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Unaudited interim condensed consolidated results for the six months ended 31 December 2018
African and Overseas Enterprises Limited
(Incorporated in the Republic of South Africa - Reg No. 1947/027461/06)
("the company")
JSE share codes: AOO - AON - AOVP
ISIN: ZAE000000485 - ZAE000009718 - ZAE000000493
Unaudited interim condensed consolidated results for the six months ended 31 December 2018
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Six months ended Year ended
31 December 31 December 30 June
2018 2017 2018
Unaudited Unaudited Audited
% Change R'000 R'000 R'000
Revenue 13.9 361 691 317 506 608 064
Turnover 13.5 349 567 307 987 587 632
Cost of sales (158 739) (145 578) (267 730)
Gross profit 17.5 190 828 162 409 319 902
Other income 14.7 8 839 7 705 15 700
Other operating costs 4.6 (168 689) (161 236) (322 834)
Operating profit 248.9 30 978 8 878 12 768
Dividend income 23 22 45
Finance income 3 262 1 792 4 687
Finance costs (75) (99) (71)
Share of profit of associate (net of taxation) 26 516 - -
Dilution loss on investment in associate (14 811) - -
Profit before tax 333.2 45 893 10 593 17 429
Income tax expense (10 214) (3 358) (5 897)
Profit for the period 393.1 35 679 7 235 11 532
Other comprehensive income
Items that are or may be subsequently reclassified to
profit or loss
Fair value adjustment on available-for-sale investment - - 245
Fair value adjustment on assets held at fair value through
other comprehensive income 9 - -
Total comprehensive income for the period (net of taxation) 35 688 7 235 11 777
Profit attributable to:
Ordinary and "N" ordinary shareholders of the parent 18 995 3 614 5 709
Preference shareholders 17 17 33
Profit attributable to equity holders of the parent 19 012 3 631 5 742
Non-controlling interest 16 667 3 604 5 790
Profit for the period 35 679 7 235 11 532
Total comprehensive income attributable to:
Ordinary and "N" ordinary shareholders of the parent 19 000 3 614 5 846
Preference shareholders 17 17 33
Profit attributable to equity holders of the parent 19 017 3 631 5 879
Non-controlling interest 16 671 3 604 5 898
Total comprehensive income for the period 35 688 7 235 11 777
Reconciliation of headline earnings
Earnings attributable to Ordinary and "N" ordinary shareholders
of the parent 18 995 3 614 5 709
Adjusted for:
(Profit) / loss from disposal of property, plant and equipment (88) 3 12
(net of taxation)
Dilution loss on investment in associate 8 133 - -
Non-headline earnings items included in earnings from associate (17 296) - -
Gain from bargain purchase of investment (17 300) - -
Loss from disposal of property, plant and equipment (net of taxation) 4 - -
Headline earnings 9 744 3 617 5 721
Basic earnings per ordinary share (cents) 426.2 166.8 31.7 50.1
Headline earnings per ordinary share (cents) 169.2 85.6 31.8 50.2
Diluted earnings per ordinary share (cents) 426.2 166.8 31.7 50.1
Diluted headline earnings per ordinary share (cents) 169.2 85.6 31.8 50.2
Weighted average number of equity shares on which earnings per
share is based (000's) 11 387 11 387 11 387
Weighted average number of equity shares on which diluted earnings per
share is based (000's) 11 387 11 387 11 387
KEY RATIOS
Gross profit margin % 54.6 52.7 54.4
Retail operating costs to turnover % 46.3 50.5 53.0
Other operating costs to revenue % 46.6 50.8 53.1
Operating profit margin % 8.9 2.9 2.2
Retail segment operating profit margin % 8.4 2.3 1.4
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at As at
31 December 31 December 30 June
2018 2017 2018
Unaudited Unaudited Audited
Notes R'000 R'000 R'000
ASSETS
Non-current assets 206 702 158 395 156 096
Property. plant and equipment 59 623 60 776 60 721
Investment property 67 195 69 667 68 741
Intangible assets 21 880 23 821 22 980
Investment in associate 4.1 11 705 - -
Loan to associate 4.1 43 092 - -
Other investments 847 524 835
Deferred tax asset 2 360 3 607 2 819
Current assets 192 666 176 085 192 920
Inventories 4.2 129 607 67 461 92 132
Trade and other receivables 21 935 27 971 27 521
Forward exchange contracts 2 525 - 746
