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ACCENTUATE LIMITED - Unauditedresultsforthesixmonthsended31December2018

Release Date: 29/03/2019 16:00
Code(s): ACE     PDF:  
Wrap Text
Unaudited results for the six months ended 31 December 2018

Accentuate Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 2004/029691/06)
Share code: ACE  ISIN code: ZAE000115986
www.accentuateltd.co.za
("Accentuate" or "the group" or "the company")

Unaudited results for the six months ended 31 December 2018

Commentary
Introduction to the results 
Accentuate Limited has underlying investments that are involved in infrastructure supplies, with a focus on 
flooring, water treatment and the chemical sectors.

Background to the reader
During 2017, Accentuate purchased access flooring specialist Pentafloor with the intention of diversifying the 
offering in the flooring infrastructure segment to include access flooring. On 21 February 2019, Accentuate 
announced via the Stock Exchange News Services ("SENS") the disposal of the Pentafloor business.

When reading this announcement and the review of financial performance, please be aware that these 
results carry the following impacts from Pentafloor:
- R5,8 million goodwill impairment; and 
- a loss of R2,7 million (2017: R3,3 million profit) translating into a profit swing of R6 million.

The cumulative effect on profit from Pentafloor is an R11,8 million negative impact on this year's results
when compared to the results for 31 December 2017.

The overall business performed to expectations, despite the challenging operating environment if one excludes the
effect of the Pentafloor performance and sale. The major cost restructuring programme is delivering the expected 
positive results, other than certain imposed costs that cannot be further reduced. 

Government spending remained sluggish during the period under review, with very little spend taking place in the
crucial areas of education and healthcare. The redress of state capture under the Ramaphosa administration is 
encouraging, but the overhang from the Zuma era can still be felt. The state of the South African construction 
sector remains under pressure, with major players facing either business rescue or structural challenges. 

Management has countered the aforementioned impact by focusing on cost reduction in areas within its control,
undertaking strategic reviews and putting in place an enhanced sales drive. 

Sale of Pentafloor 
In August 2017 Accentuate entered into a sale agreement ("2017 Sale Agreement") with Bianca and Larry Shakinovsky
("the Purchasers") in terms of which the Purchasers sold their entire shareholding in Pentafloor to Accentuate for 
a consideration of R19,19 million. In the sale agreement, 5 317 431 Accentuate ordinary shares were issued to the 
Purchasers as part payment of the purchase consideration ("the Accentuate Shares"). 

However, the transaction has not delivered on the expectations of the parties involved and given that Accentuate is
focused on reducing debt, the group has opted to sell Pentafloor back to the Purchasers, and will continue to focus 
on its core businesses and further cost cutting.

The cash component of the transaction amounting to R13 million will be used by the company to settle the outstanding
balance on the term loan that was obtained to purchase part of the shares of Pentafloor.

In terms of the Sale of Shares, Claims and Cancellation Agreement, Accentuate is required to get shareholder approval
to buy back the Accentuate Shares from Pentafloor within 180 days with effect from 28 February 2019 (at no cost to
Accentuate) as part payment of the purchase consideration. Failing shareholder approval, Accentuate will be paid the 
market value of such shares. A circular detailing the specific repurchase will be issued to Accentuate shareholders 
in due course.

Review of financial performance
Revenue for the six months was R154,4 million (2017: R153,3 million), which is marginally higher than the previous
period end. Gross profit margin for the group reduced marginally to around 42%.

Operating expenses increased by 16,6% to R84 million (2017: R72,0 million). This increase was due to the acquisition
of Pentafloor and the associated goodwill impairment of R5,8 million. As a result of the losses incurred in Pentafloor,
an impairment review was performed in accordance with International Financial Reporting Standards ("IFRS"). Considering
the certainty that the entity's shares will be sold back to the original owners, the impairment was limited to the loss
on the sale of Pentafloor, namely R5,8 million. This resulted in an operating loss of R17,9 million for the group.

Finance costs increased from R0,6 million in 2017 to R2,2 million in the current period, predominantly due to the
financing of the Pentafloor transaction with a loan from financiers and the increased utilisation of overdraft 
facilities.

The group decided not to recognise certain deferred tax assets as a result of the uncertainty in the South African
market and this resulted in an additional loss of R2,2 million.

Earnings per share came in at a negative 12,05 cents per share in the current year, compared to negative 
3,43 cents in 2017, mainly attributable to the impairment and losses in Pentafloor. 

