Trustco emerges limping after extremely difficult trading year
Trustco’s Group Chief Executive, Dr Quinton van Rooyen, will have his hands full explaining to shareholders in September why the recession had such an extraordinary large impact on the group and its subsidiaries.
The Trustco group has taken a major knock in the previous financial year with headline earning slashed by more than half. Whereas the group posted headline earnings of N$543 million in 2016/17, that figure came down to a paltry N$205 million in 2017/18.
Trustco Group Holdings Ltd this week released its audited annual financial statements for the year ended 31 March 2018. The consolidated and separate statements reflect the current financial and long-term investment positions of the group and of the listed company, TGH Ltd. Trustco is listed on the Johannesburg Securities Exchange as a diversified financial services company with a secondary listing on the Namibian Stock Exchange.
The group’s revenue dropped from around N$1.25 billion in 16/17 to just over N$800 million. With cost of sales increasing by 31%, it left the group with a gross profit of only N$527 million. After accounting for the usual operational and investment expenditures and income, the group posted a profit before tax of N$242 million. This was aided in no small measure by a N$32 million tax windfall, leaving the group with a profit of N$274 million. Further loss provisions totalling roughly N$28 million reduced this figure to N$246 million, indicated as the total comprehensive income for the year.
The biggest drop in revenue came from property sales which took a N$600 million knock, offset only partially by the N$275 million income from diamond sales. Trustco has never before received income from diamonds and the windfall came after it obtained a 50% stake in Meya Mining in Sierra Leone.
“The year in review was in essence a consolidation phase for the group, with no new debt raised. Bulk servicing on properties in the land bank continued apace, which will enhance the group’s cash generating ability in the year ahead. The investment into the resources segment have produced encouraging results and has the ability to increase the cash resources of the group significantly,” the directors stated.
Despite its diversity, Trustco is still overly reliant on income from its flagship entity, Legal Shield having received N$1.2 billion from selling a 20% stake in Legal Shield to Risco Value Fund LP. Trustco’s combined liabilities come to just under N$2 billion, down from N$2.8 billion in the previous financial year.
Yet, 2017/18 has proven to be an exceptionally tough year. “The group has an estimated tax loss of NAD 867.3 million (2017: NAD 705.7 million) available for set-off against future taxable income. The company has a tax loss of NAD 206.8 million (2017: NAD 246.1 million) available for set-off against future taxable income. Deferred tax was not raised for the tax losses of NAD 651.7 million and NAD 86.1 (2017: NAD 489.7 million and NAD 42.4 million) for the group and the company respectively,” Trustco stated in the new financials.
Notwithstanding the tough trading environment, Trustco remains a major employer, having contributed some N$180 million to the local economy through staff salaries. This spend is up from N$151 million in 2016/17 showing that the group’s overall wagebill grew by just over 19%.
On Tuesday, Trustco announced its JSE sponsoring broker, Sasfin Capital, has resigned. In its stead have been appointed Vunani Corporate Finance as equity sponsor and Merchantec as debt sponsor. The appointments are effective 01 August 2018.
On Thursday morning, Trustco shares took a dive on the JSE as investors digested the full impact of the financial results. The share, TTO, shed more than 7% of its value in only two large trades reducing the company’s market cap to N$6.8 billion. At R8-20 per share, it is about 32% less than its 52-week high of R12-00, but still 116% higher than the 52-week low of R3-80.
The annual general meeting of shareholders is scheduled for 20 September 2018 at the company’s head office in Windhoek. No dividend has been declared.