Income tax receivable 227 134 163
Accrued operating lease asset 267 3 189 2 859
Cash and cash equivalents 38 105 77 330 69 499
Total assets 399 368 334 480 349 016
Equity and liabilities
Capital and reserves 308 185 268 005 272 522
Share capital 4.3 1 200 1 200 1 200
Share premium 6 616 6 616 6 616
Share-based payment reserve (116) (116) (116)
Other reserves 1 443 1 301 1 438
Retained earnings 159 222 138 132 140 227
Non-controlling interest 139 820 120 872 123 157
Non-current liabilities 20 827 18 518 19 807
Post-retirement liability 778 910 792
Accrued operating lease liability 13 903 13 816 14 235
Deferred tax liability 6 146 3 792 4 780
Current liabilities 70 356 47 957 56 687
Trade and other payables 57 518 40 878 51 819
Accrued operating lease liability 4 635 5 027 4 849
Forward exchange contracts - 2 049 -
Income tax payable 8 203 3 19
Total equity and liabilities 399 368 334 480 349 016
OTHER INFORMATION AND KEY RATIOS
As at
As at As at 30 June
31 December 31 December 2018
2018 2017 Audited /
Unaudited Unaudited Unaudited
R'000 R'000 R'000
Capital commitments
Authorised - not contracted for (R'000) 3 046 6 199 12 102
Authorised - contracted for (R'000) 2 273 2 372 5 723
Return on equity ^ % 13.2 2.7 2.1
Return on capital ^ % 31.7 8.1 6.6
Return on assets ^ % 24.6 6.4 5.1
Inventory turn ^ times 2.9 4.0 3.2
Asset turn ^ times 1.9 1.9 1.7
Net asset value per share R 14.44 12.62 12.81
^ Ratios for December have been annualised
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months ended Six months ended Year ended
31 December 31 December 30 June
2018 Unaudited 2017 Unaudited 2018 Audited
R'000 R'000 R'000
Operating profit before working capital changes 42 963 24 713 39 367
Working capital changes (25 855) 4 710 (8 238)
Interest received 1 632 1 792 4 687
Interests paid (75) (99) (71)
Dividends paid (25) (25) (50)
Dividends received 23 22 45
Income tax (paid) / received (312) 1 012 167
Net cash inflow from operations 18 351 32 125 35 907
Additions to property, plant and equipment (7 789) (13 422) (22 951)
Additions to investment property (311) (517) (1 494)
Additions to intangible assets (533) (801) (1 908)
Proceeds from disposal of property, plant and equipment 215 - -
Loan advanced to associate (41 327) - -
Net cash outflow from investing activities (49 745) (14 740) (26 353)
Net (decrease) / increase in cash and cash equivalents (31 394) 17 385 9 554
Cash and cash equivalents at the beginning of the period 69 499 59 945 59 945
Cash and cash equivalents at the end of the period 38 105 77 330 69 499
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
Six months ended Six months ended Year ended
31 December 31 December 30 June
2018 Unaudited 2017 Unaudited 2018 Audited
R'000 R'000 R'000
Share capital 1 200 1 200 1 200
Share premium 6 616 6 616 6 616
Other reserves and share based payment reserve 1 327 1 185 1 322
Opening balance 1 322 1 185 1 185
Fair value adjustment on available-for-sale financial assets - - 137
Fair value adjustment on assets held at fair value through other
comprehensive income 5 - -
Retained earnings 159 222 138 132 140 227
Opening balance 140 227 134 518 134 518
Profit for the period 19 012 3 631 5 742
Preference dividends declared / paid (17) (17) (33)
Non-controlling interest 139 820 120 872 123 157
Opening balance 123 157 117 276 117 276
Profit for the period 16 667 3 604 5 790
Fair value adjustment on available-for-sale financial assets - - 108
Fair value adjustment on assets held at fair value through other
comprehensive income 4 - -
Preference dividends declared / paid (8) (8) (17)
Total capital and reserves 308 185 268 005 272 522
GROUP SEGMENTAL REPORTING
Six months ended Six months ended Year ended
31 December 31 December 30 June
2018 2017 2018
Unaudited Unaudited Audited
R'000 R'000 R'000
Revenue
Total external retail revenue 349 603 307 979 587 632
Retail segment revenue 352 399 309 970 591 644
Intersegment revenue earned (2 796) (1 991) (4 012)
Total external property revenue 8 667 7 713 15 700
Property segment revenue 11 543 10 518 21 381
Intersegment revenue earned (2 876) (2 805) (5 681)
