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Unaudited consolidated interim financial statements for the six months ended 30 June 2018
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")
Unaudited consolidated interim financial statements
for the six months ended 30 June 2018
Consolidated statements of financial position
Restated
Restated Audited
Unaudited Unaudited Year
as at as at ended
30 June 30 June 31 Dec
2018 2017 2017
Notes R'000 R'000 R'000
Assets
Non-current assets 386 224 400 505 398 633
- Plant and equipment 1 286 222 292 117 293 505
- Right of use assets 2 26 400 38 133 32 267
- Goodwill 3 56 679 56 679 56 679
- Deferred tax asset 16 923 13 576 16 182
Current assets 428 074 385 795 328 467
- Inventory 228 797 126 622 130 317
- Trade and other receivables 190 276 248 038 185 487
- Taxation 509 4 208 509
- Cash and cash equivalents 8 492 6 927 12 154
Total assets 814 298 786 300 727 100
Equity and liabilities
Capital and reserves 91 270 93 479 96 529
- Stated capital 976 114 976 114 976 114
- Cash flow hedge reserve 4 (1 928) (9 939) (6 315)
- Accumulated loss (887 841) (879 038) (878 507)
- Non-controlling interest 4 925 6 342 5 237
Non-current liabilities 115 395 107 090 101 528
- Redeemable preference share capital 31 654 30 040 30 845
- Derivative financial liabilities 4 - 3 346 -
- Borrowings 5 21 204 - -
- Operating lease liabilities 21 022 36 053 28 725
- Deferred tax liability 41 515 37 651 41 958
Current liabilities 607 633 585 731 529 043
- Trade and other payables 220 669 163 799 99 886
- Operating lease liabilities 15 031 13 607 14 301
- Derivative financial liabilities 4 3 205 13 169 10 492
- Borrowings 5 351 927 395 156 387 497
- Bank overdraft 16 801 - 16 867
Total equity and liabilities 814 298 786 300 727 100
Net asset value per share (cents) 98,52 99,42 104,16
Net tangible asset value per
share (cents) 44,46 45,36 50,10
Consolidated statements of comprehensive income
Restated Restated
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
Notes R'000 R'000 R'000
Revenue 674 732 723 458 1 397 895
Cost of sales (569 413) (626 058) (1 180 819)
Gross profit 105 319 97 400 217 076
Profit from operations 8 723 6 383 26 046
Investment income 40 524 1 231
Impairment of goodwill - (300 000) (300 000)
Finance costs (21 982) (22 170) (43 810)
(Loss) before taxation (13 219) (315 263) (316 533)
Taxation 2 712 3 766 3 751
Net (loss) after tax (10 507) (311 497) (312 782)
Other comprehensive income
Items that may be reclassified
subsequently to profit or loss: 5 247 3 136 7 473
Movement in cash flow hedge 4 7 288 4 356 10 379
Deferred tax charge 4 (2 041) (1 220) (2 906)
Total comprehensive (loss) (5 260) (308 361) (305 309)
Net (loss) attributable to: (10 507) (311 497) (312 782)
- Equity holders of Andulela (9 334) (261 158) (260 627)
- Non-controlling interest (1 173) (50 339) (52 155)
Total comprehensive (loss)
attributable to: (5 260) (308 361) (305 309)
- Equity holders of Andulela (4 948) (258 537) (254 381)
- Non-controlling interest (312) (49 824) (50 928)
Ordinary shares in issue (millions)* 87,64 87,64 87,64
Weighted average number of ordinary
shares in issue (millions)* 87,64 87,64 87,64
Attributable net (loss) (9 334) (261 158) (260 627)
- Profit on sale of plant and
equipment (38) - (6)
- Tax effect of the above 11 - 2
- Impairment of goodwill - 300 000 300 000
- Non-controlling interest in
goodwill impairment - (49 230) (49 230)
Headline (loss) (9 361) (10 388) (9 861)
Basic and diluted (loss) per
ordinary share (cents)* (10,65) (297,97) (297,37)
Headline and diluted headline (loss)
per ordinary share (cents)* (10,68) (11,85) (11,25)
Dividends per ordinary share (cents) - - -
*The basic and diluted (loss) per ordinary share and the headline and diluted
headline (loss) per ordinary share are calculated by dividing the basic and diluted
(loss) and the headline and diluted headline (loss) by the weighted average number
of ordinary shares in issue during the year.
