| Fri 12 Dec 2008, 16:00 | | SPG - Super Group - Change Statement Trading Statement and Restructuring |
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SPG
SPG
SPG - Super Group - Change Statement, Trading Statement and Restructuring
Super Group Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1943/016107/06)
ISIN number: ZAE000011334)
Share code: SPG
("Super Group" or "the group")
Change Statement, Trading Statement and Restructuring
Reference is made to the announcement of 23 July 2008 whereby shareholders
were informed of operational performance challenges at Super Group Industrial
Products ("SGIP") and the Reviewed Group Results for the year ended 30 June
2008 issued on SENS on 16 September 2008.
Shareholders are hereby advised of decisions taken at a meeting of the Super
Group board of directors ("the Board") held on 9 December 2008. These
decisions are detailed in this announcement:
- Change Statement affecting the reviewed financial results for the
year ended 30 June 2008 before publication of the annual report.
- Trading Statement relating to current period performance ahead of
the release of interim results for the six month period to 31
December 2008.
- Restructuring measures underway that will positively impact Super
Group`s profitability and net cash flow for the year ending June
2009.
The changes underway at Super Group will ensure the continued and sustainable
profitability of the group despite the worsening economic environment and
difficult trading conditions that are affecting some of its operations.
1. Change Statement
SGIP imports and distributes a range of commercial vehicles and industrial
equipment products from Japan, China, Germany, the United Kingdom and Turkey.
SGIP was formed as part of a business plan to address a new market opportunity
in the high growth truck and construction sector both locally and in Southern
Africa. Operations commenced in 2006 with commercial vehicles, then expanded
to construction, materials handling and, by acquisition, cranes.
Accounting irregularities and fraud in SGIP, which were reported to
shareholders on 23 July 2008, resulted in the restructure of business units
and management in this operation and a focus on improving gross margins,
curtailing overheads and improving the quality of product delivery and
service.
Subsequent to reporting the reviewed financial results for the year ended 30
June 2008, Super Group has identified an exposure in SGIP relating to
operations in Angola. This exposure arises from the failure of our partner in
Angola to meet contractual obligations. Actions by previous SGIP management
have exposed SGIP to unsecured receivables and inventory from the partner in
Angola.
Despite significant and continuing efforts to recover these amounts the Board
has taken a prudent view and decided to modify the reviewed 2008 financial
results and provided in full for both the Angolan receivable (R97.1 million)
and inventory (R100.3 million), resulting in a total provision of R197.4
million in the amended 2008 financial results. The cash flow related to the
transaction occurred in the 2008 financial year.
The impact of the provisions on the previously reported headline earnings per
share ("HEPS") at 30 June 2008 of 67.1 cents, is a reduction of 55.2 cents
resulting in HEPS of 11.9 cents.
Reconciliation of previously reported HEPS
Cents R `000
HEPS per reviewed results 67.1 239,719
Adjustment for Angola
Provision for trade receivables 27.1 97,054
Provision for inventories 28.1 100,314
HEPS as per the annual financial statements for the 11.9 42,351
year ended 30 June 2008 (Annual Report)
Super Group will continue to pursue every possible measure to recover the
money owed to SGIP from the Angolan operations. To this end, the group has
appointed a third party in Angola to assist in recovering the amounts due and
managing the inventory exposure. The Board will advise shareholders of all
material developments in the actions referred to above.
2. Trading Statement
In terms of the Listings Requirements of the JSE Limited, companies are
required to publish a trading statement as soon as they are satisfied that a
reasonable degree of certainty exists that the financial results for the
period to be reported upon next will differ by at least 20% from that of the
previous corresponding period.
The worsening economic environment and difficult trading conditions are
severely affecting the Automotive Division and reducing the performance of
other divisions. Current divisional performance is provided as follows:
- The Supply Chain Division is a market-leading service provider
contributing 60% of group profitability and is expecting continued
profit growth for the financial year ending 30 June 2009.
- The Retail Supply Chain Division is the market leader in:
- Automotive parts (AutoZone distributing through 167 stores) -
AutoZone will produce acceptable returns and profit growth; and
- Hardware improvement (Mica operating in 177 stores) - This
business is experiencing slowing consumer demand and reduced
operating profit.
- The Fleet Solutions business with major operations in South Africa
and Australia is projecting a lower profit performance for the
financial year ending 30 June 2009 as a result of prevailing market
conditions.
- The Automotive Division has two parts:
- Automotive dealerships, consisting of 19 passenger and
commercial dealerships, is currently experiencing poor trading
conditions in line with the market; and
- SGIP -The significant downturn in vehicle sales and declining
industrial equipment market has adversely impacted the recovery
of SGIP. With the negative industry trends expected to continue
in the foreseeable future, SGIP would likely incur significant
operating losses for the financial year ending 30 June 2009.
As a consequence of the continued operating losses expected in SGIP, the Board
has decided to rationalise SGIP as detailed in the restructuring section
below.
Excluding the affected business units in SGIP, headline earnings from
continuing operations are expected to be between R180m to R215m for the year
ending 30 June 2009. This equates to HEPS from continuing operations of
between 40 cents to 50 cents which is between 38% to 50% lower than the
corresponding period after adjusting for dilution of the effects of the R509m
Rights Issue. The lower HEPS is a result of the ongoing deterioration in the
South African and Australian macro economy.
