| Tue 14 Oct 2008, 16:55 | | MKX - Milkworx - Abridged Audited Financial Results For The Year Ended |
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MKX
MKX
MKX - Milkworx - Abridged Audited Financial Results For The Year Ended
30 June 2008
MILKWORX LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/011074/06)
Share code: MKX & ISIN: ZAE000058020
("Milkworx" or "the company")
ABRIDGED AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 30 JUNE 2008
balance sheets
30 Jun 2008 30 Jun 2007
Audited Audited
R`000 R`000
ASSETS
Non-current assets 21 989 22 223
Property, plant and equipment 16 622 18 685
Intangible assets 110 732
Deferred taxation 5 257 2 806
Current assets 10 526 14 880
Inventories 4 862 7 839
Trade and other receivables 5 540 6 888
Cash and cash equivalents 124 153
Total assets 32 515 37 103
EQUITY AND LIABILITIES
Capital and reserves 11 747 18 636
Share capital 5 953 5 753
Share premium 30 863 30 463
Retained income/(loss) (25 069) (17 580)
Non-current liabilities 5 084 4 975
Borrowings 549 2 350
Shareholders loans 4 535 2 625
Current liabilities 15 684 13 492
Trade and other payables 9 757 8 272
Bank overdraft 3 000 3 541
Provision 472 660
Interest bearing liabilities 2 455 1 019
Total equity and liabilities 32 515 37 103
Net asset value per share (cents) 1.97 3.20
Net tangible asset value per share 1.95 3.10
(cents)
Closing number of shares (`000) 595 248 575 248
income statements
12 Months 12 Months ended
ended 30 Jun 2007
30 Jun 2008 Audited
Audited R`000
R`000
Revenue 59 749 66 352
Cost of sales (53 236) (50 670)
Gross profit 6 513 15 682
Other income 475 150
Operating expenses (15 733) (17 682)
Loss before interest and taxation ( 8 745) (1 850)
Interest received 2 21
Finance charges (1 198) (826)
Loss before taxation ( 9 941) (2 655)
Taxation 2 452 1 037
Net loss for the period ( 7 489) (1 618)
Reconciliation between loss and headline loss
Loss per share (cents) (1.26) (0.29)
Reconciliation between loss and
headline loss
Net loss (7489) (1 618)
Loss on sale of assets (cps) 160 107
Impairment of goodwill (cps) 568 -
Headline loss (6 761) (1 511)
(1.14) (0.27)
Headline Loss per share (cents)
Weighted average number of shares 592 782 557 083
(`000)
CASH FLOW statements
12 Months 12 Months
ended ended
30 Jun 2008 30 Jun 2007
Audited Audited
R`000 R`000
Cash flows from operating (977) 141
activities
Cash flows from investing (656) (1 214)
activities
Cash flows from financing 2 145 315
activities
Net movement in cash and cash 512 (758)
equivalents
Cash and cash equivalents at (3 389) (2 631)
beginning of period
Cash and cash equivalents at end of (2 876) (3 389)
period
Statements OF CHANGES IN EQUITY
Share Share Non- Accumulated Total
capital premium distributable Profit R`000
R`000 R`000 reserve R`000
R`000
Balance at 1 5 453 15 353 14 510 (15 962) 19 354
Jul 2006
Prior period - 14 510 (14 510) - -
adjustment
Restated 5 453 29 863 - (15 962) 19 354
balance at 1
Jul 2006
Issue of 300 600 - - 900
shares
Net profit - - - (1 618) (1
(loss) for 618)
the period
Balance at 1 5 753 30 463 - (17 580) 18 636
Jul 2007
Issue of 200 400 - - 600
shares
Net profit - - - (7 489) (7
(loss) for 489)
the period
Balance at 5 953 30 863 - (25 069) 11 747
30 Jun 2008
Segment results
12 Months 12 Months 12 Months 12 Months
ended ended ended ended
30 Jun 30 Jun 30 Jun 30 Jun
2008 2008 2008 2008
Avondale Creamstar Eliminated Group
R`000 R`000 R`000
R`000
Income Statement
External sales 44 380 15 039 59 419
Internal segment 983 135 (1 118) -
sales
Total Revenue 45 363 15 174 (1 118) 59 419
Results (4 002) (4 175) - (8 177)
(568)
Unallocated
expenses
Interest received 2
Interest expense (1 198)
Taxation 2 452
Results (7 489)
Balance Sheet
Segment assets 23 841 13 404 (10 000) 27 245
Unallocated assets 5 270
Consolidated 32 515
assets
Segment (8 880) (16 916) 10 000 (15 796)
liabilities
Unallocated (4 973)
liabilities
Consolidated (20 769)
liabilities
Net capital (95) (17) - (112)
additions
Depreciation 1 157 1 409 - 2 566
Other Income 150 246 - 396
Segment results
12 Months 12 Months 12 Months 12 Months ended
ended ended ended 30 Jun 2007
30 Jun 30 Jun 30 Jun Group
2007 2007 2007 R`000
Avondale Creamstar Eliminated
R`000 R`000 R`000
Income Statement
External sales 37 969 28 244 66 213
Internal segment 2 047 264 (2 311) -
sales
Total Revenue 40 016 28 508 (2 311) 66 213
Results 747 (2 077) - (1 330)
Unallocated ( 520)
expenses
Interest received 21
Interest expense (826)
Taxation 1 037
Results (1 618)
Balance Sheet
Segment assets 26 668 16 492 (8 882) 34 278
Unallocated assets 2 825
Consolidated 37 103
assets
Segment (6 884) (15 030) 8 882 (13 032)
liabilities
Unallocated ( 5435)
liabilities
Consolidated (18 467)
liabilities
Net capital 1 243 (530) - 713
additions
Depreciation 991 1 452 - 2 444
Other Income - 69 - 69
COMMENTARY
Basis of preparation
The abridged audited results for the 12 months ended 30 June 2008 (prepared in
accordance with IAS 34 - Interim Financial Reporting) have been prepared in
accordance with accounting policies consistent with International Financial
Reporting Standards, the Companies Act, 1973 (Act 61 of 1973), as amended and
the disclosure requirements of the Listings Requirements of the JSE Limited and
with those applied in previous periods.
