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AMA
AMA
AMA - AMAP - Reviewed consolidated results for the year ended 30 June 2007
AMALGAMATED APPLIANCE HOLDINGS LIMITED
Registration number 1997/004130/06
("AMAP" or "the Group")
ISIN: ZAE000012647
Share code: AMA
www.amapholdings.co.za
REVIEWED CONSOLIDATED RESULTS FOR THE YEAR ENDED 30 JUNE 2007
CONDENSED GROUP INCOME STATEMENT
for the year ended 30 June 2007
% Reviewed Audited
change 12 Months 12 Months
30 June 2007 30 June 2006
R`000 R`000
Revenue (8) 1 979 662 2 150 771
Operating profit (28) 130 254 180 764
Fair value adjustments on financial (8 877) 6 988
instruments
Net interest paid (12 289) (4 211)
Profit before tax (41) 109 088 183 541
Taxation (33 206) (53 993)
Net profit 75 882 129 548
Attributable to ordinary (41) 75 882 129 548
shareholders
Earnings per share - (cents) (42) 36,4 62,7
Diluted earnings per share - (42) 36,2 62,0
(cents)
Capital distribution - (cents) 12,0 20,0
CONDENSED GROUP BALANCE SHEET
as at 30 June 2007
Reviewed Audited
30 June 2007 30 June 2006
R`000 R`000
ASSETS
Non-current assets 61 555 56 153
Property, plant and equipment 46 140 36 050
Goodwill 1 170 1 170
Trademarks 4 596 5 539
Other financial assets 2 319 10 211
Deferred tax 7 330 3 183
Current assets 824 250 885 690
Inventory 366 422 366 904
Trade and other receivables 293 463 249 730
Prepaid taxation 3 518 -
Derivative financial asset - 24 789
Bank and cash on hand 160 847 244 267
Total assets 885 805 941 843
EQUITY AND LIABILITIES
Attributable to equity holders of the 551 163 517 002
parent
Long-term borrowings 7 116 6 433
Current liabilities 327 526 418 408
Trade and other payables 305 434 366 637
Derivative financial liability 139 -
Dividends payable 146 77
Taxation 17 989 47 592
Short-term portion of long-term borrowings 3 818 4 102
Total equity and liabilities 885 805 941 843
CONDENSED GROUP CASH FLOW STATEMENT
for the year ended 30 June 2007
Reviewed Audited
12 Months 12 Months
30 June 2007 30 June 2006
R`000 R`000
Cash flow from operating activities (68 117) (26 431)
Cash generated by trading 153 378 194 665
Working capital changes (96 364) (127 041)
Cash utilised by operations 57 014 67 624
Net interest paid (12 289) (4 211)
Taxation paid (70 473) (54 924)
Dividends and capital distributions paid (42 369) (34 920)
Cash flow from investing activities (18 524) (7 175)
Additions property, plant and equipment (19 279) (7 917)
Proceeds on disposal of property, plant 189 465
and equipment
Decrease in other financial assets 566 277
Cash flow from financing activities 3 221 (1 886)
Net movement in treasury shares 2 822 970
Increase/(decrease) in long-term 399 (2 856)
borrowings
Net decrease in cash (83 420) (35 492)
Cash surplus beginning of year 244 267 279 759
Cash surplus at the end of the year 160 847 244 267
SUPPLEMENTARY INFORMATION
for the year ended 30 June 2007
Reviewed Audited
12 Months 12 Months
30 June 2007 30 June 2006
R`000 R`000
Shares in issue (000`s) 212 190 212 190
Shares in issue - weighted (000`s) 208 194 206 561
Diluted number of shares - weighted (000`s) 209 453 208 974
Net assets value per share (cents) 260 244
Cost of sales (R`000) 1 550 928 1 712 659
Interest received (R`000) (4 443) (4 948)
Interest paid (R`000) 16 732 9 159
Capital expenditure (R`000) 19 279 7 917
Capital commitments (R`000) 1 637 1 450
Depreciation, amortisation and impairment 9 856 11 512
charge (R`000)
Finance and operating lease commitments 34 537 49 440
(R`000)
Profit attributable to ordinary 75 882 129 548
shareholders (R`000)
Loss on disposal of property, plant and 62 168
equipment (net of tax) (R`000)
(Impairment reversal)/impairment of (837) 2 199
property, plant and equipment and
trademarks (R`000)
Headline earnings (R`000) 75 107 131 915
Headline earnings per share - (cents) 36,1 63,9
Diluted headline earnings per share - 35,9 63,1
(cents)
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2007
Share Share Treasury Accum-
capital premium shares ulated
profits
REVIEWED R`000 R`000 R`000 R`000
Balance at 1 July 2005 2 122 162 741 (10 915) 230 808
(audited)
Net profit for the year - - - 129 548
Dividend settled - cash - - - -
election
Net treasury movement - - 970 -
Share-based payment - - - -
Balance at 30 June 2006 2 122 162 741 (9 945) 360 356
(audited)
Acquisition of minority - - - (3 008)
interest
Net profit for the year - - - 75 882
Capital distribution - (42 438) - -
Net treasury movement - - 2 822 -
Share-based payment - - - -
Balance at 30 June 2007 2 122 120 303 (7 123) 433 230
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2007 (continued)
Shareholder Share-based Attributable
for dividend Compensation to equity
reserve holders
of the parent
REVIEWED R`000 R`000 R`000
Balance at 1 July 2005 34 960 1 021 420 737
(audited)
Net profit for the year - - 129 548
Dividend settled - cash (34 960) - (34 960)
election
Net treasury movement - - 970
Share-based payment - 707 707
Balance at 30 June 2006 - 1 728 517 002
(audited)
Acquisition of minority - - (3 008)
interest
Net profit for the year - - 75 882
Capital distribution - - (42 438)
Net treasury movement - - 2 822
Share-based payment - 903 903
Balance at 30 June 2007 - 2 631 551 163
Accounting policies
The condensed preliminary financial information has been prepared in accordance
with IAS 34: Interim Financial Reporting. The same accounting policies and
methods of computation were followed in these financials as in the annual
financial statements for the year ended 30 June 2006 which were prepared in
accordance with IFRS. The new Standards and Interpretations applicable to the
current year have been adopted but have not resulted in any changes to the
Group`s results.
