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VLE
VLE
VLE - Value - Reviewed Financial Results For The Year Ended 28 February
2007
VALUE GROUP LIMITED
(INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA)
REGISTRATION NUMBER: 1997/002203/06
SHARE CODE: VLE
ISIN CODE: ZAE000016507
("VALUE" OR "THE COMPANY")
- THE MEASURABLE LOGISTICS COMPANY
- VALUE GROUP LIMITED
- REVENUE UP 19%
- CASH GENERATED BY OPERATIONS DOWN 24%
- HEADLINE EARNINGS PER SHARE DOWN 72%
REVIEWED FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2007
CONSOLIDATED INCOME STATEMENT
% Reviewed Restated
R000`s change 2007 2006
Revenue 19 1 033 985 872 243
Operating profit before
depreciation, amortisation
and finance costs (30) 102 347 145 863
Depreciation and amortisation (69 308) (47 693)
Operating profit 33 039 98 170
Investment income 14 788 14 995
Finance costs (26 039) (17 207)
Net profit before taxation 21 788 95 958
Taxation (7 428) (31 263)
Net profit for the year 14 360 64 695
Earnings per share (cents) (note 1)
- Basic 7,1 32,7
- Headline (72) 9,6 34,3
- Diluted basic 6,9 30,9
- Diluted headline 9,3 32,5
CONSOLIDATED BALANCE SHEET
% Reviewed Restated
R000`s change 2007 2006
Assets
Non-current assets 603 242 549 326
Property, plant and equipment 589 566 532 249
Intangible assets 12 167 15 313
Deferred tax 1 509 784
Investments - 980
Current assets 246 946 204 482
Inventory 17 977 5 970
Trade and other receivables 173 465 144 120
Taxation in advance 10 461 419
Bank and cash 45 043 53 973
Non-current assets held for sale 2 493 8 949
Total assets 852 681 762 757
Equity and liabilities
Capital and reserves 363 620 367 309
Non-current liabilities 212 732 157 181
Interest-bearing borrowings 129 839 81 546
Deferred tax 82 893 75 635
Current liabilities 276 329 238 267
Trade and other payables 221 908 187 845
Current portion of interest-bearing 53 291 35 387
borrowings
Taxation 1 130 15 035
Total equity and liabilities 852 681 762 757
Net asset value per share (cents) (2) 179,8 184,3
CONSOLIDATED CASH FLOW STATEMENT
% Reviewed Restated
R000`s change 2007 2006
Cash flows from operating 61 669 123 482
activities
Cash generated by operations (24) 115 419 152 225
Net finance costs (11 251) (2 212)
Changes in working capital (17 657) 15 325
Taxation paid (24 842) (31 989)
Cash available from operating 61 669 133 349
activities
Dividends paid - (9 867)
Cash flows from investing (118 598) (176 014)
activities
Cash flows from financing 47 999 40 487
activities
Net change in cash and cash (8 930) (12 045)
equivalents
Cash and cash equivalents at 53 973 62 989
beginning of year
Cash and cash equivalents acquired - 3 029
Cash and cash equivalents at end 45 043 53 973
of year
SEGMENTAL ANALYSIS
Truck
rental
Niche General and Head
R000`s distribution* distribution other office Total
Revenue - 658 871 121 996 252 982 136 1 033
2007 985
Operating (8 736) 1 759 47 453 (7 437) 33 039
profit/(loss)
- 2007
Revenue - 538 305 97 242 236 696 - 872
2006 243
Operating 30 712 5 502 59 421 2 535 98 170
profit - 2006
*The general distribution segment comprises courier, break-bulk and single
party distribution services.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
capital Ordinary
and Treasury Retained shareholders`
R000`s premium shares Reserves earnings equity
Balance at 41 439 (7 043) 55 276 724 311 175
28 February
2005
Treasury - 1 829 - - 1 829
shares sold
Loss on - - - (810) (810)
disposal of
treasury
shares
Share-based - - 147 - 147
payment
Foreign - - 166 - 166
currency
translation
differences
Dividends - - - (9 893) (9 893)
Net profit - - - 64 695 64 695
for the year
Balance at 41 439 (5 214) 368 330 716 367 309
28 February
2006
Treasury - 3 969 - - 3 969
shares sold
Loss on - - - (1 967) (1 967)
disposal of
treasury
shares
Share-based - - 167 - 167
payment
Foreign - - (166) 158 (8)
currency
translation
differences
Capital (20 210) - - - (20 210)
distribution
share
buyback
Net profit - - - 14 360 14 360
for the year
Balance at 21 229 (1 245) 369 343 267 363 620
28 February
2007
NOTES
The accounting policies adopted for the purpose of this report comply in
all material respects with International Financial Reporting Standards
(IFRS) and have been consistently applied to all years presented.
