| Mon 17 Oct 2011, 16:00 | | RAR - RARE Holdings Limited - Reviewed provisional financial results for the |
|
RAR
RAR
RAR - RARE Holdings Limited - Reviewed provisional financial results for the
12 months ended 30 June 2011
RARE Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 2002/025247/06)
Share Code: RAR ISIN: ZAE000092714
("RARE" or "the company" or "the group")
REVIEWED PROVISIONAL FINANCIAL RESULTS FOR THE 12 MONTHS ENDED 30 JUNE 2011
Consolidated statement of comprehensive income
Reviewed Audited
12 Months 12 Months
June 2011 June 2010
R`000 R`000
Revenue 315 165 392 554
Cost of Sales (261 951) (304 925)
Gross Profit 53 214 82 629
Other Income 51 970 3 401
Operating Expenses (152 956) (122 861)
EBITDA (52 079) (36 831)
Depreciation and amortisation (5 897) (7 138)
Investment Income 2 261 2 223
Finance Costs (17 571) (17 682)
Loss before taxation (68 981) (59 428)
Income tax 2 038 6 233
Loss for the year from continuing operations (66 943) (53 195)
Loss for the year from discontinuing (58 464) (15 969)
operations
Attributable to:
Equity holders of the parent (91 430) (58 070)
Non-controlling interest (33 977) (11 094)
Weighted average number of ordinary shares in 104 091 88 750
issue
Loss per ordinary share (cents) (basic and (87.84) (65.43)
diluted)
Reconciliation of headline earnings
Loss attributable to equity holders of the (91 430) (58 070)
parent
Impairment of goodwill 5 284 29 573
Impairment of loans receivable 59 724 -
Impairment of investment 64 -
Profit on disposal of Angolan entities (35 867) -
Loss on disposal of property, plant and 72 -
equipment
Headline loss attributable to ordinary (62 153) (28 497)
shareholders
Headline loss attributable to ordinary (24 487) (4 875)
shareholders from discontinuing operations
Headline loss per share from continuing (36.19) (26.62)
operations
Headline loss per share from discontinuing (23.52) (5.49)
operations (basic and diluted)
Total headline loss per share from continuing (59.71) (32.11)
and discontinuing operations
Consolidated statement of condensed comprehensive income
Reviewed Audited
12 Months 12 Months
June 2011 June 2010
R`000 R`000
Loss for the year (125 407) (69 164)
Exchange difference on translating foreign 1 523 1 415
operations
Gains/(losses) on property revaluation (2 177) 15 029
Realisation of revaluation reserve on disposal (13 520) -
Taxation related to components of other 625 (4 841)
comprehensive income
Total comprehensive income for the year net of (138 956) (57 561)
taxation
Consolidated statement of financial position
Reviewed Audited
12 Months 12 Months
June 2011 June 2010
R`000 R`000
Assets
Non-current assets
Property, plant and equipment 60 444 96 227
Goodwill 457 6 089
Intangible assets 6 093 11 850
Investment in associates 900 900
Other financial assets 285 662
Deferred taxation 5 671 4 161
Prepayments - 243
73 850 120 132
Current Assets
Inventories 115 321 161 568
Loan to associates 3 189 3 071
Trade and other receivables 106 051 138 606
Other financial assets 10 041 5 224
Construction contracts and receivables 7 745 14 424
Current taxation receivable 2 452 715
Prepayments 243 729
Cash and equivalents 10 504 36 263
255 546 360 600
Total Assets 329 396 480 732
Equity and liabilities
Equity
Share capital 112 876 72 598
Reserves 5 856 15 046
(Accumulated loss)/Retained income (53 181) 38 249
Equity attributable to equity holders of parent 65 551 125 893
Non-controlling interest - (9 312)
65 551 116 581
Liabilities
Non-current liabilities
Loans from minority shareholders in subsidiaries - 2 282
Other financial liabilities 8 132 110 043
Operating lease liability 116 102
Deferred taxation 757 3 923
9 005 116 350
Current liabilities
Trade and other payables 138 214 198 982
Other financial liabilities 113 247 48 344
Current taxation payable 439 439
Operating lease liability - 13
Bank overdraft 2 940 22
254 840 247 801
Total liabilities 263 845 364 151
Total equity and liabilities 329 396 480 732
Net Asset Value per Share (cents) 22.70 43.60
Net Tangible Asset Value per Share (cents) 20.43 37.39
Consolidated statement of changes in equity
Reviewed Audited
12 Months 12 Months
June 2011 June 2010
