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Condensed consolidated unaudited interim results for the six months ended 31 August 2018
METTLE INVESTMENTS LIMITED
Incorporated in the Republic of South Africa
(Registration Number: 2008/002061/06)
JSE share code: MLE ISIN: ZAE000257622
("Mettle" or "the Group")
CONDENSED CONSOLIDATED UNAUDITED INTERIM RESULTS OF THE METTLE GROUP FOR THE SIX
MONTHS ENDED 31 AUGUST 2018
HIGHLIGHTS
- Reward Investments (No.2) Limited ("Reward") and Mettle Solar Africa Limited ("Mettle Solar Africa")
acquired by Mettle from Tradehold Limited ("Tradehold") as part of a group restructure ("the
Restructure")
- Mettle unbundled from Tradehold and listed on the JSE on 23 May 2018 with stated capital of
R545.8 million
- Net asset value per share increased by 55% from 128 cents to 199 cents
- Profits for the period depressed by ‘once-off' Restructure costs and a non-recurring write down of a loan
book in an associate
DETAILS OF THE RESTRUCTURE
As detailed in Mettle's pre-listing statement dated 14 May 2018 ("PLS"), Tradehold invested a further
R445.2 million in Mettle in May 2018 as part of the Restructure.
These funds were utilised as follows:
- R42 million settlement of shareholder borrowings due to Tradehold;
- R226.7 million subscription of ordinary shares in Reward (a wholly owned subsidiary of Tradehold prior
to the Restructure);
- R162.8 million purchase of a loan claim against Reward from Tradegro S.a.r.l (a wholly owned
subsidiary of Tradehold), which Reward then capitalised through the issue of shares;
- R6,499 purchase of 55% of the ordinary shares in Mettle Solar Africa (a joint venture) from Tradehold
Africa Limited (wholly owned subsidiary of Tradehold); and
- R13.7 million purchase of the loan claim against Mettle Solar Africa from Tradehold Africa Limited.
The Group now owns 90% of Reward (based in Leeds in the UK). Reward owns 75% of Reward Finance Group
Limited ("Reward Finance Group") which has three operating companies, namely Reward Capital, Reward
Invoice Finance and Reward Trade Finance.
THE METTLE BUSINESS
Following the Restructure, Reward is now the largest contributor to the profits and net asset value of Mettle.
Reward provides asset secured short and medium-term loans and invoice discounting to the UK small and
medium-sized enterprises ("SME") market. Loan sizes are between GBP50,000 and GBP2 million. Reward's
strategy is to target SMEs that are not adequately serviced by traditional banks.
The South African businesses are involved mainly in lending, financial advisory and solar power solutions.
FINANCIAL PERFORMANCE REVIEW
The results include the South African businesses for six months and Reward for only three and a half months.
Revenue increased to R84.1 million for the six-month period ended 31 August 2018 (2017: R20.5 million), while
profit attributable to shareholders increased to R9.4 million (2017: R5.9 million). Reward contributed
R60.8 million to revenue and R12.3 million (GBP0.7 million) to profit. Had Reward been consolidated for the full
six-month period, the profit attributable to shareholders would have increased by an additional GBP0.5 million.
Earnings per share decreased by 16.6% from 6.09 cents to 5.08 cents while headline earnings per share
decreased by 19.3% from 5.76 cents to 4.65 cents. The reconciliation between basic earnings and headline
earnings is detailed in note 4.
The performance for the period was negatively impacted by once off Restructure costs of R4 million, new
recurring listing related costs of R1 million and equity accounted losses of R2.8 million at Lendcor.
Lendcor provides unsecured loans for home improvements to the lower LSM market through a network of
building supply merchants. The results of Lendcor have been negatively impacted by the changes to the bank
accounts into which SASSA grants are paid. This has resulted in a non-recurring provision against a portion of
Lendcor's loan book. Changes have been made to the business rules to ensure that this situation does not
recur.
