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ANDULELA INVESTMENT HOLDINGS LIMITED - Abridged report for the year ended 31 December 2018 and notice of annual general meeting

Release Date: 27/03/2019 08:55
Code(s): AND     PDF:  
 
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Abridged report for the year ended 31 December 2018 and notice of annual general meeting

Andulela Investment Holdings Limited 
(Incorporated in the Republic of South Africa) 
(Registration number: 1950/037061/06)
JSE share code: AND
ISIN: ZAE000172870
("Andulela" or "the Company" or "the Group")

Abridged Report for the year ended 31 December 2018, notice of annual 
general meeting

Abridged statement of financial position                     

                                                     Audited     Audited
                                         Audited    Restated    Restated
                                            2018        2017        2016
                              Notes        R'000       R'000       R'000
Assets
Non-current assets                       371 453     397 891     709 918
Property, plant and equipment     1      300 376     325 029     340 952
Goodwill                          3       56 679      56 679     356 679
Deferred tax asset                        14 398      16 183      12 287
Current assets                           304 426     328 467     315 505
Inventory                                147 024     130 317     102 399
Trade and other receivables              151 090     185 487     191 508
Taxation                                     249         509       4 207
Cash and cash equivalents                  6 063      12 154      17 391
Total assets                             675 879     726 358   1 025 423
Equity and liabilities
Capital and reserves                      88 216      85 065     389 293
Stated capital                           976 114     976 114     976 114
Cash flow hedge reserve           4            -      (6 315)    (12 561)
Accumulated loss                        (893 887)   (889 971)   (630 425)
Non-controlling interest                   5 989       5 237      56 165
Non-current liabilities                  125 711     108 947     151 650
Redeemable preference share
capital                           6       32 421      30 845      29 182
Derivative financial 
liabilities                       4            -           -      10 488
Borrowings                        5       34 448           -      19 744
Lease liabilities                         19 042      40 602      58 205
Deferred tax liability                    39 800      37 500      34 031
Current liabilities                      461 952     532 346     484 480
Trade and other payables                  74 909      99 887     125 558
Lease liabilities                         21 559      17 603      14 176
Derivative financial
liabilities                       4            -      10 492      10 383
Borrowings                        5      354 426     387 497     334 363
Bank overdraft                            11 058      16 867           -
Total equity and liabilities             675 879     726 358   1 025 423
Net asset value per share
(cents)                                    93,82       91,08      380,09
Net tangible asset value per
share (cents)                              39,76       37,02       39,91


Abridged statement of comprehensive income          
                                                                 Audited
                                                     Audited    Restated
                                                        2018        2017
                                          Notes        R'000       R'000
Revenue                                            1 287 509   1 397 895
Cost of sales                                     (1 061 731) (1 180 794)
Gross profit                                         225 778     217 101
Profit from operations before taking 
the following into account                            41 053      28 333
Investment income                                         86       1 231
Impairment of goodwill                                     -    (300 000)
Finance costs                                        (44 389)    (44 596)
Loss before taxation                                  (3 250)   (315 032)
Taxation                                              (1 152)      3 331
Net loss for the year                                 (4 402)   (311 701)
Other comprehensive income
Items that may be reclassified subsequently
to profit or loss:                                     7 554       7 473
? Movement in derivative cash flow hedge      4       10 492      10 379
? Deferred tax charge                         4       (2 938)     (2 906)
Total comprehensive profit/(loss)                      3 152    (304 228)
Net loss attributable to:                             (4 402)   (311 701)
? Equity holders of Andulela                          (3 916)   (259 546)
? Non-controlling interest                              (486)    (52 155)
Total comprehensive profit/(loss) 
attributable to:                                       3 152    (304 228)
? Equity holders of Andulela                           2 399    (253 300)
? Non-controlling interest                               753     (50 928)
Total and weighted average number of ordinary
shares in issue (millions)*                            87,64       87,64
Headline loss
Attributable net loss                                 (3 916)   (259 546)
Add back: gain on sale of plant and equipment            (38)         (6)
Tax effect of the above                                   11           2
Impairment of goodwill                                     -     250 770
Headline loss                                         (3 943)     (8 780)
Loss per ordinary share (cents)*                       (4,47)    (296,13)
Headline loss per ordinary share (cents)*              (4,49)     (10,01)
Dividends per ordinary share (cents)                       -           ?

