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VERIMARK HOLDINGS LIMITED - Unaudited Condensed Consolidated Interim Results for the six months ended 31 August 2018

Release Date: 22/10/2018 07:11
Code(s): VMK     PDF:  
 
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Unaudited Condensed Consolidated Interim Results for the six months ended 31 August 2018

Verimark Holdings Limited
(Incorporated in the Republic of South Africa)
Registration Number: 1998/006957/06
Share Code: VMK
ISIN: ZAE000068011
("Verimark" or "the Group")

UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED
31 AUGUST 2018

 HIGHLIGHTS

 -   Revenue decreased by 1.0% to R207,5 million (2017: R209.7 million).
 -   Gross Profit increased by 6.9% to R94.7 million (2017: R88.6 million).

 The first six months trading has been tough for Verimark as for most import retailers given the
 volatility of the rand against foreign currencies. The South African economy is in a technical recession
 and consumer confidence has suffered as a result.

 Although Verimark’s revenue is marginally down compared to the prior period, the company incurred
 a loss before tax as against a profit before tax in the prior period due to certain costs being incurred in
 order to improve revenue, which will only reflect the financial benefits in future months.


 OVERVIEW

 The Group’s total revenue decreased by 1% to R207.5 million (2017: R209.7 million). The decrease is
 mainly attributable to the following:

     •   Lower consumer confidence in the retail environment as a result of the technical recession;
     •   Most retailers tightening up on stock holding, resulting in lower sales into stores.

 Gross profit increased by 6.9% to R94.7 million (2017: R88.6 million). Although revenue is down, gross
 profits improved due to fewer promotions and markdowns compared to the prior year. The rand was
 less volatile to foreign currencies at the beginning of the year which improved the cost of goods sold.
 However over the six month trading period the rand devalued by 33% which will impact the future cost
 of goods sold.

 Operating costs increased by 12.0% to R98.1 million (2017: R87.6 million). This increase is a result of
 the following three factors:

     •   Increase in sales staff costs in order to improve store presence and improve revenue;
     •   Increase in delivery expenses due to the petrol price increases;
     •   Increase in rental costs in line with the increase in Verimark Emporium store count to 92
         stores, which is done to improve the customer service functions across South Africa and into
         Africa.

 Verimark has recorded a loss before taxation of R2.8 million (2017: Profit of R2.2 million). Net finance
 charges increased by R0.5 million, which is due to the forex loss recorded as a result of the
 devaluation of the rand over the last six months.

 REPORTING ENTITY
 Verimark is a company incorporated in the Republic of South Africa (“South Africa”). The unaudited
 condensed consolidated financial results comprise the unaudited consolidated results of Verimark and
 its subsidiaries for the six months ended 31 August 2018 (“interim financial results”).

 INTERIM DIVIDEND
 No dividends were declared for the six months ended 31 August 2018.

 BASIS OF PREPARATION

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

These condensed consolidated interim financial results has been presented on the historical cost
basis, except for financial instruments carried at fair value, and are presented in Rand thousands
which is Verimark’s functional and presentation currency.

The interim results as reported herein have been prepared by Verimark’s Financial Director, Bryan
Groome CA (SA).

CHANGES TO THE BOARD
Mr Mitesh Patel resigned as Board Chairman and Independent Non-Executive Director on Monday 2
April 2018. Ms Simone van Straaten was appointed as Chief Operating Officer as well as an Alternate
Director to Mr MJ van Straaten on Thursday 1 March 2018. Ms NP Gosa and Ms M Kabi were
appointed as Independent Non-executive Directors on Monday 7 May 2018. Ms NP Gosa was
appointed as Board Chairman effective Friday 18 May 2018.

SUBSEQUENT EVENTS
No events material to the understanding of this report have occurred in the period between the
reporting date and the date of this report.

STANDARDS AND INTERPRETATIONS NOT YET EFFECTIVE
The only standard as at 31 August 2018, which is in issue but not yet effective and expected to have
any impact on Verimark, is IFRS 16 which is effective 1 January 2019. Once the new standard
becomes effective, property and other leases currently treated as operating leases will have to be
capitalised and reflected as lease assets and lease liabilities on the statement of financial position.
The company had operating lease commitments of R90,4 million outstanding at 31 August 2018 in
respect of current property and other leases.

PROSPECTS
With the South African economy in a technical recession, business confidence in South Africa
continues to decline, resulting in lower consumer spend, which is affecting all retailers. This trend is
expected to continue, resulting in a tougher retail trading environment for the remainder of the 2019
financial year.