Water infrastructure revenue 136 - -
Dividend income 23 22 45
Finance income 3 262 1 792 4 687
Total group revenue 361 691 317 506 608 064
Segment operating profit
Retail segment profit 29 364 7 003 8 171
Property segment profit 5 566 4 894 9 984
Water infrastructure profit 98 - -
Group services loss* (4 050) (3 019) (5 387)
Total group operating profit 30 978 8 878 12 768
Depreciation and amortisation
Retail 10 317 11 409 22 791
Property 2 032 2 013 4 046
Total group depreciation and amortisation 12 349 13 422 26 837
Segment assets
Retail 242 492 222 619 213 844
Property 76 885 75 234 78 475
Water infrastructure 54 797 - -
Group services* 25 194 36 627 56 697
Total group segment assets 399 368 334 480 349 016
Segment liabilities
Retail 79 123 58 573 67 805
Property 8 889 5 855 7 019
Water infrastructure 583 - -
Group services* 2 588 2 047 1 670
Total group segment liabilities 91 183 66 475 76 494
Capital expenditure
Retail 8 193 13 198 22 734
Property 440 1 542 3 619
Total group capital expenditure 8 633 14 740 26 353
* Group services include corporate costs
NOTES
1. Basis of presentation of financial statements
The unaudited condensed consolidated interim financial statements are prepared in accordance with the requirements
of the JSE Listings Requirements and the requirements of the Companies Act of South Africa. 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.
These financial statements have been prepared using accounting policies that comply with IFRS and which are
consistent with those applied in the preparation of the annual financial statements for the year ended 30 June 2018,
except for the adoption of IFRS 9: Financial Instruments and IFRS 15: Revenue from Contracts with Customers. Neither
standards however had a material impact on these results or comparative information.
2. Unaudited results
These results have not been reviewed nor audited by the group's auditors. The unaudited condensed consolidated
interim financial statements have been prepared under the supervision of WD Nel CA (SA), the company's fiancial
director, and were approved by the board of directors on 25 March 2019.
3. Preference dividend
A dividend on the 6% cumulative preference shares for the six months ended 31 December 2018 in the amount of R16 500
was declared by the board of directors on 14 December 2018 and was paid on 14 January 2019.
4. Notes to the financial results
4.1. Investment in and loan to associate:
During the period under review the group subscribed for 33.78% of the issued share capital of SA Water Works
Holding Company (RF) (Pty) Ltd (formerly SA Water Works Holding Company (Pty) Ltd) ("SAWW") for a nominal
consideration through its wholly-owned subsidiary, Ombrecorp Trading (RF) (Pty) Ltd (formerly Ombrecorp Trading
(Pty) Ltd) ("Ombrecorp") which was acquired as a shelf company for this purpose.
SAWW was specifically incorporated to house the water business interests of the group and is accounted for as an
associate within the group. Simultaneously with the subscription, SAWW acquired, through a wholly-owned subsidiary,
a majority equity interest in Sembcorp Siza Water (RF) (Pty) Ltd ("Sembcorp Siza") through shareholder and external
loan funding.
Sembcorp Siza conducts a water concession business operating predominantly in the municipal boundaries of the
Ilembe District Municipality and surrounding areas in Kwazulu-Natal, South Africa. Founded in 1998, it provides
water and water services to residential, industrial and commercial consumers pursuant to a concession agreement
executed between the Ilembe District Municipality and Sembcorp Siza's predecessors-in-title.
Subsequent to the aforementioned acquisition, SAWW acquired, via the same wholly-owned subsidiary, [i] 100% of the
ordinary issued share capital of SA Water Works Utilities Proprietary Limited (formerly Sembcorp Utilities South
Africa Proprietary Limited) ("SA Water Works Utilities") which holds 52% of the ordinary issued shares in
Silulumanzi - and [ii] 48% of the ordinary issued shares in the share capital of Silulumanzi, from Sembcorp
Utilities (Netherlands) NV.
