Directors: P M Matupire (Chairman), *R K Zirobwa (Group Chief Executive), *N Dube, L W Tapera, *T Makombe, N N Moyo, O Mta...
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Art Corporation Limited FY 2012 results


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Art Corporation Limited FY 2012 results

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Art Corporation Limited FY 2012 results

  1. 1. Directors: P M Matupire (Chairman), *R K Zirobwa (Group Chief Executive), *N Dube, L W Tapera, *T Makombe, N N Moyo, O Mtasa, K Naik (*EXECUTIVE) 2012 2011 2012 2011 2012 2011 Short term borrowings 6 500 3 542 568 4 449 7 068 7 991 Long term borrowings 1 587 - - - 1 587 - Lease hire 1 000 1 000 - - 1 000 1 000 9 087 4 542 568 4 449 9 655 8 991 9. Capital commitments USD 000’s 2012 2011 Authorised capital expenditure 894 950 Revenue 34 069 30 102 Cost of sales (22 693 ) (20 557 ) Gross profit 11 376 9 545 Other income 17 28 Operating expenses (9 051 ) (9 323 ) Operating loss before fair value adjustments and impairments 2 342 250 Impairment of assets (44) (100 ) Fair value adjustments on biological assets 333 514 Operating profit/(loss) before interest and taxation 2 631 664 Finance income 27 58 Finance costs (2 048 ) (949 ) Profit/(loss) before tax 610 (227 ) Taxation (136 ) (27 ) Profit/(loss) for the year from continuing operations 474 (254 ) DISCONTINUED OPERATIONS Loss after tax from discontinued operations (41 ) (2 644 ) Profit/(loss) for the year 433 (2 898 ) OTHER COMPREHENSIVE INCOME Translation of foreign subsidiaries 143 (180 ) Surplus on revaluation of property plant and equipment (net of tax) 108 357 Impairment of property plant and equipment (net of tax) (241 ) (57 ) Fair value adjustment on available for sale investments (net of tax) 18 (7 ) Other comprehensive income for the year net of tax 28 113 Total comprehensive income/ (loss) for the year 461 (2 785 ) Earnings per share (cents) Basic earnings/(loss) per share from continuing operations 0.10 (0.05 ) Basic loss per share from discontinued operations (0.01 ) (0.57 ) Basic earnings/(loss) per share 0.09 (0.62 ) Diluted earnings/(loss) per share from continuing operations 0.10 (0.05 ) Diluted loss per share from discontinued operations (0.01 ) (0.57 ) Diluted earnings/(loss) per share 0.09 (0.62 ) Group Statement of Comprehensive Income 2012 US$ 000 2012 US$ 000 2011 US$ 000 2011 US$ 000 ASSETS Non-current assets Property, plant and equipment 10 402 12 057 Biological assets 3 906 3 360 Investments 28 4 Deferred tax assets 3 214 1 817 Other non-current financial assets 35 68 Total non-current assets 17 585 17 306 Current assets Inventories 6 067 4 904 Trade and other receivables 3 947 3 490 Cash and cash equivalents 554 761 10 568 9 155 Assets of disposal group classified as held for sale 3 519 4 285 TOTAL ASSETS 31 672 30 746 EQUITY AND LIABILITIES Capital and reserves Share capital 47 47 Share premium 4 378 4 378 Retained loss (6 853 ) (7 286 ) Non distributable reserves 13 052 13 024 Shareholders’ equity 10 624 10 163 Non-current liabilities Long term borrowings 1 587 - Finance lease liability 1 000 1 000 Deferred tax 4 441 4 540 Total non-current liabilities 7 028 5 540 Current liabilities Trade and other payables 5 403 4 088 Provisions 604 720 Tax payable 411 255 Short-term borrowings 6 500 3 542 Bank overdrafts 89 - Total current liabilities 13 007 8 605 Liabilities directly associated with the assets of disposal group classified as held for sale of disposal group classified as held for sale 1 013 6 438 14 020 15 043 Total liabilities 21 048 20 583 TOTAL EQUITY AND LIABILITIES 31 672 30 746 Group Statement of Financial Position Group Statement of Cash Flows 2012 US$ 000 2011 US$ 000 At 1 October 2010 47 4 378 12 911 (4 388) 12 948 Loss for the period - - - (2 898) (2 898) Other comprehensive income - - 113 - 113 Total comprehensive income/(loss) - - 113 (2 898) (2 785) At 30 September 2011 47 4 378 13 024 7 286) (10 163 Profit for the period - - - 433 433 Other comprehensive income - - 28 - 28 Total comprehensive income - - 28 433 461 At 30 September 2012 47 4 378 13 052 (6 853) 10 624 Group Statement of Changes in Equity Total US$000 Distributable Reserves US$000 Non- Distributable Reserves US$000 Share Premium US$000 Share Capital US$000 Revenue External customer 11 993 20 610 1 452 14 - - 34 069 Inter-segment 1 638 6 737 - - - (8 375) - 13 631 27 347 1 452 14 - (8 375) 34 069 Operating profit before impairments and fair value adjustments 175 1 645 567 (45) 90 - 2 432 Segment assets 9 723 10 580 5 047 499 2 587 - 28 436 Segment liabilities 3 528 5 524 138 6 401 1 013 1 208 17 812 Capital expenditure 187 375 23 1 - - 586 Depreciation 427 347 88 50 6 - 918 2012 Group Segment Result Paper, & Stationery US$000 Group US$000 Adjustments & Elimina- tions US$000 Battery Manufacture & Retail US$000 Plantations US$000 Central Administra- tion US$000 Discontinued Operations US$000 Supplementary Information 1. Basis of preparation The consolidated financial statements have been prepared on a historic cost basis, except for land and buildings, financial assets and biological assets that have been measured at fair value. 2. Currency of reporting The financial statements are presented in United States Dollars (USD). 3. Statement of accounting policy The accounting policies adopted in the preparation of the 2011 annual financial statements have been followed consistently in the preparation of these financial statements. 4. Statement of compliance The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the International Financial Reporting Interpretations Committee, (IFRIC) interpretations. 