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MKX
MKX
MKX - Milkworx - Abridged Unaudited Interim Financial Results For The Six
Months Ended 31 December 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 UNAUDITED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED
31 DECEMBER 2008
Balance Sheets
Unaudited Unaudited Audited
31-Dec-08 31-Dec-07 30-Jun-08
R`000 R`000 R`000
ASSETS
Non-current 20 800 21 790 21 989
assets
Property, plant 15 532 18 050 16 622
and equipment
Intangible 84 704 110
assets
Deferred 5 184 3 036 5 257
taxation
Current assets 15 982 17 715 10 526
Inventories 6 623 7 427 4 862
Trade and other 6 790 7 910 5 541
receivables
Cash and cash 2 569 2 378 124
equivalents
Total assets 36 782 39 505 32 516
EQUITY AND
LIABILITIES
Capital and 11 276 18 243 11 747
reserves
Share capital 5 952 5 952 5 952
Share premium 30 863 16 354 30 863
Retained (25 539) (18 573) (25 068)
income/(loss)
Non- - 14 510 -
distributable
reserves
Non-current 5 033 3 394 5 084
liabilities
Borrowings 238 836 549
Shareholders 4 795 2 558 4 535
loans
Current 20 473 17 868 15 685
liabilities
Trade and other 12 416 12 096 9 757
payables
Bank overdraft 2 997 2 988 3 000
Provision 259 601 473
Interest 4 801 2 183 2 455
bearing
liabilities
Total equity 36 782 39 505 32 516
and liabilities
Net asset value 1.89 3.06 1.97
per share
(cents)
Net tangible 1.88 2.95 1.97
asset value per
share (cents)
Shares in issue 595 248 595 248 595 248
at period end
(`000)
Income
Statements
Unaudited Unaudited Audited
6 Months ended 6 Months ended 12 Months ended
31-Dec-08 31-Dec-07 30-Jun-08
R`000 R`000 R`000
Revenue 36 956 32 584 59 749
Cost of sales (29 401) (26 913) (53 236)
Gross profit 7 555 5 671 6 513
Other income 410 336 474
Operating (7 685) (6 861) (15 733)
expenses
Profit/(Loss) 280 (854) ( 8 746)
before interest
and taxation
Interest 1 - 2
received
Finance charges (677) (370) (1 197)
Loss before (396) (1 224) ( 9 941)
taxation
Taxation (74) 231 2 452
Loss for the (470) (993) ( 7 489)
period
Reconciliation
between loss
and headline
loss:
Loss for the (470) (993) ( 7 489)
period
(Profit) / Loss (35) - 160
on disposal of
assets
Impairment of - - 568
goodwill
Headline loss (505) (993) (6 761)
for the period
Earnings per
share
information:
Loss per share (0.08) (0.17) (1.26)
(cents)
Headline loss (0.09) (0.17) (1.14)
per share
(cents)
Weighted 595 248 590 206 592 782
average number
of shares
(`000)
Cash Flow
Statements
Unaudited Unaudited Audited
6 Months ended 6 Months ended 12 Months ended
31-Dec-08 31-Dec-07 30-Jun-08
R`000 R`000 R`000
Cash flows from 282 3 224 (977)
operating
activities
Cash flows from (128) (583) (656)
investing
activities
Cash flows from 2 295 138 2 145
financing
activities
Net movement in 2 449 2 779 512
cash and cash
equivalents
Cash and cash (2 877) (3 389) (3 389)
equivalents at
beginning of
period
Cash and cash (428) (610) (2 877)
equivalents at
end of period
Statements
of Changes
in Equity
Share Share Accumulated Total
capital premium Profit R`000
R`000 R`000 R`000
Balance at 5 752 30 463 (17 850) 18 635
1 July 2007
Net loss for - - (7 489) (7 489)
the period
Issue of 200 400 - 600
shares
Balance at 5 952 30 863 (25 069) 11 746
1 July 2008
Net loss for - - (470) (470)
the period
Balance at 5 952 30 863 (25 539) (11 276)
31 December
2008
Segment results
Operating Head office Group
6 Months Ended 6 Months Ended 6 Months Ended
31-Dec-08 31-Dec-08 31-Dec-08
R`000 R`000 R`000
Income
Statement
Revenue
External sales 36 956 - 36 956
Total Revenue 36 956 - 36 956
Results 817 (537) 280
Interest 1
received
Interest (677)
expense
Taxation (74)
Results (470)
Balance Sheet
Segment assets 31 529 5 253 36 782
Consolidated 36 782
assets
Segment (18 150) (7 356) (25 506)
liabilities
Consolidated (25 506)
liabilities
Net capital 177 - 177
additions
Depreciation (1 291) - (1 291)
Other Income 410 - 410
Segment results
Operating Head Group
office
6 Months 6 Months 6 Months
Ended Ended Ended
31-Dec-07 31-Dec- 31-Dec-
07 07
R`000 R`000 R`000
Income Statement
Revenue
External sales 32 584 - 32 584
Total Revenue 32 584 - 32 584
Results (519) (335) 854
Interest received -
Interest expense (370)
Taxation 231
Results (993)
Balance Sheet
Segment assets 36 452 3 053 39 505
Consolidated assets 39 505
Segment liabilities (16 778) (4 484) (21 262)
Consolidated liabilities (21 262)
Net capital additions 584 - 584
Depreciation (1 243) - (1 243)
Other Income 332 - 332
Commentary
1. Group Review
Milkworx manufactures and distributes ice cream and other related
products, both under its own brands, Avondale and Creamstar and as a
contract manufacturer for various multinational companies. Milkworx
recently expanded its product range to include fresh milk, yoghurt,
drinking yoghurt, Maas, dairy blends and fresh cream.
