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AMA
AMA
AMA - Amalgamated Appliance Holdings Limited - Reviewed consolidated results for
the year ended 30 June 2008
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 2008
CONDENSED GROUP INCOME STATEMENT
for the year ended 30 June 2008
% Reviewed Audited
Change 12 months 12 months
30 June 2008 30 June 2007
R`000 R`000
Revenue (16) 1 662 931 1 979 662
Operating (loss)/ profit (107) (9 230) 130 254
Fair value adjustments on financial (2 823) (8 877)
instruments
Finance costs - net (12 971) (12 289)
(Loss)/profit before tax (123) (25 024) 109 088
Income tax credit/(expense) 7 124 (33 206)
(Loss)/profit for the year (124) (17 900) 75 882
Basic (loss)/earnings per share (124) (8,6) 36,4
(cents)
Diluted (loss)/earnings per share (123) (8,5) 36,2
(cents)
Headline (loss)/earnings per share (121) (7,7) 36,1
(cents)
Diluted headline (loss)/earnings (121) (7,6) 35,9
per share (cents)
Capital distribution (cents) - 12,0
CONDENSED GROUP BALANCE SHEET
as at 30 June 2008
Reviewed Audited
30 June 2008 30 June 2007
R`000 R`000
ASSETS
Non-current assets 83 725 64 681
Property, plant and equipment 40 861 46 140
Goodwill 1 170 1 170
Trademarks 4 596 4 596
Other financial assets - 2 319
Deferred tax assets 37 098 10 456
Current assets 729 817 824 250
Inventory 365 188 366 422
Trade and other receivables 307 304 293 463
Prepaid taxation 3 521 3 518
Bank and cash on hand 53 804 160 847
Total assets 813 542 888 931
EQUITY AND LIABILITIES
Total equity 506 337 551 163
Capital and reserves 506 337 551 163
Non-current liabilities 8 988 10 242
Long-term borrowings 6 826 7 116
Deferred tax liabilities 2 162 3 126
Current liabilities 298 217 327 526
Trade and other payables 207 749 291 227
Derivative financial liability 1 704 139
Capital distribution and dividends 159 146
payable
Current tax liabilities 1 090 17 989
Overdraft 71 254 -
Short-term portion of long-term 5 065 3 818
borrowings
Provisions 11 196 14 207
Total equity and liabilities 813 542 888 931
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2008
Reviewed Audited
30 June 2008 30 June 2007
R`000 R`000
Balance as at 1 July 551 163 517 002
Acquisition of minority interest - (3 008)
(Loss)/profit for the year (17 900) 75 882
Capital distribution (25 462) (42 438)
Net treasury movement (2 384) 2 822
Share-based payment 920 903
Balance as at 30 June 506 337 551 163
SUPPLEMENTARY INFORMATION
for the year ended 30 June 2008
Reviewed Audited
12 months 12 months
30 June 2008 30 June 2007
Shares in issue (000`s) 211 190 212 190
Shares in issue - weighted (000`s) 208 646 208 194
Diluted number of shares - weighted 210 435 209 453
(000`s)
Net asset value per share (cents) 240 260
Cost of sales (R`000) 1 371 293 1 550 928
Investment revenue (R`000) (3 913) (4 443)
Finance costs (R`000) 16 884 16 733
Capital expenditure (R`000) 9 831 19 279
Capital commitments (R`000) 1 098 1 637
Depreciation, amortisation and 14 274 9 856
impairment charge (R`000)
Finance and operating lease 28 061 34 537
commitments (R`000)
Calculation of headline earnings
(Loss)/profit for the year (R`000) (17 900) 75 882
Loss on disposal of property, plant 182 87
and equipment (R`000)
Impairment/(impairment reversal) of 2 461 (1 179)
property, plant and equipment and
trade marks (R`000)
Total tax effects of adjustments (740) 317
(R`000)
Headline (loss)/earnings for the (15 997) 75 107
year (R`000)
CONDENSED GROUP CASH FLOW STATEMENT
for the year ended 30 June 2008
Reviewed Audited
12 months 12 months
30 June 2008 30 June 2007
R`000 R`000
Cash flow from operating activities (167 691) (68 117)
Cash generated by trading 5 214 153 378
Working capital changes (97 102) (96 364)
Cash (utilised in)/generated by (91 888) 57 014
operations
Finance costs - net (12 971) (12 289)
Taxation paid (37 384) (70 473)
Capital distribution paid (25 448) (42 369)
Cash flow from investing activities (9 179) (18 524)
Additions to property, plant and (9 831) (19 279)
equipment
Proceeds on disposal of property, 652 189
plant and equipment
Decrease in other financial assets - 566
Cash flow from financing activities (1 427) 3 221
Net movement in treasury shares (2 384) 2 822
Increase in long-term borrowings 957 399
Net decrease in cash and cash (178 297) (83 420)
equivalents
Cash and cash equivalents at the 160 847 244 267
beginning of the year
Cash and cash equivalents at the (17 450) 160 847
end of the year
Notes
1.Basis of preparation
The condensed financial statements have been prepared in accordance with:
- IAS 34: Interim Financial Reporting using accounting policies that are in
accordance with IFRS and consistent with those applied in the prior year;
- The requirements of the South African Companies Act, 61 of 1973, as amended;
and
- The Listings Requirements of the JSE Limited.