Reward's loan and invoice discounting book grew to R1.2 billion (GBP60.5 million) by 31 August 2018 from
R1 billion (GBP57.5 million) at date of acquisition by Mettle. Reward has benefited from the continued
uncertainty in the UK which has resulted in banks being hesitant to lend to smaller businesses. A new office has
been opened in Manchester and additional qualified staff have been employed.
The remaining South African businesses have performed in line with budget.
The Rand has depreciated sharply against the Pound since the acquisition of Reward by Mettle and ended the
period at R19.09 (from R16.88 at acquisition date). This resulted in a foreign currency translation reserve of
R36.5 million in the Group results.
Net asset value per share has increased by 55% to 199 cents (2017: 128 cents), while tangible net asset value
per share has increased by 63% to 196 cents (2017: 120 cents).
SHARE ISSUES
Mettle converted its ordinary shares from par value to no par value and increased its authorised ordinary share
capital from 200 million to 500 million shares in May 2018.
On 14 May 2018 Mettle issued 40.2 million ordinary shares to Tradehold in settlement of borrowings due to the
shareholder amounting to R42 million.
On 15 May 2018 Mettle issued 110.7 million ordinary shares to Tradehold for a consideration of R403.2 million.
ORDINARY DIVIDEND
The board has decided not to declare an interim dividend.
PROSPECTS
The results for the period under review contain several ‘once off' items that will not recur in future periods.
In addition, the results of Reward have only been consolidated into Mettle for three and a half months. As such,
the directors expect the results for the 6 months ended 28 February 2019 to more accurately reflect the true
operational potential of the Group's business.
Given the reliance of Mettle on the performance of Reward, the outcome of the Brexit negotiations is a source of
both risk and opportunity. Once the Brexit negotiations have been finalised, the directors will be able to make a
more accurate assessment of the potential impact on the business.
All businesses have sufficient facilities in place to support growth for the foreseeable future.
Mettle has concluded agreements for the acquisition of an indirect 49% shareholding in, and certain loan claims against,
Christopher Finance Proprietary Limited as announced on SENS on 5 November 2018 (refer to note 8).
Any reference to future financial performance included in this statement has not been reviewed or reported on
by the Group's external auditors and does not constitute an earnings forecast.
BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The condensed consolidated unaudited interim financial statements are prepared in accordance with the
requirements of the JSE Listings Requirements for interim reports, and the requirements of the Companies Act,
No 71 of 2008 applicable to interim financial statements.
The JSE Listings Requirements require interim 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 condensed consolidated unaudited interim financial statements are in terms of IFRS and are
consistent with those accounting policies applied in the preparation of the previous consolidated annual financial
statements except for the adoption of the following new standards, amendments to publicised standards and
interpretations that became effective for the current reporting period beginning on 1 March 2018:
IFRS 9 Financial Instruments
IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces the expected
credit loss model for the measurement of impairment allowances for financial assets. IAS 39 required an
impairment allowance when there was objective evidence of default. IFRS 9 stipulates that the impairment
allowance is based on the lifetime expected credit losses.
As the Group has historically incurred minimal bad debt write offs, the adoption of IFRS 9 has not had a material
impact.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 replaces IAS 18 Revenue. IFRS 15 details the measurement, classification and disclosure of revenue
from contracts with customers and establishes a five-step model to recognise revenue. The risk and reward
criteria of IAS 18 no longer apply.
There was no impact from the adoption of IFRS 15 on the interim financial statements.
The Group has not early adopted any other standard, interpretation or amendment that has been issued but is
not yet effective.
The Group's reportable segments reflect those components of the Group that are regularly reviewed by the
chief executive officer and other senior executives who make strategic decisions.
Tangible net asset value per share
Tangible net asset value per share excludes goodwill and intangible assets from the calculation of the Group's
net asset value, being the same manner in which tangible net asset value was calculated in the PLS. This is not
a defined term under IFRS and may not be comparable with similar measures disclosed by other companies.