R`000 R`000
Opening balance 116 581 176 399
Changes in equity
Loss for the year (91 430) (58 070)
Foreign currency revaluation reserve (341) 287
Revaluation reserve (8 849) 8 050
Sale of treasury shares 278 -
Non-controlling interest 9 312 (10 085)
Issue of shares 40 000 -
Total changes (51 030) (59 818)
Closing balance 65 551 116 581
Comprising of:
Share capital 2 886 885
Share premium 109 990 71 714
Foreign currency translation reserve - 341
Revaluation reserve 5 856 14 705
Retained income (53 181) 38 249
Non-controlling interest - (9 313)
Total equity 65 551 116 581
Consolidated cash flow statement
Reviewed Audited
12 Months 12 Months
June 2011 June 2010
R`000 R`000
Cash flows from operating activities
Cash generated from/(used in)operations (721) 28 732
Interest income 6 346 2 181
Dividends received - 42
Finance costs (13 314) (18 793)
Tax received/(paid) 1 749 (4 605)
Net cash from operating activities (5 940) 7 557
Cash flow from investing activities
Purchase of property, plant
and equipment (3 641) (2 813)
Sale of property, plant and equipment 295 201
Purchase of other intangible assets (4 547) (1 292)
Loans advanced to group companies (20 148) (23 631)
Loans to group companies repaid 906 -
Sale of other financial assets 13 150 1 803
Purchase of other financial assets (39 992) (109)
Net cash from investing activities (53 977) (25 841)
Cash flows from financing activities
Proceeds from share issue 40 000 -
Proceeds from other financial liabilities 3 495 -
Repayment of other financial liabilities (4 408) (6 385)
Proceeds from loans from minority shareholders - 349
Net cash from financing activities 39 087 (6 036)
Total cash movement for the period (20 830) (24 320)
Cash at the beginning of the period 28 393 52 713
Total cash at end of the period 7 563 28 393
Condensed segmental information - primary segment report business segments
For the twelve months ending 30 June 2011 (Presenting segments as in prior
years)
R`000 Energy Water Chemi- Invest- Total Discon-
cals ment contin- tinued
uing oper- operations
ations Angola
Total 223 520 31 166 61 562 4 060 320 308 50 284
revenue
Inter- (1 083) - - (4 060) (5 143) -
segmental
revenue
External 222 437 31 166 61 562 - 315 165 50 284
revenue
Segment (24 380) (3 257) (129) (1 027) (28 793) (56 886)
results
Impairment - - - - (5 284) -
of goodwill
Profit on - - - - 49 815 -
disposal of
Angola
Impairment - - - - (839) -
of loan to
associate
Impairment - - - - (59 788) -
of other
financial
assets
Write-down - - - - (8 781) -
of stock
Finance cost - - - - (17 571) (1 577)
Investment - - - - (2 260) -
income
Income tax - - - - 2 038 -
expense
Net loss for - - - - (66 943) (58 464)
the year
For the twelve months ending 30 June 2011 (Presenting restructured segments)
R`000 Trading Water Pipeline Invest- Total Discon-
Utili- services ment Contin- tinued
ties uing opera- operations
tions Angola
Total 238 369 16 328 61 561 4 060 320 308 50 284
revenue
Inter- (1 083) - - (4 060) (5 143) -
segmental
revenue
External 237 276 16 328 61 561 - 315 165 50 284
revenue
Segment (23 382) (4 255) (129) (1 027) (28 793) (56 886)
results
Impairment - - - - (5 284) -
of goodwill
Profit on - - - - 49 815 -
disposal of
Angola
Impairment - - - - (839) -
of loan to
associate
Impairment - - - - (59 788) -
of other
financial
assets
Angola write-- - - - (8 781) -
down of
stock
Finance cost - - - - (17 571) (1 577)
Investment - - - - 2 260 -
income
Income tax - - - - 2 038 -
expense
Net loss for - - - - (66 943) (58 464)
the year
For the twelve months ending 30 June 2010
R`000 Energy Water Chemi- Invest- Total contin-Discon-
cals ment uing opera- tinued
tions operations
Angola
Total 300 056 89 234 52 636 3 608 445 534 126 855
revenue
Inter- (45 097) (4 275) - (3 608) (52 980) -
segmental
revenue
External 254 959 84 959 52 636 - 392 554 126 855
revenue
Segment 2 716 (15 026) (1 345) (824) (14 479) (13 168)
results
Impairment - - - - (29 490) -
of goodwill
Finance cost - - - - (17 682) (2 341)
Investment - - - - 2 223 -
income
Income tax - - - - 6 223 (460)
expense
Net loss for - - - - (53 195) (15 969)
the year
BASIS OF PREPARATION