5. Audit opinion The Group auditors Ernst Young have issued an unqualified opinion with an Emphasis of Matter on going concern on the Group financial statements. The signed audit opinion is available for inspection at the Company’s registered office. 6. Results of assets held for sale and discontinued operations In compliance with the requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the assets and liabilities of the discontinued operations amounting to US$3,519million and US$1,013million have been included in Group statement of financial position as “assets of disposal group classified as held for sale” and as “liabilities associated with the assets of disposal group classified as held for sale” respectively. 7. Events after reporting date In October 2012, a fire broke out at the timber plantations and destroyed 150 hectares of timber valued at $100,000.The loss will be accounted for in the results for the year ended September 2013. There will be no significant immediate impact on the Group’s cash flows as a result of the loss. 8. Total borrowings split OVERVIEW The Group posted improved results for the year ended 30 September 2012 with a profit being recorded for the first time since dollarisation. FINANCIAL Revenue at US$34 million increased by 13% when compared with prior year while operating profit increased by 837% to US$2.3 million. The Group is now beginning to benefit from the restructuring work carried out over the prior years. In addition, results of cost control initiatives that have been implemented throughout the Group are also filtering into the business. Margins at 33% (2011: 27%) have been supported by the positive turnaround of the Chloride factory which recorded a 36% increase in production volumes. Additionally, the business benefited from the elimination of the negative margins in the stationery business which was closed last year as part of the restructuring exercise. Contribution from the paper business was however lower than last year as margins came under significant pressure from competition with prices of tissue reducing by 15% in the second half of the year. The Group recorded profit after tax of US$433,000 after charging interest of US$2.1 million. Debt levels remained high, increasing from US$8.991million last year to US$9.656million. Efforts to reduce the cost of debt were not successful as debt levels increased in response to working capital demand. The Board is aware of the need to find a lasting solution to this challenge as the current position is now holding back the profitability of the Group. As a result of the improved profitability, cash generated from operations at US$1.3 million was relatively higher than the US$497,000 recorded in prior year. Capital expenditure incurred of US$586,000 was lower than prior year as most of the cash generated was channelled towards payment of interest. OPERATIONS Batteries Division Turnover for the batteries division grew by 14% while gross margin increased to 40% from 35% in 2011 and resultantly, profit before tax increased by US$1.8million when compared to a loss of US$560,000 recorded in 2011. The strategies implemented in the latter part of 2011 for the turnaround of the Chloride battery factory have begun to bear fruit, with the factory returning to profitability for the first time in three years. The factory recorded an increase in capacity utilization from 48% in 2011 to 65%.This was achieved on the back of investment in factory equipment, and working capital. US$212,000 was invested in factory equipment, mainly to address factory bottlenecks and efficiencies. The lead furnace came into full production in the year, thus providing the intended benefits of raw material security and margin protection. London Metal Exchange lead prices firmed in the year, rising from US$1,900 at the beginning of the year to US$2,300 in September 2012. Chloride Zambia volumes grew by 10%, with a resultant turnover increase of 11%. However, profitability declined by 10% as margins came under pressure from competing products. Exide has however remained the dominant brand in the market, recording an increase in market share in the year. With a strong battery brand, this business is still well positioned to compete effectively in the growing Zambia market. The Zimbabwe distribution unit – Battery Express recorded growth of 13% in automotive volumes. Additionally, the business traded in solar products through a distributor agreement with Sukum of India. As a result, and despite intense market competition, margins improved resulting in the business recording earnings at levels twice that recorded in 2011. The Exide brand maintained its pole position, recording an increase in market share in the year. Paper and Stationery Division The paper and stationery division performed below expectation in the year. Although turnover grew by 8%, a loss of US$268,000 was recorded compared to a loss of US$144,000 in 2011. Capacity utilization grew marginally from 60% in 2011 to 63%, while margins reduced to 24% from 27% in 2011. National Waste traded profitably with volumes increasing by 11%. In addition to supplying the Kadoma Tissue Mill, excess kraft volume was exported to paper mills in South Africa. The unit was however unable to supply the Kadoma Tissue Mill with adequate waste for tissue production due to the low printing activity in the economy. Kadoma Tissue supplemented the deficit by imported waste paper. Kadoma Tissue’s market volumes grew marginally by 3%, while margins declined from 22% in 2011 to 16%, resulting in the business reporting an operating loss. The business was affected by increased market competition, the devaluation of the South African Rand and an increase in the cost of raw materials arising from imported waste paper. The future of this