PREPARATION OF FINANCIAL RESULTS
The preparation of the financial results for the six months ended 31 August 2018 was supervised by the Group
financial director, Justin Rookledge BBusSci Finance (Hons), CA(SA).
These financial results have not been audited or independently reviewed by the Group's external auditors,
PricewaterhouseCoopers Inc.
The directors take full responsibility for the preparation of these interim results.
CHANGES TO BOARD AND COMPANY SECRETARY
The following changes to the Mettle board have taken place since the previous financial year end, being
28 February 2018:
JA Aitken Resigned on 19 April 2018
WD Marais Resigned on 19 April 2018
W Maree Resigned on 19 April 2018
IHJ Visagie Resigned on 19 April 2018
BA Chelius Appointed on 19 April 2018
TM Flannery Appointed on 19 April 2018
HRW Troskie Appointed on 19 April 2018 and resigned on 12 September 2018
MVZ Wentzel Appointed on 19 April 2018
RD Fenner Appointed on 18 September 2018
RD Fenner is the lead independent non-executive director and chairman of the audit and risk committee.
Mettle Corporate Finance Proprietary Limited was appointed as company secretary on 19 April 2018.
FH Esterhuyse HF Prinsloo
Chairman CEO
9 November 2018
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Audited
31 August 28 February
2018 2018
R'000 R'000
ASSETS
Non-current assets
Property, plant and equipment 1 703 592
Goodwill 7 475 7 475
Deferred taxation 1 129 1 142
Investments in joint ventures 7 173 7 073
Investments in associates 49 466 53 123
Loans due from associates 35 016 32 390
Loans due from joint ventures 16 651 -
Financial assets at fair value through profit or loss 32 297 31 234
Loan receivables 29 263 18 285
Total non-current assets 180 173 151 314
Current assets
Taxation - 1
Loans due from associates - 8 189
Loan receivables 1 196 451 21 467
Trade and other receivables 31 999 35 826
Cash and cash equivalents 91 500 6 278
Total current assets 1 319 950 71 761
Total assets 1 500 123 223 075
EQUITY AND LIABILITIES
Capital and reserves
Stated capital 545 828 100 622
Retained income 31 599 22 198
577 427 122 820
Foreign currency translation reserve 36 530 -
Common control reserve (121 226) -
Non-controlling interest 55 723 -
Total equity 548 454 122 820
Non-current liabilities
Deferred taxation 1 303 309
Borrowings 888 012 43 757
Total non-current liabilities 889 315 44 066
Current liabilities
Borrowings 30 783 9 462
Borrowings due to shareholders - 42 000
Taxation 9 043 82
Provisions 184 329
Trade and other payables 22 344 4 316
Total current liabilities 62 354 56 189
Total equity and liabilities 1 500 123 223 075
Net asset value per share (cents) 199 128
Tangible net asset value per share (cents) 196 120
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Reviewed
31 August 31 August
2018 2017
R'000 R'000
Revenue 84 112 20 472
Other income 12 474 2 563
Operating expenses (46 965) (11 961)
Profit from operations 49 621 11 074
Interest expense (20 674) (3 196)
(Loss)/profit from equity accounted investments (6 128) 81
Profit before taxation 22 819 7 959
Taxation (7 733) (2 091)
Profit after taxation before non-controlling interest 15 086 5 868
Other comprehensive income
Items that may be subsequently reclassified to profit
Exchange difference on translation of foreign operation 43 015 -
Total comprehensive income 58 101 5 868
Profit attributable to:
Equity holders of the parent 9 401 5 868
Non-controlling interest 5 685 -
15 086 5 868
Total comprehensive income attributable to:
Equity holders of the parent 45 931 5 868
Non-controlling interest 12 170 -
58 101 5 868
Earnings per share (cents):
- basic 5.08 6.09
- diluted 5.08 6.09
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Foreign
currency Common Non-
