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BIO
BIO
BIO - Bioscience Brands Limited - Unaudited results for the six months ended 31
December 2008
BIOSCIENCE BRANDS LIMITED
(Formerly Wellco Health Limited)
(Incorporated in the Republic of South Africa)
(Registration Number: 2005/005805/06)
Share code: BIO ISIN code: ZAE000115036
("BioScience" or "the company")
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2008
CONDENSED GROUP INCOME Unaudited Reviewed Audited
STATEMENT 6 months 6 months 16 months
ended ended ended
31 December 31 August 30 June 2008
2008 2007 R
R R
Revenue 38 227 131 3 045 943 27 985 573
Cost of sales (16 585 604) (1 822 517) (11 750 075)
Gross profit 21 641 527 1 223 426 16 235 498
Operating expenses (19 968 959) (6 276 711) (29 398 323)
Impairment of intangible - (788 352) -
assets
Operating profit/(loss) 1 672 568 (5 841 637) (13 162 825)
Net finance costs (1 546 007) (253 838) (1 182 459)
Profit/(loss) before 126 561 (6 095 475) (14 345 284)
taxation
Taxation - - 1 850 119
Net profit/(loss) 126 561 (6 095 475) (12 495 165)
attributable to ordinary
shareholders
CONDENSED GROUP BALANCE Unaudited Reviewed Audited
SHEET 31 December 31 August 30 June 2008
2008 2007 R
R R
ASSETS
Non current assets
Property plant and 764 020 314 981 952 437
equipment
Intangibles assets 52 144 154 13 153 534 42 144 154
Deferred tax asset 451 473 - 451 472
Total non-current assets 53 359 647 13 468 515 43 548 063
Curent assets
Inventories 16 329 556 1 516 253 15 604 661
Trade and other receivables 20 900 304 1 804 285 16 892 094
Cash and cash equivalents 3 151 980 26 363 2 843 212
Total current assets 40 381 840 3 346 901 35 339 967
Total assets 93 741 487 16 815 416 78 888 030
SHAREHOLDER`S EQUITY
Equity and liabilities
Capital and reserves
Issued capital 202 162 9 208 169 305
Share premium 98 077 440 40 100 751 88 110 297
Accumulated loss (47 841 207) (41 568 078) (47 967 768)
Ordinary shareholders 50 438 395 (1 458 119) 40 311 834
equity/(deficit)
LIABILITIES
Non current liabilities
Deferred tax liability - 363 027 -
Loans and borrowings 25 519 2 152 571 25 308
Total non-current 25 519 2 515 598 25 308
liabilities
Current liabilities
Taxation payable 600 537 2 477 466 600 537
Trade and other payables 21 145 946 10 017 669 21 506 636
Short term portion of loans 17 421 423 96 105 13 332 806
and borrowings
Bank overdraft 4 109 667 3 166 697 3 110 909
Total current liabilities 43 277 573 15 757 937 38 550 888
Total Equity and Liabilities 93 741 487 16 815 416 78 888 030
CONDENSED GROUP CASH FLOW Unaudited Reviewed Audited
STATEMENT 6 months 6 months 16 months
ended ended ended
31 December 31 August 30 June 2008
2008 2007 R
R R
Cash flows used in operating (4 778 818) (1 610 449) (13 600 583)
activities
Cash flows from/(used in) (4 911 172) 12 868 (30 136 454)
investing activities
Cash flows from financing 9 000 000 1 499 449 46 511 542
activities
(Decrease)/Increase in cash (689 720) (98 132) 2 774 505
& cash equivalents
Cash & cash equivalents at (267 967) (3 042 202) (3 042 202)
beginning of year
Cash & cash equivalents at (957 687) (3 140 334) (267 967)
end of year
CONDENSED GROUP Unaudited Reviewed Audited
STATEMENT OF CHANGES IN 6 months 6 months 16 months
EQUITY ended ended ended
31 December 31 August 30 June 2008
2008 2007 R
R R
Balance at beginning of 40 311 834 4 637 356 4 637 356
the period
Issue of share capital 10 000 000 - 48 169 643
Profit/(loss) for the 126 561 (6 095 475) (12 495 165)
period
Balance at end of the 50 438 395 (1 458 119) 40 311 834
period
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.
BioScience 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.
EARNINGS, HEADLINE EARNINGS AND NET ASSET VALUE PER SHARE
Unaudited Reviewed Audited
6 months 6 months 16 months
ended ended ended
31 December 31 August 30 June 2008
2008 2007 R
R R
Cents per Cents per Cents per
share share share
Earnings per share
Basic 0.000067 (6.62) (2.80)
Diluted* 0.000030 (6.62) (2.80)
Headline earnings per
share
Basic 0.000070 (5.29) (2.54)
Diluted* 0.000031 (5.29) (2.54)
Net asset (liability) 2.71 (1.58) 2.38
value per share
Weighted average shares in
issue (`000)
Basic 1 892 666 92 083 446 020
Diluted* 4 217 206 92 083 446 020
R R R
Calculation of headline
earnings:
Profit attributable to 126 561 (6 095 475) (12 495 165)
ordinary shareholders
Adjustments for:
Impairment of intangible - 788 352 788 352
assets
Impairment of property, - 431 431 -
plant and equipment
Loss on disposal of 5 322 4 705 360 522
property, plant and
equipment
Headline profit for the 131 883 (4 870 987) (11 346 291)
period
*the diluted per share information shows the full effect of the exercise
of options granted by the company, which options terminate in June, August
and September 2009.