The results have been audited by PKF (Pretoria) Inc, whose unqualified audit
report is available for inspection at the company`s registered office.
Results
Overview
The company`s loss on ordinary activities for the year amounted to (R7 488 600)
(2007: (R1 618 384)), after adjusting for taxation of (R2 451 807) (2007 (R1 036
831)).
Revenue for the group decreased by almost 10% year on year and is attributable
to:
The Creamstar segment revenue decreasing by more than 40%. The sales from
supermarket contracts that were terminated, made up approximately 35% of the
Creamstar segment revenue. Furthermore, unfortunate break downs on the
Creamstar facility resulted in revenue lost during December 2007 and January
2008. The estimated revenue loss from plant disruptions was approximately 8%
of the Creamstar segment revenue for the year.
During the year the company experienced volatile raw material price hikes due to
local and international market instabilities. Certain raw materials increased
by more than 60% in the last 12 months. This coupled with the markets inability
to absorb price increases as quickly as the raw material costs have increased
has lead to lower gross profit margins.
The Avondale segment revenue increased by nearly 17% year on year and was
largely due to the increase in revenue from contract packing. Price increases
were obtained from multinational customers late in the 2008 financial year.
Although the selling prices were adjusted to take into account the increased raw
material costs some of the raw material costs had to be absorbed by Milkworx
despite price adjustments made in response to this.
The financial year ended 30 June 2008 was the first full year of trading after
the company terminated unprofitable supermarket contracts and closed the Alrode
depot.
The gross profit percentage for the group decreased from 23.6% for the year
ended 30 June 2007 to 10.4% for the year ended 30 June 2008.
The group operating expenditure decreased by 12.5% for the year ended 30 June
2008. This is in line with management`s objective of cutting unnecessary costs
and streamlining operations.
The group`s losses were partly financed by acquiring a short term loan of R
2,000,000 shortly after year end. These funds were utilised to settle creditors
and the purchase of raw materials in order to increase production levels and
ultimately revenue. Production on the Creamstar segment doubled after the cash
flow injection.
Impact on cash flow
The group had a negative cash flow from operating activities and can be
attributed to the decrease in revenue while the cost of raw materials and
overheads increased considerably during the 2008 financial year.
The cash outflow from investing activities was due to the investment in plant
and equipment.
* The Avondale facility invested in new hot water boilers and associated pipe
work as well as additional cooling units to improve the efficiency of
production and the freezing capacities as required by contract packing
clients.
* Yogurt mixing tanks were acquired to produce yoghurt and drinking yoghurt
products.
* The installation of equipment for the recovery of cream was successfully
completed and is running well.
The cash inflow from financing activities was generated by the issue of shares
for cash in the amount of R 600 000. Net loans of R 1 545 269 were raised
for the period ending 30 June 2008.
The additional overdraft facilities obtained from Absa Bank Limited in the prior
financial year, to the value of R 2,000,000 was repaid at 30 June 2008.
Strategic focus and prospects
The competitive scope of Milkworx will remain Gauteng-based. During the past
two financial years our strategic objective has been to identify areas of
weakness within the organisation and to address these in the appropriate manner.
Some of the actions taken have realised immediate benefits, whereas others will
be of a more intermediate to long term nature. Nevertheless, management are of
the view that these collective changes will lead to the long-term sustainability
and profitability of the company.
The strategic focus will be to increase the competitive positioning of the
Company. This will be achieved by differentiating ourselves through the quality,
service and value of our product offerings.
