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Heritage - Unaudited interim report for the six months ended 30
June 2005
Heritage Collection Holdings Limited
Incorporated in the Republic of South Africa
Registration Number 1998/07269/06
ISIN Code: ZAE000023594
SHARE Code: HCL
UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2005
GROUP INCOME STATEMENT Restated Restated
for IFRS for IFRS
Unaudited Unaudited Unaudited
30 Jun 2005 30 Jun 2004 31 Dec 2004
R"000 R"000 R"000
Revenue 35,926 32,878 75,480
Operating (loss) / profit -7,553 -503 -5,257
Investment income 206 62 480
(Loss) / profit on ordinary -7,347 -441 -4,777
activities before finance
costs
Finance costs -878 -1,593 -3,915
Loss before exceptional -8,226 -2,034 -8,692
items
Realisation of business - -2,352 8,826
Additional provision on - -3,481 -
historical debtors
Loss before taxation -8,226 -7,867 134
Loss for the period from -163 -579 -1,661
discontinued operations
Taxation - - -2,143
Total loss for the year -8,388 -8,446 -3,670
Headline loss per share -9.4 -7.6 -13.4
(cents)
Loss per share (cents) -9.4 -9.5 -4.1
Weighted number of shares 88,912,885 88,912,885 88,912,885
issued
Reconciliation of headline
loss:
Net loss for the year -8,388 -8,446 -3,670
Loss on disposal of fixed - -632 578
assets
Impairment of investments - - 42
Profit on sale of - 2,352 -8,826
subsidiary
Headline loss -8,388 -6,726 -11,876
GROUP BALANCE SHEET Restated Restated
for IFRS for IFRS
Unaudited Unaudited Unaudited
30 Jun 2005 30 Jun 2004 31 Dec 2004
R"000 R"000 R"000
Assets
Non-current assets 16,391 22,316 18,530
Current assets 22,629 51,118 39,921
Inventory 11,124 10,841 11,375
Accounts receivable 11,367 35,435 26,605
Taxation 138 - 138
Cash and cash equivalents - 4,842 1,803
Non-current assets 768 - -
classified as held for sale
Total assets 39,788 73,434 58,451
Equity and liabilities
Shareholders" interest 7,052 20,502 15,441
Long term liabilities 7,527 9,614 7,520
Current liabilities 16,691 29,380 22,943
Accounts payable 12,650 13,846 11,764
Current portion of long - 67 351
term liabilities
Cash and cash equivalents 4,041 15,467 10,828
Liabilities directly 8,519 13,937 12,547
associated with non-current
assets classified as held
for sale
Total equity and 39,788 73,434 58,451
liabilities
Net asset value per share 7.9 23.1 17.4
(cents)
GROUP CASHFLOW STATEMENT Unaudited Unaudited Unaudited
30 Jun 2005 30 Jun 2004 31 Dec 2004
R"000 R"000 R"000
Cash from operating 5,328 7,943 9,427
activities
Cash generated from -8,787 -9,177 -8,993
operations
Net change in working 14,115 17,680 19,738
capital
Taxation paid - -560 -1,318
Cash from investing - -757 -929
activities
Cash from financing -344 -1,175 -887
activities
Net change in cash and cash 4,984 6,011 7,611
equivalents
Cash resource at the -9,025 -16,636 -16,636
beginning of the period
Cash resource at the end of -4,041 -10,625 -9,025
the period
STATEMENT OF CHANGES IN Restated Restated
EQUITY
for IFRS for IFRS
Unaudited Unaudited Unaudited
30 Jun 2005 30 Jun 2004 31 Dec 2004
R"000 R"000 R"000
Balance at the beginning of 15,441 26,047 26,047
the period
IFRS Restatements to - 3,498 2,884
December 2003
Net loss for the year -8,388 -9,043 -3,055
Sale of subsidiary - - -7,867
Realisation of deferred tax - - -2,568
on intangible asset
Balance at the end of the 7,052 20,502 15,441
period
SEGMENTAL ANALYSIS 30 Jun 2005 31 Dec 2004
South Africa Other South Africa Other
African African
Countries Countries
R"000 R"000 R"000 R"000
Revenue 42,273 2,379 90,176 6,188
Net profit / (loss) -8,245 -143 -3,342 -328
Assets employed 38,963 825 51,810 3,433
RECONCILIATION OF SA GAAP Restated Restated IFRS
TO IFRS transition
for IFRS for IFRS date
31 December 30 June 1 January
2004 2004 2004
R"000 R"000 R"000
BALANCE SHEET
Changes in equity:
As previously reported - 12,557 16,375 26,047
SA GAAP (Dec 2004 audited)
Operating lease rental -415 -71 -201
timing adjustment
Net effect of above 83 14 40
adjustment on deferred tax
Restated accumulated 12,225 16,318 25,886
profit - SA GAAP
Adjustment of fixed asset 3,215 3,555 3,062
depreciation and residual
values
Net effect of above - - -
adjustment on deferred tax
Restated accumulated 15,441 19,873 28,948
profit - IFRS
INCOME STATEMENT
Net loss - as previously -3,055 -9,043
reported - SA GAAP (Dec
2004 audited)
Operating lease rental -343 130
timing adjustments
Adjustment in the respect 69 -26
of the above to taxation
Restated net loss - SA GAAP -3,330 -8,939
Adjustment of fixed asset -340 493
depreciation and residual
values
Adjustment in the respect - -
of the above to taxation
Restated net loss - IFRS -3,670 -8,446
FIRST TIME ADOPTION OF INTERNATIONAL REPORTING STANDARDS ("IFRS")
The group is reporting for the first time under IFRS for the year
ending 31 December 2005 and accordingly, comparative figures
have been restated.
