Wrap Text
Reviewed Condensed Consolidated Financial Statements For The Year Ended 31 March 2018
DENEB INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
("Deneb" or "the Group" or "the company")
Registration number: 2013/091290/06
JSE share code: DNB
ISIN: ZAE000197398
REVIEWED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 March 2018
Financial highlights
for the year ended 31 March 2018
- Revenue from continuing operations up R333 million to R3 011 million
- Profit from continuing operations up R17 million to R89 million
- Profit down R43 million to R6 million
- Earnings per share from continuing operations up 6 cents to 21 cents
- Earnings per share down 8 cents to 2 cents
- Headline earnings per share from continuing operations up 4 cents to 14 cents
- Headline earnings per share down 9 cents to a loss of 4 cents
- Net asset value per share unchanged at 388 cents
- Net asset value excluding net deferred income liability unchanged at 415 cents
- Distribution per share of 3 cents declared (2017: 3 cents)
Condensed consolidated statement of financial position
as at 31 March
Reviewed Audited Audited
2018 2017* 2016*
R000's R000's R000's
ASSETS
Non-current assets 2 044 076 1 779 493 1 711 819
Plant and equipment 440 005 312 077 312 860
Owner-occupied property 373 421 458 641 434 075
Investment property 907 352 759 113 737 507
Intangible assets 41 525 48 466 22 263
Goodwill 58 472 23 764 15 023
Other investments 4 237 3 026 3 391
Long-term receivables 56 780 88 349 74 093
Deferred tax assets 162 284 86 057 112 607
Current assets 1 512 620 1 480 596 1 452 849
Non-current assets held for sale 1 080 1 985 2 175
Inventories 680 935 706 953 683 732
Loan receivables - - 83 101
Trade and other receivables 786 672 700 195 654 396
Current tax assets 2 266 705 143
Cash and cash equivalents 41 667 70 758 29 302
Total assets 3 556 696 3 260 089 3 164 668
EQUITY AND LIABILITIES
Total equity 1 674 626 1 662 980 1 857 615
Stated capital 1 452 264 1 449 653 1 717 286
Reserves 220 950 213 226 139 746
Equity attributable to owners of the company 1 673 214 1 662 879 1 857 032
Non-controlling interest 1 412 101 583
Non-current liabilities 942 059 943 559 206 265
Deferred tax liabilities 7 142 11 882 5 160
Post-employment medical aid benefits 98 896 91 861 90 803
Deferred income 141 754 131 805 105 289
Interest-bearing liabilities 688 533 706 752 4 149
Operating lease accruals 5 734 1 259 864
Current liabilities 940 011 653 550 1 100 788
Current tax liabilities 759 3 615 1 821
Post-employment medical aid benefits 7 619 7 131 6 789
Deferred income 8 908 12 646 10 120
Interest-bearing liabilities 169 972 52 716 38 733
Trade and other payables 604 886 499 094 489 856
Provisions 3 991 224 5 705
Bank overdraft 143 876 78 124 547 764
Total liabilities 1 882 070 1 597 109 1 307 053
Total equity and liabilities 3 556 696 3 260 089 3 164 668
Net asset value 1 673 214 1 662 879 1 857 032
Net asset value per share (cents) 388 388 331
Net asset value excluding deferred income liability 1 788 664 1 778 329 1 949 763
Net asset value excluding deferred
income liability per share (net of taxation) (cents) 415 415 347
*Restated, refer to note 4.1
Condensed consolidated statement of profit or loss and other comprehensive income
for the year ended 31 March
Reviewed Audited
2018 2017*
R000's R000's
Continued operations
Revenue 3 010 671 2 677 676
Cost of sales (2 324 922) (1 960 376)
Gross profit 685 749 717 300
Other income 6 802 (2 795)
Selling and distribution expenses (344 848) (333 059)
Administrative and other expenses (277 993) (229 458)
Operating profit before impairments, restructuring and
revaluation of investment property 69 710 151 988
Revaluation of investment properties 43 715 30 052
Net impairment of assets (1 436) -
Restructuring and retrenchment expenses (3 079) (1 751)
Operating profit before finance costs 108 910 180 289
Finance income 591 5 986
Finance expenses (93 733) (75 930)
Profit before taxation 15 768 110 345
Income tax income/(expense) 73 015 (38 416)
Profit after tax 88 783 71 929
Discontinued operations
Loss from discontinued operations, net of tax (82 554) (22 456)
Profit 6 229 49 473
Other comprehensive income, net of related tax