Cash and cash equivalents at the end of the period amount to negative R7,0 million (2017: (R3,1 million)).

Flooring business (100% owned)
The flooring business operations contributed 78% of group sales.

FloorworX is still operating in a severely restrained environment. In the build up to the interim period, the 
business purposefully ran low inventory levels and when manufacturing resumed in November and December, this 
impacted positively on margins. The plastics industry strike had a negative impact on the performance of the 
East London plant. Across the interim period, demand was particularly low due to the absence of government 
infrastructure spend, as well as a lack of consumer confidence and general uncertainty in the lead up to the 
national elections in May 2019. 

During the last two weeks of November, FloorworX ran both production lines and even though this was only for half 
a month, significant margin improvement was achieved during this time. This trend continued into December and bodes 
well for the coming six months. Product rationalisation continues to ensure the range is more focused on customer 
needs.

Rightsizing of the operation continues and includes interrogation at all levels. On a daily basis, every cost is
analysed, evaluated and ultimately considered in terms of the cost restricting agenda. 

Although the outlook is cautiously optimistic, FloorworX still faces short-term profitability issues and much of the
production and rationalisation gains might well be compromised by the current round of load shedding taking place. 

In order to increase throughput in the East London factory and to reduce costs, FloorworX is in advanced discussions
regarding the launch of a potential project at the facility. Once all details are agreed, Accentuate will update
shareholders. 

Environmental solutions business (100% owned)
This comprises the chemical blending business operations of Safic, which contributed 22% to group sales.

Safic experienced an increase in traditional production volumes for the period under review. Unfortunately, volumes 
in the metal treatment sector were affected by slow payment from state owned enterprises. The comprehensive development
plan that is in place to increase volumes has been diligently executed and the appointment of a commercial director and
additional sales staff has ensured that despite the current economic climate, sales continue to be driven, albeit it 
at a slower pace than expected. The cost-cutting initiative continues to advance with meaningful results as costs are
decreasing. A renegotiation at group level of a lease on premises has benefited Safic. However, the benefit will only 
flow in the second half of the financial year. 

The high crude oil price during the period under review impacted both distribution and raw material input pricing. 

Water treatment business (40% owned)
This comprises the Ion Exchange Safic water treatment business, a partnership between Accentuate and Ion Exchange
India. The business is equity accounted by the group as an associate. 

Total revenue increased by 24% and, from an organisational perspective, the business is well capitalised, ensuring 
a far more sustainable company is emerging where revenue generated out of chemical and consumable sales is more
predictable. A strong and capable team is in place, ready to execute on projects which underlie a robust pipeline. 

Outlook
Discussions with the landlord were successful and the group is benefiting from reduced rentals, increased flexibility
and a reduction in the actual area leased. The full impact of this reduction will be felt in the next six months as 
the reduced rentals only came into effect in October 2018. 

Although Accentuate is seeing small pockets of demand, the group recognises that historically in election years
optimism should be tempered with a potential slowdown in the awarding of projects. The prospect that elections will 
be held in early May bodes well for Accentuate's second half performance, provided demand picks up sufficiently. 
It is hoped that the establishment of an infrastructure fund comes to fruition, as this will assist Accentuate 
tremendously. The group believes that the current administration has a much clearer infrastructure implementation 
plan. 

Accentuate has identified the need to drastically reduce costs in current trading conditions. The group has embarked
on a strategy of identifying viable structures for the business to operate more effectively and will discuss these 
with shareholders and the market as progress is made. Management remains committed to closely managing working capital. 

Restatement 
The opening balances of the comparative results, being 31 December 2017, have been restated to reflect a 
misstatement of a provision for cartage shipment in the FloorworX division amounting to R2,87 million. 
The restatement was recorded in the integrated annual report for the year ended 30 June 2018 and full 
disclosure of the restatement has been made in note 35.1 to the annual financial statements. 

Subsequent events
Subsequent to the financial year end, the Accentuate businesses have been separated from Pentafloor (please 
refer to the Sale of Pentafloor paragraph above) and Accentuate has no further involvement in the Pentafloor 
business. A circular pertaining to the specific repurchase of the shares will be issued to Accentuate shareholders 
in due course. 

No other significant events have occurred in the period between the reporting date and the date of this announcement.

Going concern 
In determining the appropriate basis of preparation of the financial statements, the directors are required to
consider whether the group and company can continue in operational existence for the foreseeable future.