COMMENTS
RESULTS
During the period under review, BioScience Brands Limited, formerly
Wellco Health Limited, has been transformed from the perennial loss making
business that it was prior to the change in the board of directors and the
acquisition of Bioharmony (Proprietary) Limited ("Biohamony") and Aldabri
53 (Proprietary) Limited t/a Muscle Science ("Muscle Science"), to a company
that is now profitable despite a challenging economic environment. This
has been achieved through:
Restructuring the business including the outsourcing of
warehousing, distribution, invoicing and debt collection;
Consolidation of the nearly 20 Bioharmony and Muscle Science
representatives into a homogenous team of professional sales people
calling on customers with the broader BioScience range of brands and
products; Closure of the Bioharmony office and warehousing facility in
Wynberg;The consolidation of the finance and supply chain functions at
the old Muscle Science head office in Durban;Consolidation and formalising
of manufacturing agreements with fewer key suppliers;
Re-launching of the Herbology product range with new formulations and
packaging; andAcquisition of the Phyto Nova brand and business from Thebe
Medicare (Pty) Ltd ("Thebe").
Costs reduced during the period under review, particularly as a result
of the closure of the Wynberg office and warehousing. With the exception
of the rental on the old Wynberg building, which has not been sub-let yet,
the restructuring and its impact was completed by the end of November 2008.
As a result of this new cost structure and a relatively strong sales month,
the December EBIT was R1.3m. Cumulatively the EBIT for the period under
review was R1.7m. Included in this period were once-off costs amounting to
R0.4m that related to the initial transaction as contained in the Circular
to Shareholders, dated 13 August 2008.
The delay in completing the initial transaction and subsequent Rights
Offer, which was only completed at the end of January 2009, has resulted in
the business incurring a large interest expense which relates mainly to the
funding required to complete the acquisition of Muscle Science and Bioharmony.
As planned, funds from the Rights Offer have resulted in this liability being
expunged at the end of January 2009.
Working capital has remained relatively constant except for Trade
Receivables. This is because debts are collected by the service provider
providing warehousing, distribution, invoicing and debt collection services
at month-end and is only reflected in the BioScience accounts after the
collection and allocation to our business. This process normally takes about
4 days after month-end, resulting in a higher debtors balance on 31 December
2008.
BIOHARMONY
Sales in Bioharmony on a comparative basis were 4% ahead of last year -
Bioharmony having sold various non-Bioharmony products and raw materials
in 2007, which were not included in the acquisition. Bioharmony`s costs
have been structurally overhauled during the period under review. This was
completed by the end of November 2008 and the brand still delivered a strong
operating profit during this 6 month period.
A key focus over the last 6 months has been development of new products.
An innovative new product was launched under the Menoclove sub-brand in
order to protect our leadership position in the menopausal supplements market
particularly from private label products. A further 4 new Bioharmony products
will be launched before year-end. Additionally, the business has focussed on
all formulations, claims and cataloguing of supporting clinical studies to
ensure that Bioharmony is a leader in complying with the changing regulatory
environment in South Africa.
MUSCLE SCIENCE
The transition process undergone when outsourcing of the warehousing,
distribution, and invoicing had a particularly detrimental effect on Muscle
Science. Service delivery has been below expectations and has impacted sales.
This has been addressed with the service provider and the stock is now housed
in one warehouse in South Africa - similar to Bioharmony, thereby reducing the
propensity of errors. Additionally, the significant growth in sales to a major
South African retail chain and its stores across Africa, has resulted in a
shift in the mix of products to more entry-level products such as the whey
protein powders, which have lower margins. As a result, sales were almost
exactly the same as last year but profitability has declined. This has been
addressed through the launch of higher margin, re-formulated products, re-
evaluation of the advertising and sponsorship strategy and selective price
increases. .
HERBOLOGY
The `new` Herbology was launched in August 2008. The re-listing of the brand
by the trade was slower than expected with many customers citing the unhappy
experience of poor supply from `old` Wellco resulting in disappointed consumers.
Many therefore adopted a `wait-and-see` approach before agreeing to list the
`new` Herbology. Our largest national customer listed the brand in October
2008 and independent pharmacies have cautiously started following. Listings
are picking up daily. All design and innovation costs were expensed in the
period under review and this together with a lower level of sales than
planned resulted in an operating loss during the period under review.
PHYTO NOVA
The Phyto Nova brand and business was acquired by BioScience Trading
(Proprietary) Limited ("BioScience Trading") from Thebe Natural Medicines
(Proprietary) Limited, a wholly-owned subsidiary of Thebe, with effect
from 2 September 2008. This acquisition formed part of the Thebe empowerment
transaction option as contained in the Circular to Shareholders dated 13
August 2008 and approved by shareholders on 1 September 2008 ("the Thebe
Option"). The R9.0m valuation of the brand was independently determined by
Moore Stephens Corporate Finance (Proprietary) Limited on the same basis on
which Bioharmony and Muscle Science were valued (i.e. the brand must yield
an internal rate of return of 21.3% after tax).