* The loss per ordinary share and the headline loss per ordinary share are 
calculated by dividing the loss and the headline loss by the weighted 
average number of ordinary shares in issue during the year. The Company 
does not have any dilutive instruments in issue.


Statement of cash flows

                                                                 Audited
                                                     Audited    Restated
                                                        2018        2017
                                                       R'000       R'000
Cash flows from operating activities:
Loss for the year                                     (3 250)   (315 032)
Adjusted for:
Depreciation of property, plant and equipment         30 312      32 258
Finance charges                                       44 389      44 596
Investment income                                        (86)     (1 231)
Profit on disposal of property, plant and equipment      (38)         (6)
Impairment of goodwill                                     -     300 000
Working capital changes:
Increase in inventories                              (16 707)    (27 918)
Decrease in trade and other receivables               33 576       6 021
Decrease in trade and other payables                 (23 515)    (25 691)
Cash generated by operating activities                64 681      12 997
Investment income                                         86       1 231
Finance costs                                        (38 371)    (37 063)
Income tax received                                      254       3 697
Net cash from operating activities                    26 650    (19 138)
Cash flow from investing activities:
Acquisition of property, plant and equipment          (5 682)    (16 370)
Proceeds on disposal of property, plant 
and equipment                                             60          41
Net cash utilised in investing activities             (5 622)    (16 329)
Cash flow from financing activities:
Borrowings raised                                     45 046     110 099
Borrowings repaid                                    (44 311)    (76 689)
Preference dividend paid                                 (70)        (69)
Operating lease payments                             (21 975)    (19 978)
Net cash (used in)/generated by financing
activities                                           (21 310)      13 363
Decrease in cash and cash equivalents                   (282)    (22 104)
Cash and cash equivalents at the beginning 
of the year                                           (4 713)      17 391
Cash and cash equivalents at the end of the year      (4 995)     (4 713)


Abridged statement of changes in equity
 
                                                        2018        2017
                                                       R'000       R'000
Balance previously reported                           85 065     397 215
Adjustment for change in accounting policy (note 2)        -      (7 922)
Adjusted opening balance                              85 065     389 293
Movements for the year:
? Net loss for the year attributable to equity
holders of Andulela                                   (3 916)   (259 546)
? Cash flow hedge reserve net of deferred tax          6 314       6 246
? Non-controlling interest                               753     (50 928)
Closing balances                                      88 216      85 065


Notes
Basis of preparation
The abridged financial statements are prepared in accordance with the
requirements of the JSE Listings Requirements for abridged reports, and 
the requirements of the Companies Act applicable to summary financial 
statements. The JSE Listings Requirements require abridged 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 annual financial 
statements, from which this abridged report were derived, are in terms of 
IFRS and are consistent with the accounting policies applied in the 
preparation of the previous consolidated annual financial statements, 
except for the adoption of the accounting standards which became effective 
on 1 January 2018 and the early adoption of IFRS16 - leases. The directors
take full responsibility for the preparation of the abridged reports and 
the financial information has been correctly extracted from the underlying 
annual financial statements. These results were prepared under the 
supervision of Henk Engelbrecht CA(SA), the Group Chief Financial Officer.

Audit conclusion
This abridged report is extracted from audited information, but is not 
itself audited. The directors take responsibility for the preparation of 
this abridged report based on the underlying audited annual financial 
statements. The annual financial statements were audited by BDO South 
Africa Incorporated, who expressed an unmodified opinion thereon. The 
audited annual financial statements and the auditor's report thereon 
are available for inspection at the Company's registered office.

