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Abridged report for the year ended 31 December 2018 and notice of annual general meeting
Andulela Investment Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1950/037061/06)
JSE share code: AND
ISIN: ZAE000172870
("Andulela" or "the Company" or "the Group")
Abridged Report for the year ended 31 December 2018, notice of annual
general meeting
Abridged statement of financial position
Audited Audited
Audited Restated Restated
2018 2017 2016
Notes R'000 R'000 R'000
Assets
Non-current assets 371 453 397 891 709 918
Property, plant and equipment 1 300 376 325 029 340 952
Goodwill 3 56 679 56 679 356 679
Deferred tax asset 14 398 16 183 12 287
Current assets 304 426 328 467 315 505
Inventory 147 024 130 317 102 399
Trade and other receivables 151 090 185 487 191 508
Taxation 249 509 4 207
Cash and cash equivalents 6 063 12 154 17 391
Total assets 675 879 726 358 1 025 423
Equity and liabilities
Capital and reserves 88 216 85 065 389 293
Stated capital 976 114 976 114 976 114
Cash flow hedge reserve 4 - (6 315) (12 561)
Accumulated loss (893 887) (889 971) (630 425)
Non-controlling interest 5 989 5 237 56 165
Non-current liabilities 125 711 108 947 151 650
Redeemable preference share
capital 6 32 421 30 845 29 182
Derivative financial
liabilities 4 - - 10 488
Borrowings 5 34 448 - 19 744
Lease liabilities 19 042 40 602 58 205
Deferred tax liability 39 800 37 500 34 031
Current liabilities 461 952 532 346 484 480
Trade and other payables 74 909 99 887 125 558
Lease liabilities 21 559 17 603 14 176
Derivative financial
liabilities 4 - 10 492 10 383
Borrowings 5 354 426 387 497 334 363
Bank overdraft 11 058 16 867 -
Total equity and liabilities 675 879 726 358 1 025 423
Net asset value per share
(cents) 93,82 91,08 380,09
Net tangible asset value per
share (cents) 39,76 37,02 39,91
Abridged statement of comprehensive income
Audited
Audited Restated
2018 2017
Notes R'000 R'000
Revenue 1 287 509 1 397 895
Cost of sales (1 061 731) (1 180 794)
Gross profit 225 778 217 101
Profit from operations before taking
the following into account 41 053 28 333
Investment income 86 1 231
Impairment of goodwill - (300 000)
Finance costs (44 389) (44 596)
Loss before taxation (3 250) (315 032)
Taxation (1 152) 3 331
Net loss for the year (4 402) (311 701)
Other comprehensive income
Items that may be reclassified subsequently
to profit or loss: 7 554 7 473
? Movement in derivative cash flow hedge 4 10 492 10 379
? Deferred tax charge 4 (2 938) (2 906)
Total comprehensive profit/(loss) 3 152 (304 228)
Net loss attributable to: (4 402) (311 701)
? Equity holders of Andulela (3 916) (259 546)
? Non-controlling interest (486) (52 155)
Total comprehensive profit/(loss)
attributable to: 3 152 (304 228)
? Equity holders of Andulela 2 399 (253 300)
? Non-controlling interest 753 (50 928)
Total and weighted average number of ordinary
shares in issue (millions)* 87,64 87,64
Headline loss
Attributable net loss (3 916) (259 546)
Add back: gain on sale of plant and equipment (38) (6)
Tax effect of the above 11 2
Impairment of goodwill - 250 770
Headline loss (3 943) (8 780)
Loss per ordinary share (cents)* (4,47) (296,13)
Headline loss per ordinary share (cents)* (4,49) (10,01)
Dividends per ordinary share (cents) - ?
* The loss per ordinary share and the headline loss per ordinary share are
calculated by dividing the loss and the headline loss by the weighted
average number of ordinary shares in issue during the year. The Company
does not have any dilutive instruments in issue.
