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VALUE GROUP LIMITED - Condensed Consolidated Unaudited Interim Financial Results for the six months ended 31 August 2018

Release Date: 24/10/2018 14:10
Code(s): VLE     PDF:  
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Condensed Consolidated Unaudited Interim Financial Results for the six months ended 31 August 2018

Value Group Limited
(Incorporated in the Republic of South Africa)
Registration number 1997/002203/06)
ISIN number: ZAE000016507    Share code: VLE

CONDENSED CONSOLIDATED UNAUDITED INTERIM FINANCIAL RESULTS
for the six months ended 31 August 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


Highlights

Revenue R1,359bn up 11%
Normalised headline earnings per share  31,6 cents up 78%
Headline earnings per share 31,6 cents UP 485%
Earnings per share 30,3 cents UP 531%
Net asset value per share 581,1 cents up 11%
Cash generated by operations R138m up 35%
Interim dividend per share 13 cents up 63%

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                                                   Unaudited              Unaudited                Audited
                                                                   %                  August                 August               February
R000's                                                        change                    2018                   2017                   2018
Revenue                                                          11%               1 358 781              1 228 301              2 513 241
Cost of sales                                                                       (949 654)              (851 471)            (1 726 216)
Gross profit                                                                         409 127                376 830                787 025 
Other income                                                                          13 772                 10 853                 28 364 
Operating expenses                                                                  (351 645)              (346 143)              (659 951)
Operating profit before once-off BBBEE equity transaction costs  72%                  71 254                 41 540                155 438 
Once-off BBBEE equity transaction costs                                                    -                (19 003)               (19 003)
Operating profit                                                                      71 254                 22 537                136 435 
Share of profit of equity-accounted investees                                              -                     17                     23 
Fair value adjustment                                                                 (1 429)                   813                    331 
Finance income                                                                         1 796                  3 083                  3 386 
Finance costs                                                                         (8 666)                (9 613)               (17 553)
Net profit before taxation                                                            62 955                 16 837                122 622 
Taxation                                                                             (18 345)               (10 976)               (40 648)
Net profit for the period                                        661%                 44 610                  5 861                 81 974 
Other comprehensive income                                                                                    
Foreign currency translation differences                                                  (2)                   170                    (75)
Total comprehensive income for the period                                             44 608                  6 031                 81 899 
Owners:                                                                               44 611                  7 546                 83 331 
Net profit for the period                                                             44 613                  7 376                 83 406 
Other comprehensive income                                                                (2)                   170                    (75)
Non-controlling interest:                                                                 (3)                (1 515)                (1 432)
Net loss for the period                                                                   (3)                (1 515)                (1 432)
Other comprehensive income                                                                 -                      -                      - 
                                                                                      44 608                  6 031                 81 899
Earnings per share (cents) (note 2)                                                                                    
Basic                                                           531%                    30,3                    4,8                   54,8 
Headline                                                        485%                    31,6                    5,4                   58,7 
Normalised headline                                              78%                    31,6                   17,8                   71,1 
Diluted basic                                                   517%                    29,6                    4,8                   54,8 
Diluted headline                                                472%                    30,9                    5,4                   58,7 
Normalised diluted headline                                      74%                    30,9                   17,8                   71,1


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

                                                                                   Unaudited              Unaudited                Audited
                                                                   %                  August                 August               February
R000's                                                        change                    2018                   2017                   2018
Assets                                                                                    
Non-current assets                                                                 1 056 503              1 036 346              1 039 072 
Property, vehicles, plant and equipment                                            1 021 851                997 482              1 004 903 
Intangible assets                                                                     10 369                 10 977                 10 603 
Goodwill                                                                              16 561                 20 152                 16 561 
Loan receivable                                                                        1 338                  1 472                  1 575 
Equity-accounted investees                                                               380                    374                    380 
Deferred tax asset                                                                     6 004                  5 889                  5 050 
Current assets                                                                       584 694                521 993                553 514 
Inventories                                                                           80 787                 77 320                 66 424 
Trade and other receivables                                                          354 091                330 046                335 532 
Other financial assets                                                                 7 335                  9 247                  8 765 
Current tax receivable                                                                 5 434                  2 873                  3 176 
Cash and cash equivalents                                                            137 047                102 507                139 617 
Non-current assets held for sale                                                       1 335                 10 753                    116 
Total assets                                                                       1 642 532              1 569 092              1 592 702 
Equity and liabilities                                                                                    
Equity                                                                               836 870                792 084                848 634 
Non-current liabilities                                                              317 035                296 465                290 670 
Interest-bearing borrowings                                                          138 347                116 380                108 601 
Deferred tax liability                                                               178 688                180 085                182 069 
Current liabilities                                                                  488 627                480 543                453 398 
Trade and other payables                                                             415 793                400 135                379 803 
Current portion of interest-bearing borrowings                                        70 709                 76 061                 69 227 
Current portion of non interest-bearing borrowings                                         -                  3 268                  3 268 
Other financial liability                                                                 80                     96                     31 
Current tax payable                                                                    1 391                    401                    464 
Shareholders for dividend                                                                654                    582                    605 
                                                                                    
