| Fri 14 Dec 2007, 16:21 | | WLL - Wellco Health - Reviewed Results For The Six Months Ended 31 August 2007, |
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WLL
WLL
WLL - Wellco Health - Reviewed Results For The Six Months Ended 31 August 2007,
Notice Of General Meeting And Renewal Of Cautionary Announcement
WELLCO HEALTH LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number: 2005/005805/06)
Share code: WLL & ISIN code: ZAE000071841
("Wellco" or "the company")
REVIEWED RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2007, NOTICE OF GENERAL
MEETING AND RENEWAL OF CAUTIONARY ANNOUNCEMENT
CONDENSED GROUP INCOME Reviewed Restated Audited
STATEMENT 6 months unaudited 6 year
ended months ended
31 August ended 28 February 2007
2007 31 August 2006 R
R R
Revenue 3 045 943 10 682 619 16 975 822
Cost of sales (1 822 517) (5 718 511) (13 903 732)
Gross profit 1 223 426 4 964 108 3 072 090
Operating expenses (6 276 711) (8 484 457) (16 852 500)
Impairment of goodwill and (788 352) - (19 333 248)
intangible assets
Operating loss (5 841 637) (3 520 349) (33 113 658)
Net finance costs (253 838) (119 921) (1 100 223)
Loss before taxation (6 095 475) (3 640 270) (34 213 881)
Taxation - 978 043 (548 335)
Net loss attributable to (6 095 475) (2 662 227) (34 762 216)
ordinary shareholders
CONDENSED GROUP BALANCE Restated
SHEET Reviewed unaudited Audited
31 August 2007 31 August 2006 28 February
R R 2007
R
ASSETS
Non current assets
Property plant and 314 981 1 282 931 986 651
equipment
Goodwill -- 13 548 702 --
Intangibles assets 13 153 534 19 906 697 13 941 886
Deferred tax asset -- 1 163 351 --
Total non-current assets 13 468 515 35 901 681 14 928 537
Curent assets
Inventories 1 516 253 8 109 081 2 484 631
Trade and other 1 804 285 6 670 262 4 860 955
receivables
Cash and cash equivalents 26 363 19 542 315
Total current assets 3 346 901 14 798 885 7 345 901
Total assets 16 815 416 50 700 566 22 274 438
SHAREHOLDER`S EQUITY
Equity and liabilities
Capital and reserves
Issued capital 9 208 7 683 9 208
Share premium 40 100 751 35 420 530 40 100 751
Accumulated loss (41 568 078) (3 086 725) (35 472 603)
Minority interest - - 3 253 000 --
Ordinary shareholders (1 458 119) 35 594 488 4 637 356
(deficit) equity
LIABILITIES
Non current liabilities
Deferred tax liability 363 027 - - 363 027
Interest bearing 1 652 571 208 623 152 574
liabilities
Non interest bearing 500 000 204 985 479 130
liabilities
Total non-current 2 515 598 413 608 994 731
liabilities
Current liabilities
Taxation payable 2 477 466 2 184 644 2 477 466
Trade and other payables 10 017 669 9 553 944 11 004 845
Short term portion of non
interest bearing 96 105 119 428 117 523
liabilities
Bank overdraft 3 166 697 2 834 454 3 042 517
Total current liabilities 15 757 937 14 692 470 16 642 351
Total equity and 16 815 416 50 700 566 22 274 438
liabilities
CONDENSED GROUP CASH FLOW Reviewed 6 Restated Audited
STATEMENT months unaudited year
ended 6 months ended ended
31 August 2007 31 August 2006 28 February
R R 2007
R
Cash flows used in (1 610 449) (3 996 850) (6 720 496)
operating activities
Cash flows from (used in) 12 868 (4 846 849) (7 240 121)
investing activities
Cash flows from financing 1 499 449 6 181 859 11 071 487
activities
Decrease in cash & cash (98 132) (2 661 840) (2 889 130)
equivalents
Cash & cash equivalents at (3 042 202) (153 072) (153 072)
beginning of year
Cash & cash equivalents at (3 140 334) (2 814 912) (3 042 202)
end of year
CONDENSED GROUP Reviewed Restated Audited
STATEMENT OF CHANGES IN 6 months unaudited year
EQUITY ended 6 months ended
31 August 2007 ended 28 February
R 31 August 2006 2007
R R
Balance at beginning of 4 637 356 28 616 778 28 616 778
the period
Issue of share capital -- 6 101 048 10 782 794
Loss for the period (6 095 475) (2 662 227) (34 762 216)
Minority Interest -- 3 538 889 --
Balance at end of the (1 458 119) 35 594 488 4 637 356