Statement of cash flows
Audited
Audited Restated
2018 2017
R'000 R'000
Cash flows from operating activities:
Loss for the year (3 250) (315 032)
Adjusted for:
Depreciation of property, plant and equipment 30 312 32 258
Finance charges 44 389 44 596
Investment income (86) (1 231)
Profit on disposal of property, plant and equipment (38) (6)
Impairment of goodwill - 300 000
Working capital changes:
Increase in inventories (16 707) (27 918)
Decrease in trade and other receivables 33 576 6 021
Decrease in trade and other payables (23 515) (25 691)
Cash generated by operating activities 64 681 12 997
Investment income 86 1 231
Finance costs (38 371) (37 063)
Income tax received 254 3 697
Net cash from operating activities 26 650 (19 138)
Cash flow from investing activities:
Acquisition of property, plant and equipment (5 682) (16 370)
Proceeds on disposal of property, plant
and equipment 60 41
Net cash utilised in investing activities (5 622) (16 329)
Cash flow from financing activities:
Borrowings raised 45 046 110 099
Borrowings repaid (44 311) (76 689)
Preference dividend paid (70) (69)
Operating lease payments (21 975) (19 978)
Net cash (used in)/generated by financing
activities (21 310) 13 363
Decrease in cash and cash equivalents (282) (22 104)
Cash and cash equivalents at the beginning
of the year (4 713) 17 391
Cash and cash equivalents at the end of the year (4 995) (4 713)
Abridged statement of changes in equity
2018 2017
R'000 R'000
Balance previously reported 85 065 397 215
Adjustment for change in accounting policy (note 2) - (7 922)
Adjusted opening balance 85 065 389 293
Movements for the year:
? Net loss for the year attributable to equity
holders of Andulela (3 916) (259 546)
? Cash flow hedge reserve net of deferred tax 6 314 6 246
? Non-controlling interest 753 (50 928)
Closing balances 88 216 85 065
Notes
Basis of preparation
The abridged financial statements are prepared in accordance with the
requirements of the JSE Listings Requirements for abridged reports, and
the requirements of the Companies Act applicable to summary financial
statements. The JSE Listings Requirements require abridged reports 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 annual financial
statements, from which this abridged report were derived, are in terms of
IFRS and are consistent with the accounting policies applied in the
preparation of the previous consolidated annual financial statements,
except for the adoption of the accounting standards which became effective
on 1 January 2018 and the early adoption of IFRS16 - leases. The directors
take full responsibility for the preparation of the abridged reports and
the financial information has been correctly extracted from the underlying
annual financial statements. These results were prepared under the
supervision of Henk Engelbrecht CA(SA), the Group Chief Financial Officer.
Audit conclusion
This abridged report is extracted from audited information, but is not
itself audited. The directors take responsibility for the preparation of
this abridged report based on the underlying audited annual financial
statements. The annual financial statements were audited by BDO South
Africa Incorporated, who expressed an unmodified opinion thereon. The
audited annual financial statements and the auditor's report thereon
are available for inspection at the Company's registered office.
1. Property, plant and equipment
2018 2017
R'000 R'000
Opening balance 325 029 340 952
Additions 5 682 16 370
Disposals (23) (35)
Depreciation (30 312) (32 258)
Carrying value 300 376 325 029
2. Changes in accounting policies
IFRS9 ? Financial instruments and IFRS15 ? Revenue from contracts with
customers became effective for financial years that started from
1 January 2018. The adoption of these accounting standards did not have
a material effect on the financial results or position of the Group for
the year ended 31 December 2018.
IFRS 16 - Leases, becomes effective on 1 January 2019. Companies are
permitted to early adopt the accounting standard.
The leases of the Group relate to properties rented by the PRSM group of
companies, in terms of 10 year leases which expire on 30 September 2020.
Due to the leases being in the latter part their respective terms, the
audit committee and the board resolved that it would be appropriate to
apply IFRS 16 fully retrospectively to allow for comparability with the
historical results of the Group.
The adoption of IFRS 16 did not have a material effect on the trading
results of the Group, but resulted in the recognition of additional
assets and liabilities in the statement of financial position. The
financial effects of adopting IFRS 16 with effect from 1 January 2018,
with regard to the historical results for the year ended 31 December 2017
are set out below:
Adjustment of financial results Before After Change
- 31 December 2017 R'000 R'000 R'000
Statement of financial position
Property, plant and equipment 293 505 325 029 31 524
Lease liabilities (16 374) (58 204) (41 830)
Deferred tax liability (40 386) (37 500) 2 886
Accumulated loss 882 550 889 971 7 421
Statement of comprehensive income
Operating expenses 197 177 190 678 (6 499)
Finance costs 38 795 44 596 5 801
Deferred tax expense (3 527) (3 331) 196
Net loss for the year 312 203 311 701 502
Loss and diluted loss per share
(cents) (296,71) (296,13) 0,58
Headline and diluted headline loss
per share (cents) (10,59) (10,01) 0,58
The Group disclosed the financial effects of the adoption of IFRS 16 on
its results for the year ended on 31 December 2017 in its interim
results for the six months ended 30 June 2018, which was published on
26 September 2018. The restated numbers for the year ended
31 December 2017 were incorrect due to the approach followed in the
calculation of the net present value of the future lease premiums and
the consequent redemption of the lease liabilities. The redemption of
the lease liability and the interest cost thereon were based on equal
monthly payments instead of on the actual monthly lease payments.