2.Auditor`s review opinion
These results have been reviewed by independent external auditors Deloitte &
Touche and their unmodified review opinion is available for inspection at the
registered office.
3.Diluted basic and headline loss/earnings per share
Diluted basic and headline loss/earnings per share are determined by adjusting
the weighted average number of ordinary shares outstanding to assume conversion
of all dilutive ordinary shares.
4.Related party transaction
The Group entered into various related party transactions. These transactions
are no less favourable than those arranged with third parties.
5.Contingent liability
As disclosed in the Group`s annual report for the year ended 30 June 2007 and
its interim results, SARS issued a letter of intent in February 2007 to levy
customs and excise duty on a wholly owned subsidiary for R28,3 million. The
subsidiary has raised a formal objection, in line with the professional advice
of its external legal advisers, and remains confident that its objection will be
upheld.
There is no obligation, current or pending, which is considered likely to have a
material adverse effect on the Group.
6.Segmental reporting
The Group markets and distributes consumer durables predominantly in southern
Africa and therefore the board does not consider the disclosure of segmental
information in terms of IAS 14 to be meaningful.
7.Subsequent events
Save for a legal dispute relating to the cancellation by the Group of certain
orders amounting to approximately R 40 million, no events material to the
understanding of this report have occurred during the period between 30 June
2008 and the date of this report.
Economic and trading environment
The combination of higher interest rates, new and stricter credit legislation
and rampant inflation on the back of surges in food and fuel prices have placed
the South African consumer under significant pressure. This in turn has seen
business and consumer confidence plummet to their lowest levels in many a year.
According to the Bureau for Economic Research consumer confidence experienced
its largest quarter-on-quarter decrease in 24 years during the second quarter of
2008 and as a result "growth is expected to slow notably in the non-durable and
semi-durable goods retail categories and contract significantly in the durable
goods category"(own emphasis).
Operational review
As a consequence of the worsening economic environment, the Group experienced
its toughest trading environment and poorest operating results since its listing
over 11 years ago. To this end, swift and decisive remedial action was required
to address the weaknesses and imbalances highlighted in the commentary to the
Group`s interim results. Actions taken by management during the year under
review included:
- A reduction in the fixed overheads of the Group through a reduction in
headcount from 1 220 in the prior year to 765 currently, integration of the back
office functions across the Group and the termination of various fixed retainer
based contracts amongst others;
- A refocusing of the brown goods (ie electronics) business through, inter alia,
the restructuring of management and sales representatives` incentives and a
product range consolidation;
- A focus on reducing the Group`s inventory levels. In this regard, the total
value of inventory held by the Group decreased by 13% from R419 million at 31
December 2007 to R365 million at 30 June 2008 notwithstanding the build-up of
stock in the Group`s power inverter range of products (as discussed below). The
Group expects to report a further reduction in inventories in its interim
results to 31 December 2008;
- The winding down of the Group`s mobile phones business; and
- The conversion of fixed overheads into variable costs through the outsourcing
of the Group`s electronics service function.
Although significant progress has been made in restructuring and refocusing the
Group, several initiatives are planned for the balance of the 2008 calendar
year. These include:
- The consolidation of the Group`s supply chain activities, most notably
shipping, in order to maximise scale and volume benefits;
- Outsourcing the warehousing of the Group`s brown goods products;
- Restructuring of certain of the Group`s licensing arrangements; and
- The rationalisation of the Group`s statutory structure.
As previously reported, sales of brown goods were compromised by supply chain
challenges which resulted in late deliveries and lost sales over the key festive
season trading period. As a result, total sales of brown goods were
significantly lower than in the prior year. Due to the challenges set out above
and an extremely competitive marketplace, gross margins in this category were
under severe pressure and were significantly lower than in the prior year. As
reported above, this business has been refocused and restructured in order to
ensure that it delivers sustainable returns. Furthermore, and in line with our
vision of being a sales and marketing organisation, the Group will continue to
invest in and support its key brands in this area, namely Tedelex and Sansui,
and an improved performance is expected in the new financial year.
The well publicised power supply and pricing issues opened new and exciting
opportunities for the Group from which much was expected. This resulted in the
launch of the power inverter range of products. However, the unexpected
stabilisation of power supply and resultant suspension of load shedding slowed
sales dramatically and has resulted in the Group holding excessive stocks in
this category. The Group is actively seeking alternate distribution channels and
markets for these products.
Sales of small domestic appliances, including sewing machines and electrical
accessories, were pleasing with growth in virtually all major product categories
and across all brands, notwithstanding disappointing sales of seasonal products
due to uncharacteristic weather patterns. The Group continues to dominate this
market segment with the top two brands, by both value and volume, in Russell
Hobbs and Salton. Several new product categories (eg Russell Hobbs floorcare)
were entered into with spectacular success and further launches (eg homewares
and hair care) are either planned or already underway. Total revenue from the
sale of small domestic appliances increased year-on-year although gross margins
were lower due to inflation out of China which the Group was not able to fully
recover. Continued growth in this area is expected in the new financial year
although trading conditions are expected to remain challenging.