Items that will never be reclassified to profit or loss
Revaluation of land and buildings 18 822 21 389
Revaluation 28 574 25 391
Related tax (9 752) (4 002)
Post-employment medical aid benefits - actuarial (loss)/gain (3 679) 941
Actuarial (loss)/gain (5 110) 1 307
Related tax 1 431 (366)
Items that are or may be reclassified to profit or loss
Fair value adjustment on available-for-sale financial assets 1 210 -
Foreign operations - foreign currency translation differences (2 304) (10)
Other comprehensive income, net of tax 14 049 22 320
Total comprehensive income for the year 20 279 71 793
Profit attributable to:
Owners of the company 8 130 50 410
Non-controlling interest (1 901) (937)
6 229 49 473
Total comprehensive income attributable to:
Owners of the company 22 180 72 730
Non-controlling interest (1 901) (937)
20 279 71 793
Basic earnings per share (cents) 1,89 10,19
Continued operations (cents) 21,12 14,73
Discontinued operations (cents) (19,23) (4,54)
Diluted earnings per share (cents) 1,88 10,19
Continued operations (cents) 21,01 14,73
Discontinued operations (cents) (19,13) (4,54)
*Restated, refer to note 4.1
Condensed consolidated statement of changes in equity
for the year ended 31 March
Stated Non-
capital Other Retained controlling
Total reserves income Total interest Total
R000's R000's R000's R000's R000's R000's
Balance at 1 April 2016,
as previously reported 1 717 286 242 999 (10 522) 1 949 763 583 1 950 346
Impact of restatement* - - (92 731) (92 731) - (92 731)
Total comprehensive income - 21 389 51 341 72 730 (937) 71 793
Profit/(loss) - - 50 410 50 410 (937) 49 473
Other comprehensive income, net of tax - 21 389 931 22 320 - 22 320
Fair value adjustment on available-for-
sale financial assets - - (10) (10) - (10)
Revaluation of land and buildings,
net of tax - 21 389 - 21 389 - 21 389
Post-employment medical aid benefits
- actuarial gain, net of tax - - 941 941 - 941
Transfers to other reserves - (10 932) 10 932 - - -
Reclassification of revaluation surplus - (10 932) 10 932 - - -
Transactions with owners of the
company (267 633) - 1 205 (266 428) - (266 428)
Share buyback (268 785) - - (268 785) - (268 785)
Share scheme - expense - - 2 357 2 357 - 2 357
- options exercised 1 152 - (1 152) - - -
Changes in ownership interest - - (455) (455) 455 -
Acquisition of NCI without a change
in control - - (455) (455) 455 -
Restated balance at 31 March 2017 1 449 653 253 456 (40 230) 1 662 879 101 1 662 980
Total comprehensive income - 17 728 4 451 22 179 (1 901) 20 278
Profit/(loss) - - 8 130 8 130 (1 901) 6 229
Other comprehensive income/(loss),
net of tax - 17 728 (3 679) 14 049 - 14 049
Fair value adjustment on available-for-
sale financial assets - 1 210 - 1 210 - 1 210
Foreign operations - foreign currency
translation differences - (2 304) - (2 304) - (2 304)
Revaluation of land and buildings,
net of tax - 18 822 - 18 822 - 18 822
Post-employment medical aid benefits
- actuarial loss, net of tax - - (3 679) (3 679) - (3 679)
Transactions with owners of the
company 2 611 - (9 554) (6 943) - (6 943)
Share scheme - expense - - 5 916 5 916 - 5 916
- options exercised 2 611 - (2 611) - - -
Dividends - - (12 859) (12 859) - (12 859)
Changes in ownership interest - (4 317) (584) (4 901) 3 212 (1 689)
Acquisition of subsidiary with
non-controlling interests - - - - 2 628 2 628
Acquisition of subsidiary - common control
transaction - (4 317) - (4 317) - (4 317)
Acquisition of NCI without a change
in control - - (584) (584) 584 -
Balance at 31 March 2018 1 452 264 266 867 (45 917) 1 673 214 1 412 1 674 626
*Restated, refer to note 4.1
2018 2017
R000's R000's
Composition of other reserves
Revaluation of investments 1 210 -
Foreign currency translation differences (2 304) -
Common control reserve (20 219) (15 902)
Surplus on revaluation of land and buildings 288 180 269 358
266 867 253 456
Condensed consolidated statement of cash flows
for the year ended 31 March
Reviewed Audited
2018 2017
R000's R000's
Net cash flows from operating activities 179 964 131 076
Cash generated from operating activities before working capital changes 110 073 234 950
Cash generated from working capital changes 180 148 3 660
Net finance costs (93 142) (79 768)