Total equity and liabilities                                                       1 642 532              1 569 092              1 592 702 
Net asset value per share (cents)                                11%                   581,1                  524,5                  566,8

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                                                                                   Unaudited              Unaudited                Audited
                                                                                      August                 August               February
R000's                                                                                  2018                   2017                   2018
Ordinary share capital and premium                                                    10 820                 10 829                 10 829 
Balance at beginning of period                                                        10 829                 10 829                 10 829 
Shares cancelled                                                                          (9)                     -                      - 
A ordinary shares                                                                         10                     10                     10 
Treasury shares                                                                     (103 619)              (104 142)              (113 408)
Balance at beginning of period                                                      (113 408)               (97 817)               (97 817)
Treasury shares acquired                                                             (25 614)                (6 597)               (16 481)
Treasury shares sold                                                                  35 403                    272                    890 
Share-based payment reserve                                                           21 677                 50 897                 20 146 
Balance at beginning of period                                                        20 146                 30 792                 30 792 
Share-based payment expense                                                            1 531                 20 105                 21 591 
Transfer to retained income                                                                -                      -                (32 237)
Foreign currency translation reserve                                                     102                    349                    104 
Balance at beginning of period                                                           104                    179                    179 
Foreign currency translation differences                                                  (2)                   170                    (75)
Retained income                                                                      911 213                841 396                934 283 
Balance at beginning of period                                                       934 283                861 345                861 345 
Dividends paid                                                                       (32 289)               (27 432)               (39 573)
Profit on disposal of treasury shares                                                      -                    107                    710 
Transfer from share-based payment reserve                                                  -                      -                 32 237 
Net profit for the period                                                             44 613                  7 376                 83 406 
Shares cancelled                                                                     (35 394)                     -                      - 
Non-controlling interest acquired by owners                                                -                      -                 (3 842)
Total capital and reserves attributable to owners                                    840 203                799 339                851 964 
Non-controlling interest                                                              (3 333)                (7 255)                (3 330)
Balance at beginning of period                                                        (3 330)                (5 740)                (5 740)
Net loss for the period                                                                   (3)                (1 515)                (1 432)
Non-controlling interest acquired by owners                                                -                      -                  3 842 
Equity                                                                               836 870                792 084                848 634