COMPARATIVE FIGURES
Comparative figures have been reclassified in order to comply with Circular
9/2006 issued by SAICA where clarification was given on the interpretation
of IAS 39: Financial Instruments- Recognition and Measurement, IAS 18:
Revenue and IAS 2: Inventories.
When receivables or payables are raised, IAS 39 requires that the
receivable or payable be initially reconised at its fair value. As a
result, the effect of the time value of money on receivables and payables
with extended terms have been reflected.
The effects of the reclassification are as follows:
Previously stated Fair value Restated
R000`s 2006 adjustment 2006
Revenue 885 861 (13 618) 872 243
Operating profit before
depreciation,
amortisation and finance 150 307 (4 444) 145 863
costs
Depreciation and (47 693) - (47 693)
amortisation
Operating profit 102 614 (4 444) 98 170
Investment income 1 377 13 618 14 995
Finance costs (8 033) (9 174) (17 207)
Net profit before taxation 95 958 - 95 958
Taxation (31 263) - (31 263)
Net profit for the year 64 695 - 64 695
The comparative figures in the segmental analysis have been restated to
reflect better comparibility for segmental reporting purposes.
Reviewed Restated
R000`s 2007 2006
1. Headline earnings
1.1 Reconciliation between basic
and headline earnings
Basic earnings 14 360 64 695
Loss on disposal of vehicles,
plant and equipment
less taxation 1 572 2 439
Impairment of intangible asset 3 442 811
Headline earnings 19 374 67 945
1.2 Number of ordinary shares in
issue
- Actual 207 599 040 207 599 040
- Weighted average 201 495 411 198 117 402
- Diluted 208 402 942 209 113 128
COMMENTARY
INTRODUCTION
Value Group Limited and its subsidiaries provide a comprehensive range of
tailored logistical solutions throughout southern Africa. The major
operating divisions specialise in providing a diversified range of
distribution services, warehousing, fleet management, forklift and
commercial vehicle rental and leasing.
Financial and operational review
Turnover increased by 19% from R872 million to R1 034 billion, the first
time this level has been achieved. This increase predominantly arose from
the expanded customer base within the logistics division.
Growth in the Group`s turnover did not result in an increase in headline
earnings. Operating margins before depreciation dropped from 16,7% to 9,9%.
Operating profit after depreciation was reduced by R65,2 million from R98,2
million to R33 million. The following major factors contributed to this
under-performance:
- Inability to implement the proposed new IT system. This inability had a
material direct impact on certain of the increased costs described below.
The IT issues are dealt with separately in this commentary.
- Increased costs incurred in the logistics division. Congestion at chain
stores and on the roads, coupled with significant changes in distribution
profiles and patterns and in certain instances, the nature and size of our
customers` products, resulted in the logistics division under pricing its
service offerings. The associated increased costs comprised wages, fuel,
freight and vehicle charges which amounted to R32,5 million.
- Smoothing of lease costs pertaining to the new warehouse and distribution
facility in Gauteng and the requirements for larger premises at the coastal
regions cost
R19,4 million above that expensed in the comparative period. This was the
first financial year in which the logistics division occupied the new
Tunney facility for a 12 month period.