Taxes paid (17 115) (27 766)
Net cash flow from investing activities (213 888) (66 961)
Net cash flow from financing activities (60 919) 446 981
Net other financing activities (48 060) 65 766
Overdraft converted to term loan - 650 000
Share buyback - (268 785)
Distribution (12 859) -
Net change in cash and cash equivalents (94 843) 511 096
Cash and cash equivalents at the beginning of the year (7 366) (518 462)
Cash and cash equivalents at the end of the year (102 209) (7 366)
Condensed consolidated segmental report
for the year ended 31 March
Branded
Product Centralised
Property Distribution Textiles Industrials Services Total
Year ended 31 March 2018 R000's R000's R000's R000's R000's R000's
Gross revenue 157 999 1 377 847 555 912 965 849 102 3 057 709
Inter-segment revenue (47 038) - - - - (47 038)
External revenue - continued
operations 110 961 1 377 847 555 912 965 849 102 3 010 671
External revenue - discontinued
operations - 62 236 142 836 - - 205 072
External revenue 110 961 1 440 083 698 748 965 849 102 3 215 743
Operating profit/(loss) before
finance costs - continued operations 155 165 (20 901) 6 300 14 996 (46 650) 108 910
Interest revenue - - - - 591 591
Interest expense - - - - (93 733) (93 733)
Operating profit before taxation
- continued operations 155 165 (20 901) 6 300 14 996 (139 792) 15 768
Operating loss before finance costs
- discontinued operations - (20 581) (52 262) - - (72 843)
Interest expense - 3 (9 714) - - (9 711)
Operating loss before taxation
- discontinued operations - (20 578) (61 976) - - (82 554)
Operating profit/(loss) before taxation 155 165 (41 479) (55 676) 14 996 (139 792) (66 786)
Segment assets 1 302 590 971 172 435 953 748 736 98 245 3 556 696
Segment liabilities 21 574 282 723 202 221 364 382 1 011 170 1 882 070
Year ended 31 March 2017*
Gross revenue 150 021 1 322 074 611 394 642 741 113 2 726 343
Inter-segment revenue (43 856) (4 811) - - - (48 667)
External revenue - continued
operations 106 165 1 317 263 611 394 642 741 113 2 677 676
External revenue - discontinued
operations - 57 997 - 182 004 - 240 001
External revenue 106 165 1 375 260 611 394 824 745 113 2 917 677
Operating profit/(loss) before finance
costs - continued operations 134 519 25 290 (5 929) 49 912 (23 503) 180 289
Interest revenue - - - - 5 986 5 986
Interest expense - - - - (75 930) (75 930)
Operating profit before taxation
- continued operations 134 519 25 290 (5 929) 49 912 (93 447) 110 345
Operating loss before finance costs
- discontinued operations - (10 705) (1 927) - - (12 632)
Interest expense - - (9 824) - - (9 824)
Operating loss before taxation
- discontinued operations - (10 705) (11 751) - - (22 456)
Operating profit/(loss) before taxation 134 519 14 585 (17 680) 49 912 (93 447) 87 889
Segment assets 1 238 511 904 240 528 245 451 142 137 951 3 260 089
Segment liabilities 19 516 228 275 229 141 174 317 945 860 1 597 109
*Restated refer to note 4.1
Statistics per share
for the year ended 31 March
Reviewed Audited
2018 2017*
Number of shares in issue ('000) 431 337 428 622
Weighted-average number of shares ('000) 429 358 494 817
Diluted-average number of shares ('000) 431 575 494 817
Basic earnings (cents) 1,89 10,19
Continued operations 21,12 14,73
Discontinued operations (19,23) (4,54)
Diluted earnings (cents) 1,88 10,19
Continued operations 21,01 14,73
Discontinued operations (19,13) (4,54)
Headline (loss)/earnings (cents) (3,68) 5,26
Continued operations 13,58 9,80
Discontinued operations (17,26) (4,54)
Diluted headline (loss)/earnings (cents) (3,67) 5,26
Continued operations 13,51 9,80
Discontinued operations (17,17) (4,54)
Reconciliation between profit and headline earnings
Profit attributable to equity holders of the parent (R000's) 8 130 50 410
Impairment of assets (R000's) 9 299 -
Reversal of impairment of assets (R000's) (55) -
Remeasurement of investment property (R000's) (33 923) (23 320)
Surplus on disposal of property, plant and equipment (R000's) (277) (1 089)
Loss on disposal of property, plant and equipment (R000's) 696 41
Insurance claim for capital asset (R000's) (22) -
Impairment of goodwill (R000's) 334 -
Headline earnings (R000's) (15 818) 26 042