Stated Retained translation control controlling
capital income reserve reserve interest Total
R'000 R'000 R'000 R'000 R'000 R'000
Equity at 28 February 2017 100 622 6 364 - - - 106 986
Profit after taxation 15 834 15 834
Equity at 28 February 2018 100 622 22 198 - - - 122 820
Issue of ordinary shares 445 206 445 206
Acquisition of subsidiary (121 226) 49 464 (71 762)
Profit after taxation 9 401 5 685 15 086
Other comprehensive income 36 530 6 485 43 015
Dividends paid to non-controlling interest (5 911) (5 911)
Equity at 31 August 2018 545 828 31 599 36 530 (121 226) 55 723 548 454
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Reviewed
31 August 31 August
2018 2017
R'000 R'000
Cash flows from operating activities
Profit from operations 49 621 11 074
Non-cash items (10 830) (8 764)
Changes in working capital 7 314 (8 679)
Cash generated from/(utilised in) operations 46 105 (6 369)
Interest received 4 382 7 282
Interest paid (20 674) (216)
Dividends paid to non-controlling interest (5 911) -
Taxation paid (5 061) (1 235)
Net cash inflow/(outflow) from operating activities 18 841 (538)
Cash flows from investing activities
Acquisition of property, plant and equipment (393) (53)
Proceeds on disposal of property, plant and equipment 81 -
Acquisition of investment in joint venture (6) (4 000)
Cash outflow on acquisition of subsidiaries (318 097) -
Cash outflow on disposal of subsidiary (1 853) -
Purchase of financial assets at fair value through profit or loss - (30 474)
Loans advanced to associates (5 434) (9 940)
Loans recovered from associates 8 189 -
Loans advanced to joint ventures (14 140) -
Loan receivables advanced (883 809) (36 781)
Loan receivables recovered 803 449 40 632
Dividend received from associate 2 000 -
Dividend received from joint venture 124 -
Proceeds on disposal of asset held for sale - 6 626
Net cash outflow from investing activities (409 889) (33 990)
Cash flow from financing activities
Issue of ordinary shares 403 206 -
Repayment of borrowings (10 254) (1 571)
Receipt of borrowings 72 942 55 500
Repayment of borrowings due to shareholder - (613)
Receipt of borrowings due to shareholder - 1 650
Net cash inflow from financing activities 465 894 54 966
Net increase in cash and cash equivalents 74 846 20 438
Effect of changes in exchange rate 7 394 -
Cash and cash equivalents at beginning of the period 4 922 10 611
Cash and cash equivalents at end of the period 87 162 31 049
As presented on the statement of financial position
Cash and cash equivalents 91 500 31 049
Bank overdraft (included in current borrowings) (4 338) -
87 162 31 049
SUPPLEMENTARY INFORMATION
1. BUSINESS COMBINATIONS
Acquisition of Gondotrix
Mettle acquired the other 50% of Gondotrix Proprietary Limited ("Gondotrix") on
31 March 2018 for R1. Gondotrix owns 100% of Mettle Credit Services
Proprietary Limited ("MCS"). MCS provides a full spectrum of credit assessment,
administration and account management services.
Gondotrix had the following assets and liabilities on acquisition date:
Unaudited
R'000
Recognised amounts of identifiable net assets
Equipment 157
Trade and other receivables 1 189
Cash and cash equivalents 1 413
Trade and other payables (875)
Taxation (121)
1 763
Fair value of consideration transferred
Consideration settled in cash -
Fair value of equity interest (associate) held before business combination (940)
Bargain purchase gain 823
Cash flow on acquisition of subsidiary
Cash and cash equivalents acquired with the subsidiary 1 413
Consideration settled in cash -
1 413
Disposal of Mettle Credit Services
Montsi Investments invested R1.8 million in MCS on 31 May 2018 and became a
51.1% shareholder. As a result, Mettle's indirect shareholding in MCS diluted to
48.9%.
MCS is now a level 2 B-BBEE contributor.
