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ACE
ACE
ACE - Accentuate Limited - Reviewed results for the six months ended 31 December
2010
Accentuate Limited
(Incorporated in the Republic of South Africa)
(Registration number 2004/029691/06)
Share code: ACE
ISIN: ZAE000115986
("Accentuate" or "the group")
REVIEWED RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2010
Consolidated Abridged Financial Statements for the six months ended
31 December 2010
Consolidated abridged statement of financial position
Reviewed 6 months Reviewed 6 months
ended Audited ended
31 December 30 June 31 December
2010 2010 2009
R`000 R`000 R`000
Assets
Non-current assets
Property plant and
equipment 35 311 37 153 38 258
Goodwill 62 424 96 290 96 290
Intangible assets 1 778 2 440 3 089
Deferred taxation 3 512 3 512 3 318
103 025 139 395 140 955
Current assets
Inventories 42 230 46 994 46 104
Other financial assets 368 368 368
Current tax
receivables 3 115 3 013 2 883
Trade and other
receivables 61 324 57 230 53 773
Cash and cash
equivalents 453 1 170 2 535
107 490 108 775 105 663
Total assets 210 515 248 170 246 618
Equity and liabilities
Equity
Equity attributable to
Equity Holders of
parent
Capital and reserves
Share capital 125 713 124 916 125 044
Reserves 10 557 10 557 10 871
Retained earnings 11 433 43 984 42 054
147 703 179 457 177 969
Non-controlling
interest - - 13
Total equity 147 703 179 457 177 982
Non-current liabilities
Other financial
liabilities 11 498 14 500 17 513
Finance lease
obligations 432 233 458
Deferred taxation 2 915 2 915 3 100
14 845 17 648 21 071
Current liabilities
Other financial
liabilities 6 006 6 006 6 006
Finance lease
obligations 292 433 494
Trade and other
payables 34 488 37 304 35 989
Operating lease
liability 427 1 040 623
Current tax payable 1 268 526 2 427
Bank overdraft 5 486 5 756 2 026
47 967 51 065 47 565
Total liabilities 62 812 68 713 68 636
Total equity and
liabilities 210 515 248 170 246 618
Number of shares in
issue 111 108 119 111 108 119 111 108 109
Net asset value per
share (cents) 133 162 160
Tangible net asset
value per share
(cents) 75 73 71
Consolidated abridged statement of comprehensive income
Reviewed 6 months Reviewed 6 months
ended Audited ended
31 December 30 June 31 December
2010 2010 2009
R`000 R`000 R`000
Revenue 148 530 305 496 155 521
Cost of sales (76 544) (151 524) (73 984)
Gross profit 71 986 153 972 81 537
Other income 369 1 189 587
Other operating
expenses (62 605) (129 028) (65 011)
Earnings before
interest, tax,
depreciation and
amortisation 9 750 26 133 17 113
Depreciation and
amortisation (3 607) (6 482) (3 191)
Goodwill impairment (33 866)
Profit before interest
and taxation (27 723) 19 651 13 922
Finance costs (1 642) (4 069) (2 153)
(Loss)/profit before tax (29 365) 15 582 11 769
Income taxation
expense (964) (3 339) (3 299)
(Loss)/profit for the
period (30 329) 12 243 8 470
Other comprehensive
income for the period
Gains and losses on
property revaluation - 315 -
Taxation related to
components of other
comprehensive income - 52 -
Other comprehensive
income for the year net
of taxation - 367 -
Attributable to:
Equity holders of the
parent (30 329) 12 610 8 470
Minority interest - - -
Net (loss) for the period (30 329) 12 610 8 470
Reconciliation of
headline earnings
Net (loss) for the period (30 329) 12 243 8 470
Adjusted for profit/
(loss) on disposal of
property, plant and
equipment (20) 73 (60)
Impairment of goodwill 33 866
Headline earnings
attributable to the equity
holders of the parent 3 517 12 170 8 410
Weighted average
number of shares in
issue 101 854 248 101 843 234 101 980 738
(Loss)/Earnings per
share (cents) (29.78) 12.02 8.31
Diluted (loss)/earnings per share
(cents) (29.78) 12.02 8.31
Headline earnings per
share (cents) 3.45 11.95 8.25
Diluted headline
earnings per share
(cents) 3.45 11.95 8.25
Interim dividends per
share (cents) - - 2
Final dividend per share
(cents) - 2 -
Consolidated abridged statement of cash flows
Reviewed 6 months Reviewed 6 months
ended Audited ended
31 December 30 June 31 December
2010 2010 2009
R`000 R`000 R`000
Cash flows from
operating activities
Cash generated from
operations 7 469 19 366 13 157
Investment income 4 29 14
Taxation paid (323) (1 434) 929
Finance costs (1 691) (4 069) (2 153)
Cash flows from
operating activities 5 459 13 892 11 947
Cash flows from
investing activities
Proceeds on sale of
