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OLI
OLI
OLI - O-line - Pro forma income statement incorporating the ARMCO results for
the six month period ended 31 December 2008
O-line Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2006/034685/06)
JSE share code: OLI
ISIN Number: ZAE000110730
("O-line" or "the O-line group" or "the company")
Pro forma income statement incorporating the ARMCO results for the six month
period ended 31 December 2008
O-line acquired the ARMCO business as a going concern with effect from 1 June
2008 ("the effective date") for an amount of R142 million. All the profits, cash
flows, risks and rewards of the ARMCO business were transferred to O-line with
effect from 1 June 2008 subject to obtaining Competition Commission and O-line
shareholders` approval.
International Financial Reporting Standards ("IFRS") provides that O-line can
only consolidate the ARMCO results from the date of acquiring control. O-line
cannot consolidate the Armco results from the effective date into the O-line
results since the regulatory approval process for the ARMCO acquisition was only
completed on 1 December 2008, the date of the registration of the special
resolutions required to implement the ARMCO acquisition even though shareholders
gave irrevocable undertakings to vote in favour of all the proposed resolutions
in June 2008. Competition Commission approval was obtained in October 2008.
The table below sets out the unaudited pro forma income statement and financial
information of O-line ("pro forma financial information"). The directors of O-
line are responsible for the preparation of the unaudited pro forma financial
information. The pro forma financial information is presented for illustrative
purposes only and because of their nature may not give a fair reflection of O-
line`s results of operations. It has been assumed for purposes of the unaudited
pro forma income statement that the ARMCO acquisition was unconditional on 1
July 2008 and that the results of ARMCO has been included for the six month
period ended 31 December 2008 in the O-line consolidated results.
O-line1 ARMCO2 Take out Group pro Group
pro
6 months 6 months ARMCO forma 4
forma I/S
ended 31 ended 31 results 6 months JSE Section 6 months
for ended 31 8 pro forma results for
Dec 2008 Dec 2008 Dec 20083 Dec 2008 adjustments5 Dec
20086
one month
ARMCO
included
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
R`000 R`000 R`000 R`000 R`000 R`000
Sales 118 213 147 231 -12 632 252 812 - 252 812
Cost of
Sales -76 215 -106 261 9 249 -173 227 - -173 227
Gross
profit 41 998 40 970 -3 383 79 585 - 79 585
Other
income 1 055 1 764 -225 2 594 - 2 594
Operating
expenses -24 084 -17 250 2 675 -38 659 -1 143 -39 802
EBIT 18 969 25 484 -933 43 520 -1 143 42 377
Investment
revenue 1 323 266 1 323 -1 348 -25
Finance
cost -1 562 -1 404 675 -2 291 -1 591 -3 882
Profit before
taxation 18 730 24 346 -258 42 552 -4 082 38 470
Taxation -5 259 -6 848 72 -12 035 1 143 -10 892
Profit for
the period 13 471 17 498 -186 30 517 -2 939 27 578
RECONCILIATION OF HEADLINE EARNINGS
Basic
earnings 13 471 17 498 30 517 27 578
Profit on
Sale of
fixed assets
Headline
earnings 13 471 17 498 30 517 27 578
EARNINGS AND HEADLINE EARNINGS PER SHARE7
Number of
shares
in issue
(`000) 196 500 196 500 196 500
Weighted
average
number of
shares
in issue
(`000) 157 329 170 168 170 168
Basic
earnings
per share
(cents) 8.56 17.67 16.21
Basic
headline
earnings
per share
(cents) 8.56 17.67 16.21
Fully
diluted
earnings
per share
(cents) 8.56 17.67 16.21
Fully
diluted
earnings
pershare
(cents) 8.56 17.67 16.21
NOTES:
1. Based on O-line`s published unaudited interim results for the six month
periods ended 31 December 2007 and 31 December 2008, respectively. The
ARMCO profits from 1 June 2008 to 1 December 2008, the effective date of
the ARMCO acquisition were allocated to goodwill in terms of IFRS in
producing the published O-line consolidated interim results for the six
month period ended 31 December 2008.Only one month of ARMCO`s results
namely 1 December 2008 to 31 December 2008 was included in the O-line
consolidated profits for the 6 month period ended 31 December 2008. The
cash component of the acquisition transaction cost was included in the O-
line results for the 6 month period ended 31 December 2008.
2. As extracted from the unaudited management accounts of ARMCO ("the
management accounts") for the six month period ended 31 December 2008. The
O-line directors are satisfied that the ARMCO management accounts are a
reliable source of information for the extraction of the ARMCO results.
3. Elimination of ARMCO results for the month of December 2008. These numbers
were included in the O-line consolidated results for the 6 month period
ended 31 December 2008. The elimination is based on the management
accounts.
4. The pro forma group income statement is based on an aggregation of the
actual results of ARMCO and O-line. Intergroup revenue and unrealised
profits and losses have been eliminated as disclosed in the O-line results
announcement dated12 March 2009.
5. The adjustments made include the following:
5.1 The provision for additional depreciation amounting to R1.143 million
based on the re-valued asset values of the ARMCO assets acquired.
5.2 The reversal of interest received amounting to R1.348 million on
positive bank balances. All surplus cash has been used to pay the
ARMCO vendors and the interest income would not have been earned if
surplus cash were paid to the ARMCO vendors.
5.3 O-line used the internal cash resources of O-line and ARMCO to pay the
ARMCO vendor. A net interest expense of R814 000 has been provided on
the acquisition regarding the ARMCO vendor loan accounts amounting to
R14.8 million. These loan accounts carry interest at the Nedbank prime
banking rate less 2% (11% were used in the calculations).
5.4 An interest expense of R777 488 has been provided for on the Steelwood
vendor loans to ARMCO management amounting to R25.92 million at 6% per
annum. The interest will only be payable by O-line if ARMCO management
default on repaying their vendor loan. This calculation is made for
illustrative purposes only so as to illustrate the worst scenario
possible.
5.5 The taxation benefit arising from 5.1 to 5.4 above based on an
effective taxation rate of 28% amounts to R1.143 million.
6. The pro forma income statement is an aggregation of the O-line and ARMCO
results for the six month period ended 31 December 2008 after providing for
depreciation and interest expenses that would have been incurred and
interest received that would not have been received if the ARMCO
acquisition were unconditional on 1 July 2008.
7. The pro forma earnings per share and headline earnings per share numbers
have been calculated based on the pro forma profit after taxation for the
period and on the number of shares that would have been in issue if the 37
500 000 ARMCO vendor shares and the 1 318 840 transaction cost shares were
issued on 1 July 2008 .
For and on behalf of the board
G.S. Smart (Chief Executive Officer)
E.A. Jay (Chairman)
Selby
20 April 2009
Designated Advisor:
QuestCo Sponsors (Proprietary) Limited
Date: 20/04/2009 17:10:01 Produced by the JSE SENS Department.
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