MCS had the following assets and liabilities on disposal date:
Equipment 138
Trade and other receivables 1 028
Cash and cash equivalents 1 853
Trade and other payables (903)
Taxation (186)
1 930
Fair value of retained equity interest (1 845)
Loss on disposal 85
Cash flow on disposal of subsidiary
Cash and cash equivalents disposed with the subsidiary (1 853)
Proceeds on disposal -
(1 853)
Acquisition of Reward
Mettle acquired 90% of Reward on 15 May 2018. Reward owns 75% of Reward
Finance Group.
IFRS 3 Business Combinations was not applicable as this transaction was a
combination of businesses under common control.
Reward had the following assets and liabilities on acquisition date:
Unaudited
R'000
Recognised amounts of identifiable net assets
Equipment 844
Loan receivables 969 824
Trade and other receivables 877
Cash and cash equivalents 70 001
Borrowings (558 357)
Borrowings – related parties (144 408)
Trade and other payables (14 618)
Taxation (6 414)
317 749
Non-controlling interest (49 464)
268 285
Fair value of consideration transferred
Consideration settled in cash 389 511
Common control reserve 121 226
Cash flow on acquisition of subsidiary
Cash and cash equivalents acquired with the subsidiary 70 001
Consideration settled in cash (389 511)
(319 510)
The Rand:Pound exchange rate on acquisition date was R16.88.
The Group has included revenue of GBP3.4 million and profit attributable to equity holders of the parent
of GBP0.7 million relating to Reward (refer to note 6).
Had Reward been consolidated for the full six-month period, its contribution to revenue and profit
attributable to equity holders of the parent would have increased to GBP5.8 million and GBP1.2 million,
respectively.
Unaudited Audited
31 August 28 February
2018 2018
R'000 R'000
2. BORROWINGS
Non-current
Small Enterprise Finance Agency SOC Limited ("SEFA") 43 890 43 757
Foresight Group ("Foresight") 698 809 -
Tradegro S.a.r.l ("Tradegro") 145 313 -
888 012 43 757
Current
Christina Wiese ("Wiese") 20 999 -
Small Enterprise Finance Agency SOC Limited ("SEFA") 5 425 5 547
FirstRand Bank Limited ("FirstRand") 21 2 560
Nedbank Limited ("Nedbank") 4 338 1 355
30 783 9 462
918 795 53 219
The borrowings from SEFA accrue interest at prime plus 1%. Interest is payable semi-annually
with capital repayable in March 2020. The borrowings are secured by Group cash balances
and loan and trade receivables of R68.8 million. The R50 million facility has been fully drawn
down.
The borrowings from Foresight accrue interest at a fixed rate of 6.5% which is payable
quarterly. The facility limit is GBP45 million until 31 December 2018 and GBP50 million from
1 January 2019. The repayment date is four years from each individual draw down with the
first repayment due in August 2021. Foresight has a debenture over all assets of Reward
Finance Group (including shares in its subsidiaries). The carrying value of these assets
amount to R1.1 billion at the end of the period. The amounts owed by Reward Finance Group
to Reward (R374.3 million) and Wiese (R21 million) are subordinated in favour of Foresight.
The borrowings from Tradegro (related party) are unsecured, accrue interest at sterling three-
month LIBOR plus 6.5% and are repayable on 28 May 2020. Interest is capitalised.
The borrowings from Wiese (related party) are unsecured, accrue interest at sterling three-
month LIBOR plus 4% and repayable on demand. Interest is paid monthly.
The R33 million facility from FirstRand accrued interest at prime less 1% and expired on
31 August 2018. The facility was secured by the Gray Swan Sanlam Collective Investments
unit trust investments (R32.3 million). The terms of this facility were revised in October 2018.
The R15 million overdraft facility is now secured by R10 million of the above unit trust
investments and accrues interest at prime plus 1%. This facility is reviewed annually.
The unsecured R5 million overdraft facility from Nedbank accrues interest at prime which is
settled monthly. This facility has been increased to R10 million in October 2018. This facility is
reviewed annually.