property, plant and
equipment 563 1 486 285
Acquisition of property,
plant and equipment (1 220) (4 092) (1 385)
Acquisition of
intangible assets (14) (1 416) (1 362)
Decrease in financial
assets - - (128)
Cash flows from
investing activities (671) (4 022) (2 590)
Cash flows from
financing activities
Repurchase of share
capital - (159) -
Proceeds from other
financial liabilities (3 020) (6 008) (3 052)
Finance lease
repayments (13) (510) (226)
Dividends paid (2 202) (2 210) -
Cash flows from
financing activities (5 235) (8 887) (3 278)
Net decrease in cash
and cash equivalents (447) 983 6 078
Cash and cash
equivalents at the
beginning of the year (4 586) (5 569) (5 569)
Cash and cash
equivalents at the end
of the period (5 033) (4 586) 509
Consolidated abridged statement of changes in equity
Attributable to equity holders of the parent
Share Share Total Retained
capital premium reserves earnings
R`000 R`000 R`000 R`000
Balance at
1 July 2009 1 125 074 10 872 33 583
Total
comprehensive
income for the year - - (315) 12 610
Share premium
expenses - (4) - -
Purchase of
own/treasury
shares - (155) - -
Dividends - - - (2 222)
Changes in
ownership
interests - - - 13
Balance at
30 June 2010 1 124 915 10 557 43 984
Total
comprehensive
loss for the
period - - - (30 329)
Share options
exercised - 797 - -
Dividends - - - (2 222)
Balance at
31 December 2010 1 125 712 10 557 11 433
Total Non- Total
R`000 controlling equity
interest R`000
R`000
Balance at
1 July 2009 169 530 13 169 543
Total
comprehensive
income for the
year 12 295 - 12 295
Share
premium
expenses (4) - (4)
Purchase of
own/treasury
shares (155) - (155)
Dividends (2 222) - (2 222)
Changes in
ownership
interests 13 (13)
Balance at
30 June 2010 179 457 - 179 457
Total
comprehensive
loss for the
period (30 329) - (30 329)
Share options
exercised 797 - 797
Dividends (2 222) - (2 222)
Balance at
31 December
2010 147 703 - 147 703
Segment report
Reviewed Reviewed Reviewed
31 Dec 2010 31 Dec 2010 31 Dec 2010
R`000 R`000 R`000
Infrastructure Supplies Division Environmental
Solutions
Division
Flooring Glass and Environmental
Aluminium Solutions
Revenue
External sales 96 180 20 785 29 766
Intersegment
sales - - 3 236
Total segment 96 180 20 785 33 002
revenue
Results
Segment result
before
depreciation and
amortisation 6 413 (1 244) 1 766
Depreciation
and
amortisation (1 626) (404) (737)
Segment
operating result 4 787 (1 648) 1 029
Income taxation
expense
(loss) from
ordinary
activities
Other
information 512 446 127
Capital
expenditure
Balance sheet
assets
Segment
assets
excluding
goodwill 101 827 37 162 24 007
Goodwill
Consolidated
total assets 101 827 37 162 24 007
Liabilities
Segment
liabilities 27 633 19 429 16 905
Consolidated
total liabilities 27 633 19 429 16 905
Reviewed Reviewed
31 Dec 2010 31 Dec 2010
R`000 R`000
Corporate and Total
eliminations
Revenue
External sales 1 799 148 530
Intersegment
sales (3 236) -
Total segment
revenue (1 437) 148 530
Results
Segment result
before
depreciation and
amortisation (32 693) (25 758)
Depreciation
and
amortisation (840) (3 607)
Segment
operating result (33 533) (29 365)
Income taxation (964)
expense
(loss) from (30 329)
ordinary
activities
Other
information 135 1 220
Capital
expenditure
Balance sheet
assets
Segment
assets
excluding
goodwill (14 905) 148 091
Goodwill 62 424 62 424
Consolidated
total assets 47 519 210 515
Liabilities
Segment
liabilities (1 155) 62 812
Consolidated
total liabilities (1 155) 62 812
Segment Report
Reviewed Reviewed Reviewed
31 Dec 2009 31 Dec 2009 31 Dec 2009
R`000 R`000 R`000
Infrastructure Supplies Division Environmental
Solutions
Division
Flooring Glass and Environmental
Aluminium Solutions
Revenue
External sales 97 961 27 354 28 706
Intersegment
sales - - 2 613
Total segment
revenue 97 961 27 354 31 319
Results
Segment result
before
depreciation,
amortisation
and impairment 8 591 3 859 2 413
Depreciation
and
amortisation (1 440) (294) (710)
Segment
operating result 7 151 3 565 1 703
Income taxation
expense
Profit/(loss)
from ordinary
activities
Other
information
Capital
expenditure 489 337 452
Balance sheet
Assets
Segment
assets
excluding
goodwill 104 827 30 978 25 216
Goodwill - - -
Consolidated
total assets 104 827 30 978 25 216
Liabilities
Segment
liabilities 34 079 8 686 18 508
Consolidated
total liabilities 34 079 8 686 18 508
Reviewed Reviewed
31 Dec 2009 31 Dec 2009
R`000 R`000