period
WELLCO HEALTH LIMITED INTERIM REPORT: 31 AUGUST 2007
1. REVIEW BY INDEPENDENT AUDITORS
These interim financial results have been reviewed by Deloitte & Touche,
Wellco`s auditors. Their modified report is available for inspection at the
Company`s registered office. The report contains an emphasis of matter
paragraph with respect to going concern. The relevant paragraph reads as
follows:
"Without qualifying our review opinion above, we draw attention to the
commentary by the directors with respect to going concern which indicates
that the group recorded a net loss of R6.1 million (28 February 2007: R34.8
million) for the six-month period ended 31 August 2007 and as of that date,
the group`s liabilities exceeded its assets by R1.5 million (28 February
2007: R4.6 million positive). The plans outlined by the directors are
dependent on shareholder approval and include initiatives to inject fresh
capital, improve cash flows and debt rearrangements with major creditors
which include the group`s banker`s and the South African Revenue Service.
These conditions, along with other matters as set forth in the commentary
by the directors, indicate the existence of a material uncertainty which
may cast significant doubt on the group`s ability to continue as a going
concern."
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES
The interim financial results have been prepared in accordance with IAS 34:
Interim Financial Reporting and using accounting policies in compliance
with International Financial Reporting Standards and the Companies Act in
South Africa and is consistent with the prior year.
Wellco has adopted all the statements and interpretations issued and
effective during the current period by the International Accounting
Standards Board ("IASB"). The adoption of these standards and
interpretations did not have any significant impact on the financial
results.
3. LOSS, HEADLINE LOSS AND NET ASSET VALUE PER SHARE
Reviewed Restated Audited
31 August unaudited 28 February
2007 31 August 2007
2006
Cents per Cents per Cents per
share share share
Loss per share (6.62) (4.12) (37.75)
Headline loss per share (5.29) (4.13) (16.74)
Net (liability)/ asset (1.58) 55.05 5.04
value per share
Weighted average shares in 92 083 686 64 658 031 92 083 686
issue
Calculation of headline R R R
earnings:
Loss attributable to (6 095 475) (2 662 227) (34 762 216)
ordinary shareholders
Adjustments for:
Impairment of goodwill -- -- 13 548 702
Impairment of intangible 788 352 -- 5 784 546
assets
Impairment of property, 431 431 -- --
plant and equipment
Loss/profit on disposal of
property, plant and 4 705 (11 355) 20 161
equipment
Profit on disposal of -- -- (7 800)
intangible asset
Headline loss for the (4 870 987) (2 673 582) (15 416 607)
period
4. COMMENTS
4.1 RESULTS
During the interim period 1 March 2007 - 31 August 2007, the trading
performance of the business was poor. Wellco recorded a loss of R6.1
million for the period compared to a loss of R34.8 million for the year
ended 28 February 2007 and total liabilities now exceed total assets by
R1.5 million. Included in the loss is an impairment of intangible assets
of R0.8 million, provisions for stock obsolescence and doubtful debts of
R1.3 million and impairment of assets now in storage of R0.4 million.
Under the previous management, Wellco had embarked on a rigorous turnaround
programme to address the high fixed costs base that also significantly
impacted results in the prior year. This programme, which was focussed on
business development in international markets, new product development and
the licensing out of the manufacture, distribution, marketing and sales of
the brands both locally and internationally, was initiated as follows:
- All non-core staff responsible for operations, administration, sales,
warehousing and distribution were retrenched and these functions
outsourced.