CONSOLIDATED STATEMENT OF CASH FLOWS

                                                                                   Unaudited              Unaudited                Audited
                                                                   %                  August                 August               February
R000's                                                        change                    2018                   2017                   2018
Cash flows from operating activities                                                  79 711                 66 400                194 694 
Cash generated by operations before movements in 
working capital and proceeds on disposal of rental assets                            127 240                 91 096                268 848 
Proceeds on disposal of rental assets                                                 11 213                 11 706                 27 370 
Cash generated by operations                                     35%                 138 453                102 802                296 218 
Changes in working capital                                                             4 389                 13 418                 (4 895)
Net finance costs                                                                     (6 870)                (6 530)               (14 167)
Taxation paid                                                                        (24 021)               (15 918)               (42 972)
Cash available from operating activities                         19%                 111 951                 93 772                234 184 
Dividends paid                                                                       (32 240)               (27 372)               (39 490)
Cash flows from investing activities                                                 (23 243)               (77 591)               (88 928)
Purchase of property, vehicles, plant and equipment                                  (23 139)               (68 656)               (88 854)
Purchase of intangible assets                                                         (2 110)                (1 893)                (4 851)
Proceeds on disposal of property, vehicles, plant and equipment                          533                  2 306                  2 883 
Proceeds on disposal of non-current assets held for sale                               1 123                    256                 11 498 
Payment of vendor - Key Distributors acquisition                                           -                 (9 804)                (9 804)
Decrease in loan receivable                                                              350                    200                    200 
Cash flows from financing activities                                                 (59 056)               (12 821)               (92 438)
Repayment of loans                                                                   (33 442)                (6 603)               (77 557)
Treasury shares acquired                                                             (25 614)                (6 597)               (16 481)
Proceeds on disposal of treasury shares                                                    -                    379                  1 600 
Net change in cash and cash equivalents                                               (2 588)               (24 012)                13 328 
Translation difference                                                                    18                     66                   (164)
Cash and cash equivalents at beginning of period                                     139 617                126 453                126 453 
Cash and cash equivalents at end of period                                           137 047                102 507                139 617 

SEGMENT INFORMATION

                                                                                   Unaudited              Unaudited                Audited
                                                                                      August                 August               February
R000's                                                                                  2018                   2017                   2018
Total segment revenue                                                              1 439 184              1 301 086              2 663 570 
General distribution                                                                 839 693                750 357              1 555 912 
Truck rental and other                                                               208 025                198 759                414 943 
Retail Logistics                                                                     334 034                295 977                583 077 
Head office and other                                                                 57 432                 55 993                109 638 
Less: Inter-segment revenue                                                           80 403                 72 785                150 329 
General distribution                                                                   2 081                  2 228                  5 342 
Truck rental and other                                                                24 247                 15 556                 37 747 
Retail Logistics                                                                           -                      -                      - 
Head office and other                                                                 54 075                 55 001                107 240 
External segment revenue                                                           1 358 781              1 228 301              2 513 241 
General distribution                                                                 837 612                748 129              1 550 570 
Truck rental and other                                                               183 778                183 203                377 196 
Retail Logistics                                                                     334 034                295 977                583 077 
Head office and other                                                                  3 357                    992                  2 398 
Business segment results                                                               
General distribution                                                                  44 722                 25 258                 98 172 
 - Trading profit                                                                     44 722                 25 258                101 763 
 - Goodwill impairment                                                                     -                      -                 (3 591)
Truck rental and other                                                                30 025                 19 768                 55 498 
Retail Logistics                                                                       3 038                  3 571                  8 011 
Head office and other                                                                 (6 531)                (7 057)                (6 243)
Operating segment results                                                             71 254                 41 540                155 438 
Once-off BBBEE  equity transaction costs                                                   -                (19 003)               (19 003)
Share of profit of equity-accounted investees                                              -                     17                     23 
Fair value adjustment                                                                 (1 429)                   813                    331 
Finance income                                                                         1 796                  3 083                  3 386 
Finance costs                                                                         (8 666)                (9 613)               (17 553)
Net profit before taxation                                                            62 955                 16 837                122 622 
Total segment assets                                                               
General distribution                                                                 771 665                726 442                754 677 
Truck rental and other                                                               560 877                578 074                578 252 
Retail Logistics                                                                      89 008                103 929                 80 934 
Head office and other                                                                200 491                140 792                159 893 
Segment assets                                                                     1 622 041              1 549 237              1 573 756 
Loan receivable                                                                        1 338                  1 472                  1 575 
Equity-accounted investees                                                               380                    374                    380 
Deferred tax asset                                                                     6 004                  5 889                  5 050 
Other financial assets                                                                 7 335                  9 247                  8 765 
Current tax receivable                                                                 5 434                  2 873                  3 176 
Total assets                                                                       1 642 532              1 569 092              1 592 702 