The unaudited results for the half-year ended 30 June 2005 have
been prepared in accordance with the group"s accounting
policies, which comply with International Financial
Reporting Standards ("IFRS"). The disclosure required in
terms of IFRS1 (First Time Adoption of International
Financial Reporting Standards) concerning the transition
from South African Statements of Generally Accepted
Accounting Practice ("SA GAAP") and the requisite changes in
accounting policies are set out below.
The following IFRS standards may have impacted on group accounting
policies and the disclosure of the group results:
IFRS3 - Business combinations
Contingent liabilities are now recognised as liabilities when
accounting for a business combination. Existing and any
future goodwill arising will be tested for impairment on an
annual basis and any impairment will be charged in the
income statement.
IFRS5 - Non-current assets held for sale and discontinued
operations Discontinuing operations are classified as such
when they meet the definition of discontinued operations. A
discontinued operation is now classified as such if it has
been disposed of or it is classified as held for sale. An
entity shall classify a non-current asset as held for sale
if its carrying amount will be recovered principally through
a sale transaction rather than through continuing use. The
results of these operations are presented separately in the
income statement and the assets associated with these
operations are included with non current assets held for
sale in the balance sheet.
IAS1 - Presentation of financial statements
Any liability where the company does not have an unconditional
right to defer settlement of the liability for at least
twelve months after the balance sheet date is classified as
current.
IAS16 - Property, plant and equipment
The residual values and useful lives of major fixed assets have
been assessed and where applicable depreciation adjusted.
IAS17 - Leases
The accounting treatment of lease rentals has been modified to
accord with the international interpretation of the
requirements of IAS17, namely, escalations in operating
lease rentals are no longer recognised in the periods they
are actually incurred, but are now charged in the income
statement on a straight-line basis over the term of the
lease.
IAS18 - Intangible assets
An intangible asset is an identifiable non-monetary asset without
physical substance. The meaning of identifiability has been
clarified as separable or arising from contractual or other
legal rights. Intangible assets with indefinite useful
lives, i.e. where there is no foreseeable limit to the
period over which the asset is expected to generate net cash
inflows for the entity, do no longer have to be amortised.
IAS36 - Impairment of assets
Goodwill, intangible assets with indefinite useful lives and
intangible assets that are not yet available for use must be
tested for impairment at the reporting date, whether or not
there is an impairment indicator.
COMMENTS
Overview
In the six-month period under review Hercol continued to show an
improvement in cash flow in line with its strategy to focus
on it"s core competencies and better debt management. This
contributed to cash resources strengthening by nearly R7
million.
Moreover, as a result of negotiations initiated and transacted
during this period, Hercol anticipates that it will further
improve its cash in the next reporting period.
The strategy of requiring an up front partial payment resulted in a
reduction in size of the debtors" book from R26 605 000 to
R11 367 000. However the vastly improved quality of the book
and its reduced term obviated the need for provisions of any
significance.
The net result of these processes is expected to be the elimination
of the bank overdraft and a much better quality, but
smaller, debtors" book.
The increase in revenue and reduction of overhead costs for the
period under review resulted in further reductions in the
headline loss per share when compared with 2004.
Prospects
The directors have renegotiated the franchise agreement with
Reader"s Digest Inc in the USA for books and home
entertainment products, extending it for a further five and
a half years under more favourable terms.
This was part of a process under which the magazine mailing list
was sold back to the franchisor with the company
relinquishing its obligation to distribute Reader"s Digest
magazine in the territory. The directors are satisfied that
this is a positive arrangement for the business as it will
improve short-term cash flow and eliminate the company"s
obligation to use cash resources to support magazine
circulation enabling the use of the group"s working capital
to expand its marketing activities of other products. It
will also result in a significant reduction of overheads.
The cash position is expected to improve substantially during the
second period as a result of the transactions initiated
during the period under review. The benefit of these
transactions will only be realised in the second period. The
directors expect the bank overdrafts to be fully paid off by
the end of October 2005, eliminating finance charges.
Management continues to explore further joint venture and alliance
opportunities which it hopes will help to increase its
mailing list for books and home entertainment and other
products in the future.
Accounting Policies and Presentation
This report has been prepared in accordance with International
Financial Reporting Standards ("IFRS"). The transition date
to IFRS was 1 January 2004 and the figures for the six
months ending 30 June 2004 and 12 months ending 31 December
2004 have been adjusted accordingly.
A reconciliation between the figures previously reported under
South African Statements of Generally Accepted Accounting
Practice ("GAAP") and IFRS is raised above.
ON BEHALF OF THE BOARD
BL LLOYD - Managing Director
CAPE TOWN, 30 September 2005
Executive directors: BL Lloyd, PC Bateman
Independent non-executive directors: N Steen, JA Bester
Company secretary: L McLachlan
Transfer secretaries: Computershare Investor Services Limited
Sponsor: Sasfin Corporate Finance
Registered Address:
1st Floor, 21 Dreyer Street, Sanclare Building, Claremont
Website: www.readersdigest.co.za
Date: 29/09/2005 01:03:22 PM Produced by the JSE SENS Department
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