Masonite Africa : 26 March 2015 - SENS Announcement

Microsoft Word - Masonite_SENS_Results for Year Ended 31 December 2014_20 March 2015

MASONITE (AFRICA) LIMITED
Incorporated in the Republic of South Africa
Registration number: 1942/015502/06
Share code: MAS ISIN: ZAE000004289 ("Masonite" or "the company")
PRELIMINARY AUDITED RESULTS
for the year ended 31 December 2014
Summarised statement of profit or loss and other comprehensive income

Audited	Audited
Rand thousands Notes	2014	2013
Revenue	604	885	673	236
Cost of sales	(554	910)	(493	293)
Gross profit	49	975	179	943
Fair value adjustment	of	biological	assets	3	52	524	28	899
Other income	51	985	5	461
Distribution expenses	(74	637)	(97	457)
Selling and marketing expenses	(11	558)	(12	532)
Administrative expenses	(22	106)	(19	816)
Other operating expenses	(15	883)	(35	760)
Results from operations	30	300	48	738
Finance income	1	418	1	551
Finance cost	(3	215)	(2	926)
Profit before tax	28	503	47	363
Income tax expense	7	(5	763)	(11	656)
Net profit for the year	22	740	35	707
Other comprehensive income
Items that may not be classified	subsequently
to profit or (loss)	(1	482)	866

Actuarial(loss)/gain on post-retirement
medical benefit obligation (2 059) 1 203
Decrease/(increase) of income tax 577 (337) Total comprehensive income for the year
attributable to ordinary shareholders 21 258 36 573
Earnings per share (cents)
Basic 8.1 319 501
Diluted 8.2 318 500
Summarised statement of financial position

Audited	Audited
Rand thousands	Notes	2014	2013
ASSETS
Non-current assets
Property, plant and	equipment	112 359	111 665
Intangible assets	1 400	671
Biological assets	3	253 224	200 700
Investments	1 399	1 399
Total non-current	assets	368	382	314	435
Current assets
Inventories	100	113	102	180
Trade and other	receivables	102	002	93	103
Tax receivable	912	793
Derivative financial instruments	113	62
Cash and cash equivalents	65	003	88	705
Total current assets	268	143	284	843
Total assets	636	525	599	278
EQUITY AND LIABILITIES
Capital and reserves
Share capital	3	570	3	566
Share premium	3	156	3	156
Share-based payment reserve	5	2	629	2	628
Retained income	447	933	426	675
Total equity	457	288	436	025
Non-current liabilities
Deferred tax	58	884	53	579
Post-retirement benefit
obligation	4	35	718	31	781
Straight-lining lease accrual	94	93
Total non-current liabilities	94	696	85	453
Current liabilities
Trade and other payables	80	691	71	208
Amounts payable to fellow subsidiaries	2	070	4	809
Derivative financial instruments	1	741	1	770
Straight-lining lease accrual	39	13
Total current liabilities	84	541	77	800
Total equity and liabilities	636	525	599	278
Net asset value per share (cents)	6	405	6	114

Summarised statement of cash flows

Audited	Audited
Rand thousands	2014	2013
Cash flow from operating activities
Operating profit	30 300	48 738
Adjusted for:
Movement in fair value of biological	assets	(52 524)	(28 899)
Depreciation and amortisation	24 444	22 738
IFRS 2 Share-based payment charge	1	855
Foreign exchange (gain)/loss - unreal	ised	(492)	3 398

Increase in liability for retirement benefit obligation 1 878 1 868
Profit on disposal of property, plant and equipment (3 500) (51) Other non-cash items 27 (11) Change in working capital (528) (28 260) Cash(utilised in)/generated from operations (394) 20 376
Taxation refund - 99
Net financing expense (1 764) (1 335) Net cash (utilised in)/generated from operating activities (2 158) 19 140
Cash flow from investing activities
Replacement of property, plant, and equipment and

intangible assets	(27	865)	(22	006)
Proceeds on disposal of property, plant and	equipment	5	498	144
Net cash outflow from investing activities	(22	367)	(21	862)
Cash flow from financing activities	4	4
Net cash flow from financing activities	4	4
Net decrease in cash and cash equivalents	(24	521)	(2	718)
Effects of exchange rates on the balance of	cash held	in
foreign currencies	819	(2	479)
Net	cash	and	cash	equivalents	at	the	beginning of
the	year	88	705	93	902
Net	cash	and	cash	equivalents	at	the	end of the year	65	003	88	705