The adverse trading conditions in the South African construction industry weigh on the operating results of the
Accentuate Group. 

Despite incurring major operational losses, the group's current assets of R130,5 million exceed current liabilities 
of R108,5 million and therefore the group's solvency ratio remains sufficient. As a result of a breach in covenants 
all long-term liabilities have been reclassified to current liabilities.

A number of turnaround initiatives were launched within the group during the course of the current financial period
including:
- several restructuring initiatives in order to reduce cost; 
- the sale of Pentafloor (Pty) Limited; and 
- funding of R5 million raised from shareholders. 

The group currently makes extensive use of its main overdraft facilities of R23 million, which was granted on
condition that shareholders inject an amount of R5 million in capital into the business by the end of March 2019. 
An agreement has been reached with shareholders to fund the amount of R5 million. The details of the funding will 
be released in a separate announcement in due course. The overdraft facilities from Accentuate's financiers will be 
re-evaluated by the end of March 2019. Furthermore, post the reporting period the group engaged an independent 
company to review the robustness of the cash flow forecasting. The subsequent report has provided the board with 
the necessary confidence that the information on which decisions are being taken can be relied upon.

Our financiers are assessing market conditions on a continuous basis and are committed to work closely with management
to ensure that the facilities are maintained. The going concern status of the group is dependent on these facilities
being available.

The cash-generating ability of the group remains under close scrutiny and a 12-month cash flow forecast based on the
budget for the group indicated that, if realised, Accentuate will be able to generate sufficient cash to sustain its
operations and service its financing obligations.

Given the results and conditions mentioned above, management is aware of the fact that the implementation of the
initiatives mentioned is critical to maintain and grow operations. Accentuate is therefore dependent on management 
generating the additional cash flow from the initiatives mentioned, as well as our financiers continuing to provide 
overdraft facilities.

The board considers the group to be liquid but will monitor actual cash flows on a monthly basis against those
forecast, to ensure that timeous and appropriate action is implemented, should a material deviation occur.

Board changes
In November 2018 Accentuate advised shareholders of the retirement of Thys du Preez as a non-executive director 
of the company with effect from 18 January 2019. Accentuate indicated via a SENS announcement on 4 March 2019, 
that Andile Mjamekwana (alternate non-executive director and head of the audit committee) would, with effect 
from 1 March 2019, join the board as a non-executive director. 

On 26 March 2019, Ockert Goosen tendered his resignation as an alternate non-executive director. The board of
Accentuate would like to thank Ockert for his contribution to the company. 

Dividend
The board deems it prudent not to declare a dividend.

Contingent liability
There are no contingent liabilities in the group.

Basis of preparation
The accounting policies and methods of computation applied in the preparation of these condensed consolidated
financial statements are in terms of IFRS and are consistent with those applied in the previous annual 
consolidated financial statements, except for the adoption of new accounting standards.

The group adopted all of the new accounting standards relevant to its operations and effective for annual reporting
periods beginning 1 January 2018, including IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with
Customers. The adoption of these new accounting standards has not had any significant impact on the results in the 
condensed consolidated financial statements or the disclosures herein, but resulted merely in the reclassification 
of certain transactions in previously published results. 

The condensed consolidated interim financial statements are prepared in accordance with the requirements of the JSE
Limited's Listings Requirements for interim reports and the requirements of the Companies Act in South Africa. The
Listings Requirements require interim reports to be prepared in accordance with and containing the information 
required by IAS 34 Interim Financial Reporting, as well as the SAICA Financial Reporting Guides as issued by the 
Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council. 

The preparation of this interim report was supervised by the chief financial officer, Maarten Coetzee CA(SA).

The directors take full responsibility for the preparation of the preliminary report and that the financial
information has been correctly extracted from the underlying annual financial statements.