1. Property, plant and equipment
 
                                                        2018        2017
                                                       R'000       R'000
Opening balance                                      325 029     340 952
Additions                                              5 682      16 370
Disposals                                                (23)        (35)
Depreciation                                         (30 312)    (32 258)
Carrying value                                       300 376     325 029

2. Changes in accounting policies
IFRS9 ? Financial instruments and IFRS15 ? Revenue from contracts with 
customers became effective for financial years that started from 
1 January 2018. The adoption of these accounting standards did not have 
a material effect on the financial results or position of the Group for 
the year ended 31 December 2018.

IFRS 16 - Leases, becomes effective on 1 January 2019. Companies are 
permitted to early adopt the accounting standard.

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

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

Adjustment of financial results           Before       After      Change
- 31 December 2017                         R'000       R'000       R'000
Statement of financial position
Property, plant and equipment            293 505     325 029      31 524
Lease liabilities                        (16 374)    (58 204)    (41 830)
Deferred tax liability                   (40 386)    (37 500)      2 886
Accumulated loss                         882 550     889 971       7 421
Statement of comprehensive income
Operating expenses                       197 177     190 678      (6 499)
Finance costs                             38 795      44 596       5 801
Deferred tax expense                      (3 527)     (3 331)        196
Net loss for the year                    312 203     311 701         502
Loss and diluted loss per share
(cents)                                  (296,71)    (296,13)       0,58
Headline and diluted headline loss 
per share (cents)                         (10,59)     (10,01)       0,58

The Group disclosed the financial effects of the adoption of IFRS 16 on 
its results for the year ended on 31 December 2017 in its interim 
results for the six months ended 30 June 2018, which was published on 
26 September 2018. The restated numbers for the year ended 
31 December 2017 were incorrect due to the approach followed in the 
calculation of the net present value of the future lease premiums and 
the consequent redemption of the lease liabilities. The redemption of 
the lease liability and the interest cost thereon were based on equal 
monthly payments instead of on the actual monthly lease payments.

The effect of the incorrect approach on the results of the Group for the 
year ended 31 December 2017, with the results published in the interim 
results announcement in September 2018 in the "Before" column and the 
correct results as per this announcement in the "After" column, can be 
summarised as follows:

Adjustment of financial results            Before       After      Change 
- 31 December 2017                          R'000       R'000       R'000
Statement of financial position
Property, plant and equipment             325 772     325 029        (747)
Lease liabilities                         (43 026)    (58 204)    (15 178)
Deferred tax liability                    (41 958)    (37 500)      4 458
Accumulated loss                          878 507     889 971      11 464
Statement of comprehensive income
Operating expenses                        192 956     190 678      (2 278)
Finance costs                              43 810      44 596         786
Deferred tax expense                       (3 752)     (3 331)        421
Net loss for the year                     312 782     311 701       1 071
Loss and diluted loss per share
(cents)                                   (297,37)    (296,13)       1,24
Headline and diluted headline loss per
share (cents)                              (11,25)     (10,01)       1,24

The main effect of the incorrect approach was on the allocation between 
the lease liability, deferred tax liability and accumulated loss.

3. Goodwill
The goodwill arose from the acquisition of the remaining interests in 
Abalengani Mining Investments Proprietary Limited ("AMI") and JB Platinum 
Holdings Proprietary Limited ("JBPH") by the Company in 2010. AMI and JBPH 
respectively hold 49,63% and 33,96% in Kilken Platinum Proprietary Limited 
("Kilken") as their only investments.