2. Basis of preparation
The unaudited interim financial statements have been prepared in
accordance with International Accountings Standards (IAS) 34: Interim
Financial Reporting. The accounting policies of the company comply in
all material respects with International Financial Reporting Standards
("IFRS") and the Companies Act, 1973. The accounting policies and
methods of measurement and recognition are consistent with those applied
in the previous financial period.
3. Financial and operational overview
The results for the six month period ended 31 December 2008 show a slight
improvement in the company`s performance from the past year. This is
reflected in the 13% increase in turnover, a 53% increase in earnings per
share and a 47% increase in headline earnings per share compared to the
corresponding six month interim period ended 31 December 2007.
The increase in turnover was attributable to price increases, increased
demand in contract packing from existing clients, with volumes increasing
by 6.5% and prices increasing by 5% respectively, the securing of a new
contract manufacturing contract and more favourable weather conditions.
In addition, the company has diversified into other products such as
yoghurt, cream, maas products and softserve ice cream, all of which
products are showing growth.
The growth was, however, limited to the Avondale segment, which showed an
increase of 22% while the Creamstar segment continued is downward trend
with a decrease of 7%.
Cost of sales increased by 9% year on year. Combined with the increase in
turnover, this effectively resulted in gross profit margins increasing by
3% from 17% for the period ended 31 December 2007 to 20% for the period
ended 31 December 2008.
Operating expenses increased by 12%, a larger increase in operating costs
was mitigated by reducing the size of the Avondale facility and merging
certain operations with that of the larger, consolidated and process-flow
controlled Creamstar factory, retrenching staff and installing power
factor correctors to decrease overhead costs.
A cash inflow from operating activities, combined with a short term
shareholder loan, was utilised to increase raw material stock levels,
thereby increasing production at both facilities. During the period
under review the company focused on improving its working capital cycle,
with debtors` days reducing from 89 to 67 days and better controls over
inventories and utilisation thereof. Inventories decreased over the
prior comparative period, despite an increase in volumes, turnover and
input prices.
4. Strategic focus and prospects
As per the previous results announcement, the competitive scope of
Milkworx remains Gauteng-based, and will remain as such whilst the
Company completes the restructuring exercise and consolidates its
operations as referred to below.
During the past two financial years the 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 is of the view that these
collective changes will lead to the long-term sustainability and
profitability of the company.
Following the merger in the previous period of certain Avondale functions
with the Creamstar facility, the management team is investigating the
possibility of merging the factories completely and shutting down the
Avondale facility. This will further reduce rental expenses and outbound
logistics costs.
Going forward, the strategic focus is to increase the competitive
positioning of the Company. This will be achieved through differentiating
the company from its competitors through the quality, service and value
of our product offerings. Initially, service levels will be improved
through harnessing the power of e-business technology, with its unique
opportunities to market the company`s products and to customise
offerings. The company also intends to start focusing on the use of
direct-to-end-user sales and marketing approaches through factory store
outlets, which will enable cost savings to be passed to, and the company
to act directly with, consumers.
4.1 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. To this end, the
board has elected to award share options to three key employees and
shareholders will be requested to approve the granting of these options
at the general meeting of shareholders referred to in the Post balance
sheet events paragraph below.
The company will, furthermore, continue to investigate the use of new
technology that will allow for the production of more cost effective
products.