29 March 2019


Condensed consolidated statement of comprehensive income
                                                                                                        Unaudited    
                                                                  Unaudited                              restated    
                                                                6 months to            Audited        6 months to    
                                                                31 December       12 months to        31 December    
                                                                       2018       30 June 2018               2017     
                                                                      R'000              R'000              R'000    
Revenue                                                             154 429            294 893            153 331    
Cost of sales                                                       (88 774)          (176 012)           (86 206)    
Gross profit                                                         65 655            118 881             67 125    
Other income                                                            405              1 795                423    
Other operating expenses                                            (83 977)          (144 126)           (72 020)    
Operating (loss)/profit before finance costs                        (17 916)           (23 450)            (4 472)    
Investment income                                                         -                486                  -    
Finance costs                                                        (2 219)            (3 520)              (618)    
Profit before tax                                                   (20 136)           (26 484)            (5 090)    
Taxation                                                              4 007              4 300                441    
(Loss)/profit for the period                                        (16 129)           (22 184)            (4 649)    
Earnings/(loss) per share (cents)                                    (12,05)            (16,58)             (3,43)   
Diluted earnings/loss per share (cents)                              (11,80)            (16,58)             (3,43)   
Net asset value per share (cents)                                        68                 79                 95    
Notes to the statement of comprehensive income:                                                                      
Headline earnings/(loss) per share (cents)                            (7,75)            (16,57)             (3,43)   
Diluted headline earnings/(loss) per share (cents)                    (7,58)            (16,22)             (3,43)   
Number of shares:                                                                                                    
- Weighted average number of shares                             133 827 505        134 221 594        135 471 498    
- Diluted weighted number of shares                             136 724 476        137 118 565        135 368 469    
- Number of shares in issue                                     139 366 188        139 366 188        139 366 188    
Reconciliation of headline and normalised earnings (R'000)                                                           
(Loss)/profit for the year attributable to                    
ordinary shareholders                                               (16 129)           (22 184)            (4 649)    
(Profit)/loss on disposal of property, plant and                                                   
equipment - net of taxation                                              (6)                 9                  -    
Pentafloor Goodwill write off                                         5 766                  -                  -    
Headline earnings attributable to ordinary shareholders             (10 369)           (22 175)            (4 649)    


Unaudited summarised consolidated statement of financial position
                                                                                                        Unaudited    
                                                                  Unaudited                              restated    
                                                                6 months to            Audited        6 months to    
                                                                31 December       12 months to        31 December    
                                                                       2018       30 June 2018               2017     
                                                                      R'000              R'000              R'000    
Assets                                                                                                               
Non-current assets                                                   73 866             80 014             84 114    
Property, plant and equipment                                        58 688             61 427             63 074    
Goodwill                                                              3 985              9 751              9 751    
Intangible asset                                                      6 782              7 141              7 505    
Deferred taxation                                                     4 412              1 695              3 784    
Current assets                                                      130 541            144 025            137 968    
Inventories                                                          87 907             80 234             82 272    
Trade and other receivables                                          31 767             47 003             47 840    
Other financial assets                                                    -              8 231                302    
Taxation receivables                                                  2 173              2 027              2 035    
Cash and cash equivalents                                             8 695              6 530              5 519    
                                                                                                                     
Total assets                                                        204 407            224 039            222 082    
Equity and liabilities                                                                                               
Total equity                                                         94 091            110 341            131 952    
Stated capital                                                      150 557            150 557            150 803    
Retained earnings                                                   (83 670)           (67 541)           (47 530)    
Reserves                                                             27 094             27 216             27 394    
Share-based payment reserve                                             109                109              1 285    
Non-current liabilities                                               1 810              3 645             23 171    
Deferred taxation                                                     1 810              3 645              9 137    
Long-term liabilities                                                     -                  -             14 034    
Current liabilities                                                 108 507            110 053             66 959    
Trade and other payables                                             76 127             72 732             47 923    
Operating lease liability                                               655              1 271              1 475    
Short-term portion of long-term liabilities                               -                  -              4 098    
Borrowings                                                           12 232             15 197                  -    
Finance lease liability                                               1 579                360                  -    
Current tax payable                                                   2 194              2 703              4 792    
Bank overdraft                                                       15 721             17 790              8 671    
Total equity and liabilities                                        204 407            224 039            222 082    


Condensed consolidated statement of cash flows
                                                                                                        Unaudited    
                                                                  Unaudited                              restated    
                                                                6 months to            Audited        6 months to    
                                                                31 December       12 months to        31 December    
                                                                       2018       30 June 2018               2017     
                                                                      R'000              R'000              R'000    
Cash flows from operating activities                                 (4 225)             6 043              7 104    
Cash flows from investing activities                                  9 549            (23 815)           (17 092)    
Net cash used in financing activities                                (1 090)            15 098             15 421    
Net increase/(decrease) in cash and cash equivalents                  4 234             (2 674)             5 433    
Cash and cash equivalents at beginning of period                    (11 260)            (8 586)            (8 585)    
Cash and cash equivalents at end of period                           (7 026)           (11 260)            (3 152)    