Unaudited Reviewed
31 August 31 August
2018 2017
R'000 R'000
3. REVENUE
Fee income 10 069 5 926
Service fees 16 614 -
Discounting income 8 256 6 642
Interest income 49 173 7 904
84 112 20 472
Revenue is split in geographical regions in note 6.
4. EARNINGS PER SHARE
Basic earnings per share (cents) 5.08 6.09
Diluted earnings per share (cents) 5.08 6.09
Headline earnings per share (cents) 4.65 5.76
Diluted headline earnings per share (cents) 4.65 5.76
Basic earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the parent with the weighted
average number of ordinary shares in issue for the period.
Profit attributable to equity holders of the parent 9 401 5 868
Weighted average number of ordinary shares (‘000) 185 072 96 292
Diluted earnings per share
The Group has no dilutive potential ordinary shares.
Headline earnings per share
Headline earnings per share is calculated by dividing the headline
earnings with the weighted average number of ordinary shares in
issue for the period.
Profit attributable to equity holders of the parent 9 401 5 868
Bargain purchase gain on acquisition of subsidiary (823) -
Loss on disposal of subsidiary 85 -
Profit on disposal of property, plant and equipment (81) -
Profit on asset held for sale - (326)
Tax impact of adjustments 23 -
Headline earnings 8 605 5 542
Weighted average number of ordinary shares (‘000) 185 072 96 292
5. FAIR VALUE DISCLOSURES
The Group's financial instruments are measured at amortised cost besides the financial assets at fair
value through profit or loss.
These financial assets are unit trust investments measured at quoted prices (level 1).
The carrying value of all other financial instruments approximate fair value.
6. SEGMENT INFORMATION
The Group has two reportable segments at 31 August 2018 (after the acquisition of Reward in the UK).
Unaudited Unaudited
United South Unaudited
Kingdom Africa Total
R'000 R'000 R'000
Revenue 60 835 23 277 84 112
Profit/(loss) attributable to equity holders of the parent 12 305 (2 904) 9 401
Total assets 1 262 877 237 246 1 500 123
Total liabilities 890 034 61 635 951 669
There were no transactions between the segments.
7. RELATED PARTIES
Certain Group companies concluded transactions with each other in the ordinary course of business.
These intergroup transactions and balances are eliminated on consolidation.
Related party balances and transactions for the current period are similar to those disclosed in the
Group's annual financial statements for the year ended 28 February 2018 besides for those that took
place as part of the Restructure and those detailed below:
Unaudited
31 August
2018
R'000
Loan to EAF Investments Limited ("EAF") 18 090
Reward Finance Group advanced GBP1.2 million to EAF in April 2017. EAF is a
shareholder in Reward Finance Group and the company is controlled by Nick
Smith who is also a director of Reward Finance Group. The loan is repayable
after 10 years and accrues interest at sterling three-month LIBOR plus 2.5%.
Dividends payable to EAF are used to repay the loan. The loan is secured by
its 10% shareholding in Reward Finance Group.
Loan to JE&K Limited ("JE&K") 13 628
Reward Finance Group advanced GBP0.76 million to JE&K in April 2018. JE&K is a
shareholder in Reward Finance Group and the company is controlled by David
Harrop who is also a director of Reward Finance Group. The loan is repayable
after 10 years and accrues interest at sterling three-month LIBOR plus 2.5%.
Dividends payable to JE&K are used to repay the loan. The loan is secured by
its 5% shareholding in Reward Finance Group.
The terms of the related party borrowings due to Tradegro and Wiese are disclosed in note 2.
8. EVENTS AFTER THE REPORTING DATE
Mettle has concluded agreements for the acquisition of an indirect 49% shareholding in, and certain
loan claims against, Christopher Finance Proprietary Limited. The total purchase consideration of
R27.2 million will be settled in cash. The suspensive conditions should be fulfilled by 15 November 2018.
Shareholders are referred to the SENS announcement released on 5 November 2018 for more details.
DESIGNATED ADVISOR
Questco Corporate Advisory Proprietary Limited
Date: 12/11/2018 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.