Phyto Nova had developed a number of innovative and unique products which
were in the process of being launched at the time of the acquisition. The
downturn in trading conditions is making it very difficult to encourage
customers to list these new products in an environment in which consumers are
becoming more cash strapped, and stay with tried and trusted offerings rather
than trial innovative, new products. Initial sales were therefore less than
envisaged prior to acquisition and the onset of the global `credit-crunch`.
Advertising support has therefore been delayed until the consumer environment
improves, thereby ensuring that the brand remains at least at break-even in
the interim.
A segmental analysis has not been prepared as the group does not have more
than one segment and operates within South Africa.
DIRECTOR APPOINTMENTS
There were no changes to the Board during the period under review. Subsequent
to the period end, Mr Mark Di Nicola was appointed to the Board in the
capacity of a non-executive director.
CONTINGENCIES AND COMMITMENTS
The group has no outstanding contingencies or commitments that the
directors are aware of.
DIVIDENDS
No dividends have been declared for the period under review.
ACQUISITIONS, DISPOSALS AND ISSUES OF SHARES FOR CASH
During the period under review, shareholders approved the resolutions
required to ratify the acquisition of Bioharmony and Muscle Science and the
specific issue of shares for cash to selected corporations and individuals
and the resolutions required to implement the other aspects of the
restructuring transaction, including the disposal of the intellectual
property rights in respect of the Nutrimax brand, the cancellation of the
licence agreement that had been concluded by the previous board of directors
in respect of the Herbology brand and the re-assignment of the right to use
the Herbology IPR ("the Herbology Licence Agreement"), the specific issue of
shares to directors and management, the granting of an option to directors to
subscribe for zero-cost shares and the granting of an option to Thebe to
subscribe for up to 40% of the share capital of the Company prior to 30
September 2009.
Following the approval by shareholders of the restructuring transaction,
71 428 571 shares were issued to Oxyboost (Proprietary) Limited in respect
of the cancellation of the Herbology Licence Agreement and 176 448 296 shares
were issued to directors and senior management of the company, which shares
are subject to a claw-back should any of the individuals who received shares
not fulfil their contractual obligations to the company (as reflected in the
AFS for the period ending June 2008).
As detailed in paragraph 3.14 above, BioScience Trading, a wholly-owned
subsidiary of the company, acquired the Phyto Nova brand and business in
September 2008 for a purchase consideration of R9 million. The purchase price
was settled through the part exercise by Thebe of the Thebe Option in respect of
the subscription for 257 142 857 shares at 3.5 cents per share.
SUBSEQUENT EVENTS AND FUTURE PROSPECTS
Rights Offer
Subsequent to year end, the company finalised a rights offer in respect
of 7 058 091 808 shares at 3.5 cents per share on the basis of four rights
offer shares for every one BioScience share held. Prior to the opening of the
rights offer, the company secured irrevocable undertakings not to follow their
rights from shareholders holding 6 148 888 298 shares, resulting in a net
rights offer of 909 202 880 shares. The company had sought to obtain such
irrevocable undertakings, as the intention at the time of announcing the
restructuring transaction was that only the former `Wellco Health Limited`
shareholders would be entitled to participate in the rights offer to the
exclusion of those shareholders who had acquired shares in terms of the
specific issue of shares for cash.
BioScience shareholders or their renounces subscribed for 28 296 433
rights shares (including excess applications of 3 961 010 rights shares),
whilst Mr J Black, a director of the company, took up 28 571 429 shares in
terms of an irrevocable undertaking to subscribe for such shares and the
underwriters took up 340 038 310 shares, resulting in a total amount of
R13 891 716 being raised and 396 906 171 new BioScience shares being issued
and listed.
Prospects
Prospects for the group appear promising despite an expected further downturn
in general retail trading conditions. The first week of February was the best
sales-week of the financial year-to-date, at a time when retailers traditionally
de-stock prior to their February year-ends, thereby making it difficult to
predict when the much forecasted further deterioration in general retail
trading conditions is going to impact the nutritional supplements market in
South Africa. The board is, however, confident that the work done to date in
restructuring the business has provided a solid foundation for the future
growth of the group. Furthermore, Bioharmony and Muscle Science are trusted
brands, respected by the trade and consumers alike, and hence are unlikely to
be affected by the expected downturn as much as newer brands in the market.
By order of the Board
J Black MG Allan
Chairperson Chief Executive Officer
12 February 2008
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
J Black Chairman*#, MG Allan (Chief Executive Officer), PA Ireland (Financial
Director), M Strydom, M Di Nicola*, Y Bhayat*.
(*Non-executive #British)
Designated Advisor Transfer Office
Arcay Moela Sponsors (Pty) Ltd Computershare Investor Services
(Pty) Ltd
Date: 12/02/2009 13:23:01 Produced by the JSE SENS Department.
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