Condensed consolidated statement of changes in equity
                                                                                                        Unaudited    
                                                                  Unaudited                              restated    
                                                                6 months to            Audited        6 months to    
                                                                31 December       12 months to        31 December    
                                                                       2018       30 June 2018               2017     
                                                                      R'000              R'000              R'000    
Capital and reserves - restated opening balance                     110 341            130 487            132 556    
Correction of error in equity                                             -                  -             (2 069)    
Profit/(loss) for the year                                          (16 129)           (22 184)            (1 775)    
Shares acquired by subsidiary                                             -               (247)                 -    
Shares issued for cash                                                    -                  -                  -    
Shares issued as consideration for business combination                   -              3 190              3 190    
Asset revaluation surplus                                              (122)                 -               (220)    
Share-based payment expense                                               -               (905)               270    
Capital and reserves closing balance                                 94 091            110 341            131 952    
                                                             

Condensed consolidated segment information
                                                                                        Corporate                     
                                                                  Environmental               and                    
                                                     Flooring         Solutions      eliminations           Group    
                                                        R'000             R'000             R'000           R'000    
Unaudited 31 December 2018                                                                                           
Total sales                                           121 011            34 361                 -         155 371    
Less: Inter-segmental sales                              (582)             (361)                -            (943)   
Revenue                                               120 429            34 000                 -         154 429    
Gross profit                                           48 536            20 529            (3 411)         65 655    
Operating profit/(loss)                                (9 932)           (1 712)           (6 272)        (17 916)    
Finance costs                                             (47)           (1 045)           (1 128)         (2 219)    
Profit/(loss) before tax                               (9 979)           (2 757)           (7 400)        (20 136)    
Share of profit/(loss) from associate                       -                 -                 -               -    
Other information                                                                                                    
Capital expenditure                                       179                71                21             271    
Depreciation and amortisation                           1 894               462               432           2 788    
Segment assets                                        178 573            27 598            (1 763)        204 407    
Segment liabilities                                    63 820            27 033            19 464         110 317    
Unaudited 31 December 2017                                                                                           
Total sales                                           121 301            34 993             2 204         158 498    
Less: Inter-segmental sales                                 -            (2 963)           (2 204)         (5 167)    
Revenue                                               121 301            32 030                 -         153 331    
Gross profit                                           52 433            20 756            (6 064)         67 125    
Operating profit/(loss)                                (1 493)           (2 054)             (926)         (4 472)    
Finance costs                                            (107)             (629)              118            (618)    
Profit/(loss) before tax                               (1 600)           (2 683)             (808)         (5 090)    
Share of profit/(loss) from associate                       -                 -                 -               -    
Other information                                                                                                    
Capital expenditure                                       658                35               230             923    
Depreciation and amortisation                           2 855               511               272           3 638    
Segment assets                                        184 515            25 589            11 978         222 082    
Segment liabilities                                    50 497            20 322            19 301          90 130    


Corporate information
Non-executive directors
RB Patmore (chairman), NE Ratshikhopha, PS Kriel, MM du Preez, (retired 18 January 2019) 
A Mjamekwana, OJ Goosen (resigned 26 March 2019)

Executive directors
FC Platt (chief executive officer) 
MJ Coetzee (chief financial officer), DE Platt

Registered address
Accentuate Business Park 
32 Steele Street, Steeledale, 2197

Postal address
PO Box 1754, Alberton, 1450

Company secretary
Juba Statutory Services (Pty) Limited
Represented by Sirkien van Schalkwyk

Telephone
011 406 4100

Facsimile
086 509 3246

Website
www.accentuateltd.co.za

Email
info@accent.co.za

Twitter
@AccentuateLtd

Facebook
www.facebook.com/AccentuateLtd

Transfer secretaries
Computershare Investor Services (Pty) Limited

Designated adviser
Bridge Capital Advisors (Pty) Limited

Attorneys
Fullard Mayer Morrison

Investor relations 
Keyter Rech Investor Solutions

DISCLAIMER
This announcement may contain certain forward-looking statements concerning Accentuate's operations, business
strategy, financial conditions, growth plans and expectations. These statements include, without limitation, those 
concerning the economic outlook, business climate and changes in the market. Such views involve both known and 
unknown risks, assumptions, uncertainties and important factors that could materially influence the actual 
performance of the group. No assurance can be given that these will prove to be correct and no representation 
or warranty, expressed or implied, is given as to the accuracy or completeness of such views contained in 
this announcement.

Date: 29/03/2019 04:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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