After review of the company`s operational and control procedures, areas have
been identified where due to the restructuring of the operations, duplications
and inefficiencies could be eliminated. Significant cost advantages will be
achieved by overhauling the value chain in the following areas:
* The merging of certain Avondale functions with the Creamstar facility.
This will help to curtail the outbound logistics costs. The Avondale plant
will focus on contract packing manufacturing and producing milk related
products. Creamstar operation will be producing ice cream for the
wholesale, catering, informal and hawker sector of the market. These
changes involved the retrenchment of staff,thereby reducing the work force
by roughly 20%. These retrenchments were successfully negotiated with the
respective unions and finalised in July 2008. Coupled with the
rationalisation was the reduction of factory space and a corresponding
decrease in rental expenses.
* The use of direct-to-end-user sales and marketing approaches through our
factory store outlets. These outlets will allow us to pass on our savings
directly to and to interact directly with consumers. Due to current
constraints, this project has not been initiated; however, once resources
become available this will become a key focus area.
* One of the more long-term objectives of the Company will be to harness the
power of e-business technology, with its unique opportunities to market the
Company`s products and to customise offerings.
* Power factor correctors were installed at the Avondale site, which should
help combat the increase in electricity rates.
Certain multinational companies have stopped producing soft serve, creating an
opportunity to increase our market share. Milkworx started exploiting this
opportunity towards the end of the 2008 financial year.
In line with prospects as previously reported, the company has secured a new
contract packing agreement with a client that operates nationally. This contract
was secured by the Avondale segment in February 2008 and was operational for the
4 months up to 30 June 2008. Subsequent to year end management has secured
another contract packing customer and the first delivery took place in August
2008. Management will continue to explore new contract packing opportunities.
Continuous improvements
Milkworx is committed to the production of food products that are of a
consistently high quality. Through service excellence the company will strive to
become the supplier of choice in the ice cream and related industries. To
achieve this, empowerment and performance-based management of our human
resources will be a priority.
The company will investigate the use of new technology that will allow for the
production of more cost effective products.
Financial and operational goals
While growth will remain the key focus area as a means to increase our market
value, restoring the profitability of the company, will be our main objective.
Our immediate objectives include the following:
* To achieve a sustainable growth in unit sales, the Company will need to
obtain working capital and invest in assets to support these higher sales
levels.
* Enhanced stock control through the installation of surveillance systems,
covering both plant and fleet management.
* Increased focus on corporate governance and compliance.
Post balance sheet events
Subsequent to year end the company has undertaken the following actions:
(i) The Avondale operational functions were merged with that of that of
Creamstar, basing all these operations at the Creamstar facility. This
resulted in certain staff becoming redundant and retrenchment procedures
were implemented;
(ii) an agreement was entered into with a strategic investor who will subscribe
for 266 666 667 shares in the Company at a subscription price of 2.25 cents
per share. As part of the agreement, the CEO and Operations director have
agreed to the capitalisation of their shareholders` loan accounts amounting
to a combined R4,7 million at a price of 2 cents per share; and
(iii)a sale of shares and settlement of loan account agreement ("the agreement")
has been concluded in terms of which the company will repurchase 139 789
205 shares from the liquidators of South African Horticultural Technologies
Limited ("the liquidators of SA Horticultural Technologies") and 68 888 994
shares from the Trustees of the Insolvent Estate The Cruickshank Industrial
Trust. Both of these blocks of shares were indirectly controlled by Angus
Cruickshank, the previous chairman of Milkworx and the repurchase of these
shares removes a substantial uncertainty with regard to the control of the
Company. The agreement furthermore provides for the settlement of a loan
account of R1 000 000 in favour of the liquidators of Continental Brands
Limited and the settlement of a loan account of R250 000 in favour of the
liquidators of SA Horticultural Technologies. The combined purchase price
in respect of the repurchase of the shares and the settlement of the loan
account is R4 million plus interest thereon. Shareholders are referred to
the separate announcement in respect of these transactions, to be released
on SENS in due course.
Dividends
No dividends were declared during the year and none are recommended.
Contingencies and commitments
There has been no change in the status of the contingent liabilities since the
30 June 2008.
Directors
Dr HR Grimmer was appointed to the board with effect from 2 January 2008 in the
capacity of Non-executive director and Chairperson.
Auditors
During the year, Jan Erasmus auditors resigned as auditors to the Company and
PKF (Pta) Inc. were appointed as auditors in accordance with section 273 of the
Companies Act.
By order of the Board
14 October 2008
Johannesburg
Directors
H Grimmmer (Chairperson)*, SA Roux (Chief Executive Officer),
P van Heerden (Financial Director),
T Dajcar, A Stander*.
(* Non-executive)
Company Secretary Registered Office
M van den Berg 167 Alumina Street,
Silvertondale, Pretoria
Designated Advisor Transfer Office
Arcay Moela Sponsors (Pty) Ltd Computershare Investor
Services (Pty) Ltd
Date: 14/10/2008 16:55:31 Produced by the JSE SENS Department.
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