- A licensing agreement was entered into with Oxyboost (Proprietary)
Limited ("Oxyboost") to market and sell the Herbology range of
products.
- A sale agreement was entered into with Oxyboost to dispose of the
Nutrimax brand to Oxyboost for R3.8m, which agreement is subject to
shareholder approval as per the JSE Listings Requirements.
However, the refinancing activities initiated under the previous management
in terms of a share placement were not implemented and hence payment plans
agreed with creditors were not able to be implemented. As a result the
full impact of the restructuring that the directors anticipated from 1
September 2007, did not occur.
Following the late submission of the 2007 Annual Financial Statements, the
JSE suspended trading of the Wellco share.
4.2 DIRECTOR APPOINTMENTS
During the period under review, Bheki Shongwe, Norman Preston and Tony
McKeever were appointed to the board, whilst Clifford Sossen, Andile Kumalo
and Terrence Wynne resigned from the board.
4.3 SUBSEQUENT EVENTS AND RESTRUCTURING
As a result of the distressed commercial position of the company the then
Board of Directors entered into an agreement with a consortium headed by
Arcay Merchant (Proprietary) Limited ("Arcay"), which was subsequently
appointed by Wellco as its corporate advisor, to restructure the company,
which restructuring was announced on SENS on 25 October 2007 ("the
restructuring transaction"). A circular to shareholders detailing the
proposed restructuring will be finalised and posted to shareholders in due
course. The restructuring agreement, which is subject to shareholder
approval, includes the following:
4.3.1 Reconstitution of the Board of Directors
Following the signing of the restructuring transaction, the board
of directors was reconstituted to reflect the new management
team, with Mike Allan, Carol Ansara and Linda Cameron being
appointed to the board with effect from 25 October 2007 and
Norman Preston and Tony McKeever resigning from the board with
effect from 25 October 2007. Dean Marais` resignation has been
accepted effective 31 December 2007. Following the acquisition
of Bioharmony and Muscle Science (see paragraph 4.3.4 below),
John Ian Black, Yaseen Bhayat and Mark Strydom have been
appointed to the board and Bheki Shongwe has resigned.
4.3.2 Recapitalisation of the Company
As part of the restructuring transaction, Wellco will issue
approximately R54 million worth of new shares at 3.5 cents per
share in order to settle creditors, raise sufficient capital in
order for it to pay for the acquisitions detailed in paragraph
4.3.4 below and have sufficient working capital to operate the
expanded business. R41 million of this will be done through an
issue of shares for cash, whilst the remaining R13 million will
be reserved for a rights offer to existing minority shareholders
so as to enable them to retain an interest in the company at the
restructuring price.
4.3.3 Settlement with Creditors
The new management team is currently negotiating settlement terms
with both trade creditors and South African Revenue Service
(SARS).
4.3.4 Acquisition of Assets
Arcay has entered into an agreement to acquire Bioharmony
(Proprietary) Limited ("Bioharmony") and Aldabri 53 (Proprietary)
Limited t/a Muscle Science ("Muscle Science") from Enaleni
Pharmaceuticals Limited ("Enaleni"). In order to accommodate
Enaleni`s requirement that all suspensive conditions to the
sale/acquisition of these entities be completed by 01 December
2007, Arcay acquired these assets and, following the successful
conclusion of negotiations with creditors referred to above and
the requisite shareholder approval, these brands will be injected
into the company for a purchase consideration of R43 500 000 to
be settled by a cash payment of R40 million and the issue of 250
000 000 Wellco shares. A separate announcement detailing the
acquisition of assets will be released on SENS.
4.3.5 Herbology Transaction
The licence agreement entered with Oxyboost to market and sell
the Herbology range of products, as referred to in paragraph 4.1
above, will be cancelled for a cancellation fee of R1 million,
which will be settled through the issue of shares at 1.4 cents
per share. Oyboost is a related party to the company and full
details of the cancellation of the licence agreement will be
included in the circular to be posted to shareholders.
4.3.6 Nutrimax Transaction
Shareholders will be requested to approve the sale and assignment
of the trade marks, copy rights and domain names pertaining to
the Nutrimax brand to Oxyboost for an amount of R3.8 million.