The effect of the incorrect approach on the results of the Group for the
year ended 31 December 2017, with the results published in the interim
results announcement in September 2018 in the "Before" column and the
correct results as per this announcement in the "After" column, can be
summarised as follows:
Adjustment of financial results Before After Change
- 31 December 2017 R'000 R'000 R'000
Statement of financial position
Property, plant and equipment 325 772 325 029 (747)
Lease liabilities (43 026) (58 204) (15 178)
Deferred tax liability (41 958) (37 500) 4 458
Accumulated loss 878 507 889 971 11 464
Statement of comprehensive income
Operating expenses 192 956 190 678 (2 278)
Finance costs 43 810 44 596 786
Deferred tax expense (3 752) (3 331) 421
Net loss for the year 312 782 311 701 1 071
Loss and diluted loss per share
(cents) (297,37) (296,13) 1,24
Headline and diluted headline loss per
share (cents) (11,25) (10,01) 1,24
The main effect of the incorrect approach was on the allocation between
the lease liability, deferred tax liability and accumulated loss.
3. Goodwill
The goodwill arose from the acquisition of the remaining interests in
Abalengani Mining Investments Proprietary Limited ("AMI") and JB Platinum
Holdings Proprietary Limited ("JBPH") by the Company in 2010. AMI and JBPH
respectively hold 49,63% and 33,96% in Kilken Platinum Proprietary Limited
("Kilken") as their only investments.
A discounted cash flow ("DCF") model was constructed by management based
on the value in use to determine the recoverable amount for the cash-
generating operations of the Kilken Imbani Joint Venture,in which Kilken
is a 70% partner, using a discount rate of 17,6% (2017: 17,4%), based on
the risk-free rate adjusted for market, sector and project-specific risks
and an annual Platinum Group Metals ("PGM") production rate of 11 574 ounces
(2017: 12 539 ounces) (extrapolated from historic production volumes).
Forecast PGM metals prices and the USD/ZAR exchange rates were derived from
a consensus forecast from reputable external market analysts. The DCF
valuation model takes into account attributable net cash flows from the
operation for 35 years, which is consistent with the industry standard
for this type of valuation and is also consistent with the extended
life-of-mine agreement in place with Rustenburg Platinum Mines ("RPM").
The tailings head feed is based on the average monthly feed received
from the mine.
Production levels at the Kilken plant stabilized, operating costs have
been controlled and the chrome content in the tailings have been reduced
during the year under review. Commodity prices in Rand terms improved
significantly during the year, which contributed to the improved
performance of the business.
As at 31 December 2018 the updated DCF valuation resulted in an estimated
recoverable amount of R85 million for the Group's effective interest
in the cash generating unit and no further impairment was therefore
required against goodwill.
4. Derivative financial liability
In 2012 Kilken entered into a hedge agreement for 30% of its cash flow
from the production revenue of platinum, palladium and gold at the
request of a financier in line with its funding requirements. The
hedge was intended to mitigate the cash flow risk related to
commodity price fluctuations and movements in the ZAR/USD exchange
rate in order to repay the funding facility to the financier.
The cash flow hedge was recognised as a hedging instrument at fair
value for the first time in the statement of financial position at
31 December 2012, without taking account of any collateral held or
other credit enhancements over the remainder of the hedge contract
term which started on 1 September 2012 and expired on
30 September 2018.
For the year ended 31 December 2018, a gain of R7,6 million
(2017: R7,5 million) after deferred tax has been recognised in other
comprehensive income and a decrease in the cash flow hedge reserve of
R6,3 million, net of non-controlling interests, in the statement of
financial position. The loss realised and netted off against the
revenue was R8,8 million for the year ended 31 December 2018
(2017: R13,2 million).