The consolidated financial information for the twelve months ended 30 June 2011
from which these provisional financial statements have been derived has been
prepared in accordance with International Financial Reporting Standards (IFRS),
the AC 500 standards as issued by the Accounting Practices Board, the
interpretations adopted by the International Accounting Standards Board (IASB),
the Listings Requirements of the JSE Limited and the requirements of the South
African Companies Act. These provisional financial results are presented in
compliance with IAS 34 - Interim Financial Reporting and should be read in
conjunction with the annual financial statements for the year ended 30 June
2011. The principal accounting policies used in the preparation of the audited
results for the year ended 30 June 2011 are consistent with those applied for
the year ended 30 June 2010. The financial results have been prepared under the
supervision of the Financial Director Mr. P. Willemse CA (SA).
PROFILE
RARE supplies a comprehensive range of services and products to the fluid
conveyance industry. Services include design, manufacture, installation and
maintenance of pipeline and process plant across all sectors of industry
(particularly oil and gas, mining and local government).
The group`s business operations are carried out in South Africa, Angola and
Zambia and it conducts project work in sub-Saharan Africa.
FINANCIAL RESULTS
It has been another disappointing year for RARE, shown by the poor financial
results with revenue from continued operations down by 19.70% at R315.2m (2010:
R392.5m). Gross margin from continued operations declined to 16.88%
(2010:21.05%). Liquidation of old stock purchased when the Rand was weaker and
a very competitive market contributed to the decline in margin. Sales to a
partnership related to the group of R6.5m were made during the year under
review.
Operating expenses from continuing operations, excluding impairments, decreased
by 16.19% to R78.6m (2010: R93.8m) due to concerted efforts to reduce these.
Included in operating expenses for the year is an impairment of the Angolan
investment and loan account of R59,8m (2010: R0m) as well is an impairment of
goodwill of R5,3m (2010: R29.5m).
An operating loss from continuing operations before tax of R69m (2010: R59,4m)
was recorded for the year and excluding finance cost, investment income,
impairments and the net result of the Angolan business disposal amounted to
R28,8m (2010: R8.8m)
The Angolan investment was exited during the year as explained under Corporate
Activities. The financial results were prepared on the basis that the Angolan
business was discontinued during March 2011 and the prior year results have been
restated for comparative purposes. The loss from the discontinued Angolan
operations amounted to R58,5m (2010: R16m).
During the year under review the group acquired property, plant and equipment of
R3,8m and intangible assets of R4,5m. The addition of intangible assets relates
to the purchase and development of the newly installed ERP system.
Efforts during the year under review to revise the business model and to improve
management capacity, working capital management, processes and operational
efficiencies have clearly not yet materialised as envisaged. Adverse trading
conditions contributed to the underperformance, but an internal focus and
limited working capital resources contributed to the decline. As discussed under
the section dealing with RARE`s funding and restructuring plan, these and other
matters will be given due attention by the Board of Directors and Management to
reposition RARE for profitable and sustainable growth.
OPERATIONAL REVIEW
Trading conditions remained tough during the year with no significant increase
in private or public sector spend realised. RARE`s restructuring program
undertaken in 2010 to bring synergies between the Water, Energy and Chemical
businesses now sees the company operating under three divisions, namely Trading,
Pipeline Services and Water Utilities Services.
The new restructured Trading division covers our Kliprivier, Durban and
Polokwane sales outlets with revenue of R237.3m (2010: R329.1m).