NOTES

1.     Basis of preparation                                                               

The condensed consolidated interim 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 Financial Reporting Standards Council and 
the requirements of the Companies Act of South Africa. The accounting policies applied in the preparation of these condensed consolidated interim 
financial results are in terms of International Financial Reporting Standards. The Group adopted the following standards in the current year: 
IFRS 9: Financial instruments and IFRS 15: Revenue from contracts with customers, neither of which had a material impact on figures previously 
reported. Accordingly, no restatement of previously reported results was required. Other than the adoption of IFRS 9 and IFRS 15, the accounting 
standards applied are consistent with those applied in the previous consolidated annual financial statements. The condensed consolidated interim 
financial results have been prepared under the supervision of the Group Financial Director, Mr CL Sack. These condensed consolidated interim 
financial results have not been audited nor reviewed by the Group's auditor.                                                               

                                                                                   Unaudited              Unaudited                Audited
                                                                                      August                 August               February
R000's                                                                                  2018                   2017                   2018
2.     Headline earnings                                                               
2.1.   Reconciliation between basic and headline earnings                                                               
       Basic earnings attributable to owners                                          44 613                  7 376                 83 406 
       Loss on disposal of property, vehicles, plant and equipment                     2 585                  1 189                  3 063 
       Less: tax effect of loss on disposal of property, 
       vehicles plant and equipment                                                     (675)                  (321)                  (787)
       Goodwill impairment                                                                 -                      -                  3 591 
       Headline earnings                                                              46 523                  8 244                 89 273 
       Once-off BBBEE  equity transaction costs                                            -                 19 003                 19 003 
       Normalised headline earnings                                                   46 523                 27 247                108 276 

2.2.   Number of ordinary shares of R 0.001 each in issue                                                               
       Shares in issue                                                           176 809 100            186 427 478            186 427 478 
       Shares in issue excluding treasury shares                                 144 598 341            152 398 639            150 302 979 
       Weighted average shares in issue                                          147 093 770            152 752 260            152 191 958 
       Diluted shares in issue                                                   150 486 222            152 916 834            152 191 958 

2.3.   Number of A ordinary shares of R 0.001 each in issue                                                               
       Shares in issue                                                            10 429 010             10 429 010             10 429 010 
3.     Supplementary information                                                               
       Depreciation                                                                   48 170                 49 200                 96 148 
       Amortisation of intangible assets                                               2 350                  3 571                  6 976 
       Depreciation and amortisation                                                  50 520                 52 771                103 124 
4.     Fair value measurement of financial instruments                                                               
4.1.   Financial assets/(liabilities)                                                               
       Cash and cash equivalents (Level 1)                                           137 047                102 507                139 617 
       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)                                  7 335                  9 247                  8 765 
       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)                                      (80)                   (96)                   (31)
       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.                                 98 290                 93 878                190 050 

COMMENTARY

INTRODUCTION

Value Group Limited ("the Group") and its subsidiaries 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 that the Group reported a record set of interim results. Although the trading environment is tough, annual 
increases and growth of the Group's customer base has resulted in revenue increasing by 11% from R1,228 billion to R1,359 billion. 

Although fully recovered, the significant increase in the cost of fuel and pricing pressure within the retail logistics segment has offset 
certain variable costs savings resulting in gross margins reducing slightly from 30,7% to 30,1%. Nevertheless, gross profit increased by 9% to 
R409,1 million. 

The previous years' initiatives to reduce operating costs and ongoing stringent cost controls has resulted in operating costs increasing by only 
1,6% to R351,6 million. This minor change has contributed to operating profit margins improving from 3,4% to 5,2% and operating profit before the 
corresponding period's once-off BBBEE transaction costs, increasing by 72% to R71,3 million. 

Net finance costs have remained relatively static at R6,9 million. The effective tax rate has reduced to 29,1% due to the corresponding periods 
BBBEE transaction costs which were not tax deductible.

Excluding the corresponding period's BBBEE costs, normalised headline earnings per share increased by 78% from 17,8 cents to 31,6 cents per 
share. 

Capital expenditure incurred during the period reduced by R57,6 million to R89,9 million. This expenditure comprised R76,6 million for vehicles, 
R2,6 million for materials handling equipment, R5,8 million for plant, equipment and accessories and R4,9 million for IT hardware and software. 
This expenditure, in addition to the settlement of the final instalment of R3,2 million pertaining to the acquisition of Key Distributors (Pty) 
Ltd, was funded by internally generated cash flows and R64,4 million in interest bearing debt. R33,4 million of this interest bearing debt was 
repaid in the interim period. Positive cash balances were utilised to fund R26,1 million spent on share repurchases. The Group's debt:equity 
ratio (net of intangibles) remains low at 25,8%.