Continued operations 58 286 48 498
Discontinued operations (74 104) (22 456)
Diluted headline earnings (R000's) (15 818) 26 042
Continued operations 58 286 48 498
Discontinued operations (74 104) (22 456)
Adjustment for government grants
Profit attributable to equity holders of the parent (R000's) 8 130 50 410
Deferred income released (net of tax) (R000's) (30 176) (15 231)
Government grant benefit for the period (R000's) 30 176 37 950
(R000's) 8 130 73 129
Adjusted basic earnings (cents) 1,89 14,78
Continued operations 23,85 19,61
Discontinued operations (21,96) (4,83)
Adjusted headline (loss)/earnings (cents) (3,68) 9,85
Continued operations 16,31 14,68
Discontinued operations (19,99) (4,83)
*Restated, refer to note 4.1
Notes to the condensed consolidated financial results
1. Basis of preparation
The condensed consolidated financial statements are prepared in accordance with the requirements of the
JSE Limited Listings Requirements for preliminary reports, and the requirements of the Companies Act of South
Africa. The Listings Requirement requires preliminary financial statements to be prepared in accordance with the
framework concepts and the measurement and recognition requirements of International Financial Reporting
Standards ("IFRS") and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and
Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain
the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of
the condensed consolidated financial statements are in terms of IFRS and are consistent with those applied in the
previous consolidated annual financial statements.
These results have been prepared under the supervision of the Financial Director, Gys Wege CA(SA). The directors
take responsibility for the preparation of this report and that the information has been correctly extracted from the
underlying annual financial statements.
2. Significant accounting policies and estimates
The accounting policies adopted in the preparation of the reviewed condensed consolidated financial statements
are consistent with those followed in the preparation of the Group's annual financial statements for the year ended
31 March 2017, except for new standards and interpretations effective as at 1 April 2017.
The new standards have no impact on the financial information.
3. Review report of the independent auditor
The condensed consolidated financial statements for the year ended 31 March 2018 have been reviewed by
PricewaterhouseCoopers Inc., who expressed an unmodified review conclusion. A copy of the auditor's review report
is available for inspection at the company's registered office together with the financial statements identified in the
auditor's report. The auditor's report does not necessarily report on all of the information contained in the financial
results. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's
engagement they should obtain a copy of the auditor's report together with the accompanying financial information
from the issuer's registered office.
4. Significant operating activities
4.1 Restatement of prior period
4.1.1 Correction of prior period error relating to the accounting of government grants
Government grants are recognised in profit and loss on a systematic basis over the periods in which the
Group recognises the related costs for which the grants are intended to compensate.
During the prior periods, the grants were deemed to be earned through compliance with their conditions
and meeting the envisaged obligations. Where the qualifying conditions gave rise to future envisaged
obligations, the benefits were allocated against the historic costs of complying with the conditions as
well as the future related obligations. Where no envisaged obligations were identified, the grants were
recognised when there was reasonable assurance that the entity will comply with all the conditions
attached to the grants and that the grants will be received.
It was concluded that the above accounting treatment is incorrect and that the grants related to
depreciable assets are to be recognised in the periods in the proportions in which the depreciation
expense on those assets are recognised, with the balance being reflected as deferred income.