Consolidated statements of cash flows
Restated Restated
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
R'000 R'000 R'000
Operating activities
Operating profit/(loss) 8 723 (293 617) (273 954)
Depreciation and amortisation 16 073 16 315 32 528
Impairment of goodwill - 300 000 300 000
Profit on disposal of plant and equipment (38) - (6)
(Increase) in inventories (98 479) (24 224) (27 918)
(Increase)/decrease in trade receivables (4 789) (56 529) 6 021
Increase/(decrease) in trade payables 122 098 38 244 (25 692)
Operating lease payments (10 808) (8 980) (17 960)
Cash generated/(utilised) by
operating activities 32 780 (28 791) (6 981)
Finance income 40 524 1 231
Finance costs (19 166) (18 644) (37 063)
Income tax received – prior years - - 3 697
Net cash from operating activities 13 654 (46 911) (39 116)
Investing activities
Plant and equipment acquired (2 944) (5 088) (16 370)
Proceeds on disposal of plant and equipment 60 488 41
Net cash utilised in investing activities (2 884) (4 600) (16 329)
Financing activities
Borrowings raised 23 313 73 950 110 099
Borrowings repaid (37 679) (32 903) (76 689)
Preference dividend paid - - (69)
Net cash (utilised)/generated by
financing activities (14 366) 41 047 33 341
Change in cash and equivalents (3 596) (10 464) (22 104)
Opening cash and equivalents (4 713) 17 391 17 391
Closing cash and equivalents (8 309) 6 927 (4 713)
Consolidated statements of changes in equity
Restated Restated
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
R'000 R'000 R'000
Balance previously reported 96 529 397 216 397 216
Adjustment for change in accounting
policy (Refer note 2) - 4 622 4 622
Adjusted opening balances 96 529 401 838 401 838
Movements for the period:
- Net loss attributable to equity
holders of Andulela (9 334) (261 158) (260 627)
- Cash flow hedge reserve net of
deferred tax 4 387 2 623 6 246
- Non-controlling interest (312) (49 824) (50 928)
Closing balances 91 270 93 479 96 529
Notes to the consolidated interim financial statements
Basis of preparation
The unaudited consolidated interim financial statements for the six months ended
30 June 2018 were prepared in accordance with the JSE Listings Requirements for
provisional reports and the requirements of the Companies Act of South Africa.
The JSE Listings Requirements require 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 consolidated interim
financial statements for the six months ended 30 June 2018 are in terms of IFRS and
consistent with those of the annual financial statements for the year ended
31 December 2017, except for the adoption of the following statements and amendments
which became effective during the period:
- IFRS 9 Financial Instruments; and
- IFRS 15 Revenue from Contracts with Customers.
These standards and amendments had no material impact on the results reported on
for the six months ended 30 June 2018.
The Group elected to early adopt IFRS 16 Leases, with effect from 1 January
2018. Refer to note 2 for detail on the financial effects of the adoption of this
statement.
The directors are not aware of any matters or circumstances arising subsequent to
30 June 2018 that require additional disclosure or adjustments to the financial
statements. The directors take responsibility for the preparation of the
consolidated interim financial statements based on the underlying financial
information. These results were prepared by Henk Engelbrecht CA(SA), the Group
Chief Financial Officer. The interim financial statements have not been reviewed
or reported on by the Group's auditors.
1. Plant and equipment
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
R'000 R'000 R'000
Opening balance 293 505 297 964 297 964
Additions 2 944 5 088 16 370
Disposals (21) (488) (34)
Depreciation (10 206) (10 447) (20 795)
Plant and equipment at carrying value 286 222 292 117 293 505
Pro Roof Steel Merchants ("PRSM") invested R2,9 million in plant and equipment
during the past six months as part of its strategy to replace ageing equipment and
to expand its business.
2. Lease assets and liabilities - change in accounting policy
IFRS 16, dealing with leases, becomes effective on 1 January 2019, but companies are
permitted to adopt the standard before then.
The operating 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 of 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 six months
ended 30 June 2017 and the year ended 31 December 2017, are set out below:
Adjustment of financial results - 30 June 2017
Before After Change
R'000 R'000 R'000
Statements of financial position
- Right of use assets - 38 133 38 133
- Operating lease liabilities (17 548) (49 660) (32 112)
- Deferred tax liability (35 966) (37 651) (1 685)
- Accumulated loss 883 372 879 038 (4 334)
Statements of comprehensive income
- Operating expenses 94 311 92 043 (2 268)
- Finance costs 19 502 22 170 2 668
- Deferred tax expense (3 654) (3 766) (112)
- Net loss for the period 311 208 311 497 288
- Loss and diluted loss per share (cents) (297,64) (297,97) (0,33)
- Headline and diluted headline loss per
share (cents) (11,52) (11,85) (0,33)
Adjustment of financial results - 31 December 2017
Before After Change
R'000 R'000 R'000
Statements of financial position
- Right of use assets - 32 267 32 267
- Operating lease liabilities (16 374) (43 026) (26 652)
- Deferred tax liability (40 386) (41 958) (1 572)
- Accumulated loss 882 550 878 507 (4 043)
Statements of comprehensive income
- Operating expenses 197 177 192 966 (4 211)
- Finance costs 38 795 43 810 5 015
- Deferred tax expense (3 526) (3 751) (225)
- Net loss for the period 312 203 312 782 579
- Loss and diluted loss per share (cents) (296,71) (297,37) (0,66)
- Headline and diluted headline loss per
share (cents) (10,59) (11,25) (0,66)
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
pre-tax real discount rate of 12,26% (2017: 11,99%), 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: 11 574 ounces)
(extrapolated from historic production volumes). Forecast PGM 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. The
tailings head feed is based on the average monthly feed received from the mine.
