| Fri 15 Oct 2010, 13:40 | | AET - Alert Steel Holdings Limited - Reviewed condensed consolidated financial |
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AET
AET
AET - Alert Steel Holdings Limited - Reviewed condensed consolidated financial
results for the year ended 30 June 2010 and the proposed financial restructuring
plan
Alert Steel Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2003/005144/06)
JSE code: AET ISIN: ZAE000092847
("Alert" or "the company" or "the group")
REVIEWED CONDENSED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 30 JUNE
2010 AND THE PROPOSED FINANCIAL RESTRUCTURING PLAN
Condensed Consolidated Group Statement of Comprehensive Income
Reviewed Audited
30 June 2010 30 June 2009
R`000 R`000
Revenue 1 025 884 981 325
Gross profit 210 734 211 107
Other income 13 297 10 831
Operating costs (214 358) (180 091)
Trade receivables - Impairment (10 257) (13 590)
Trade receivables - Provision for impairment (30 463) (67)
(1)
EBITDA (31 047) 28 190
Depreciation (9 125) (7 952)
(Loss) / Profit before interest, goodwill (40 172) 20 238
impairment and taxation
(Loss) /Profit on disposal of non-current (210) 15
assets
Bargain price purchase - 1 523
Goodwill impairment (2) (35 325) -
Net finance costs (21 123) (16 094)
(Loss) / Profit before taxation (96 828) 5 682
Taxation (2 146) (1 505)
(Loss) / Profit for the year (98 974) 4 177
(98 974) 4 377
Attributable to:
Ordinary shareholders
Minority interest - (200)
Reconciliation of headline (loss) / earnings:
(Loss) / Profit attributable to ordinary (98 974) 4 377
shareholders
Bargain price purchase - (1 523)
Goodwill impairment 35 325 -
Loss / (Profit) on disposal of non-current 210 (11)
assets
Headline (loss) / earnings attributable to (63 439) 2 843
ordinary shareholders
Weighted average shares in issue on which 248 428 570 248 428 570
(loss) / earnings are based
Fully diluted weighted average shares in issue 256 028 570 256 028 570
on which (loss) / earnings are based
(Loss) / Earnings per share (cents) (39,8) 1,8
Headline (loss) / earnings per share (cents) (25,5) 1,1
Fully diluted (loss) / earnings per share (39,0) 1,5
(cents)
Fully diluted headline (loss) /earnings per (25,1) 0,9
share (cents)
Notes:
(1) Long outstanding trade receivables were provided for impairment, of which
the majority relates to subcontractors for the South African Government and
local municipality contracts.
(2) Goodwill is carried at cost less any accumulated impairment. Goodwill was
valued, using the net present value of future cash flow based on current
actual contribution, discounted at a rate of 20% and extrapolated using an
estimated growth rate of 8%.
Condensed Consolidated Group Statement of Financial Position
Reviewed Audited
30 June 30 June 2009
2010 R`000
R`000
ASSETS
Non-current assets 177 792 198 420
Investment property 5 991 5 991
Property, plant and equipment 152 934 134 486
Goodwill (1) 17 848 54 665
Other financial assets - 204
Deferred taxation 1 019 3 074
Current assets 383 252 321 838
Inventories 196 680 152 622
Loans to joint ventures 95 13 938
Loans to director (2) 5 427 -
Current tax receivable 1 397 3 641
Trade and other receivables 167 917 142 149
Cash and cash equivalents 11 736 9 488
Total assets 561 044 520 258
EQUITY AND LIABILITIES
Total shareholders funds 92 076 191 050
Non-current liabilities 80 188 64 607
Other financial liabilities (3) 79 858 63 978
Deferred taxation 330 629
Current liabilities 388 780 264 601
Loans from joint ventures 16 006 3 260
Loans from director (4) 1 419 -
Other financial liabilities 16 585 20 208
Current tax payable 21 414 665
Trade and other payables 189 282 111 867
Provisions 64 457
Bank overdraft 144 010 128 144
Total equity and liabilities 561 044 520 258
Number of shares in issue 248 428 570 246 714 285
Number of shares including share based
payment shares(5) 248 428 570 248 428 570
Fully diluted number of shares in issue 256 028 570 256 028 570
(6)
Net asset value per share (cents) 37.1 76.9
Net tangible asset value per share 29.9 54.9
(cents)
Notes:
(1) Goodwill is carried at cost less any accumulated impairment. Goodwill was
valued, using the net present value of future cash flow based on current
actual contribution, discounted at a rate of 20% and extrapolated using an
estimated growth rate of 8%.