Verimark continues to further its footprint into Africa as well as the rest of the world through the
international division. This will continue to be a focus for Verimark especially with the recent volatility
of the rand against foreign currencies.

The Verimark website has been re-launched and continues to gain traction with a growing online
presence on social media. This is not only aimed at improving revenue but also at enhancing the
Verimark brand and its reputable sub brands.

The company has a number of exciting innovative products which will launch in the next six month
period. These new products will be a great addition to our current product range.

Statements contained in this announcement, regarding the prospects of the Group, have not been
reviewed or audited by the Group’s external auditors.




SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                 Unaudited    Unaudited          Audited
                                                six months   six months    year ended 28
                                                  ended 31    ended 31     February 2018
                                               August 2018 August 2017
                                                     R’000      R’000             R’000
Continuing operations
Revenue                                             207 537   209 702           508 137

Gross profit                                         94 798    88 648          230 899

Operating (loss)/profit before net finance expense   (1 682)    2 787           46 881

Finance income                                        2 092       805            2 363

Finance expense                                      (3 232)   (1 396)          (2 558)

(Loss)/profit before taxation                        (2 822)    2 196           46 686

Income tax credit/(expense)                             778    (1 092)         (12 988)

(Loss)/profit for the period                         (2 044)    1 104           33 698

Total comprehensive (loss)/income for the period     (2 044)    1 104           33 698
attributable to owners of the Company
Basic and diluted (loss)/earnings per share            (2.0)      1.0             31.9
Earnings and diluted (loss)/ earnings per share        (2.0)      1.0             31.9
(EPS) – continuing operations



 SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                  Unaudited as  Unaudited as              Audited as at
                                                  at 31 August  at 31 August                28 February
                                                          2018          2017                       2018
                                                                   *Restated
                                                          R’000        R’000                       R’000
 Assets
 Plant and equipment                                      8 219        7 345                      8 459
 Intangible assets                                       15 715       14 620                     15 750
 Deferred taxation asset                                  5 153        4 097                      5 928
 Non-current assets                                      29 087       26 062                     30 137
 Inventories                                            103 921       99 363                     84 485
 Trade and other receivables                             71 504       72 417                     87 265
 Prepayments                                              1 101        1 358                        662
 Prepaid taxation                                         3 991        2 648                          0
 Cash and cash equivalents                                9 944          634                     23 818
 Current assets                                         190 461      176 420                    196 230
 Total assets                                           219 548      202 482                    226 367
 Equity and liabilities
 Share capital                                              338          357                        338
 Share premium                                           27 422       31 810                     27 422
 Retained earnings                                      122 514      107 192                    139 786
 Equity attributable to the equity holders of the       150 274      139 359                    167 546
 company
 Interest-bearing borrowings                              2 674        3 206                      3 237
 Operating lease accrual                                  5 896        5 347                      5 702
 Non-current liabilities                                  8 570        8 553                      8 939
 Trade and other payables                                33 615       36 871                     40 881
 Current portion of interest-bearing borrowings           1 698        1 102                      2 161
 Bank overdraft                                          25 391       16 597                      6 400
 Taxation payable                                             0            0                        440
 Current liabilities                                     60 704       54 570                     49 882
 Total liabilities                                       69 274       63 123                     58 821
 Total equity and liabilities                            219548      202 482                    226 367


* NOTE ON PRIOR PERIOD ERROR

During 2018, the group discovered that the rent straight-lining provision was erroneously disclosed as
a current liability since inception. As a consequence the current liabilities were overstated and the
non- current liabilities understated. The error has been corrected and the prior period restated to
reflect the correction for the six months ended 31 August 2017.



SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                    Share       Share     Retained    Total
                                  Capital     Premium     earnings
                                    R’000       R’000       R’000     R’000
Balance at 28 February 2017           357      31 810     118 170   150 337
Comprehensive Income
Profit from continuing operations                          33 698    33 698
Distributions to shareholders
Repurchase of shares                    (7)    (1 654)               (1 661)
Treasury Shares                        (12)    (2 734)               (2 746)
Dividends paid                                           (12 082)   (12 082)
Balance at 28 February 2018            338     27 422    139 786    167 546
Profit from continuing operations                         (2 044)    (2 044)
Distributions to shareholders
Dividends paid                                           (15 228)   (15 228)
Balance at 31 August 2018              338     27 422    122 514    150 274



SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
                                                    Unaudited         Unaudited     Audited twelve
                                                   six months        six months       months ended
                                                     ended 31          ended 31        28 February
                                                  August 2018       August 2017              2018
                                                        R’000             R’000             R’000
Net cash (outflows) from operating activities        (29 614)          (45 627)            (4 418)
Cash (utilised by)/generated from operations(1)      (10 369)          (30 300)            21 152
Dividends paid                                       (15 228)          (12 082)          (12 082)
Finance income received                                  2 092               805             2 363
Finance costs paid                                     (3 232)           (1 396)           (2 558)
Taxation paid                                         ( 2 877)          ( 2 654)         (13 293)

Cash outflows from investing activities                (2 225)          (2 887)           (5 971)
Acquisition of plant and equipment                     (2 012)          (2 904)           (3 997)
Acquisition of intangible assets                         (219)             (14)           (2 006)
Proceeds from disposal of plant and equipment                6               31                32

Cash outflows from financing activities                (1 026)            (506)           (5 250)
Advances in interest-bearing borrowings                      0                0               274
Interest-bearing borrowings repaid                     (1 026)            (506)           (1 118)
Repurchase of own shares                                     0                0           (4 406)
Net (decrease) in cash and cash equivalents           (32 865)         (49 020)          (15 369)
Cash and cash equivalents at beginning of period        17 418           33 057            33 057
Cash and cash equivalents at end of period            (15 447)         (15 963)            17 418

(1) Cash (utilised by)/generated from operations
(Loss)/profit before taxation                          (2 822)            2 196            46 686
Adjusted for :
depreciation on plant and equipment                      2 505            2 122             4 152
amortisation on computer software                             0             174               412
profit on disposal of plant and equipment                   (6)             (23)              (24)
finance income                                         (2 092)            (805)           (2 363)
finance costs                                            3 232            1 396             2 558
Increase/(decrease) in inventory impairment                   0             331             (595)
Increase in straight-lining lease accrual                  194              564               918
Operating (loss)/profit before changes in working        1 011            5 955           51 744
capital
Note 1
Increase in inventories                               (19 436)         (16 071)             (267)
Decrease/(increase) in trade and other receivables      15 761         (26 061)          (40 909)
(Decrease)/increase in prepayments                       (439)            (369)               327
(Decrease)/increase in trade and other payables        (7 266)            6 246            10 257
Cash (utilised by)/generated from operations          (10 369)         (30 300)            21 152



 DETERMINATION OF ATTRIBUTABLE EARNINGS AND HEADLINE EARNINGS
                                                          Unaudited        Unaudited     Audited twelve
                                                         six months       six months       months ended
                                                           ended 31         ended 31        28 February
                                                        August 2018      August 2017               2018
                                                              R’000            R’000              R’000
 Attributable profit (after tax)                            (2 044)            1 104             33 698
 Loss on sale of plant and equipment                            (6)             (23)               (24)
 Tax on profit/(loss) on disposal of plant and                    2                6                  7
 equipment 
 Headline earnings                                          (2 048)            1 087            33 681

 Shares in issue                                        112 249 632      114 272 328       112 249 632
 Shares held by subsidiary                              (10 741 599)      (7 351 959)      (10 741 599)
 Number of shares at period end                         101 508 033      106 920 369       101 508 033
 Basic earnings and diluted earnings per share                   (2)              1.0              33.2
 Headline and diluted headline earnings per share                (2)              1.0              33.2
 Net asset value per share*                                    148.0            130.3             165.1
 Net tangible asset value per share**                          132.5            116.7             149.5

*Net asset value per share
Shareholders’ equity divided by the total number of issued shares at the end of the year less shares
held by the subsidiary. Shareholders’ equity is the equity attributable to equity holders of the parent
(which is basically total assets less total liabilities).

**Net tangible asset value per share
The net asset value of the tangible assets divided by the total number of issued shares at the end of
the year less shares held by the subsidiary.



On behalf of the Board
Michael van Straaten
Chief Executive Officer
Johannesburg
22 October 2018

Directors:
NP Gosa (Chairman)* J M Pieterse*, A T Nzimande*, M Kabi*, M J van Straaten (CEO),
B M Groome (FD), S van Straaten(COO)^
 *Independent Non-executive
^ Alternate director

Company Secretary:
PremCorp Consulting Services (Pty) Ltd

Registered office:
50 Clairwood Avenue
Extension 55, Hoogland
Randburg 2194

Postal address:
PO Box 78260, Sandton 2146

Email address:
investors@verimark.co.za
www.verimark.co.za

Transfer Secretaries:
Computershare Investor Services (Pty) Limited

Auditors:
KPMG Incorporated

Sponsor:
Grindrod Bank Limited






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