The profitability of the Kilken operations continues to be negatively affected by
the increased chrome content in the tailings and the consequent increased chrome
content penalties.
Based on the assumptions above, no further impairment of goodwill is required at
30 June 2018. The directors will assess the goodwill again at year-end.
4. Cash flow hedge
In June 2012, Kilken entered into a hedge agreement for 30% of its cash flow
from the production revenue of platinum, palladium and gold at that date, in
favour of a financier. The hedge, in terms of which specific monthly quantities
and pricing of the three commodities mentioned above have been agreed on for
the period to September 2018, 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.
In accordance with IAS 39, 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 will end on 30 September 2018.
For the six months ended 30 June 2018, a gain of R5,2 million (2017:
R3,1 million) after deferred tax was recognised in other comprehensive income
and a decrease in the cash flow hedge reserve from December 2017 to June 2018
of R4,4 million, net of non-controlling interests, in the statement of
financial position. The loss realised and netted off against the revenue was
R4,8 million for the six months ended 30 June 2018 (2017: R5,8 million).
The cash flow hedge cost will be accounted for as either a profit or a loss as
it becomes effective and the cash settlements are actually made over the
duration of the term of the hedge contract.
5. Borrowings
Total borrowings of the Group amounted to R373,1 million at 30 June 2018
compared to R395,2 million at 30 June 2017, and can be summarised as follows:
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
R'000 R'000 R'000
Absa Bank Limited 17 267 61 959 33 647
Reichmans Capital Proprietary Limited 332 551 303 092 339 240
Thunder Rate Investments
Proprietary Limited - 29 397 13 903
The Rafik Mohamed Family Trust - 708 707
Waleed Investment Holdings
Proprietary Limited 21 204 - -
Kilken Imbani JV 2 109 - -
Total borrowings 373 131 395 156 387 497
Current liabilities 351 927 395 156 387 497
Non-current liabilities 21 204 - -
The Reichmans facilities to PRSM are working capital and asset finance facilities
which have been structured as short-term facilities.
The Absa Bank facilities will be settled by 31 December 2018.
6. Financial instruments
The derivative financial instrument - cash flow hedge is measured at fair value.
The fair value of the derivative financial liability is a level 2 recurring fair
value measurement and is 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
approximate their carrying values.
7. Material related party transactions and balances
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
R'000 R'000 R'000
Sales (37 522) (34 112) (80 600)
Purchases 20 835 19 681 24 772
Preference dividend expense 809 859 1 732
Rent expense 12 730 10 792 22 906
Trade receivables 14 237 30 744 33 183
Trade payables 4 902 5 085 7 880
Loan accounts - owing to related parties (23 313) (30 114) (14 611)
Cumulative redeemable preference shares (31 654) (30 040) (30 845)
8. Segment reporting
The Group Chief Executive Officer, who is the Group's chief operating
decision-maker, has determined the operating segments based on the allocation of
resources and the assessment of performance. The Group has two sources of income,
namely the production of platinum group metals at the Kilken tailings treatment
facility and the processing and distribution of steel products by PRSM.
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 Dec
2018 2017 2017
R'000 R'000 R'000
Tailings treatment facility 20 206 22 942 45 067
Steel processing 654 526 700 516 1 352 828
Total revenue 674 732 723 458 1 397 895
There are no sales between segments.
(Loss)/profit after tax
Tailings treatment facility (7 149) (6 772) (17 824)
Steel processing (1 543) (2 571) 7 742
Goodwill impairment - tailings
treatment facility – (300 000) (300 000)
Other unallocated (1 815) (2 154) (2 700)
Total (loss) after tax (10 507) (311 497) (312 782)
Assets
Tailings treatment facility 56 692 64 289 56 310
Steel processing 727 597 681 696 633 788
Inter-group eliminations (26 670) (16 364) (19 677)
Reportable segment assets 757 619 729 621 670 421
Goodwill - tailings treatment facility 56 679 56 679 56 679
Total assets 814 298 786 300 727 100
Liabilities
Tailings treatment facility 88 627 87 589 87 836
Steel processing 624 786 586 339 528 117
Inter-group eliminations (29 766) (15 232) (22 784)
Reportable segment liabilities 683 647 658 696 593 169
Redeemable preference shares 31 654 30 040 30 845
Other unallocated liabilities of parent 7 727 4 085 6 557
Total liabilities 723 028 692 821 630 571
9. Events subsequent to the period-end
The directors are not aware of any events that occurred subsequent to the
period-end and until the date of this announcement which could have a material
effect on the results of the Group or its subsidiaries.