Review report
The results for the year ended 30 June 2007 have been reviewed, but not audited,
by the Group`s auditors, Deloitte & Touche, and their unmodified review report
is available at the Company`s registered office for inspection.
Related-party transactions
The Company entered into various related-party transactions. These transactions
are no less favourable than those arranged with third parties.
Subsequent events
No material events have occurred in the period between the year-end date and the
date of this report except for the joint announcement detailed below.
Joint announcement
Following the termination of the merger discussions between Amap and Steinhoff
as announced on 12 April 2007 and Steinhoff`s subsequent disposal of its South
African furniture manufacturing interests to a Private Equity Consortium, the
nature of Steinhoff`s investment in Amap has changed. The potential for
synergistic benefits between Amap and Steinhoff are no longer applicable.
Furthermore, because of Steinhoff`s stated objective of entering the retail
arena in South Africa, the continued representation of Steinhoff on the Amap
board may have developed into potential and/or perceived conflicts of interest
in respect of Amap`s relationships with its existing customers. Steinhoff will
accordingly hold its 26,7% interest in Amap as a long-term investment.
In view of the above, Steinhoff resolved that it would be in the best interests
of both companies that Messrs Markus Jooste and Danie van der Merwe resign as
non-executive directors from the board of Amap with effect from 23 August 2007.
Chairman`s overview
Historical context
In its first 10 years as a public company, Amap grew turnover at 30% per year
compounded, operating profit at 44%, headline earnings at 37% and share price at
17%, achieving a return on funds employed in 2006 of 33%. Underpinning this
performance was a superb record of brand development, growing scale economies
and sustained strong relationships with strategic trade partners and suppliers
alike, all driven by a buoyant, growing economy and industry sector.
However, some signs of a challenge had become apparent in our 2006 financial
year, when we reported difficult trading conditions in the second six months,
resulting in flat year-on-year turnover and only modest earnings growth. This
trend continued into the first half of the current financial year and in our
interim report we highlighted overstocks as a result of slower than anticipated
Christmas sales, margin erosion due to competitive pricing pressures, delayed
arrivals on key lines due to longer global shipping lead times and pressure on
our Atlantis factory as CRT television sales slowed. Nevertheless, we believed
that trading would improve in the second half to enable a recovery to prior
levels.
In response to the tougher conditions, we initiated an aggressive inventory
reduction programme, accelerated our efforts to diversify the production profile
at our electronics factory and began to systematically review all business
activities, seeking opportunities to enhance profitability.
The last six months
In the last six months, however, our optimism proved unfounded and the position
worsened, primarily in relation to our Electronics Division, which experienced a
series of simultaneous adverse factors: further slowing of the market growth
rate in certain key categories, aggressive competitor price cutting that put
further pressure on margins and volumes, a major increase in logistics costs as
a result of a crisis at a key service provider, and the "knock-on" effects of
the above trends in the form of lower factory utilisation and higher stock
levels.
Our Appliance Division continued to perform strongly, growing sales in all key
brands and categories and, in spite of also experiencing significant logistics
rate increases, achieved its budgeted operating profit.
Financial performance for the year under review
As a result of the factors described above, sales revenue for the year was down
by 8%, to just below R2 billion and operating profits were 28% lower. While
gross margins for the Group showed a slight improvement year-on-year, this was
due to the restructuring of our mobile phones business to achieve a similar
gross profit as the prior year on far lower revenues and, in fact, both of our
core trading divisions experienced some erosion at this level. Operating
expenses increased at a rate above inflation, driven by the transport cost rises
alluded to above. Below the operating line, net interest costs trebled because
of our excess inventory position and, although this was all but rebalanced by
year-end, our average cash position for the year was less than optimal. In
addition, we saw an unfavourable swing of almost R16 million before tax in the
fair value adjustment on financial instruments. The net impact of all of these
factors was a 41% drop in net profit after tax and a 42% drop in diluted
earnings per share. Excluding the fair value adjustment, this adverse after-tax
variance on profit would have been 34%.