Oxyboost is a related party to Wellco and full details of the
disposal will be included in the circular to be posted to
shareholders.
4.3.7 Renaming of the Company
Shareholder support to change the name of the company from Wellco
Health Limited to BioScience Brands Limited will be sought at a
general meeting to be convened to approve the acquisition of
Bioharmony and Muscle Science. Salient dates relating to the
proposed name change will be announced in due course.
4.3.8 Increase in Authorised Share Capital
In order to implement the restructuring transaction as detailed
above, shareholders will be requested to increase the authorised
share capital of the company from R50 000 divided into
500 000 000 ordinary shares of R0.0001 each to R500 000
comprising 5 000 000 000 ordinary shares of R0.0001 per share,
which additional ordinary shares shall in all respects rank pari
passu with the existing ordinary shares in the capital of the
company. This authorisation will be sought at a general meeting
of the company to be held at Arcay House, Number 3 Anerley Road,
Parktown, Johannesburg at 14:00 on Tuesday, 18 December 2007.
4.3.9 Consolidation of the Shares
In order to manage the quantity of shares in issue following the
conclusion of the restructuring transaction, it is intended that
shareholders will be requested to approve a consolidation of
shares during the first half of 2008, at a ratio to be confirmed.
5. GOING CONCERN
Wellco lacked the critical mass to weather the turbulent environment of a
consumer brands business. This, together with strategic decisions made
prematurely, resulted in the business performing poorly and the company`s
AltX listing being suspended in July 2007.
The restructuring provides Wellco with a strong new management team with
extensive brand management experience, capable of rebuilding the company
and rapidly expanding its operations. The restructured board is confident
that two of the company`s existing brands, KGB and Herbology, can be
effectively rebuilt and extended, whilst the acquisition of Bioharmony and
Muscle Science, with a joint turnover of more than R77m, provides the
critical mass the business was previously lacking. The disposal of
Nutrimax will result in a cash injection of R3.8 million into the company,
whilst the cancellation of the licence agreement will enable the company to
re-acquire the rights to the Herbology brand. The monies raised by the
rights offer and specific and/or general issue of shares for cash will be
utilised to recapitalise the company and pay for the acquisitions and
settle creditors.
As a result of the restructure plans discussed above, the new directors
believe that Wellco is a going concern. Accordingly, these interim
financial results, have been prepared on a going concern basis which
presumes that funds will be available to finance future operations and that
the realisation of assets and settlement of liabilities will occur in the
ordinary course of business. These interim financial statements do not
include any adjustments which may be necessary to the valuation or
classification of assets and liabilities should Wellco not be able to
continue as a going concern.
6. HEAD OFFICE
The business will relocate its head-office to Durban and will be housed in
the Muscle Science head-office at 10 Ennisdale Drive, Durban North.
7. CONTINGENCIES AND COMMITMENTS
Except as disclosed as part of the restructuring (as defined in para. 4),
the group has no other outstanding contingencies or commitments that the
directors are aware of.
8. DIVIDENDS
No dividends have been declared for the period under review.
9. RENEWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are advised to continue to exercise caution is dealing in the
company`s securities until such time as pro forma financial effects of the
brand acquisitions and proposed recapitalisation are announced.
By order of the Board
J I Black MG Allan
Chairperson Chief Executive Officer
14 December 2007
Johannesburg
Company Secretary and Registered Office
Arcay Client Support (Pty) Ltd (Registration number
1998/025284/07)
Arcay House, Number 3 Anerley Road, Parktown, 2193
PO Box 62397, Marshalltown, 2107
Business Address
10 Ennisdale Drive, Durban North
Directors
JI Black Chairman*#, MG Allan (Chief Executive Officer), CA
Ansara, M Strydom, L Cameron
Y Bhayat*.
(*Non-executive #British)
Designated Advisor Transfer Office
Arcay Moela Sponsors Computershare Investor Services 2004
(Pty) Ltd (Pty) Ltd
Date: 14/12/2007 16:21:26 Produced by the JSE SENS Department.
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