The Pipeline Services division operates out of our Centurion premises and
revenue of R61,6m (2010: R52,6m) was realised. This unit supplies, installs and
commissions pipe systems and pipelines. It operates within RSA with cross border
activities in Botswana, Zambia, DRC and Ghana. The client base is primarily from
the private sector, with pipe rehabilitation offerings making inroads into the
RSA public sector.
The Water Utilities Services division also operates out of our Centurion
premises with revenue amounting to R16,3m (2010: R10,8m). This division operates
primarily in the public sector and has secured long-term contracts with the
Department of Water Affairs (DWA). Project work to both regional and local
municipalities also forms part of the division`s activities. This work is
secured through leveraging our existing contract with DWA and through the
government tender process.
CORPORATE ACTIVITIES
R40m Capital Raising
The company was recapitalised during June 2011 by raising equity of R40 million
by way of a subscription by Stafric Investments and Management Services (Pty)
Ltd. Shareholders were offered the opportunity to participate by way of a claw-
back offer. 200 million shares were issued at a consideration of 20 cents each.
Angolan Investment
Efforts to revive the profitability of our Angolan business were not successful
and as a result a decision to exit this market was taken. RARE`s 61%
shareholding was reduced during March 2011 to a 10% effective shareholding in
the Angolan Group, through the sale to an Angolan investor. The new shareholder
provided a $5m cash injection to secure the continuation of the business and
although we will use our best endeavours to recover our investment, the board
deemed it prudent to impair the investment in full.
EVENTS AFTER THE REPORTING PERIOD
In addition to the matters listed under the `Funding and restructuring plan`
below, the claw back offer was concluded in July 2011 whereby applications for
10,342,472 shares were received from shareholders for a subscription price of
R2,1m.
FUNDING AND RESTRUCTURING PLAN
After careful analysis of the budgets and the cash flow forecasts a funding plan
was devised which involves the following:
Debtors financing
RARE`s three year securitisation term loan maturing in October 2011 has
successfully been refinanced.
Stock financing
The company reduced the utilisation of its stock finance facility post year-end
by R29m creating capacity for the continued funding of stock purchases.
Short term loan financing
The company increased its short term secured facility with Mayfair Speculators
(Pty) Ltd to R50 million to fund working capital shortfalls during the remainder
of the financial year.
Additional capital raising
Taking into account the group`s financial position and results, the current
economic climate and the more stringent terms on the refinancing of the debtors`
facility, RARE requires an additional permanent capital injection. The Board of
Directors is in the process of negotiating the underwriting of a permanent
equity raising amounting to approximately R30m with Stafric Investments and
Management Services (Pty) Ltd. The terms and method of the capital raising will
be announced in due course and relevant resolutions to execute the capital
raising will be tabled and voted on at the forthcoming Annual General meeting.
The restructuring programme includes, inter alia:
Termination of unprofitable business units
During the year under review a number of operations were right sized and/or
closed. The Bloemfontein sales outlet was closed whereas the re-engineering of
the Kliprivier operation resulted in a 35% reduction of the workforce. We will
continue to review our business model and take decisive action to ensure that
unprofitable activities are terminated or sold.
Overheads
A concerted effort was made to reduce overheads during the year under review.
There is room for further reduction and we will interrogate each and every cost
item to ensure that our overheads structure is aligned to the level of income
generation.
Human Resources and Manpower
During the year a number of key positions became vacant due to performance
related retrenchments and/or resignations. A number of these positions were
filled after addressing the qualities necessary to manage the changing
environment of both the business and its markets. Key positions filled include
heads of Business Development and the Pipeline Services & Water Utilities
divisions. The financial team was also bolstered. The resultant upgraded skills
levels and experience would allow for the refocus and development of the
business going forward. Remaining vacancies will only be filled where those
positions generate additional income and all existing positions will be reviewed
and redeployed where applicable. Key performance targets have been set for
management and will be monitored on a month to month basis.
Sales and working capital management
A critical review of our market and client base is being undertaken. We will
review our sales strategy, plan and capacity with the view to generate the most
appropriate sales volumes for the business.
Cash flow management is critical to the success of the business. We have
increased our focus on debtors` collection and are reviewing all our existing
product lines to reduce and/or discontinue stock levels to match our marketing
objectives as closely as possible.