SA Water Works Utilities has been in existence since 1998 and provides operation and maintenance services to
Silulumanzi. Silulumanzi conducts a water concession business, operating in the municipal boundaries of the City
of Mbombela Local Municipality and the greater parts of Nelspruit and, since 1999, has provided water and water
services to residential, commercial and industrial consumers pursuant to the concession agreement executed between
the City of Mbombela Local Municipality and Silulumanzi's predecessors-in-title.
Persuant to the introduction of a new SAWW shareholder, Ombrecorp's shareholding in SAWW was subsequently diluted
from 33.78% to 15.16%.
Subsequent to the reporting date, the principal operating subsidiary of the company, Rex Trueform Group Ltd
("Rex Trueform"), entered into a subscription agreement with certain not-for-profit organisations (being The
Community Chest of the Western Cape, Cornerstone Institute (RF) NPC, Desmond Tutu HIV Foundation NPC, the
Trustees for the time being of the District Six Museum Foundation Trust and the Trustees for the time being
of the Wheatfield Estate Foundation Trust) (collectively, the "new Ombrecorp Shareholders") and Ombrecorp
whereby Rex Trueform and each of the new Ombrecorp shareholders subscribed for new shares in Ombrecorp. Rex
Trueform's shareholding in Ombrecorp was consequently diluted from 100% to 52% due to the introduction of the
new Ombrecorp shareholders.
In addition, Ombrecorp subscribed for further SAWW ordinary shares and advanced further funding to SAWW such that
Ombrecorp now holds 30% of the issued share capital of SAWW. Further detail in this regard is contained in the SENS
announcement issued by Rex Trueform on 25 February 2019.
4.2 Inventories:
Inventories increased in line with the increased store foot print and the strategic acceleration of new store roll
outs in conjunction with a drive to increase turnover per store.
4.3 Share capital is comprised of the following:
As at As at
31 December 31 December As at
2018 2017 30 June 2018
Unaudited Unaudited Audited
R'000 R'000 R'000
Ordinary share capital 650 650 650
Preference share capital 550 550 550
1 200 1 200 1 200
5. Standards and interpretations issued but not yet effective
The following standard and interpretation that are relevant to the group have been issued but are not effective for
the period under review.
IFRS 16: Leases
Effective for annual period beginning on or after 1 January 2019
IFRS 16 replaces the existing lease standard, IAS 17 Leases, and related interpretations. The standard will be
adopted for the first time by the group for the financial year commencing 1 July 2019.
The group's property segment will not be significantly impacted as lessor accounting will remain largely unchanged.
The standard will significantly impact the group's retail segment operating from leased premises. Based on the new
standard the group will no longer be required to straight-line operating lease payments, as a result, occupancy costs
will decrease.
The new standard will require the recognition of a right of use asset and a corresponding lease liability resulting
in increased depreciation and finance costs. Key metrics in the statement of financial position and statement of
comprehensive income will be affected.
Optional exemptions for short-term leases and leases of low-value items will lessen the impact of the standard.
The group continues to assess the potential impact of the new standard on its consolidated financial statements,
including the assessment of the practical application of the principles contained in the new standard.
The actual impact of applying IFRS 16 on the financial statements in the period of initial application will depend
on, inter alia, future economic conditions including the group's borrowing rate at 1 July 2019, the criteria that meet
the definition of a lease, the composition of the store lease portfolio and the group's assessment of its intent to
exercise lease renewal options.
Once the new standard is adopted, the group will either apply the standard on a full or modified, with practical
expedients allowed per IFRS 16, retrospective basis.
IFRIC Interpretation 23: Uncertainty over Income Tax Treatment.
Effective for annual periods beginning on or after 1 January 2019
The interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects
the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically
include requirements relating to interest and penalties associated with uncertain tax treatments.
Management is in the process of assessing the potential impact of this new interpretation on the group.