In spite of the unsatisfactory performance, the Group did manage to reduce
inventories significantly, as planned, and to finish the year with a healthy
cash balance of R161 million, and a strong balance sheet. Our capital investment
for the year increased to R19 million from R8 million in the prior year,
predominantly in the preparation of our Atlantis factory for the production of
LCD television.
Short-term action plan
Whilst we had already taken several important steps to address the challenges to
our business early in the financial year, Amap`s performance in the last three
months of the year highlighted the need to accelerate our actions. We have moved
quickly in the following areas:
* We are reducing Electronics Division fixed costs through a restructuring of
our sales and administration activities;
* We have identified non-contributing activities and have commenced a process
of pruning these;
* We have adjusted our product selection and ordering processes to ensure
that our stockholding ratios continue to fall;
* We have commissioned our LCD production line in Atlantis and, as the only
local manufacturer with such a capability, should be strongly positioned in
this rapidly growing market; and
* We are finalising the renegotiation of our transport contracts and
reconfiguring our logistics network to remove significant costs from the
system.
The road ahead
Amap remains resolutely committed to its core long-term strategy, whose primary
objective is long-term value creation through competitive advantage, risk
minimisation and growth.
We seek a competitive edge through our brands as well as ever-improving
operational effectiveness. In this context, we will continue the powerful
Tedelex campaign using Lucas Radebe as our icon, expand the very promising
Polaroid franchise, launch several exciting new categories under the Russell
Hobbs marque, revitalise our appliance mass market brands Pineware and HAZ and
consolidate Salton and Sansui`s segment dominance. By mutual agreement with our
principals, we have terminated our agency relationships with Pioneer and
Toshiba.
In the realm of operational efficiency, we will continue to aggressively expand
into new related businesses that can use our existing infrastructure, complete
the total integration of our administration and supply chain activities and
continue to upgrade our business systems and logistics network.
Diversification and growth will be sought through an entry into white
appliances, expansion in mobile devices and related products and services and
the conversion of our Atlantis facility into a market-facing business to exploit
major new OEM opportunities in CRT TV, LCD TV and related electronics
technology. We will also continue to expand our product and category offering,
with products such as PDAs, GPS devices, battery generators, homewares, water
products and audio accessories becoming meaningful parts of our portfolio.
With this combination of short and medium-term initiatives, we expect steady
progress in our return to historical levels of profitability.
Distribution to shareholders
The Board has resolved to declare a distribution to shareholders by way of a
capital distribution out of share premium of 12 cents per share - (2006: 20
cents). Shareholders will be asked to consider, and if deemed fit, to approve
the capital distribution at the annual general meeting of AMAP on or about 2
November 2007. Salient dates and times pertaining to the capital distribution
will be announced following the annual general meeting.
Board
The following changes to the board were announced on 23 August 2007
- Jack Cohen - change of status from executive chairman to non-executive
chairman
- Sheldon Cohen - appointment as Group Chief Executive Officer
- Spyros Scafidas - change of status from executive director to non-executive
director
- Markus Jooste - resignation as a non-executive director*
- Danie van der Merwe - resignation as a non-executive director*
*Refer to the joint announcement by Amalgamated Appliance Holdings Limited and
Steinhoff International Holdings Limited under subsequent events.
Social responsibility and labour relations
Sound labour relations remain a priority of the Group. We suffered some
disruption during the recent strikes but are pleased to report that all
operations are fully on track again. Our trade union partners make a valuable
contribution in maintaining our labour harmony.
The focus on employment equity continues, including such key areas as training
and skills development. Employee morale is good, which is reflected in a very
low staff turnover.
Our social responsibility efforts, focused primarily on education and youth
development, continue to make a difference to the quality of life of
disadvantaged people.
Segmental reporting
The Group predominantly markets and distributes consumer durables and therefore
the directors consider the disclosure of segmental information in terms of IAS
14 not to be meaningful.
Corporate governance
Operations at all levels subscribe to the spirit of good corporate governance as
set out in the King report and Amap accepts the need to conduct the enterprise
with integrity, transparency and equal opportunity.
For and on behalf of the board
J Cohen B G Drummond
Chairman Company Secretary
Johannesburg
24 August 2007
Directors
*J Cohen (Chairman), S Cohen (Group CEO),
S G Bernhardt (CEO - Manufacturing),
*M C Berzack, *J M Kahn, *J P Kieser, *S A Levitt,
R D Marais (CEO - Appliances),
A Nossel (CEO - Electronics), *S Scafidas
Alternate S Green* *Non-executive
Transfer secretaries
Computershare Investor Services 2004 (Pty) Limited,
70 Marshall Street, Johannesburg 2001 PO Box 61051, Marshalltown 2107
Registered office
29 Heronmere Road, Reuven 2091
PO Box 39186, Booysens 2016, Telephone (011) 490 9000
Sponsor
Bridge Capital Advisors (Pty) Limited,
2nd Floor, 27 Fricker Road, Illovo Boulevard, Illovo, 2196
Date: 27/08/2007 07:30:01 Produced by the JSE SENS Department.
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