Management's ongoing focus on conversion of profits into sustainable cash flows remains a priority and has yielded positive results with cash 
generated by operations improving by 35% from R102,8 million to R138,5 million. Notwithstanding increased tax and dividend cash outflows, an 
improvement in working capital management resulted in cash flows from operating activities increasing by 20% to R79,7 million. 

OPERATIONAL REVIEW

General distribution segment

Poor economic growth continues to impact a large portion of the customer base which places pressure on rates and volumes. Management's focus, 
however, on improving the operations and procuring new customers in the warehousing and breakbulk operations has yielded positive benefits with 
volumes increasing. As a result, revenue increased by 12% from R748,1 million to R837,6 million. In addition, operational savings and improved 
efficiencies contributed to operating profit increasing by 77% from R25,3 million to R44,7 million. The remaining operations comprising a 
significant portion of this segment, being dedicated distribution and express, performed to expectation. 

Truck rental and other segments

Tough trading conditions hampered revenue growth which remained static at R183,8 million. Clearing and forwarding as well as linehaul performed 
to expectation. Strategic changes in the materials handling division contributed to a significant improvement in this segment's performance. 
Accordingly, operating margins improved from 10,8% to 16,3% with operating profit increasing by 52% from R19,8 million to R30 million.  

Retail logistics segment 

Trading conditions remain challenging with protest actions on delivery routes having an effect on revenue. Nevertheless, management's focus on 
growing the revenue base and areas serviced has resulted in revenue increasing by 13% to R334 million. Margins, however, have been negatively 
affected by the competitive environment and supplier changes in rebate and incentive structures. Consequently, operating profit reduced from R3,6 
million to R3 million. 

SHARE REPURCHASES

During the current period 5,7 million shares were acquired at a cost of R26,1 million. Subsequent to 31 August 2018, 1,4 million shares were 
repurchased at a cost of R6,8 million. The effective average acquisition cost per share amounts to R4,63 per share. On 8 May 2018, 9 618 378 
treasury shares were cancelled and delisted. Pursuant to this cancellation, the number of ordinary shares currently in issue is 176 809 100. The 
Group's subsidiaries currently hold 12,7 million ordinary shares in treasury which represents 7,2% of ordinary shares in issue. The Group will 
continue to repurchase shares as the opportunities arise. 

FUTURE CAPITAL EXPENDITURE 

Capital expenditure for the remainder of the financial year is anticipated to amount to approximately R76,1 million and consists primarily of 
vehicle and forklift additions and replacements. This capital expenditure will be funded by internally generated cash flows and interest bearing 
debt. 

PROSPECTS

It is expected that poor growth and high unemployment rates coupled with the recent hikes in fuel prices will constrain consumer disposable 
income and associated demand over the festive season. Despite these economic difficulties, management has implemented a range of initiatives to 
mitigate these challenges. In addition, these challenges should be offset by the growth in the customer base. Accordingly, the Board anticipates 
that second half earnings will at least be maintained resulting in an improvement in earnings for the 2019 financial year. Any reference to 
future financial performance included in this announcement has not been reviewed nor reported on by the Group's auditors.

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

DECLARATION OF DIVIDEND (NUMBER 24)

The Board resolved to declare a gross interim dividend for the six months ended 31 August 2018, of 13 cents per ordinary share which will be paid 
out of distributable reserves. The dividend is covered 2,4 times by headline earnings. 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 2,6 cents per share. This will 
result in a net dividend of 10,4 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                          Wednesday, 24 October 2018
Last day to trade cum dividend              Tuesday, 15 January 2019
Trading ex-dividend commences             Wednesday, 16 January 2019
Record date                                  Friday, 18 January 2019
Payment date                                 Monday, 21 January 2019

Share certificates may not be dematerialised or rematerialised between Wednesday, 16 January 2019 and Friday, 18 January 2019, both days 
inclusive.


For and on behalf of the Board


C D Stein                                                                     S D Gottschalk
Chairman                                                              Chief Executive Officer

Johannesburg 
24 October 2018

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