Corporate and Total
eliminations
Revenue
External sales 1 500 155 521
Intersegment
sales (2 613) -
Total Segment (1 113) 155 521
Revenue
Results
Segment result
before
depreciation,
amortisation
and impairment 97 14 960
Depreciation
and
amortisation (747) (3 191)
Segment
operating result (650) 11 769
Income taxation (3 299)
expense
Profit/(loss)
from ordinary
activities 8 470
Other
information
Capital
expenditure 108 1 386
Balance sheet
Assets
Segment
assets
excluding
goodwill (10 693) 150 328
Goodwill 96 290 96 290
Consolidated
total assets 85 597 246 618
Liabilities
Segment
liabilities 7 363 68 636
Consolidated
total liabilities 7 363 68 636
Commentary
INTRODUCTION
Accentuate is engaged in the manufacture and distribution of infrastructural
supplies and maintenance solutions including flooring, glass and aluminium,
chemical cleaning and related products and services. The group reports
segmentally across two divisions: Infrastructure Supplies Division and
Environmental Solutions Division.
THE OPERATING ENVIRONMENT
The interim results for the period ended 31 December 2010 are presented within
the context of what can only be described as the worst slowdown within the
construction sector in the last 40 years. Although a slowdown was predicted and
anticipated post "World Cup", it was not quite expected to the degree to which
it was felt. In addition to this slow down, Government`s poor investment in
infrastructure is seriously affecting the sector and impacting on job creation
and general economic growth.
In its recent fixed investment outlook, Investec warned that government had been
tardy in meeting investment targets, which would impede service delivery and
economic growth. In a report by the Treasury, issued on 18 November 2010, it was
stated that provinces had spent only 33% of their combined capital budgets from
April to September 2010, a 25.3% decline in capital spending compared to 2009.
Cement sales for the period August to October 2010 was 7.4% down on the
corresponding period in 2009 and 20.8% down on 2008. As Accentuate is positioned
at the end of the construction cycle, the effect of these factors, have been
felt across the operating divisions.
The fall-off in activity, partly anticipated, deepened with the conclusion of
the Soccer World Cup and has failed to pick up meaningful momentum since then.
Recent statistics show that construction industry indicators have been declining
since the third quarter of 2009 and that the industry has one of the lowest
growth figures since 2008. Compounding this situation is Governments lack of
timeous payment for projects completed. Major contractors are reporting payment
lags of up to nine months due to different mandate levels in Government
departments for sign off. The impact of this is dramatic as it restricts the
construction companies from embarking on new projects due to lack of capital.
Sub-contractors and SMME`s are severely affected, and in some cases forced into
liquidation.
REVIEW OF OPERATIONS
The impact of these macro-economic factors on Accentuate varies from directly
affecting CGA to an indirect impact on FloorworX. Within SAFIC, enhanced revenue
generation remains a key focus and this has been achieved.
Infrastructure Supplies Division:
In general the division has been impacted by the low private sector investment
in both the commercial and private property sectors.
FloorworX:
At the end of the World Cup FloorworX experienced a dramatic decrease in project
activity. This combined with delays in the roll out of Government infrastructure
projects resulted in a lull in activity. Towards the end of the reporting
period, this momentum changed to an increase in activity and resultant demand
for the products and services supplied by FloorworX. Revenue was only slightly
down at R96.1 million from R97.9 million in the previous period but
profitability was impacted dramatically with only 85% of the budgeted revenue
realised and the resultant operating profit was 33% less at R4.7 million.
Although costs were managed and contained, pressure on margins saw a decrease on
the corresponding period in the previous year.
Major factors impacting on the business remain the increase in energy costs as
well as the anticipated rise in global commodity prices. The relative strength
of the Rand continues to impact negatively on our export initiatives, especially
on the African continent.