The effect of the restatement on the prior-period numbers is as follows:
Consolidated statement of financial position
Impact of restatement
As previously
reported Adjustments As restated
1 April 2016 R000's R000's R000's
Total assets 3 141 990 22 678 3 164 668
Deferred tax asset 89 929 22 678 112 607
Total liabilities (1 191 644) (115 409) (1 307 053)
Deferred income - (115 409) (115 409)
Total equity (1 950 346) 92 731 (1 857 615)
Reserves (232 477) 92 731 (139 746)
31 March 2017
Total assets 3 231 088 29 001 3 260 089
Deferred tax asset 57 056 29 001 86 057
Total liabilities (1 452 658) (144 451) (1 597 109)
Deferred income - (144 451) (144 451)
Total equity (1 778 430) 115 450 (1 662 980)
Reserves (328 676) 115 450 (213 226)
Consolidated statement of profit or loss and other comprehensive income
Impact of restatement
As previously As
For the year ended reported** Adjustments restated
31 March 2017 R000's R000's R000's
Other income 27 714 (30 509) (2 795)
Income tax (44 739) 6 323 (38 416)
Loss from discontinued operations, net of tax (23 923) 1 467 (22 456)
Profit 72 192 (22 719) 49 473
Total comprehensive income 94 512 (22 719) 71 793
**Restated for discontinued operations
Basic earnings per share (cents) 14,78 (4,59) 10,19
Diluted earnings per share (cents) 14,78 (4,59) 10,19
Headline earnings per share (cents) 9,85 (4,59) 5,26
Diluted headline earnings per share (cents) 9,85 (4,59) 5,26
There is no impact on the total operating, investing or financing cash flows for the year ended
31 March 2017.
4.1.2 Discontinued operations
Operations classified as discontinued operations relate to the following three businesses:
- Berg River Textiles, a division of Winelands Textiles;
- Outlying branches of the office automation business;
- International leg of the branded sporting goods business.
Results of discontinued operations
2018 2017
R000's R000's
Revenue 205 072 240 001
Cost of revenue (191 821) (213 617)
Gross profit 13 251 26 384
Other income 11 649 5 437
Distribution costs (30 467) (30 284)
Administrative and other expenses (39 815) (14 169)
Operating loss before impairments and restructuring and
retrenchment costs (45 382) (12 632)
Impairment of assets (11 736) -
Restructuring and retrenchment costs (15 725) -
Operating loss before finance costs (72 843) (12 632)
Finance expenses (9 711) (9 824)
Loss before taxation (82 554) (22 456)
Income tax expense - -
Loss for the period from discontinued operations (82 554) (22 456)
Cash flows used in discontinued operations
Net cash used in operating activities (37 536) (9 581)
Net cash used in discontinued operations (37 536) (9 581)
4.2 Taxation and deferred taxation
2018 2017*
R000's R000's
Income tax
South African normal taxation
- current (14 688) (19 341)
- prior year 24 1 079
Deferred taxation 87 679 (20 154)
73 015 (38 416)
Reconciliation between actual and normal taxation rates** % %
Taxation as a percentage of (loss)/profit before taxation 109,3 43,7
Prior period - 1,2
Non-deductible items expenses 9,4 (3,5)
Specific tax-deductible expenses (1,7) 0,7
Capital gains tax on revaluation of investment property (3,7) 1,9
Foreign entities with different tax rate 0,9 -
Recognition of previous unrecognised tax losses (86,2) (16,0)
Normal taxation rate 28,0 28,0
* Restated, refer to note 4.1
**Reconciliation is disclosed on a consolidated basis from both continued and discontinued operations.
4.3 Government grants
Government grants in the Group relates to the Production Incentive Programme (PIP). The programme is an
incentive offered to the qualifying companies operating within the clothing and textile manufacturing industry.
2018 2017*
R000's R000's
Deferred amounts, to be recognised in more than 12 months' time 141 754 131 805
Deferred amounts, to be recognised in the next 12 months, included in
trade and other payables 8 908 12 646
Total deferred income liability 150 662 144 451
Reconciliation of carrying amount
Opening carrying value 144 451 115 409
Government receivable recognised during the period 30 176 37 950
Deferred income released during the period (23 965) (8 908)
Closing carrying value 150 662 144 451
* Restated, refer to note 4.1
5. Significant investing activities
5.1 Capital expenditure and commitments
Capital expenditure Contractual commitments
2018 2017 2018 2017
R000's R000's R000's R000's
Investment property - 5 889 40 000 -
Land and buildings 610 3 279 - -
Plant and equipment 110 873 34 973 33 072 9 609
Intangible assets 138 1 838 - -
Business combinations 61 672 77 897 - -
173 293 123 876 73 072 9 609
The capital commitments are expected to be incurred during the next 12 months. Commitments will be funded
through banking facilities.
5.2 Business combinations
Current period
Measurement of fair values
The assets and liabilities acquired have been measured on a provisional basis and in accordance with IFRS 3.
If new information is obtained within one year of the date of acquisition about the facts and circumstances that
existed at the date of acquisition, the accounting for the acquisition will be revised.