The Group is encouraged by the dialogue it has had with the Government and
relevant regulators around the need to more actively police and enforce duty
protection for local production of TV, however, the timing of any remedial
action is uncertain. In this regard, a number of diversification strategies are
being actively pursued including the potential sale of a significant interest in
the Atlantis factory to Black Economic Empowerment and/or technology partners.
Financial performance
Income statement
As a consequence of the difficult trading conditions and the factors mentioned
above, Group revenue for the year was 16% lower than in the prior year. As a
result of increased competition and exported inflation out of China, gross
margins were under pressure, particularly in the brown goods category. The
Group`s gross margin declined from 21,7% in the prior year to 17,5% in the
current year.
Total overheads, including restructuring costs of R12,5 million incurred during
the year under review, increased marginally. The benefits of the restructuring
efforts will only materialise in the new financial year.
The total charge to the income statement in respect of IFRS 2: Share Based
Payments for the year amounted to R920 000 (2007: R903 000).
The fair value adjustment in terms of IAS 39 amounted to a loss of R2,8 million
(2007: loss of R8,9 million).
Net finance costs increased marginally due to higher interest rates and the
Group`s high inventory levels.
Balance sheet
The Group`s balance sheet remains strong with a very low level of gearing.
The Group`s inventory remained at very similar levels to those in the prior year
despite the build-up of the power inverter range of products inventory in the
current year. Notwithstanding this build-up, the Group`s total inventory has
decreased by over R50 milion since 31 December 2007 reflecting the concerted
efforts to normalise the Group`s inventory levels. Further improvements in this
regard are expected.
Accounts receivable reflect a slight increase on prior year levels despite the
Group`s lower sales due to the non-utilisation of discounting facilities in the
current year.
Cash flow
As at 30 June 2008, the Group had a net overdraft of R17,5 million compared to
net cash on hand of R15,5 million as at 31 December 2007 although the non-
utilisation of discontinuing facilities, as mentioned above, skews the direct
comparability of these balances.
Management continues to focus on improving the cash generation of the Group and
this will be achieved through a combination of factors including a further
reduction in inventory levels and the benefits arising from the reduced
overheads structure.
Prospects
Although the trading environment is not expected to improve in the near future,
and whilst the restructuring exercise is not yet complete, it is the board`s
expectation that the Group will generate cash in the current financial year. A
return to profitability is dependent upon the sale of the significant build-up
of the power inverter range of products.
Distribution to shareholders
Given the Group`s disappointing results and cash flow performance, the board has
resolved not to declare a dividend.
Changes to the board
The following changes to the board have taken place since the date of our last
report:
- Markus Jooste (non-executive director) - resigned on 24 August 2007;
- Danie van der Merwe (non-executive director) - resigned on 24 August 2007;
- Meyer Kahn (non-executive director) - resigned on 30 November 2007;
- Sheldon Cohen (previous group chief executive officer and executive director)
- resigned on 30 November 2007;
- Steve Muller (non-executive director) - appointed on 30 November 2007;
- Rian du Plessis (non-executive director) - appointed on 30 November 2007;
- Leon Campher (non-executive director) - appointed on 30 November 2007 and as
chairman on 1 February 2008;
- Allan Nossel (previous chief executive officer of the Electronics division and
executive director) - resigned on 31 December 2007;
- Jack Cohen (previous non-executive chairman) - retired on 31 January 2008;
- Alan Coward (group chief executive officer and executive director) - appointed
on 1 February 2008;
- Byron Nichles (group chief financial officer and executive director) -
appointed on 1 February 2008;
- Myron Berzack (non-executive director) & Stanley Green (alternate) - resigned
on 26 February 2008;
- Joe Kieser (non-executive director) - resigned on 13 June 2008;
- George Bernhardt (previous chief executive of the Manufacturing division and
executive director) - retired on 30 June 2008;
- Des Oliver (managing director of the Electronics division) - appointed as an
executive director on 1 July 2008; and
- Rob Marais (chief executive officer of the Appliances division and executive
director) - resigned on 1 July 2008.
The board wishes to extend its gratitude to all former directors for the
valuable contribution made to the Group during their tenure.
Corporate governance
The Group subscribes to the spirit of good corporate governance as set out in
the King II Report and accepts the need to conduct the enterprise with
integrity, transparency and equal opportunity.
Acknowledgement
The board would like to acknowledge and thank our management, staff, suppliers,
customers and shareholders for their valued commitment and support during these
trying times.
For and on behalf of the board
Leon Campher
Non-Executive Chairman
Alan Coward
Group Chief Executive Officer
Johannesburg
29 August 2008
Directors
*P L Campher (Chairman), A S Coward, *W A du Plessis, *S A Levitt,
*S H Muller, B Nichles, D B Oliver, *S Scafidas
*Non-executive
Secretary
B G Drummond
Transfer secretaries
Computershare Investor Services (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: 29/08/2008 07:09:01 Produced by the JSE SENS Department.
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