4.2 Post balance sheet events
Subsequent to year end the company has undertaken the following actions:
A circular has been posted to shareholders, which circular sets out the
resolutions required to be approved in order to implement the following
transactions:
(i) a cash injection of R6 million by a strategic investor who is
subscribing for 266 666 667 shares in the Company at a subscription
price of 2.25 cents per share;
(ii) the capitalisation of directors` loan accounts in the amount of
R4 700 000 at a price of 2.13 cents per share, which will further
reduce the company`s liabilities;
(iii)the repurchase of 139 789 205 shares from the liquidators of South
African Horticultural Technologies Limited ("the liquidators of SA
Horticultural Technologies") at a maximum purchase price of 1.0972
cents per share and 68 888 994 shares from the Trustees of the
Insolvent Estate The Cruickshank Industrial Trust at a maximum
purchase price of 1.0972 cents per share. 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;
(iV) The settlement of a loan account of R1 000 000 in favour of the
liquidators of Continental Brands Limited (in liquidation) 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 millionplus
interest thereon.
collectively, "the Transaction"; and
(v) the granting of options to three key employees of the company, the
approval of the resolution being required to grant such options
being independent of the approval of the resolutions required to
approve and implement the Transaction.
4.2.1 Updated Pro Forma financial effects
The table below illustrates the updated pro forma financial
effects of the Transaction, excluding the granting of options
to key employees, on the financial statements of Milkworx,
reflecting the results for the six months ended 31 December
2008. The pro forma effects included in the circular to
shareholders dated 21 January 2009 illustrate the effects of
the Transaction on the financial statements of Milkworx for the
year ended 30 June 2008. The updated pro forma financial
effects are provided to illustrate the impact of the
Transaction on the company`s latest financial information, the
pro forma earnings figures illustrating the possible financial
effects if the Transaction had been undertaken on 1 July 2008
and the pro forma net asset values figures illustrating the
possible financial effects if the Transaction had been effected
on 31 December 2008.
Unaudited After the Percentage Percentage
results for Transactio Change Change from
the six n the Pro forma
months ended effects
31 December disclosed in
2008 the circular
dated
21 January
2009
Earnings per (0.08) (0.14) 84%
share (75)%
Headline (0.09) (0.14) 82 %
earnings per
share (56)%
Net asset 1.89 2.11 1%
value per
share 12%
Tangible net 1.88 2.10 1%
asset value
per share
12%
Weighted 592 781 772 932 466 60 --
average no. 1
of shares in
issue 57%
No. of shares 595 247 525 934 932 35 --
in issue 4
57%
Notes:
1. The Unaudited results for the six months ended 31 December 2008
column contains the unaudited results for Milkworx for the 6
months ended 31 December 2008.
Balance Sheet
2. The pro forma information assumes that the Transaction and
related issues of shares took place on 31 December 2008 for
balance sheet purposes. The par value per share is 1 cent and
the excess received above par was allocated to the share
premium account.
3. The "After the Transaction" column shows the effect for balance
sheet purposes of:
3.1 the specific issue of 266 666 667 shares for cash to
Hertzog at an issue price of 2.25 cents per share. It has
been assumed that the full amount of R6 000 000 received
for the shares was paid in cash.
3.2 the capitalisation of shareholder loans through the issue
of 220 657 277 shares for cash at an issue price of 2.13
cents per share with the full amount of R4 700 000
received for the shares being offset against the
shareholders loan liability in the balance sheet.
3.3 a specific issue of 61 039 084 shares at 2.13 cents per
share, the full amount of R1.3 million being used settle
costs incurred in relation to the Transaction and the
circular, net of notional taxation at 28%. The
accumulated loss (net of taxation) has been adjusted
accordingly and the taxation credit arising from the
expense has been treated as an amount receivable from
SARS; and
3.4 the repurchase of 208 678 199 shares and the related
settlement of loans based on the repurchased shares being
purchased at a maximum purchase price of 1.0972 cents per
share and a long term liability in the amount of R1 710
368 being extinguished. The full amount of R4 000 000 paid
for the shares and settlement of related loans was paid
from cash and cash equivalents in the balance sheet.
Income Statement
4. For income statement purposes, the pro forma information
assumes that the Transaction and related issues of shares took
place on 1 July 2008.
5. The "After the Transaction" column shows the effect for income
statement purposes of:
5.1 the specific issue of 266 666 667 shares to Hertzog for
cash at 2.25 cents per share on 1 July 2008. It has been
assumed that the amount of R6 000 000 received for the
shares earned no interest income for the period.