A discounted cash flow ("DCF") model was constructed by management based 
on the value in use to determine the recoverable amount for the cash-
generating operations of the Kilken Imbani Joint Venture,in which Kilken 
is a 70% partner, using a discount rate of 17,6% (2017: 17,4%), based on 
the risk-free rate adjusted for market, sector and project-specific risks 
and an annual Platinum Group Metals ("PGM") production rate of 11 574 ounces 
(2017: 12 539 ounces) (extrapolated from historic production volumes). 
Forecast PGM metals prices and the USD/ZAR exchange rates were derived from 
a consensus forecast from reputable external market analysts. The DCF 
valuation model takes into account attributable net cash flows from the 
operation for 35 years, which is consistent with the industry standard 
for this type of valuation and is also consistent with the extended 
life-of-mine agreement in place with Rustenburg Platinum Mines ("RPM"). 
The tailings head feed is based on the average monthly feed received 
from the mine.

Production levels at the Kilken plant stabilized, operating costs have 
been controlled and the chrome content in the tailings have been reduced 
during the year under review. Commodity prices in Rand terms improved 
significantly during the year, which contributed to the improved 
performance of the business.

As at 31 December 2018 the updated DCF valuation resulted in an estimated 
recoverable amount of R85 million for the Group's effective interest 
in the cash generating unit and no further impairment was therefore 
required against goodwill.

4. Derivative financial liability
In 2012 Kilken entered into a hedge agreement for 30% of its cash flow 
from the production revenue of platinum, palladium and gold at the 
request of a financier in line with its funding requirements. The 
hedge was intended to mitigate the cash flow risk related to 
commodity price fluctuations and movements in the ZAR/USD exchange 
rate in order to repay the funding facility to the financier.

The cash flow hedge was recognised as a hedging instrument at fair 
value for the first time in the statement of financial position at 
31 December 2012, without taking account of any collateral held or 
other credit enhancements over the remainder of the hedge contract 
term which started on 1 September 2012 and expired on 
30 September 2018.

For the year ended 31 December 2018, a gain of R7,6 million 
(2017: R7,5 million) after deferred tax has been recognised in other 
comprehensive income and a decrease in the cash flow hedge reserve of 
R6,3 million, net of non-controlling interests, in the statement of 
financial position. The loss realised and netted off against the 
revenue was R8,8 million for the year ended 31 December 2018 
(2017: R13,2 million).

5. Borrowings
Total borrowings of the Group amounted to R388,9 million as at 
31 December 2018 compared to R387.5 million as at 31 December 2017, 
and can be summarised as follows:

                                                        2018        2017
                                                       R'000       R'000
Absa Bank Limited                                      3 946      33 647
Reichmans Capital Proprietary Limited                347 480     339 240
Waleed Investment Holdings Proprietary Limited        37 448           -
Thunder Rate Investments Proprietary Limited               -      13 903
The Rafik Mohamed Family Trust                             -         707
Total borrowings                                     388 874     387 497
Less: Short-term borrowings                          354 426     387 497
Non-current liabilities                               34 448           -

The Reichmans facility to PRSM is an asset based and working capital 
facility, which is structured as a current facility, even though capital 
expenditure to acquire plant and equipment has been funded from this 
facility.

6.  Redeemable preference share capital
The Company and the preference shareholder mutually agreed to suspend 
the repayment of the redeemable preference share capital and the accrued 
preference dividends until at least 1 January 2022. The redeemable 
preference share capital and the accrued preference dividends are 
therefore classified as non-current liabilities.

7. Financial instruments
The Derivative financial liability was measured at fair value. The fair 
value of the derivative financial liability was a level 2 recurring 
fair value measurement and was obtained directly from the service 
provider, calculated as the present value of the estimated future 
cash flows based on the observable commodity prices and current 
exchange rates. Refer to note 4 above for more information on the cash 
flow hedge. 