In the current period the Group acquired the following entities:
% voting
Subsidiary Acquisition interest
name date Segment Description acquired
Formex Industries 1 Aug 2017 Industrials Formex Industries is an entity 100%
Proprietary Limited focusing on the development,
("Formex") manufacturing and supply of
pressed and tubular components for
the automotive market.
New Just Fun Group 13 Dec 2017 Branded Product New Just Fun is a South African 100%
Proprietary Limited Distribution toy distributer.
("New Just Fun")
Oops Global SA 31 Dec 2017 Branded Product Oops Global SA is based in 60%
Distribution Switzerland and specialises in the
design, conception and sale of toys
for kids.
Branded
Product
Distribution Industrials Total
R000's R000's R000's
Total identifiable net assets acquired 29 258 20 740 49 998
Less non-controlling interest (2 628) - (2 628)
Goodwill 35 042 - 35 042
Goodwill directly to equity as transaction with owners - 4 317 4 317
Total consideration 61 672 25 057 86 729
Cash paid 61 672 - 61 672
Hosken Consolidated Investments Limited loan - 25 057 25 057
Cash outflow from this investing activity -
Cash consideration transferred (61 672) - (61 672)
Add cash and cash equivalents in the business acquired 320 3 090 3 410
Less overdraft in the business acquired (38 599) (22 723) (61 322)
Net cash inflow from investing operations (99 951) (19 633) (119 584)
Prior period
The Group acquired the entire issued share capital of Premier Rainwatergoods Proprietary Limited ("Premier").
Premier is a manufacturer of galvanised steel roofing accessories.
Industrials Total
R000's R000's
Total identifiable net assets acquired 69 156 69 156
Goodwill 8 741 8 741
Total consideration 77 897 77 897
Cash paid 67 897 67 897
Contingent consideration 10 000 10 000
Cash outflow from this investing activity
Cash consideration transferred (67 897) (67 897)
Add cash and cash equivalents in the business acquired 24 307 24 307
Net cash inflow from investing operations (43 590) (43 590)
5.3 Investment properties
Reconciliation of carrying amount
2018 2017
R000's R000's
Opening carrying value 759 113 737 507
Transfer from owner-occupied property 110 456 -
Additions 20 968 -
Development cost - 5 889
Fair value adjustments 43 715 30 052
Disposals (26 900) (14 335)
Closing carrying value 907 352 759 113
6. Significant financing activities
6.1 Significant related-party transactions
Current period
The Group acquired 100% of the shares in Formex from Hosken Consolidated Investments Limited ("HCI") with
effect from 1 August 2017 for an amount of R25 million. The transaction was announced on SENS on 10 July
2017 and 21 July 2017 and funded through a loan from HCI.
Prior period
In the prior period the company acquired 133 507 226 Deneb shares from the Southern African Clothing and
Textile Workers' Union ("SACTWU") for a consideration of R267 014 452. The shares were delisted and cancelled
on 30 September 2016.
6.2 Banking facilities
Current period
R50 million of short-term facility has been renegotiated to term funding in the current period.
Prior period
The Group renegotiated its banking facilities in the prior period whereby R650 million of short-term overdraft
facilities were converted to long-term funding.
7. Distribution
Notice is hereby given that a final distribution of 3 cents (gross) per ordinary share in respect of the 12 months ended
31 March 2018 has been declared and approved by the board of directors out of stated capital through the reduction
of contributed tax capital ("distribution").
In compliance with the requirements of Strate and the JSE Limited, the following dates are applicable:
Distribution declared Wednesday 23 May 2018
Last day to trade cum distribution Tuesday 12 June 2018
Shares trade ex distribution Wednesday 13 June 2018
Record date Friday 15 June 2018
Payment date Monday 18 June 2018
Share certificates may not be dematerialised or rematerialised between Wednesday 13 June 2018 and Friday 15 June
2018, both days inclusive.
Additional information
The directors have determined that this capital reduction distribution will be paid out of qualifying contributed tax
capital as contemplated in the definition of "contributed tax capital" in section 1 of the Income Tax Act, 1962.
As the distribution will be regarded as a return of capital and may have potential capital gains tax consequences,
Deneb shareholders are advised to consult their tax advisors regarding the impact of the distribution.
The directors have reasonably concluded that the company will satisfy the solvency and liquidity requirements of
sections 4 and 46 of the Companies Act, 2008, immediately after the capital distribution.
The number of issued ordinary shares is 431 337 345 as at the date of this declaration.