(2) Credit in the normal cause of business of Alert was granted to two
companies, controlled by Mr. W.F. Schalekamp , the CEO of the group. These
accounts were subsequently reclassified as loans, and attract interest at
market related rates.
(3) The increase in borrowings is mainly attributable to the finalization of
the new distribution centre and head office in East Lynne, Pretoria.
(4) The personal loan from a director, Mr. WF Schalekamp, was unsecured and
repaid after the financial year end.
(5) Included in the number of shares, are 1 714 285 ordinary shares which were
issued in terms of the "Steel Giant" transaction during the 2010 financial
year.
(6) The 7 600 000 ordinary shares issued to the Alert Share Incentive Scheme
are treated as "treasury shares".
Condensed Consolidated Group Statements of Changes in Equity
Reviewed Audited
30 June 30 June 2009
2010 R`000
R`000
Balance at beginning of period 191 050 194 302
Shares issued 2 366 -
Total earnings (98 974) 4 377
Acquisition share based payment reserve (2 366) -
Dividends paid - (7 629)
Balance at end of period 92 076 191 050
Condensed Consolidated Group Cash Flow Statements
Reviewed Audited
30 June 30 June 2009
2010 R`000
R`000
Cash shortage from operating activities (19 953) 31 926
Cash shortage from investing activities (20 292) (106 627)
Cash flow from financing activities 26 626 38 834
Net decrease in cash and cash equivalents (13 619) (35 867)
Overdraft and cash equivalents at beginning (118 656) (82 789)
year
Overdraft and cash equivalents at end year (132 275) (118 656)
Condensed Consolidated Segmental Report
Reviewed Audited
30 June 2010 30 June 2009
R`000 R`000
Comprehensive income
Revenue
Retail 987 119 908 531
Reinforcing 38 765 72 794
Manufacturing
1 025 884 981 325
Operating (loss) /
profit before interest,
goodwill impairment and
taxation
Retail (38 021) 18 096
Reinforcing (2 151) 2 142
Manufacturing
(40 172) 20 238
Depreciation
Retail 8 891 7 752
Reinforcing 234 200
Manufacturing
9 125 7 952
Capital expenditure
Retail 29 217 75 955
Reinforcing 33 145
Manufacturing
29 250 76 100
Financial Position
Reportable segment
assets (1)
Retail 495 461 397 522
Reinforcing 22 070 31 939
Manufacturing
517 531 429 461
Reportable segment
liabilities (2)
Retail 270 856 173 509
Reinforcing 14 933 23 001
Manufacturing
285 789 196 510
(1) Reconciliation of Segmental 2010 2009
Assets
Total assets 561 044 520 258
Goodwill (17 (54 665)
848)
Investment (5 991) (5 991)
property
Deferred taxation (1 019) (3 074)
Current taxation (1 397) (3 641)
Loans receivable (5 522) (13 938)
Cash and cash equivalents (11 (9 488)
736)
Segmental assets 517 531 429 461
(2) Reconciliation of Segmental
Liabilities
Current 388 780 264 601
liabilities
Bank overdrafts (144 (128 144)
010)
Current taxation (21 (665)
liabilities 414)
Loans payable (17 (3 260)
425)
Other - non 79 858 63 978
current liabilities
Segmental 285 789 196 510
liabilities
OVERVIEW
The directors of Alert are presenting the reviewed financial results for
the year ended 30 June 2010.
Alert will remember 2010 as the worst trading year in the group`s
history. The business environment became extremely competitive and
challenging due to the volatility in world steel markets, precipitated by
the renewed financial turmoil. Government measures to tighten liquidity
and take some inflationary heat out of the economy have dampened business
confidence.
The residential markets slow down significantly, exacerbated by the
conservative approach of financial institutions to lending. The non-
residential markets and the markets for additions and alterations have
also been negatively impacted.