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

8. Material related-party transactions and balances

                                                        2018        2017
                                                       R'000       R'000
Sales to related parties                             (85 665)    (80 600)
Purchases from related parties                        58 539      24 772
Administration and management fees paid
to related parties                                       300         225
Preference dividend expense                            1 645       1 732
Rent expenses paid to related parties                 24 138      22 906
Trade receivables                                      9 556      33 183
Trade payables                                        (4 271)     (7 880)
Borrowings from related parties                      (37 448)    (14 611)
Cumulative redeemable preference shares              (32 421)    (30 845)

9. Segment reporting
The Group Chief Executive Officer is the Group's chief operating 
decision-maker. Management has determined the operating segments based on 
the information reviewed by the Group Chief Executive Officer for the 
purposes of allocating resources and assessing performance and risk. The 
Group has two main reportable segments, namely the production of Platinum 
Group Metals at the Kilken Platinum tailings treatment facility and the 
processing and distribution of steel products by the Pro Roof Steel 
Merchants group.

                                                        2018        2017
                                                       R'000       R'000
Revenue
Tailings treatment facility                           56 597      45 067
Steel processing plants                            1 230 912   1 352 828
Total revenue                                      1 287 509   1 397 895

There are no sales between segments. 

Profit/(loss) after tax
Tailings treatment facility                           (2 964)    (17 824)
Steel processing plants                                4 801       8 823
Goodwill impairment ? tailings treatment
facility                                                   -    (300 000)
Other unallocated                                     (6 239)     (2 700)
Total loss after tax                                  (4 402)   (311 701)
Assets
Tailings treatment facility                           59 931      56 310
Steel processing plants                              589 903     629 646
Inter-group eliminations                             (30 634)    (16 277)
Reportable segment assets                            619 200     669 679
Goodwill ? tailings treatment facility                56 679      56 679
Total assets                                         675 879     726 358
Liabilities
Tailings treatment facility                           86 114      87 836
Steel processing plants                              495 954     535 441
Other unallocated liabilities                         39 506       6 557
Inter-group eliminations                             (66 332)    (12 829)
Reportable segment liabilities                       555 242     610 448
Redeemable preference shares                          32 421      30 845
Total liabilities                                    587 663     641 293


10. Events subsequent to the year-end
No events occurred subsequent to year-end up to the date of this 
announcement which could have a material effect on the results of the 
Group or its subsidiaries.

11. Going concern
The annual financial statements have been prepared on the basis of 
accounting policies applicable to a going concern. This basis presumes 
that funds will be available to finance future operations and that the 
realisation of assets and settlement of liabilities, contingent 
obligations and commitments will occur in the ordinary course of business.

The Group incurred a net loss for the year ended 31 December 2018 of 
R4,4 million and as at that date its current liabilities exceeded its 
current assets due to amongst other factors, the short-term nature of 
some of its debt facilities with financial institutions.

The Company and the preference shareholder have mutually agreed to 
suspend the repayment of the preference shares and the accrued dividends 
until at least 1 January 2022. The Group has access to sufficient 
financial facilities and cash resources to meet its obligations as and 
when they become due over the next twelve months. Both operating 
subsidiaries continue to service their borrowings and other financial 
obligations as and when they become due. The Directors are therefore 
satisfied with applying the going concern principle.

Nature of the business
The Company is an investment holding company with controlling interests 
in the group companies.

Directorate and company secretary
There were no changes to the board of directors during the past financial 
year. The current directors of the Company at the date of this report 
are as follows:

Name                                   Appointment
MJ Husain (Chairman)#                  26 February 2010
A Kaka (CEO)                           26 February 2010
JHP Engelbrecht (CFO)                  1 October 2015
BW Smith#                              1 October 2014
PE du Preez#                           1 October 2011
NMS Hadjee#                            1 July 2014

#Independent non-executive


Financial review
Kilken started the year with some challenges around production, chrome 
content and cost overruns, but this has improved significantly with 
production levels stabilizing, the chrome content being managed at 
more acceptable levels and costs being controlled. The increase in the 
Rand-based commodity prices, especially the palladium and rhodium 
prices, together with the final settlement of the cash flow hedge in 
September 2018, contributed to the improved revenue and results from 
this company.