Logistics
The execution of our business activities is critical to the success of the
business. Our current logistical costs are too high and we will interrogate
the entire supply chain to improve efficiencies. Non core activities will be
outsourced where relevant and remaining in house activities will be closely
monitored.
Project Management
Project management, particularly in our Pipeline Services division, is another
critical component for the successful execution of our business. All related
systems and procedures will be reviewed to ensure that our objectives, including
cash flow management, are achieved. The planning and deployment of available and
required resources will be managed in line with best practices to optimise
efficiencies.
Systems and processes
The implementation of our ERP system during the year under review was not
without teething problems and disruption to the business. However the system
integrated all our businesses on a single platform and we believe that RARE will
benefit from this in the future. Additional development will be undertaken to
optimise operational, reporting and sales efficiencies.
GOING CONCERN
As a result of the matters as detailed above in the "funding and restructuring
plan" including the refinancing of the debtors book, increased short term loan
and based on RARE`s funding and restructuring plans, operational budget and cash
flow forecasts for the ensuing year, (which are based on the current expected
economic and market conditions), the directors believe that RARE and its
subsidiaries have adequate financial resources for the ensuing financial year
and there is no material uncertainty as to the going concern assumption adopted
in the preparation of the annual financial statements.
PROSPECTS
Difficult trading conditions, compounded by a slower than expected roll out of
Government rehabilitation programs, as well as increased competition will
challenge sales and margin expectations. On a more positive note, our Pipeline
Services division is experiencing buoyant trading conditions in Africa which are
expected to contribute to our financial results.
Although it will take some time to bed down RARE`s funding and restructuring
plans the board believes that the benefit thereof will start flowing through to
the bottom line during the second half of the financial year.
REVIEW CONCLUSION
These results have been reviewed by our auditors, Greenwoods, and their
unqualified review conclusion is available on request from the financial
directors at the company`s registered office. Any reference to future financial
performance included in this provisional report has not been reviewed or
reported on by the company`s auditors.
CHANGES TO THE BOARD OF DIRECTORS AND BOARD COMMITTEES
Messrs. MG Meehan and AZ Dlamini and Mrs. S Masinga resigned as non-executive
directors from the board with effect from 11 November 2010.
Don Ncube resigned as non executive director and chairman of the board with
effect from 23 August 2011 after serving in the position for 7 years and playing
a prominent role in growing the group during this time. He remains a
shareholder of the company and has offered his continued support to the group.
The board of directors would like to thank him for his contributions during all
these years and wish him well in his future endeavours.
Messrs. P du Plessis and H Odendaal (9 November 2010), T Siyolo, MT Lategan and
SJDT Potgieter (24 August 2011) were appointed as non executive directors to the
board.
Theunie Lategan has succeeded Don Ncube as chairman of the board.
The board has decided to reconstitute its sub-committees as follows:
Audit Committee
Mr. P du Plessis (chairman)
Mr. H Odendaal
Mr. SJDT Potgieter
Remuneration, Transformation and Sustainability Committee
Dr. MT Lategan (chairman)
Mr. T Siyolo
Mr. P du Plessis
Mr. WR Somerville resigned as company secretary, PJ Willemse was appointed
temporarily as the company secretary and Mr. R Viljoen was appointed with effect
from 24 August 2011.
These reviewed provisional results will be posted to shareholders on 17 October
2011, the notice for the AGM will be sent out in due course and the annual
report will be included therein.
On behalf of the board
Dr MT Lategan DE Scheepers
Chairman CEO
17 October 2011
Corporate information
Directors:
Dr MT Lategan (Chairman), DE Scheepers (CEO), PJ Willemse (FD),H Odendaal (Non-
executive), SJ du Toit Potgieter (Non-executive), T Siyolo (Independent Non-
executive) P du Plessis (Independent Non-executive)
Registered Offices:
22 Old Vereeniging Road, Kliprivier, Midvaal, 1870
Transfer Secretaries:
Computershare Investor Services (Proprietary) Limited
70 Marshall Street, Johannesburg 2001
(PO Box 61051, Marshalltown, 2107)
Designated Advisor:
PSG Capital (Proprietary) Limited
Company Secretary:
R Viljoen
Date: 17/10/2011 16:00:02 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