In order to alleviate these negative factors, Alert have strategically
undertaken various ventures in specific parts of the business:
1. The establishment of a processing plant aimed to streamline the
business by supplying in-group business units with steel products
previously being out-sourced from various other processing plants.
2. The establishing of a contracts department, specialising in the supply
of products to various contractors which mainly deal with government
department projects. As with all new ventures, several hurdles were
encountered and negotiated to get acquainted with this trade, however
Alert is confident that contracts will continue to be a significant
contributor to turnover.
3. The expanding of the group`s footprint and trading activity into
Africa by the establishment of a joint venture operation in Zimbabwe, and
an export department trading mainly into sub-Saharan Africa.
The above ventures successfully increased revenue, but the pressure on
gross profit margins, increased operating costs and the completion of
capital projects already undertaken impacted negatively on profitability.
The main focus during the latter part of the past financial year was to
improve efficiencies and reduce cost. Dedicated task teams were formed
within the business concentrating on the reduction of excessively high
stock levels and the collection of trade receivables.
FINANCIAL RESULTS
Revenue increased by 4,5% to R1 025,9 million (2009:R981,3 million).
Operating costs increased by 31,7% to R255,1 million (2009: R193,7
million), mainly as a result of:
- The expansion of operations into Africa and opening of the Alert Plumb
Wonderboom branch.
- The Alert Build Wonderboom branch was fully operational during the 2010
financial year .
- An increase in supporting services operations impacting heavily on
employment costs.
- Long outstanding trade receivables to the value of R30,4 million was
provided for impairment, of which the majority relates to
subcontractors for the South African Government and local municipality
contracts.
As a result of the pressure on gross profit margins and the increase in
operating expenditure, an EBITDA loss of R31,0 million (2009: R28,2
million profit ) was declared for the year. Headline loss for the 2010
year was R 63,4 million (2009: 2,8 million profit).
Capital expenditure for the year amounted to R29,9 million which
constitutes:
- The completion of the Distribution Centre - R12,9 million.
- Expansions into Africa, the new Alert Plumb Wonderboom and the
relocation of the Alert Steel Ruimsig branch to Kya Sands - R6 million.
- Capital expenditure incurred to satisfy internal requirements - R11
million
PROSPECTS
Our strategic objectives for the 2011 financial year are:
- To restructure and right size the current operating business units
ensuring full advantage is taken of future growth opportunities within
the identified market segments.
- To complete actions taken to return non-profitable branches to
profitability. Where this can`t be accomplished the consolidation or
closing-down of these business units will be considered.
- To continue the focus on the rationalisation of cost.
- To create enduring and mutually beneficial strategic supply chain
partnerships that will provide the Alert group with a competitive
advantage.
- To ensure customers` needs are met by distributing product offerings to
the various identified market segments. To achieve this, the Alert group
will remain focused on the four foundation pillars of the business,
namely steel-, building-, hardware- , and plumbing products.
- To geographically expand our national and cross-border footprint.
- To continue developing an in-house steel processing facility supplying
in-group final product at competitive pricing and improve the group`s
gross margin.
PROPOSED FINANCIAL RESTRUCTURING PLAN
Alert proposes to raise additional capital by way of a rights offer and
to restructure the long and short term debt in an optimal way.
Shareholders will be advised of the detail of the financial restructuring
plan in due course.
STATEMENT ON GOING CONCERN
The financial statements have been prepared on the basis of accounting
policies applicable to a going concern. This basis presumes that the
funds will be available to finance future operations and that the
realisation of assets and settlement of liabilities, contingent
obligations and commitments will occur in the ordinary course of
business.
The ability of the group to continue as a going concern is dependent on
several factors which inter alia include, that, profitable operations can
be restored, long outstanding debt be recovered and that the company is
recapitalised in terms of the restructuring plan.
The statement of comprehensive income indicates that the company has
incurred a loss of R98,9 million for the year ended 30 June 2010 which
includes non-cash flow impairments of R65,9 million.
COMPLIANCE WITH LEGISLATION
The following matter was reported to the Independent Regulatory Board for
Auditors on 22 September 2010 by the group`s external auditors, in terms
of section 45(1) of the Auditing Professions Act, 2005 (No.26 of 2005).