Market share was maintained and even increased and much attention was paid to
ensuring that the product offering meets and exceeds the needs of the market. To
this a second range of Novillon was launched and a cut length service
introduced. A new range of Luxury Vinyl, loose lay products was introduced and
well received by the market meaning that FloorworX have read market demand
correctly.
The Flotex carpet in also gaining popularity and although there were some
initial teething problems, continued growth in demand for this product range is
visible. In addition to these product offerings, we are also currently looking
at launching a range of carpet tiles and will be in a position to elaborate
further on this in our full year results.
The introduction of our "Signature" range of wooden laminates have contributed
greatly towards Interior Wooden Floors getting off the ground and starting to
make a contribution towards the profitability of the division.
Relationships with the leading global suppliers of floorcoverings have been
strengthened during the period and we are confident that FloorworX can provide
the widest range of quality resilient flooring products within the domestic
market.
The focus of the business going forward is to maintain our market share within a
competitive market while at the same time ensuring that our margins are not
eroded. To this end we have embarked on the following strategic initiatives:
1. Price increases have been passed on to customers ensuring that we achieve and
maintain the necessary margins.
2. Fuel price hedged in order to eliminate volatility and to mitigate the impact
of fuel price increases on the company bearing in mind that the factory is
situated in East London.
3. Strategic cost reduction programs have been investigated and initiated which
will ensure sustainability, especially in the manufacturing process. Major costs
remain energy costs, fuel and labour costs.
Management remains committed to ensuring increased profitability within the
flooring division through the elimination of costs where possible while ensuring
sustainability.
Centurion Glass & Aluminium (CGA)
The period under review has seen CGA operate in a severely affected operating
environment. Dramatic reductions in awarding new contracts have seen activity
within the Glass and Aluminium sector of the construction industry die down.
During this period, CGA saw its outstanding tender book increase from a normal
R50 million to in excess of R275 million, due to tenders not having been
awarded.
CGA provides management with a number of challenges. Not only are we operating
within a macro-environment that has impacted severely on the performance of both
CGA and its peers, but also faced the challenge of addressing many structural
issues that have come to light. In April 2010, Accentuate took the decision to
appoint Mr Wesley Delport as the Managing Director at CGA with a mandate to
identify the reasons for the non-performance of the division and to effect the
necessary changes to redress this situation.
Unfortunately, it has become evident that the challenges within the business had
not been adequately identified and addressed by the previous management and this
has resulted in a situation where relationships with stakeholders had been
compromised and had impacted severely on both the profitability of the business.
It also became evident that certain warranties by the vendors of CGA had not
been met and to this end, management has embarked on a process to remedy these
breaches. Please see further details in the litigation statement.
Due to inactivity within the sector as well as the issues resulting from the
previous management, CGA made a loss of R1.6 million for the period under
review. This is a dramatic reduction of 146% over the corresponding reporting
period in the 2009/10 financial year.
The focus of the business going forward is the following:
1. To ensure sustainability and to address the identified weaknesses left by
the previous management.
2. To further reduce cost structure. During the current reporting period,
headcount was rightsized by 35% resulting in a reduction in fixed costs of
R2.4 million per annum. A further saving of R1.3 million per annum has been
instituted through reduced reliance on subcontractors.
3. From a marketing and sales perspective, a rebranding and repositioning
exercise was embarked upon with a focus on architectural, quantity surveyors
and PQS practices. To this end we have appointed a qualified architectural
representative.
4. Revenue generation initiatives include an increased focus on "green building
principles" as well as on innovative and cost effective solutions obtained from
leading global technology partners.
5. Focus on effective cash management.
An effective turnaround strategy has been embarked on that we believe will
immediately stop the hemorrhaging and provide the necessary time for effective
strategies that will ensure sustainable profitable growth.
Environmental Solutions Division:
The Environmental Solutions Division has continued along the stated strategy of
repositioning the business away from the traditional "down the street", direct
representation model to an emphasis on centrally managed accounts that provide a
steady stream of annuity income. The period under review has seen success in
this regard while at the same time experiencing some pressure on margins and a
decline in the traditional areas of operation.
Traditional industrial and manufacturing customers remain under pressure and
this has impacted slightly on the overall performance of the division. Revenue
increased by 4% and volumes by 26.1% over the corresponding reporting period,
but margins decreased by 6%.
Traditional product ranges increased by 1.6% in volume with the balance of the
volume growth coming from the manufacture of adhesives and screeds for the
flooring market as predicted in our results commentary for the 2009/10 financial
year.