PRSM experienced a tough year as construction activity remained 
subdued. 

Revenue decreased from R1,4 billion in 2017 to R1,3 billion in 2018, 
after accounting for the negative impact of the cash flow hedge, 
which reduced revenue by R8,8 million for the year (2017:R13,2 million).

Against this background, the Group posted a loss after tax of 
R4,4 million (2017: R11,7 million).

Overall debt levels showed a slight improvement from R435 million 
for 2017 to R431 million for 2018. PRSM debt levels increased from 
R339 million in 2017 to R347 million in 2018.

Kilken
Production levels stabilized during the second half of the year and 
costs were contained, which reduced the chrome content to more 
acceptable levels. The higher commodity prices in Rand terms, and the 
final settlement of the cash flow hedge in September 2018, contributed 
to the increased revenue and cash flow for the 2018 year.

The overall debt position of the company remained high as the company 
had to raise funding from other financiers to enable it to settle the 
Absa debt and cash flow hedge, but with the improved cash flows, the 
company should be able to start servicing the debt in the coming years.

The cash flow hedge expired in September 2018, which will have a 
significant positive impact on the results of Kilken Platinum going 
forward.

PRSM
The local market remained under pressure during the year under review, 
with limited construction activity as the political uncertainty continued 
to impact business confidence and investment in infrastructure and related 
projects. 

As a result, revenue decreased by 9% from 2017 to 2018.

Interest expense increased due to increased interest-bearing debt levels 
during the year.

Capital expenditure of R5.2 million was incurred during 2018 to replace 
old plant and equipment with newer technology which contributed to reduce 
production costs and improve profitability.

No major improvements in trading conditions are expected in 2019. The 
continued focus on cost management, plant upgrade and new customers and 
product ranges drive management's strategy to increase revenue and 
profitability.

The financial information on which the prospects are based has not been
reviewed or reported on by the Company's auditors.

Availability of broad-based black economic empowerment annual compliance 
report
Shareholders are hereby notified that, in accordance with the JSE Listings 
Requirements, Kilken Imbani Joint Venture has been issued with a BEE 
certificate, with a Level 2 rating in terms of section 13G(2) of the 
Broad- Based Black Economic Empowerment Act, No. 53 of 2003, read with 
the Broad-Based Black Economic Empowerment Amendment Act, No. 46 of 2013, 
which is valid for the 2018/2019 period, has been published and is 
available at http://www. andulelaholdings.com

Pro Roof Steel Merchants is in the process of finalising its BEE 
certification and its BEE certificate will be posted on the Company's 
website once it is available.

Notice of annual general meeting
The integrated annual report contains a notice of annual general meeting 
which will be held at 10 Sloane Street, Bryanston on Wednesday, 26 June 2019 
at 09h00.

The last day to trade in order to be eligible to participate in and vote at 
the annual general meeting is Tuesday, 18 June 2019 and the record date for 
voting purposes is Friday, 21 June 2019.

The annual report including the notice of the annual general meeting will 
be distributed to shareholders and will be available on the Company's 
website, www.andulelaholdings.com, by Thursday, 28 March 2019.

For and on behalf of the Board

Mohamed J Husain                            Ashruf Kaka
Independent Non-executive Chairman          Chief Executive Officer

Sandton
25 March 2019

Registered Office
108 4th Street, Parkmore, Sandton 2196

Directors
MJ Husain# (Chairman), A Kaka (CEO), JHP Engelbrecht (CFO), BW Smith#, 
PE du Preez#, NMS Hadjee#
#Independent non-executive

Company Secretary
Ms GH Miller

Auditors
BDO South Africa Incorporated
Building 5, Summit Place
221 Garsfontein Road
Menlyn 0181

Transfer Secretaries
4 Africa Exchange Registry Proprietary Limited
Cedarwood House, Ballywood Office Park
33 Ballyclare Drive
Bryanston, 2121

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

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