According to the report, credit was extended by the group to entities
controlled by a director of the group, Mr. WF Schalekamp, which was not
repaid in accordance with normal business practices. The amount of credit
extended on 30 June 2010 was R5,427,427. This credit may constitute a
loan granted in contravention of section 226 (1)(b) of the Companies Act,
1973, (No.61 of 1973), as no consent was given as prescribed in section
226(2) of the Act.
Undertakings has been issued by transport attorneys, administering the
transport of a property sold by Mr . WF Schalekamp, to settle the loans
from the proceeds.
Although the directors of the board take cognisance of this discrepancy,
they also want to point out that Mr WF Schalekamp, through his personal
family trust, provides unlimited suretyships for the group`s facilities,
notwithstanding the fact that it is not normal practice for shareholders
to provide personal surety for listed companies.
SUBSEQUENT EVENTS
The directors are not aware of any material subsequent events between the
end of the financial year and the date of this report.
BASIS OF PREPARATION OF THE REVIEWED RESULTS
Statement of compliance
The reviewed condensed financial statements comprise a consolidated group
statement of financial position as at 30 June 2010, a consolidated
statement of financial position, consolidated statement of changes in
equity, summarised consolidated cash flow statement and segmental report
for the year ended 30 June 2010. The condensed consolidated financial
statements have been prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards and
the AC 500 standards as issued by the Accounting Standards Board or its
successor and the presentation and disclosure requirements of IAS 34:
Interim Financial Reporting, JSE Listing Requirements and South African
Companies Act. The accounting policies applied for the year are
consistent with those of the previous year.
Basis of measurement
The financial statements have been prepared on the historic cost basis
except for certain financial instruments measured at fair value.
REVIEWED REPORT
The condensed financial results have been reviewed by Alert`s independent
auditors, RSM Betty & Dickson (Tshwane). The Auditor`s Review Report
concluded that, based on their review, nothing has come to their
attention that caused them to believe that the condensed financial
results are not prepared, in all material respects in accordance with
International Financial Reporting Standards and the AC 500 standards as
issued by the Accounting Standards Board or its successor, the JSE
Listing Requirements and in the manner required by and the Companies Act
of South Africa.
On the group`s compliance with laws and regulations, the Auditors
reported that in accordance with their responsibilities in terms of
sections 44(2) and 44(3) of the Auditing Profession Act that they have
identified a certain unlawful act or omission committed by persons
responsible for the management of Alert which constitute a reportable
irregularity in terms of the Auditing Profession Act, 2005 (No. 26 of
2005), and have reported such matter to the Independent Regulatory Board
for Auditors. The matter pertaining to the reportable irregularity has
been described in the commentary of the directors.
The Auditor`s review report also includes an emphasis of matter whereby
the auditors, without qualifying their report, draw attention to the
total comprehensive loss of R98,9 million incurred during the financial
year. The emphasis of matter relates to the ability of the group to
continue as a going concern, which is dependent on several factors which
inter alia include that profitable operation can be restored, long
outstanding debt be recovered and that the company is recapitalised in
terms of the restructuring plan.
A copy of the auditor`s review report is available for inspection at the
company`s registered office.
SHARE CAPITAL
1 714 285 shares were issued during the year as the final payment of the
"Steel Giant" acquisition.
DIVIDEND POLICY
No dividend was declared during the year.
CHANGES TO THE BOARD
The following changes to the board occurred during the year under review:
- Mr Ethan Dube resigned as non-executive chairman of the board on 15
September 2010.
- Mr W Schalekamp was appointed as acting chairman of the board on 15
September 2010 and confirmed as chairman on 28 September 2010.
On behalf of the Board
WF Schalekamp WW Mentz
Managing Director Financial Director
15 October 2010
CORPORATE INFORMATION
Non executive directors: R van Rooyen, OV Jevon
Executive directors: WF Schalekamp (Chairman), WW Mentz
Registration number: 2003/005144/06
Registered address: 12 Gompou Street, East Lynne, 0186
Postal address: PO Box 29607, Sunnyside, 0132
Company secretary: M Pretorius
Telephone: (012) 800 0200
Facsimile: (012) 800 4661
Transfer secretaries: Computershare Investor Services
(Pty) Ltd
Designated Adviser: Vunani Corporate Finance
Date: 15/10/2010 13:40:01 Produced by the JSE SENS Department.
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