HEPS from continuing operations for the six months to December 2008 is
expected to be between 12 cents to 16 cents which is between 65% to 78 % lower
than the corresponding period after adjusting for the dilution effects of the
Rights Issue. The interim lower earnings is as a result of once-off closure
costs in Dealerships and certain retail stores.
Earnings per share ("EPS") (including earnings from discontinued operations
and providing for the estimated costs of closure) for the year ending 30 June
2009 is expected to be a loss of between 35 cents to 40 cents when compared to
the corresponding prior period`s EPS loss of 4.5 cents.
EPS (including earnings from discontinued operations and providing for the
estimated costs of closure) for the six month period ending 31 December 2008
is expected to be a profit of between 0 cents to 10 cents when compared to the
restated corresponding prior period`s EPS of 49.1 cents .
3. Restructuring
3.1 Rationalisation of SGIP
As part of the rationalisation strategy, the Board has decided to dispose of
its Equipment and Commercial Vehicle and Cargolite businesses, housed in SGIP,
which are two of the four business units comprising SGIP. The group has
received an offer for the Equipment and Commercial Vehicle and Cargolite
businesses combined. This will provide continuity of these operations and
support for their customers.
The rationalisation of SGIP is expected to result in a once-off balance sheet
impairment of between R250m and R300m and as a result Super Group`s
profitability and net cash flow will be positively impacted.
The decision to dispose of the Equipment and Commercial Vehicle and Cargolite
businesses was taken because these businesses are unable to generate Super
Group`s required returns under current market conditions. With the completion
of the turnaround of the cranes business, the two remaining businesses in
SGIP, Hermans and MMS cranes are profitable, cash generative businesses. These
will be managed as separate business units within the group.
3.2 Changes to the Group Executive Committee
The Board and CEO, Dr Larry Lipschitz, have reviewed the executive management
capabilities of the group and have strengthened the leadership team which now
comprises:
- Jonty Jankovich-Besan, who has been appointed as group CFO (refer
below)
- Adam Craker, who was appointed in July 2008, as group COO
- Peter Mountford, who was appointed in May 2008 as CEO of the core
supply chain businesses
- Peter Granat, who is CEO of the Retail Supply Chain division
- Philip Smith, who has taken responsibility for Fleet Africa and
other strategic group initiatives
- Dheven Dharmalingam, previous CFO, who remains as an executive
officer to provide support and assistance to the new team and to
develop the group`s commercial capabilities.
3.3 Appointment of New Directors
In addition, several new Board appointments have been confirmed:
- Jonty Jankovich-Besan is a Chartered Accountant with executive level
experience in commerce, industry and strategic management
consultancy. Prior to joining Super Group, Jonty lived in the United
Kingdom for 13 years and most recently was CFO and member of the
Board at Cable and Wireless International, a business providing full
service telecommunications in 33 businesses across 34 countries,
generating $2.5 billion annual revenues.
- Valentine Chitalu is an entrepreneur in Zambia and Southern Africa
specialising in private equity and empowerment. Valentine was
previously Chief Executive Officer at the Zambia Privatisation
Agency where he was responsible for the divestiture of over 240
enterprises. Valentine holds several board positions in Zambia,
South Africa and the United Kingdom and is Chairman of Zambian
Breweries, Stanbic Bank (Z) Limited and Afgri Corporation (Z)
Limited. Valentine is a UK qualified Accountant and holds a Masters
Degree in Development Economics from Cambridge University in the
United Kingdom.
- David Rose is a Chartered Accountant and an independent consultant.
David is a non-executive director and the audit committee chairman
of Primeserv Limited and a non-executive director of Celcom Group
Limited. He spent 41 years with Fisher Hoffman, a major national
firm of Chartered Accountants. He became a partner of the firm in
1970 and was Managing Partner of the Johannesburg office as well as
Chairman of the National Practice from 1991 to 1998.
Super Group is very pleased to have individuals of such high calibre step into
these key positions. With effect from 15 December 2008, the Board will now be
constituted as follows:
Larry Lipschitz Chief Executive Officer
Jonty Jankovich-Besan Chief Financial Officer
Dheven Dharmalingam Executive Officer
Peter Malungani Non-executive Chairman
Phillip Vallet Non-executive Deputy Chairman
Sam Abrahams Non-executive independent director
Busi Tshili Non-executive director
Valentine Chitalu Non-executive independent director
David Rose Non-executive independent director
Summary
The above actions will result in profit growth, reduced investor risk and
sustainable growth in Super Group`s key competency areas.
There is a renewed focus on management controls. The group has appointed a
number of strong professional executives who are mandated to provide
strategically sound and prudent business management who have effected:
- A major restructuring of Super Group and the disposal of SGIP
business units. Revenue growth from continuing operations.
- Revenue growth from continuing operations
- A net positive cash flow for the year.
- A completed rights issue resulting in a cash injection of R509m.
Further actions to strengthen the balance sheet will include
additional non-core asset disposals.
Super Group anticipates healthy earnings from continuing operations and cash
flow despite the very challenging conditions in 2009.
The financial information in this trading statement has not been reviewed or
reported on by Super Group`s auditors. This update is based on the available
information at the time of publication.
Sandton
12 December 2008
Sponsor: Deutsche Securities (SA) (Proprietary) Limited
Date: 12/12/2008 16:00:20 Produced by the JSE SENS Department.
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