Summarised segment revenues and results
Segment revenue Segment profit
Rand thousands 2014 2013 2014 2013
Hardboard 443 959 517 983 (8 012) 24 610
Other products 71 855 82 216 249 1 856
Forestry 125 210 111 060 54 504 40 236
Intersegment (36 139) (39 825) - - Unallocated - 1 802 5 665 1 852
Total 604 885 673 236 52 406 68 554
Administrative expenses (22 106) (19 816)

Results from operations	30	300	48	738
Finance income	1	418	1	551
Finance expense	(3	215)	(2	926)
Profit before tax	28	503	47	363
Income tax expense	(5	763)	(11	656)
Total per statement of
comprehensive income	22	740	35	707

Summarised segment assets

2014	2013
Rand thousands
Hardboard	260 948	240 925
Other products	23 852	38 265
Forestry	281 373	217 209
Unallocated	70 352	102 879
Total segment assets	636 525	599 278

Summarised statement of changes in equity
Share- based
Share Share payment
Rand thousands capital premium reserve
Balance as at 1 January 2013 Audited 3 562 3 156 1 773
Issue of ordinary shares under the share
incentive scheme 4 - - Share-based payment charge - - 855
Net profit for the year attributable
to ordinary shareholders - - - Other comprehensive income for the year,
net of tax - - - Balance at 31 December 2013 Audited 3 566 3 156 2 628
Issue of ordinary shares under the share
incentive scheme 4 - - Share-based payment charge - - 1
Net profit for the year attributable
to ordinary shareholders - - - Other comprehensive income for the year,

net of tax	-	-	-
Balance at 31 December 2014 Audited	3	570	3	156	2	629

Other comprehensive income for the year,
Issue of ordinary shares under the share
Balance at 31 December 2014 Audited 447 933 457 288
Notes
1. Basis of preparation
The summarised financial statements has been prepared in accordance with the Listings Requirements of the JSE Limited for summarised financial statements and the requirements of the South African Companies Act, 71 of 2008 applicable for summarised financial statements. The Listing Requirements of the JSE Limited for the preliminary reports require them to be prepared in accordance with the framework concepts and measurement and recognition requirements of International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and financial reporting pronouncements as issued by the Financial Reporting Standards Council, and also, as a minimum, to contain the information as required by IAS
34:Interim Financial Reporting.
The audited summarised financial statements have been prepared under the supervision of Mr N M Stromnes CA(SA) on behalf of Masonite (Africa) Limited.
Accounting policies
The accounting policies applied in the preparation of the full financial statements from which these summarised financial statements were derived are in terms of IFRS and are consistent with those of the previous full financial statements.
2. Auditor's opinion
These summarised financial statements for the year ended 31 December 2014 have been audited by Deloitte & Touche, who have expressed an unmodified opinion thereon. The auditor also expressed an unmodified opinion on the full
financial statements for the year ended 31 December 2014 from which these summarised financial statements have been derived. A copy of the auditor's report on the summarised financial statements and of the auditor's report on the full financial statements are available for inspection at the company's registered office together with the financial statements identified in the respective auditor's reports. Deloitte & Touche has not audited future financial performance and expectations expressed by management included in the commentary in the accompanying preliminary report and accordingly do not express an opinion thereon. The auditor's report does not necessarily report
on all of the information contained in this preliminary report. Shareholders are advised that in order to obtain a full understanding of the nature of the auditor's engagement they should obtain a copy of that report together with
the accompanying summarised financial statements from the company's registered office.
3. Biological assets
Land, logging roads and related facilities are accounted for under property, plant and equipment. Trees and sugar cane are generally felled at the optimum age when ready for their intended use. After harvest, timber to be utilised at the mill is accounted for under inventories.
Timber and sugar cane are accounted for as biological assets. Biological assets are stated at fair value with any resultant gain or loss recognised in
the statement of comprehensive income. The company owns timber plantations which it operates in order to supply the mill at Estcourt with its primary raw material. Sugar cane has been planted in areas unsuitable for timber, in order to use the land productively.

Rand thousands	2014	2013
Timber plantations
Establishment costs	65	287	45	203
Immature timber	73	232	70	653
Mature timber	104	252	77	018
Total	242	771	192	874
Sugar cane
Establishment costs	3	759	2	985
Immature sugar cane	4	195	2	441
Mature sugar cane	2	499	2	400
Total	10	453	7	826
Total biological assets	253	224	200	700