business is dependent on the ability to maintain its competitive advantage from use of local waste paper. Management is reviewing options for investment in a waste cleaning system that will increase use of local waste paper in the manufacturing process. Although volumes in Softex Tissue grew by 20%, the business’ margin came under significant pressure from imported and locally manufactured products, resulting in a drop in margin to 22% from 24% in 2011. Consequently the profit outturn was at the same level as 2011. Provision has been made in the 2013 budgets for retooling of the Softex factory which is expected to improve product quality and reduce cost. In addition the market will be repositioned to increase the volume of higher margin product. Eversharp recorded a disappointing performance with a marginal increase in turnover of 3%. The business suffered from low factory output as a result of poor machinery performance. Although factory output increased in the fourth quarter of the year after installation of replacement equipment, the business was unable to recover from losses recorded earlier in the year and posted an overall loss. With the factory now at full production capacity, the focus in the New Year will be on development of the export market as well as enhancement of the market presence of the Luxor and Fleximail brands. Plantations Timber sales volumes grew by 13% in the year, while turnover increased by 53%. The market for timber remained strong while prices continued to firm in the year. Silviculture work on the estates was completed to plan except for planting which was 85% of target due to the low rainfall in the year. Although there was no major fire incident recorded at the estates during the year, a fire broke out at Nyagari estates in October 2012 and destroyed 150 hectares of trees valued at US$100,000. It is expected that the loss will be mitigated by salvage of the burnt trees. Discontinued Operation Mutare Mill land and buildings remain earmarked for disposal. The buildings generated an operating profit of US$90,000 from rental income after charging expenditure on improvements to the building of US$32,000. Further improvements to the buildings will continue in the New Year in order attract buyers. HUMAN RESOURCES After the Group manpower rationalization in 2009 to 2011, the Board recognizes the need to invest in the development of human capital. Through a three year Group human resources plan, Art will allocate resources to the development of current and future skills. Additionally, an appropriate performance measurement tool will be implemented in order to enhance accountability and motivate employees at all levels in the organization. DIRECTORATE There were no changes at directorate level during the year. DIVIDEND The company is not in a position to declare a dividend. OUTLOOK The current liquidity challenges in the economy are likely to persist for the greater part of the New Year and consequently margins will continue to come under pressure. In order to protect profitability, management will be focused on improving operational efficiencies and mitigating liquidity risk. The Group will continue to invest in both new capital expenditure and factory refurbishment so as to remain a relevant player in the manufacturing sector. In this regard, the Group will invest US$260,000 capital expenditure in the paper division in the coming year in order to restore competiveness throughout the value chain. The restructuring of the balance sheet will be our primary focus in the New Year. The initiatives, which are at an advanced stage and are subject to the ongoing cautionary announcements, involve accessing long term capital and injection of fresh capital to retire expensive debt. It is anticipated that the benefits of this restructuring exercise will be realised in the second half of the year. I would like to thank my fellow Board members, management and staff who have worked tirelessly to get the business back to profitability. We also credit the recovery of our business to our external partners and stakeholders whose contribution has been invaluable. While the recovery process is by no means complete, the Board is confident that the current strategies will lead the business into a sustainable growth phase . P.M. Matupire CHAIRMAN 4 December 2012 Registered Office Regional Office Palm Grove House 202 Seke Road P.O. Box 3186 Griniteside Wickhams Cay1 P.O. Box 2777 Road Town, Tortola Harare British Virgin Islands Zimbabwe IBC NUMBER:243845 GROUP SECRETARY: F.D. MUKARAKATE Chairman’s Statement ABRIDGED YEAR-END AUDITED RESULTS 2012 Continuing operations Discontinued operations Group Cash generated in operations 1 354 497 Finance income 12 22 Finance costs (2 174 ) (1 827 ) Taxation paid (140 ) (194 ) Cash utilised in operating activities (948 ) (1 502 ) CASH FLOW FROM INVESTMENT ACTIVITIES: Purchase of property plant and equipment (586 ) (839 ) Proceeds on disposal of property plant and equipment 524 797 Cash utilised in investment activities (62) (42 ) CASH FLOW FROM FINANCING ACTIVITIES: Additional borrowings 2 850 7 200 Repayment of borrowings (2 186 ) (5 340 ) Cash raised from financing activities 664 1 860 (Decrease)/increase in cash and cash equivalents (346 ) 316 Effect of exchange rates on cash and cash equivalents arising from foreign subsidiaries 4 2 Cash and cash equivalents at beginning of the year 814 496 Cash and cash equivalents at the end of the year 472 814 Comprising: Cash resources 561 814 Overdrafts (89 ) - Cash and cash equivalents at the end of the year 472 814 Cash and cash equivalents Continuing operations 464 761 Discontinued operations 8 53 Cash and cash equivalents at the end of the year 472 814