
                                            6 months      6 months          Year
                                               ended         ended         ended
                                             30 June       30 June        31 Dec
                                                2018          2017          2017
                                               R'000         R'000         R'000
Sales                                        (37 522)      (34 112)      (80 600) 
Purchases                                     20 835        19 681        24 772
Preference dividend expense                      809           859         1 732
Rent expense                                  12 730        10 792        22 906
Trade receivables                             14 237        30 744        33 183
Trade payables                                 4 902         5 085         7 880
Loan accounts - owing to related parties     (23 313)      (30 114)      (14 611)
Cumulative redeemable preference shares      (31 654)      (30 040)      (30 845)

8. Segment reporting
The Group Chief Executive Officer, who is the Group's chief operating 
decision-maker, has determined the operating segments based on the allocation of 
resources and the assessment of performance. The Group has two sources of income, 
namely the production of platinum group metals at the Kilken tailings treatment 
facility and the processing and distribution of steel products by PRSM.

                                           Unaudited     Unaudited       Audited
                                            6 months      6 months          Year
                                               ended         ended         ended
                                             30 June       30 June        31 Dec
                                                2018          2017          2017
                                               R'000         R'000         R'000
Tailings treatment facility                   20 206        22 942        45 067
Steel processing                             654 526       700 516     1 352 828
Total revenue                                674 732       723 458     1 397 895
There are no sales between segments.
(Loss)/profit after tax
Tailings treatment facility                   (7 149)       (6 772)      (17 824) 
Steel processing                              (1 543)       (2 571)        7 742
Goodwill impairment - tailings
treatment facility                                 –      (300 000)     (300 000)
Other unallocated                             (1 815)       (2 154)       (2 700) 
Total (loss) after tax                       (10 507)     (311 497)     (312 782) 
Assets
Tailings treatment facility                   56 692        64 289        56 310
Steel processing                             727 597       681 696       633 788
Inter-group eliminations                     (26 670)      (16 364)      (19 677) 
Reportable segment assets                    757 619       729 621       670 421
Goodwill - tailings treatment facility        56 679        56 679        56 679
Total assets                                 814 298       786 300       727 100
Liabilities
Tailings treatment facility                   88 627        87 589        87 836
Steel processing                             624 786       586 339       528 117
Inter-group eliminations                     (29 766)      (15 232)      (22 784) 
Reportable segment liabilities               683 647       658 696       593 169
Redeemable preference shares                  31 654        30 040        30 845
Other unallocated liabilities of parent        7 727         4 085         6 557
Total liabilities                            723 028       692 821       630 571

9. Events subsequent to the period-end
The directors are not aware of any events that occurred subsequent to the 
period-end and until the date of this announcement which could have a material 
effect on the results of the Group or its subsidiaries.

10. Commitments
The Group had no outstanding capital commitments at 30 June 2018 
(2017: R7,7 million).

11. Going concern
The interim financial statements have been prepared on the basis of accounting 
policies applicable to a going concern. The 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 reported a net loss of R10,5 million for the six months ended 
30 June 2018 and as at that date its current liabilities exceeded its current 
assets due to, amongst others, the short-term nature of some of its debt.

The cash flow hedge, which will be settled by 30 September 2018, continued to 
have a negative effect on the results of Kilken. After settlement, Kilken's 
results are expected to improve.

Market conditions are expected to remain tough for the industries in which the 
Group operates, with continued volatility in commodity prices and the local 
currency against major foreign currencies.

The Group companies continue with their focus on improving efficiencies and 
increasing production levels, especially at Kilken where production challenges
continued to impact on the results for the past six months.

The Group has access to sufficient funding facilities from its financiers and 
shareholders to enable it to meet its commitments and obligations as and when 
they become due within the next twelve months.

The directors have therefore applied the going concern principle as they are 
satisfied that the Group is a going concern and will be able to settle its 
debts as they become due and payable in the next twelve months.

Nature of the business
The Company is an investment holding company. 

Financial review
(References to 2017 and 2018 relate to the six-month periods to 30 June 2017 
and 2018 respectively, unless indicated otherwise in the contents.)

Revenue decreased by 6,7% from 2017 to 2018 but the loss after tax improved 
slightly from R11,5 million for 2017 to R10,5 million for 2018. Kilken was 
the main contributor to this loss with R7,2 million as a result of the quality 
of the tailings feed, lower production levels in the first two months of the 
period under review and the penalties incurred in respect of the high chrome 
content during this period.

Borrowings decreased from R395 million in 2017 to R373 million in 2018. 

Kilken
Production at the plant improved and stabilised in the last four months of the
period under review, after poor production levels in the first two months. The 
chrome content in the tailings remained a challenge for the business despite 
various efforts to reduce this to more acceptable levels. The commodity market 
and the local currency continued to be volatile during the period under review, 
but the movements impacted positively on the monthly sales price per kilogram 
of PGMs.

Revenue decreased from R22,9 million in 2017 to R20,2 million in 2018 with the 
cash flow hedge reducing revenue by R4,8 million (2017: R5,8 million). The loss 
after tax increased from R6,8 million in 2017 to R7,2 million in 2018. The cash 
flow hedge will finally be settled by September 2018.

Management's attention remains on resolving the production challenges at the 
plant in order to improve production and efficiency levels, increase revenues 
and lower costs.

PRSM
PRSM’s revenue decreased from R700,5 million in 2017 to R654,5 million in 2018, 
as demand for steel products declined in the latter half of the period under 
review. Gross margin, however, improved from 2017 to 2018, while operating 
expenses and finance charges were contained. The PRSM group reported a net loss 
after tax of R1,5 million for 2018, compared to R2,6 million for June 2017.

Inventory levels and trade payables increased significantly in June 2018 as a 
result of PRSM's contractual commitments, even though demand was depressed in the 
last three months of the period under review. Inventory levels and trade payables 
decreased to normal levels after the period-end.

Capital expenditure of R2,9 million was incurred during the period under review 
to acquire assets as part of the PRSM group's medium-term strategy to modernise 
its plants.

Overall the domestic steel industry remains challenging due to de-pressed demand, 
increased competition from imported products and lack of infrastructure 
development in South Africa.

Directorate
There were no changes to the Board for the six months under review.

For and on behalf of the Board

Mohamed Husain                           Ashruf Kaka
Independent non-executive Chairman       Chief Executive Officer

Sandton
25 September 2018

Registered office:
108 4th Street, Parkmore, Sandton 2196

Directors:
Mohamed Husain# (Chairman); Ashruf Kaka (CEO); Henk Engelbrecht (CFO); 
Brian Smith#; Pieter du Preez#; Naeem Hadjee#
# Independent non-executive

Company Secretary: 
Gillian Miller

Auditors:
BDO South Africa Incorporated, Summit Place Office Park,
221 Garsfontein Road, Menlyn, Pretoria 0181

Transfer secretaries:
4 Africa Exchange Registry Proprietary Limited, Cedarwood House, 
Ballywoods Office Park, 33 Ballyclare Drive, Bryanston 2121

Sponsor: 
Bridge Capital Advisors Proprietary Limited,
50 Smits Street, Dunkeld, Sandton 2196

www.andulelaholdings.com

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