4. Retirement benefit obligation
The company provides post-retirement medical benefits to retired employees who were employed before January 1997.
The liability in respect of this post-retirement medical benefit is actuarially valued on an annual basis using the Projected Unit Credit Method.
All actuarial gains and losses are recognised immediately through other comprehensive income in order for the net plan asset or liability recognised in the statement of financial position to reflect the full value of the plan deficit or surplus. There are no plan assets held.
Past service costs are recognised as an expense on a straight-line basis over the average period until the benefits vest. To the extent that benefits have already vested, past service costs are recognised immediately.
5. Employee Share Incentive Scheme
The adoption of IFRS 2 Share-based Payment (IFRS 2) in 2005 required that all awards made after 7 November 2002 be accounted for in the financial statements of the company. IFRS 2 requires a "fair value" to be placed on employee share options. Fair value is measured as the market price of the entity's options adjusted for the terms and conditions applicable to the option. Since employee share options are not traded there is no market price available, hence the use of an option-pricing model in determining its fair value. The fair value of
the share option is measured using a stochastic model, based on the standard
binomial options pricing model (which is mathematically consistent with the Black-Scholes Model) but allows for the particular features of employee share options to be modelled realistically. IFRS 2 has therefore been applied to the Masonite Share Incentive Scheme in respect of the awards made to executive directors and senior management on 4 January 2011.
6. Segmental reporting
A segment is a distinguishable component of the company that is engaged in providing products or services which are subject to risks and rewards that are different from those of other segments. The basis of segment reporting is representative of the internal structure used for management reporting, as
well as the structure in which the chief operating decision maker reviews the information.
The basis of segmental allocation is determined as follows:
- revenue that can be directly attributed to a segment and the relevant portion of the profit that can be allocated on a reasonable basis to a segment, whether from sales to external customers or from transaction with other segments of the company;
- operating profit that can be directly attributed to a segment and a relevant portion of the operating profit that can be allocated on a reasonable basis to a segment, including profit relating to external customers and the expenses relating to transactions with other segments of the company; and
- total assets are those that are employed by a segment in its operating activities and that are directly attributable to the segment or can be allocated to the segment on a reasonable basis.
The company's reportable segments are as follows:
- Hardboard;
- Other products; and
- Forestry.
Rand thousands 2014 2013
7. Income tax expense
Current tax (119) 3 591
Deferred tax 5 882 8 065
Total 5 763 11 656
8. Earnings per share
8.1 Basic
Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the
weighted average number of shares in issue during the year.
Profit attributable to ordinary shareholders 22 740 35 707

Weighted average number of ordinary shares in	issue	7 136	392	7	130	892
Basic earnings per share (cents)	319	501

8.2 Diluted
Diluted earnings per share are calculated to reflect the potential dilution that could occur if all of the company's outstanding share options were exercised by the option holders. The number of shares in issue has been adjusted by the weighted average number of shares outstanding in terms of
outstanding options 2014: 99 499 (2013: 111 249) to assume conversion of all dilutive potential ordinary shares.
The dilution of earnings per share is the result of options granted to executive directors and senior management, on 4 January 2011, to acquire) shares at a weighted average price of R29,69 per share on or before December
2020.
Rand thousands 2014 2013
Profit attributable to ordinary shareholders 22 740 35 707
Weighted average number of ordinary shares in issue 7 136 392 7 130 892
Adjusted for weighted average share options outstanding 5 149 4 837
Weighted average number of ordinary shares (diluted)
at 31 December 7 141 541 7 135 729
Diluted earnings per share 283 500
8.3 Headline earnings
Reconciliation of headline earnings
Profit for the year 22 740 35 707
Adjusted for:

Profit on disposal of assets	(3500)	(51)
Tax effect of profit on disposal	of	assets	980	14
Headline earnings	20	220	35	670
Headline earnings per share (cents)	283	500
Diluted headline earnings per share	(cents)	283	500