10. Commitments
The Group had no outstanding capital commitments at 30 June 2018
(2017: R7,7 million).
11. Going concern
The interim financial statements have been prepared on the basis of accounting
policies applicable to a going concern. The 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 reported a net loss of R10,5 million for the six months ended
30 June 2018 and as at that date its current liabilities exceeded its current
assets due to, amongst others, the short-term nature of some of its debt.
The cash flow hedge, which will be settled by 30 September 2018, continued to
have a negative effect on the results of Kilken. After settlement, Kilken's
results are expected to improve.
Market conditions are expected to remain tough for the industries in which the
Group operates, with continued volatility in commodity prices and the local
currency against major foreign currencies.
The Group companies continue with their focus on improving efficiencies and
increasing production levels, especially at Kilken where production challenges
continued to impact on the results for the past six months.
The Group has access to sufficient funding facilities from its financiers and
shareholders to enable it to meet its commitments and obligations as and when
they become due within the next twelve months.
The directors have therefore applied the going concern principle as they are
satisfied that the Group is a going concern and will be able to settle its
debts as they become due and payable in the next twelve months.
Nature of the business
The Company is an investment holding company.
Financial review
(References to 2017 and 2018 relate to the six-month periods to 30 June 2017
and 2018 respectively, unless indicated otherwise in the contents.)
Revenue decreased by 6,7% from 2017 to 2018 but the loss after tax improved
slightly from R11,5 million for 2017 to R10,5 million for 2018. Kilken was
the main contributor to this loss with R7,2 million as a result of the quality
of the tailings feed, lower production levels in the first two months of the
period under review and the penalties incurred in respect of the high chrome
content during this period.
Borrowings decreased from R395 million in 2017 to R373 million in 2018.
Kilken
Production at the plant improved and stabilised in the last four months of the
period under review, after poor production levels in the first two months. The
chrome content in the tailings remained a challenge for the business despite
various efforts to reduce this to more acceptable levels. The commodity market
and the local currency continued to be volatile during the period under review,
but the movements impacted positively on the monthly sales price per kilogram
of PGMs.
Revenue decreased from R22,9 million in 2017 to R20,2 million in 2018 with the
cash flow hedge reducing revenue by R4,8 million (2017: R5,8 million). The loss
after tax increased from R6,8 million in 2017 to R7,2 million in 2018. The cash
flow hedge will finally be settled by September 2018.
Management's attention remains on resolving the production challenges at the
plant in order to improve production and efficiency levels, increase revenues
and lower costs.
PRSM
PRSM’s revenue decreased from R700,5 million in 2017 to R654,5 million in 2018,
as demand for steel products declined in the latter half of the period under
review. Gross margin, however, improved from 2017 to 2018, while operating
expenses and finance charges were contained. The PRSM group reported a net loss
after tax of R1,5 million for 2018, compared to R2,6 million for June 2017.
Inventory levels and trade payables increased significantly in June 2018 as a
result of PRSM's contractual commitments, even though demand was depressed in the
last three months of the period under review. Inventory levels and trade payables
decreased to normal levels after the period-end.
Capital expenditure of R2,9 million was incurred during the period under review
to acquire assets as part of the PRSM group's medium-term strategy to modernise
its plants.
Overall the domestic steel industry remains challenging due to de-pressed demand,
increased competition from imported products and lack of infrastructure
development in South Africa.
Directorate
There were no changes to the Board for the six months under review.
For and on behalf of the Board
Mohamed Husain Ashruf Kaka
Independent non-executive Chairman Chief Executive Officer
Sandton
25 September 2018
Registered office:
108 4th Street, Parkmore, Sandton 2196
Directors:
Mohamed Husain# (Chairman); Ashruf Kaka (CEO); Henk Engelbrecht (CFO);
Brian Smith#; Pieter du Preez#; Naeem Hadjee#
# Independent non-executive
Company Secretary:
Gillian Miller
Auditors:
BDO South Africa Incorporated, Summit Place Office Park,
221 Garsfontein Road, Menlyn, Pretoria 0181
Transfer secretaries:
4 Africa Exchange Registry Proprietary Limited, Cedarwood House,
Ballywoods Office Park, 33 Ballyclare Drive, Bryanston 2121
Sponsor:
Bridge Capital Advisors Proprietary Limited,
50 Smits Street, Dunkeld, Sandton 2196
www.andulelaholdings.com
Date: 25/09/2018 11:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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