5. Borrowings
Total borrowings of the Group amounted to R388,9 million as at
31 December 2018 compared to R387.5 million as at 31 December 2017,
and can be summarised as follows:
2018 2017
R'000 R'000
Absa Bank Limited 3 946 33 647
Reichmans Capital Proprietary Limited 347 480 339 240
Waleed Investment Holdings Proprietary Limited 37 448 -
Thunder Rate Investments Proprietary Limited - 13 903
The Rafik Mohamed Family Trust - 707
Total borrowings 388 874 387 497
Less: Short-term borrowings 354 426 387 497
Non-current liabilities 34 448 -
The Reichmans facility to PRSM is an asset based and working capital
facility, which is structured as a current facility, even though capital
expenditure to acquire plant and equipment has been funded from this
facility.
6. Redeemable preference share capital
The Company and the preference shareholder mutually agreed to suspend
the repayment of the redeemable preference share capital and the accrued
preference dividends until at least 1 January 2022. The redeemable
preference share capital and the accrued preference dividends are
therefore classified as non-current liabilities.
7. Financial instruments
The Derivative financial liability was measured at fair value. The fair
value of the derivative financial liability was a level 2 recurring
fair value measurement and was obtained directly from the service
provider, calculated as the present value of the estimated future
cash flows based on the observable commodity prices and current
exchange rates. Refer to note 4 above for more information on the cash
flow hedge.
All other financial assets and liabilities are measured at amortised
cost which approximates their carrying values.
8. Material related-party transactions and balances
2018 2017
R'000 R'000
Sales to related parties (85 665) (80 600)
Purchases from related parties 58 539 24 772
Administration and management fees paid
to related parties 300 225
Preference dividend expense 1 645 1 732
Rent expenses paid to related parties 24 138 22 906
Trade receivables 9 556 33 183
Trade payables (4 271) (7 880)
Borrowings from related parties (37 448) (14 611)
Cumulative redeemable preference shares (32 421) (30 845)
9. Segment reporting
The Group Chief Executive Officer is the Group's chief operating
decision-maker. Management has determined the operating segments based on
the information reviewed by the Group Chief Executive Officer for the
purposes of allocating resources and assessing performance and risk. The
Group has two main reportable segments, namely the production of Platinum
Group Metals at the Kilken Platinum tailings treatment facility and the
processing and distribution of steel products by the Pro Roof Steel
Merchants group.
2018 2017
R'000 R'000
Revenue
Tailings treatment facility 56 597 45 067
Steel processing plants 1 230 912 1 352 828
Total revenue 1 287 509 1 397 895
There are no sales between segments.
Profit/(loss) after tax
Tailings treatment facility (2 964) (17 824)
Steel processing plants 4 801 8 823
Goodwill impairment ? tailings treatment
facility - (300 000)
Other unallocated (6 239) (2 700)
Total loss after tax (4 402) (311 701)
Assets
Tailings treatment facility 59 931 56 310
Steel processing plants 589 903 629 646
Inter-group eliminations (30 634) (16 277)
Reportable segment assets 619 200 669 679
Goodwill ? tailings treatment facility 56 679 56 679
Total assets 675 879 726 358
Liabilities
Tailings treatment facility 86 114 87 836
Steel processing plants 495 954 535 441
Other unallocated liabilities 39 506 6 557
Inter-group eliminations (66 332) (12 829)
Reportable segment liabilities 555 242 610 448
Redeemable preference shares 32 421 30 845
Total liabilities 587 663 641 293
10. Events subsequent to the year-end
No events occurred subsequent to year-end up to the date of this
announcement which could have a material effect on the results of the
Group or its subsidiaries.
11. Going concern
The annual financial statements have been prepared on the basis of
accounting policies applicable to a going concern. This basis presumes
that 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 Group incurred a net loss for the year ended 31 December 2018 of
R4,4 million and as at that date its current liabilities exceeded its
current assets due to amongst other factors, the short-term nature of
some of its debt facilities with financial institutions.
The Company and the preference shareholder have mutually agreed to
suspend the repayment of the preference shares and the accrued dividends
until at least 1 January 2022. The Group has access to sufficient
financial facilities and cash resources to meet its obligations as and
when they become due over the next twelve months. Both operating
subsidiaries continue to service their borrowings and other financial
obligations as and when they become due. The Directors are therefore
satisfied with applying the going concern principle.
Nature of the business
The Company is an investment holding company with controlling interests
in the group companies.