9. Annual general meeting
Shareholders are advised that the seventy second annual general meeting of shareholders of the company will be held at Masonite's offices at Block 2, Island Office Park, 35-37 Island Circle, Riverhorse Valley, Durban on 2 June
2015 at 12:00.
10. Subsequent events
No material fact or circumstance has occurred between the end of the year and the date of this report.
Report to Stakeholders
For Masonite 2014 was strategically important yet challenging. It was strategically important because it marked the advancement of several comprehensive business initiatives designed to maximize shareholder value.
2014 was challenging as we experienced a serious explosion at our Mill which impacted severely on all our stakeholders.
The mill explosion, on 6 June, resulted in injuries to eight of our employees. Our first priority was to ensure that our injured employees and their families were given the best possible treatment and care. We are pleased to report that, with the exception of two employees who are receiving counselling, the remainder have made a full recovery. Currently, the mill is running at 100%
of pre-incident levels. During the re-commissioning process, we effected a
number of additional improvements in equipment and policy to further enhance safety.
After the explosion the management team reached out to our customers informing them of the incident and providing them with timely updates regarding product availability and our recovery efforts. Our thanks go out to our customers for their understanding and support during this period of supply disruption and, particularly, for their thoughts and concerns for the impacted employees and their families.
From a Governance standpoint, the Board's top priorities were to debate and agree on a business strategy, hold the executive team accountable for its implementation and strengthen the internal control environment. On all three counts the Board conducted itself in a highly professional manner.
Consistent with the Board's responsibility, to provide management oversight, the Board actively supported the restructuring of the Masonite executive team and the recruitment of the best possible people to fill key positions and is satisfied that the management team in place is suitably equipped to deliver the strategy.
In addition, the implementation of improvements to key controls and business processes was a major priority during the year. By strengthening our processes, we have introduced a more robust control environment which will allow us to run our business more effectively and efficiently.
Key Business Initiatives
Key business initiatives which were advanced during the year include:
• Strengthening our customer relationships;
• Investing in our "Forestry First" program;
• Optimizing our Mill to improve productivity and quality;
• Transforming end-to-end business planning; and
• Creating a high performance management team.
Customer Relationships. The value we place on our customers cannot be overstated. We are committed to providing high quality products into the marketplace at competitive prices behind a strong service proposition.
Forestry First. With a renewed focus on the role and importance of our plantations we developed plantation specific plans to improve our biological assets. We have been hard at work implementing plans to maximize the timber yield and revenue streams in each of our plantations. This focus has led to new silviculture and harvesting plans and improved practices-which we believe have the potential to significantly increase biological asset values in the future.
Mill Optimization. Through 2014 we continued to improve quality through strategic investment in capex, improved process controls and by strengthening our "culture of quality". The overhaul of the primary press at the end of 2014 is a significant investment which will allow us to continue to bring high quality products to market.
Business Planning. In order to strengthen the core business we recognized the need to change our manufacturing strategy to better align our demand forecast,
capacity and production plans, capex agenda and continuous improvement priorities. Throughout 2014 we were engaged in laying the foundation for these improvements through introducing new computerised planning tools, improving process controls and optimizing inventory management practices. As part of our renewed focus on business planning we also embarked on a comprehensive review of our strategic supply contracts and re-negotiated our distribution contracts behind improved service delivery measures and cost improvements.
High Performance Management Team. At Masonite we believe that people are central to our success and that ongoing improvements in our recruitment, development and retention practices are a key driver of future success. Upgrading talent and training at all levels of the Company is a priority to attain a culture of continuous improvement in all areas of the business. Most importantly, we remain committed to a strong culture of safety and compliance. During 2014 Masonite maintained its certification under the Forestry Stewardship Certification Program, NOSA AND NOSCAR ratings.
Although the construction industry showed some early signs of improvement, trading conditions remained challenging throughout much of the year. We have yet to see the full potential of our end markets with furniture, housing, glass and packaging markets all depressed. Against this backdrop, our market volumes were constrained.
At the time of the mill explosion gross margin was improving behind local price gains and improved export margins as a result of the falling Rand.
Mill operating costs negated some of these gains. The explosion at the mill had a major impact on volumes during the second half of the year. Our "forestry first" strategy resulted in a 26% improvement in our biological assets during the period under review. Earnings per share decreased as fixed overheads were under-recovered.
As we look to 2015 our first priority is to fully regain customer confidence following the explosion at the mill which impacted customer shipments through the second half of the year. Consistent with this, 2015 will see the introduction of our new "Customer Service Promise" with the mission of both improving customer service and allowing us to pivot our strategy to top line growth. In addition, we will be investing behind our "Forestry First"
program, optimising our Mill to improve productivity and quality, transforming
end-to-end business planning and creating a high performance management team committed to continuous improvement and safety.
While the financial impact of the explosion has been profound as evidenced by our full year results, Masonite (Africa) Limited came together during 2014 to assist the affected employees and their families and worked as a team to ensure that production resumed as soon as possible. For that we are truly thankful and proud. We would like to offer our sincere thanks to the Board, the executive team, managers and employees for their commitment and support, and, of course, to all of our customers who have partnered so successfully with us over the year.
M G Leitch HJ Loring
Chairman Chief Executive Officer
26 March 2015
DIRECTORS MG Leitch (Chairman), HJ Loring (CEO),NM Stromnes (CFO), WP Coetzee, N Maharajh, MJ Erceg (USA), LP Repar (Canadian),CA Virostek (Canadian), RE Lewis(USA)
COMPANY SECRETARY MP Govender
TRANSFER SECRETARIES
Computershare Investor Services (Proprietary) Limited
70 Marshall Street, Johannesburg, 2001
SPONSOR
Nedbank Capital
135 Rivonia Road, Sandton, 2196