COMMENTARY
The principal operating subsidiary, Rex Trueform Group Limited, reports as follows:
"Group profile
Rex Trueform Group Ltd ("Rex Trueform") is an investment holding company and is currently invested in property, retail
and water infrastructure. Its interest in retail is through its wholly-owned subsidiary company, Queenspark (Pty) Ltd
("Queenspark"), and its subsidiary. Rex Trueform's interest in property includes direct property ownership as well as
indirect property investment through a subsidiary. Rex Trueform's investment in water infrastructure is through its
wholly-owned subsidiary Ombrecorp Trading (RF) (Pty) Ltd and its investments. During the prior period, Rex Trueform changed
its name from Rex Trueform Clothing Company Ltd to Rex Trueform Group Ltd to better reflect the diverse nature of its
business.
Group results
The group produced a pleasing performance during the first half of the financial year. Revenue, mainly impacted by the
retail segment, increased by 13.9% to R361.9 million (2017: R317.7 million). The gross profit generated from the retail
segment increased by 17.5% to R190.8 million (2017: R162.4 million). Other group income which includes rental income
increased by 14.2%. Operating costs were contained and increased by 4.3%.
The result is that operating profit has increased by 234.7% to R32.2 million (2017: R9.6 million). Profit before tax
has increased by 316.3% to R47.2 million (2017: R11.3 million) resulting in the basic earnings per share increasing by
363.0%. Headline earnings per share has increased by 151.0%, mainly due to the exclusion of the gain from bargain purchase
of the investment in the water infrastructure business, amounting to R31.5 million.
Net asset value per share increased to R14.99 per share (2017: R12.99 per share).
Retail
The Queenspark store growth strategy progressed well with the opening of five new stores and the closure of one in the
period bringing the total number of walk-in stores in South Africa and Namibia to seventy-four, excluding one franchise
store in Kenya. Where feasible and the risk of cannibalisation is low, Queenspark continues to introduce new brands to
complement the existing ranges.
As a result of the implementation of its strategy, Queenspark's turnover increased by 13.5% and it achieved a gross
profit margin of 54.6% (2017: 52.7%). Retail operating costs, which included additional store costs, were well contained
and increased by a modest 3.9%. This resulted in a retail operating profit of R29.4 million (2017: R7.0 million).
Property
The Rex Trueform Office Park complex in Salt River is the main income generating operation within the group's property
segment. There are a further two undeveloped properties in the Salt River precinct: one has heritage significance and
the other is vacant land.
One further property is situated in the Wynberg precinct in Cape Town and is leased to Queenspark as a distribution centre.
The operating profit of this segment for the period amounted to R5.6 million (2017: R4.9 million). This improvement in
operating profit was partly due to the containment of operating costs.
Water infrastructure
The investment in water infrastructure was made during the period under review and contributed R11.8 million to the
profit for the period of the group.
Please refer to note 4.1 to the results for further details of the acquisition.
Group services
Costs for group services increased by 25.1% to R2.8 million (2017: R2.3 million). This was largely due to costs incurred
in setting up an employee share incentive scheme as well as printing and publication costs pertaining to the water
infrastructure investment.
Prospects
Retail
While the Queenspark strategy and initiatives are delivering the required result, management is cognisant of the
difficult trading environment (including having regard to the recent recurrence of load-shedding in South Africa) and
subdued economy.
Management however remains confident in the retail segment's future and in its ability to deliver sustainable growth
and value creation for shareholders.
Property
Rex Trueform has the intention to develop the two undeveloped properties in the medium term, both situated in the Cape
Town area, and is continuing to consider development options in this regard. One of the undeveloped properties has
heritage significance. As a result, decisions regarding the development of the property have been delayed in order
to consider the significance of the property in this regard and heritage guidelines more fully, whilst also ensuring
that any development is sustainable and economically viable. Financing is also being carefully considered in relation
to all development options."
MR Molosiwa
(Chairman)
MA Golding
(Chief Executive Officer)
Cape Town
25 March 2019
ADMINISTRATION
Directors:
MR Molosiwa* (Chairman), MA Golding (Chief Executive Officer), WD Nel (Financial Director),
HB Roberts*, PM Naylor*, LK Sebatane*
* Independent non-executive
There were no changes to the board of directors during this period.
Registered office:
263 Victoria Road, Salt River, Cape Town, 7925
Company Secretary:
AT Snitcher
Transfer secretaries:
Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
Sponsor:
Java Capital
Websites:
http://www.queenspark.com
http://www.rextrueform.com
Date: 25/03/2019 04:35:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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