Directorate and company secretary
There were no changes to the board of directors during the past financial
year. The current directors of the Company at the date of this report
are as follows:
Name Appointment
MJ Husain (Chairman)# 26 February 2010
A Kaka (CEO) 26 February 2010
JHP Engelbrecht (CFO) 1 October 2015
BW Smith# 1 October 2014
PE du Preez# 1 October 2011
NMS Hadjee# 1 July 2014
#Independent non-executive
Financial review
Kilken started the year with some challenges around production, chrome
content and cost overruns, but this has improved significantly with
production levels stabilizing, the chrome content being managed at
more acceptable levels and costs being controlled. The increase in the
Rand-based commodity prices, especially the palladium and rhodium
prices, together with the final settlement of the cash flow hedge in
September 2018, contributed to the improved revenue and results from
this company.
PRSM experienced a tough year as construction activity remained
subdued.
Revenue decreased from R1,4 billion in 2017 to R1,3 billion in 2018,
after accounting for the negative impact of the cash flow hedge,
which reduced revenue by R8,8 million for the year (2017:R13,2 million).
Against this background, the Group posted a loss after tax of
R4,4 million (2017: R11,7 million).
Overall debt levels showed a slight improvement from R435 million
for 2017 to R431 million for 2018. PRSM debt levels increased from
R339 million in 2017 to R347 million in 2018.
Kilken
Production levels stabilized during the second half of the year and
costs were contained, which reduced the chrome content to more
acceptable levels. The higher commodity prices in Rand terms, and the
final settlement of the cash flow hedge in September 2018, contributed
to the increased revenue and cash flow for the 2018 year.
The overall debt position of the company remained high as the company
had to raise funding from other financiers to enable it to settle the
Absa debt and cash flow hedge, but with the improved cash flows, the
company should be able to start servicing the debt in the coming years.
The cash flow hedge expired in September 2018, which will have a
significant positive impact on the results of Kilken Platinum going
forward.
PRSM
The local market remained under pressure during the year under review,
with limited construction activity as the political uncertainty continued
to impact business confidence and investment in infrastructure and related
projects.
As a result, revenue decreased by 9% from 2017 to 2018.
Interest expense increased due to increased interest-bearing debt levels
during the year.
Capital expenditure of R5.2 million was incurred during 2018 to replace
old plant and equipment with newer technology which contributed to reduce
production costs and improve profitability.
No major improvements in trading conditions are expected in 2019. The
continued focus on cost management, plant upgrade and new customers and
product ranges drive management's strategy to increase revenue and
profitability.
The financial information on which the prospects are based has not been
reviewed or reported on by the Company's auditors.
Availability of broad-based black economic empowerment annual compliance
report
Shareholders are hereby notified that, in accordance with the JSE Listings
Requirements, Kilken Imbani Joint Venture has been issued with a BEE
certificate, with a Level 2 rating in terms of section 13G(2) of the
Broad- Based Black Economic Empowerment Act, No. 53 of 2003, read with
the Broad-Based Black Economic Empowerment Amendment Act, No. 46 of 2013,
which is valid for the 2018/2019 period, has been published and is
available at http://www. andulelaholdings.com
Pro Roof Steel Merchants is in the process of finalising its BEE
certification and its BEE certificate will be posted on the Company's
website once it is available.
Notice of annual general meeting
The integrated annual report contains a notice of annual general meeting
which will be held at 10 Sloane Street, Bryanston on Wednesday, 26 June 2019
at 09h00.
The last day to trade in order to be eligible to participate in and vote at
the annual general meeting is Tuesday, 18 June 2019 and the record date for
voting purposes is Friday, 21 June 2019.
The annual report including the notice of the annual general meeting will
be distributed to shareholders and will be available on the Company's
website, www.andulelaholdings.com, by Thursday, 28 March 2019.
For and on behalf of the Board
Mohamed J Husain Ashruf Kaka
Independent Non-executive Chairman Chief Executive Officer
Sandton
25 March 2019
Registered Office
108 4th Street, Parkmore, Sandton 2196
Directors
MJ Husain# (Chairman), A Kaka (CEO), JHP Engelbrecht (CFO), BW Smith#,
PE du Preez#, NMS Hadjee#
#Independent non-executive
Company Secretary
Ms GH Miller
Auditors
BDO South Africa Incorporated
Building 5, Summit Place
221 Garsfontein Road
Menlyn 0181
Transfer Secretaries
4 Africa Exchange Registry Proprietary Limited
Cedarwood House, Ballywood Office Park
33 Ballyclare Drive
Bryanston, 2121
Sponsor
Bridge Capital Advisors Proprietary Limited
50 Smits Street
Dunkeld, Sandton 2196
Date: 27/03/2019 08:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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