5.2 no interest having being earned on the R4 700 000 received
in respect of the capitalisation of shareholder loans
through the issue of 220 657 277 shares for cash at an
issue price of 2.13 cents per share.
5.3 a specific issue of 61 039 084 shares at 2.13 cent per
share at the beginning of the period. It has been assumed
that the full amount of R1.3 million was used to settle
costs incurred in relation to the Transaction, including
the circular to shareholders and operating expenses have
been adjusted accordingly. Notional taxation at 28% was
assumed.
5.4 the repurchase of 208 678 199 shares on 1 July 2008 for a
maximum repurchase price of 1.0972 cents per share.
Interest of R191 238.09 charged in relation to the loans
during the period has been adjusted for, as well as
notional taxation at 28% thereon.
The table below illustrates the updated pro forma financial effects
of the granting of options to key employees on the financial results
of Milkworx for the six months ended 31 December 2008. The pro
forma effects included in the circular to shareholders dated
21 January 2009 illustrate the effects of the granting of the
options on the financial results of Milkworx for the year ended
30 June 2008. The updated pro forma financial effects are provided
to illustrate the impact of the granting of the options on the
company`s latest financial information, the pro forma earnings
figures illustrating the possible financial effects if the options
had been granted on 1 July 2008 and the pro forma net asset values
figures illustrating the possible financial effects if the options
had been granted on 31 December 2008.
Unaudited After the Percenta Percentage
results for granting of ge Change from
the six the share Change the Pro forma
months ended options effects
31 December disclosed in
2008 the circular
dated
21 January
2009
Earnings per (0.08) (0.12) 91%
share (50)%
Headline (0.09) (0.12) 90%
earnings per
share (33)%
Net asset 1.89 1.86 4%
value per
share (2)%
Tangible net 1.88 1.86 3%
asset value
per share (1)%
Weighted 592 781 772 604 781 772 --
average no.
of shares in
issue 2%
No. of 595 247 525 607 247 525 --
shares in 2%
issue
Notes:
1. The Unaudited results for the six months ended 31 December 2008
column contains the unaudited results for Milkworx for the 6
months ended 31 December 2008.
2. The pro forma information assumes that the granting of the
options took place on 31 December 2008 for balance sheet
purposes. The par value per share is 1 cent and the excess
received above par was allocated to the share premium account.
3. For balance sheet purposes, the "After the granting of share
options" column shows the effect of the issue of 12 000 000
shares at 2 cents per share. The full amount of R240 000 is
considered to be an expense for services rendered in terms of
IFRS 2 and accordingly the share based payment reserve has been
adjusted.
4. For income statement purposes, the "After the granting of share
options" column is based on the assumption that 12 000 000
shares were issued at 2 cents per share on 1 July 2008. The
full amount of R240 000 is considered an expense for services
rendered in terms of IFRS 2 and operating expenses have been
adjusted accordingly. No taxation relief has been assumed in
accordance with current taxation legislation.
The pro forma financial effects, which are the responsibility of the
directors, have been prepared for illustrative purposes only and,
due to their nature, may not fairly present Milkworx` financial
position, changes in equity, results of operations or cash flows.
The pro forma financial effects have been reviewed by Nolands
Chartered Accountants (SA) and their report is available for
inspection at the offices of Arcay Moela Sponsors (Proprietary)
Limited.
General Meeting
The general meeting at which the resolutions required to approve
these transactions will be presented will be held at 10h00 on
Thursday, 12 February 2009 at the offices of Arcay Moela Sponsors
(Pty) Ltd, Arcay House II, Number 3 Anerley Road, Parktown,
Johannesburg.
4.3 Proposed Rights Offer
Following the implementation of the transaction, the company will
proceed with a rights offer to shareholders, a circular in respect
of which is expected to be posted to shareholders during
February 2009. The injection of cash into the company by the
strategic investor combined with the proceeds of the rights offer
will improve the working capital available to the company and will
enable the company to invest in assets necessary to support higher
sales levels.
5. Board changes
A Stander, who was previously an executive director, will henceforth
fulfill the role of a non-executive director of the Company. Jacqui
Usher was appointed as an independent non-executive director and
chairman of the audit committee with effect from 05 January 2009.
6. Dividends
No dividends were recommended or declared for the interim period.
For and on behalf of the board
Stephan Roux
Chief Executive Officer
05 February 2009
Directors
H Grimmer (Chairperson)*, SA Roux (Chief Executive
Officer), P van Heerden (Financial Director),
T Dajcar, A Stander* J Usher*.
(* 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: 05/02/2009 17:41:59 Produced by the JSE SENS Department.
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