The growth of volume within the period has resulted in a far more sustainable
business with the focus going forward on increasing margins through effective
procurement as well as focused price increases into identified markets.
The focus on annuity income continues to bear fruits with approximately 26% of
the revenue now secured contractually. Although strict credit control measures
have impacted on revenue, management is of the opinion that these policies are
necessary to mitigate potential payment risks and exposure in what remains a
volatile market. The focus of the chemical division remains the development of
sustainable relationships with "blue chip" clients that will ensure annuity
income for the group. There is an increased focus on a new base of clients that
have been identified and targeted.
Effective current asset management also remains central to the strategy of the
division.
FINANCIAL RESULTS
A detailed assessment of Accentuate`s goodwill and intangibles was undertaken
during the period and forced an impairment of the goodwill relating to the
purchase of Centurion Glass and Aluminum to the value of R33.9 million. Please
see the litigation statement in our announcement for additional information.
The group reported an attributable loss for the period under review of R30.3
million. The loss adjusted for the impairment of the goodwill was an
attributable profit of R3.5 million, with a profit of R8.5 million for the
comparative period ended December 2009.
Headline earnings have reduced from 8.25 cents per share to 3.45 cents per share
for the period under review.
Cost cutting across the entire operation is a core discipline and Accentuate is
pleased with a 3.7% reduction of overheads despite significant pressure bought
from increased energy and labour costs.
No material events have occurred from the reporting date to the date of this
report.
DIVIDEND
The board has taken a decision to refrain from declaring an interim dividend
(2009: 2 cents per share) under the current tough trading conditions. Cash
generation has been under pressure and as such the Board of Accentuate find it
prudent to retain and utilise cash for working capital requirements as the group
experienced delayed cash flow collections from Government tenders.
PROSPECTS
Accentuate remains in a sector of the economy suffering from economic conditions
in general and exacerbated by Government`s sluggish utilisation of spend on
infrastructure development and refurbishment. However, management remains strong
on the view that Accentuate has sustainable underlying businesses. Accentuate
will continue to assess growth opportunities in areas to supply finishing and
maintenance products to accentuate buildings.
CHANGES TO THE BOARD
During the period under review, Mr A Kerrod, a non-executive director of
Accentuate, resigned from the board of directors.
On 24 February 2011, post the close of the interim period, Accentuate announced
a change in Designated Advisor with the appointment of Bridge Capital, a
representative of which will be present at all Accentuate board meetings.
LITIGATION STATEMENT
On 25 March 2011 an action was launched against the vendors of Centurion Glass
and Aluminium ("CGA") in which Accentuate is suing the vendors for damages
arising from a breach of certain warranties provided by the vendor when
Accentuate purchased the shares in CGA in 2007. The amount claimed by Accentuate
is R10,4 million.
BASIS OF PREPARATION
The reviewed consolidated interim financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS"), and in
terms of IAS 34 - Interim Financial Reporting, the AC 500 standards as issued by
the Accounting Practice Board and in compliance with the Listings Requirements
of the JSE Limited and the South African Companies Act (1973). The accounting
policies and method of measurement and recognition applied in preparation of
these reviewed condensed consolidated interim financial statements are
consistent with those applied in the audited annual financial statements for the
year ended 30 June 2010.
REVIEW OPINION
The abridged consolidated financial results for the six months ended 31 December
2010 have been reviewed by Accentuate`s auditors PKF Pta Inc. The review was
conducted in accordance with ISRE 2410 "Review of Interim Financial Information
Performed by the independent Auditor of the Entity". Their unqualified review
report is available for inspection at the company`s registered office.
APPRECIATION
The board would like to thank the management and staff for their loyalty and
dedication, particularly during these difficult times. The board would also like
to thank its business partners, advisors and suppliers, and most importantly the
shareholders for their ongoing support and faith in the group, especially
prevalent in this year.
By order of the Board
29 March 2011
F C Platt A J Voogt
Chief Executive Officer Financial Director
CORPORATE INFORMATION
Non executive directors: M D C Motlatla
L Gadd
D Bokaba (Alternate)
Executive directors: F C Platt
A J Voogt
Dr D E Platt
Registration number: 2004/029691/06
Registered address: 32 Steele Street
Steeledale
2197
Postal address: P.O. Box 1754
Alberton
1450
Company secretary: G W Delport
Telephone: 0860 4 72342
Facsimile: 0861 4 72342
Transfer secretaries: Computershare Investor Services (Pty)
Limited
Designated adviser: Bridge Capital Advisors (Pty) Limited
Date: 29/03/2011 10:15:01 Produced by the JSE SENS Department.
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