8. New standards
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning
on of after 1 April 2018, and have not been applied in preparing these condensed consolidated financial statements.
We have undertaken an initial assessment of the financial impact of the new standards and assessed that only the
below statements will impact the financial statements in the periods these standards are adopted:
Financial Instruments (IFRS 9)
The standard is effective for financial periods beginning on or after 1 January 2018. The measurement of provisions
against receivables will be revised to comply with the expected credit loss method. The Group will disclose the full
impact of this statement in its annual financial statements.
Leases (IFRS 16)
The standard is effective for financial periods beginning on or after 1 January 2019. The standard is expected to have a
material impact due to the significant number of leases, and will result in changes to the statement of financial position,
whereby a right-of-use asset and lease liability will be recognised. Changes to the statement of comprehensive
income will result in the current operating lease costs being replaced by an amortisation of the right-of-use asset
and associated finance costs. The Group will disclose the expected impact of this statement in its annual financial
statements.
On behalf of the board
Stuart Queen Gys Wege
Chief Executive Officer Financial Director
Cape Town
23 May 2018
Commentary
Although we have had some strong performers in the Group, most notably Vega Properties, Prima Interactive, Formex,
Romatex Home Textiles and the Empire Group, it's safe to say that the year ended 31 March 2018 proved to be a difficult
year.
We mentioned in our results to 31 March 2017 that the Group had a number of loss-making businesses that were weighing
on the Group's results. We have taken decisive action with regard to these businesses and a number of restructuring
processes have been completed during the current financial year. The results for the current financial year are significantly
influenced by these restructuring initiatives. In certain instances, the restructuring affects separately identifiable pieces of
businesses and where this is the case, the results for these pieces are reflected as discontinuing operations. There are
other processes that affect certain product ranges and parts of continuing businesses, and in these cases the costs of
exiting these areas remain within the continuing operations.
The restructuring processes affected the following three businesses in the main:
- Winelands Textiles - This business comprised two manufacturing facilities in the Western Cape: one in Paarl and one
in Worcester. During the course of the year we have completed a restructuring process that resulted in these two
facilities being consolidated into a single facility in Worcester. The consolidation significantly reduces the overheads and
breakeven point, which will allow the business to focus on more viable product lines. The restructure will also release
around R50 million of capital that was tied up in unproductive working capital;
- The Group's office automation business - The Group has decided to concentrate this business on the Gauteng market.
We have made good progress with the orderly disposal of the outlying branches. At the time of writing, only the
Cape Town branch remained to be sold and we are confident of wrapping this up shortly. The restructure allows the
businesses to unlock better efficiencies and it will release a significant amount of capital that was tied up in the long-
term debtors book; and
- Our branded sporting goods business - This business has been placed under the control of new management that
has been working on discontinuing loss-making brands, improving operational efficiencies and effectiveness and
optimising management structures. The result of these initiatives has seen the break-even point drop significantly. The
focus now is to grow the brands that remain.
Continuing operations
Although turnover grew by 12% to just over R3 billion, this growth was derived from the following acquisitions:
- Formex Industries was acquired from our holding company HCI with effect from 1 August 2017. This business
manufactures specialised pressing and tubing components for the automotive market;
- New Just Fun Group was acquired with effect from 13 December 2017. New Just Fun is a South African toy distributor
and holds the distribution rights to some of the world's leading toy brands; and
- The formation of HTIC (Hong Kong). This business sources goods from Asian manufacturers primarily for its South
African client base, including our own Group companies. The business has a long association with the Group, but in
prior years it acted as a sourcing agent. As from January 2017, it is classified as a subsidiary. The effect of this is that
we now account for all the revenue and all the costs as opposed to just accounting for commissions earned as was
the case previously.
If one excludes the revenue from these acquisitions, the remaining businesses saw revenues decline by 2%. Most of
this decline is attributable to our own decisions to discontinue unprofitable product lines, but it does reflect some of the
difficulties experienced in the retail and construction markets in particular.
Gross margins also came under pressure and declined by 400 basis points to 22,8%. This decline is due in part to
the new revenue streams from HTIC and the acquisition of Formex, both of which operate a high volume, low margin
business model. Furthermore, certain of the businesses experienced quite significant increases in raw material prices
which could not be entirely passed on to customers. These price increases came about through international shortages in
the underlying raw materials. The situation started to normalise towards the end of the financial year.
Overhead costs remain tightly controlled. The 11% increase in total costs, as reflected, is largely due to the costs in the
businesses acquired. Excluding the new acquisitions, overhead costs increased by just 3% year-on-year.