- Delays in passing on increases in the diesel price resulted in an
additional R10 million cost.
- Value Express, the new courier division, commenced operations in October
2006. The division specialises in the express movement of parcels and
packages and synergises with the service offerings already present in the
Group structure. A full infrastructure comprising premises, vehicles,
management and information technology was set up to commence operations.
This division has incurred start up losses amounting to R10,5 million.
- Over the last two years, the Group`s investment in its fleet
infrastructure, has impacted the truck rental division`s performance. The
increased turnover and reduced margins were due to the division holding
more vehicles than required.
- Certain labour broker drivers and crew embarked on an illegal strike in
February 2007. The strike was limited to the Group`s Johannesburg
logistics facility. This problem was rectified at a cost of R3 million with
minimal disruptions to service levels.
Increases in debt and borrowing rates raised net finance costs by R9
million to R11,3 million after adjusting for the effect of Circular 9/2006.
The debt: equity ratio at year end amounted to 50% which is still within
the Group`s acceptable target range of 40% to 60%.
Cash generated by operations was strong relative to the 72% reduction in
headline earnings per share and only decreased by 24% from R152,2 million
to R115,4 million.
The folllowing corrective action was taken:
- Rates charged to customers are being reviewed. Various pricing and
distribution models of performing the logistics function were re-evaluated
to ensure that services offered are appropriately priced. It was evident
that certain rates were incorrectly priced. In these instances rates have
been increased and accepted by the majority of customers. In addition,
procedures are now in place to continually monitor and evaluate the
distribution dynamics of customers and match these profiles to the rates
charged.
- Large increases in diesel prices are now being recouped in the month of
the increase rather than on a quarterly basis.
- Rapid growth in turnover resulted in increased costs and inefficiences.
Management
has, and will continue to, reduce these costs and improve efficiencies by
re-engineering processes throughout the Group.
- An exercise has commenced in re-balancing the fleet in order to improve
productivity and utilisation levels.
INFORMATION TECHNOLOGY
The Group went live with the finance modules of its proposed integrated IT
solution in June 2006. This implementation did not proceed as planned and,
consequently, implementation of the remaining modules have been put on
hold. Despite the considerable additional costs and managerial time
expended in attempting to address probem areas, over a protracted period,
the anticipated benefits of this IT solution have not yet materialised.The
new financial modules are functional, but only at a basic level.
Accordingly, various alternatives are now being considered including the
replacement of the current financial module with a newly configured
version. All other areas of operation are fully functional on their
existing IT platforms.
CAPITAL COMMITMENTS
Capital expenditure approved for the 2008 financial year has been
significantly curtailed. The acquisition of fleet for new contracted
business and replacements where required, will be carefully evaluated.
Currently, capital expenditure approved amounts to R52,6 million of which
R47 million pertains to fleet. This expenditure will be funded from cash
flows and where necessary, out of borrowings.
PROSPECTS
Management`s focus for the 2008 financial year will be on improving
efficiencies and returning the Group to historic profitability levels.
Corrective action is already in progress. Management is confident that
overall performance for the 2008 financial year will reflect an improvement
on these results albeit that the interim profits will be less than those
achieved in the 2007 financial year.
AUDIT OPINION
Charles Orbach & Company has reviewed these results. Their unqualified
review opinion is available for inspection at the company`s registered
office.
DIVIDENDS
Due to the material reduction in earnings, it is considered prudent that no
final dividend be declared. Barring unforeseen circumstances the Board
anticipates that dividend payments will recommence at the end of the
current financial year.
For and on behalf of the Board
C D Stein S D Gottschalk
Chairman Chief Executive Officer
Johannesburg
30 May 2007
VALUE GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1997/002203/06) ISIN code: ZAE000016507 Share code:
VLE
Directors: C D Stein* (Chairman), S D Gottschalk (CEO), C L Sack, G J
Igesund, I M Groves*, N M Phosa, D A Todd
*Non-executive director
Date: 30/05/2007 17:20:02 Produced by the JSE SENS Department.
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