The net interest expense increased by R23 million to R93 million as a result of higher debt levels from the share buyback
completed in September 2016 and the interest-bearing debt assumed with the acquisitions of Formex and New Just Fun
Group.
Certain of our subsidiaries have moved from being loss-making to having realistic expectations of being sustainably
profitable. This has meant that the Group is required to recognise deferred tax assets on historic tax losses, which resulted
in the Group reporting taxation income of R73 million in the current period.
Overall, although the year under review proved to be difficult, we believe that the actions taken see the Group emerge
in a stronger position than it began. As we continue to find solutions for the underperforming businesses, it will result in
improved operating margins going forward or further capital releases.
Accounting for government grants
Shareholders are advised that the Group's results contain a prior-year adjustment relating to a change in the accounting
treatment of government grants.
During the prior periods, the grants were deemed to be earned through compliance with their conditions and meeting
the envisaged obligations. Where the qualifying conditions gave rise to future envisaged obligations, the benefits
were allocated against the historic costs of complying with the conditions as well as the future related obligations.
Where no envisaged obligations were identified, the grants were recognised in other income when there was
reasonable assurance that the Group would comply with all the conditions attached to the grants and that the grants
would be received.
The Group's new auditors believe that the relevant statement should be interpreted differently and that the above
accounting treatment was incorrect. It is their view that if the benefit derived from the grant is used to acquire a depreciable
asset, the benefit should simply be matched against the depreciation expense related to the asset acquired.
The new accounting treatment has the effect of taking the income derived from the government grants that had previously
been released through the income statement and placing it back on the balance sheet by creating a R116 million (net of
taxation) deferred income "liability".
The new accounting treatment has the consequence that our results as presented deviate from the underlying commercial
reality. We hold this view as the result of the following:
- The acquisition of an asset is not a primary condition of the scheme. In any given year, the Group has a variety of
expenditures that could qualify to be refunded by the applicable government grant. These expenses include staff
training, spend on process improvement initiatives, equipment upgrades, etc. It is administratively more efficient for
the Group to claim the government grants for equipment upgrades and this has been the chosen route. A different
administration choice would lead to the grant being recognised in different periods;
- The assets acquired have been tested for impairments on an annual basis. As there has been no indication of any
impairments, we can conclude that the assets meet the general definition of an asset productively employed and that
there are no onerous obligations attached to holding and operating the assets in the future;
- The deferred income "liability", on the other hand, does not meet the general definition of a liability in that there is no
current obligation that is likely to result in an outflow of economic benefit in the future. The "liability" is not owed to
anybody nor is there any future onerous obligations to which this benefit could be matched; and
- This "liability" will be released into the income statement by matching it against the relevant depreciation charge
associated with the applicable asset acquired. The Group's assets have varying useful lives with the longest being
25 years.
The result of this is that the deferred income "liability" can be expected to grow for the next few years and then will be
unwound through the income statement over quite a long period. All things remaining equal, the Group's results will
continue to deviate from the underlying commercial reality for many years into the future. In order to provide shareholders
with more useful information we will include adjusted earnings, adjusted headline earnings and adjusted net asset value
calculations in each year. The different accounting treatments have no effect on cash flows.
Corporate information
DENEB INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
("Deneb" or "the Group" or "the company")
The company's shares are listed under the Financial Services - Speciality Finance sector.
Registration number: 2013/091290/06
JSE share code: DNB
ISIN: ZAE000197398
Income tax
registration number: 9844426156
Registered office: 5th Floor, Deneb House, Cnr Main and Browning Roads, Observatory 7925, Cape Town
PO Box 1585, Cape Town 8000
Contact details: info@deneb.co.za
www.deneb.co.za
Directors: J A Copelyn* (Non-executive Chairperson), M H Ahmed*^ (Lead Independent Director),
D Duncan, T G Govender*, N Jappie*^, A M Ntuli, S A Queen (Chief Executive Officer),
Y Shaik*, R D Watson*^, G D T Wege (Financial Director)
(* Non-executive ^ Independent)
L Govender resigned as a non-executive director on 17 April 2018.
Company Secretary: C Philip
Transfer Secretaries: Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank 2196
PO Box 61051, Marshalltown 2107
Auditors: PricewaterhouseCoopers Inc.
Sponsors: PSG Capital Proprietary Limited
Cape Town
23 May 2018
Date: 23/05/2018 04:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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