| Thu 22 Dec 2011, 12:07 | | KIR - Kairos Industrial Holdings Limited - Consolidated Reviewed Interim |
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KIR
KIR
KIR - Kairos Industrial Holdings Limited - Consolidated Reviewed Interim
Results for the six months ended 31 August 2011
KAIROS INDUSTRIAL HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1987/002927/06)
Share code: KIR??ISIN: ZAE000011284
("Kairos" or "the Group")
Consolidated reviewed interim results for the six months ended 31 august
2011
OVERVIEW OF RESULTS
The Group has had an extremely poor first half of the year as is borne out
in the results below. It has been mentioned in previous reports that the
Group faced major challenges and constraints in achieving an acceptable
result in the short term primarily due to the performance of its
subsidiary, Brokrew Industrial (Pty) Limited ("Brokrew"). Brokrew`s
cancellation of the Medupi Contract due to a dispute with its contractor,
Kentz SA (Pty) Limited, has had damaging effects on its working capital,
resulting from very material write-offs of both debtors and inventories.
This position was exacerbated in July 2011 when the metal industries
workers embarked on a nationwide strike for more than two weeks and Brokrew
was forced to shut down all four of its factories. Resulting from the above
the company`s working capital was severely depleted, affecting its ability
to service orders on hand, and following delays in acquiring additional
funding as anticipated at the time, Brokrew ceased trading during the first
half of August which culminated in Brokrew being put into provisional
liquidation on 30 August 2011. Arising from the above, management control
of Brokrew was lost resulting in the disclosure of its trading for the
period under review as discontinued operations and the deconsolidation of
the Brokrew Group from the statement of financial position.
EFFECT OF THE BROKREW LIQUIDATION
The statements of comprehensive income and financial position reflect
material amounts arising out of the liquidation of Brokrew and the transfer
of liabilities resulting therefrom. The adjustments are notated in the
abridged results and can be summarised as follows;
1. Profit realised resulting from the loss of
control on the liquidated subsidiary
R`000
Total assets R47 675
Total liabilities (R158 439)
Profit realised (R110 764)
2. Kairos Industrial Holdings Limited ("KIH") signed as
guarantor to the facilities of Brokrew in terms of
various arrangements with financiers. The settlement
of these debts post the liquidation of Brokrew will
ultimately be the responsibility of KIH. The Group has
felt it prudent to thus raise the full liability as
the liquidation dividend from Brokrew is currently
unknown. The details of these obligations are as
follows;
R`000
ABSA Bank Limited ("ABSA")* R22 879
Industrial Development Corporation of SA R32 797
Ltd ("IDC")
Total R55 676
*In terms of an interim arrangement with ABSA, KIH
will make twelve monthly instalments of R200 000 with
the outstanding capital being payable on 30 November
2012.
The Group has engaged with the IDC but to date no
formal agreement for the debt restructure has been
reached.
3. Abridged details of the discontinued operations
Aug Aug Feb
2011 2010 2011
Revenue 48 748 74 502 152 345
Operating loss before (6 082) (30 843) (25 439)
accounting for the
following;
Investment revenue 291 - 3 761
Fair value adjustments (271) - (984)
Impairment - IRFS 5 re- (12 546) - -
measurement
Finance costs (3 872) (4 268) (12 898)
Loss before taxation (22 480) (35 111) (35 560)
Taxation (83) (10) (7)
Loss - discontinued (22 563) (35 121) (35 567)
operations
4. Provisions
Included in KIH Group provisions for this reporting
period are the liabilities that have been guaranteed
by the Group. These liabilities resulted from the loan
defaults by Brokrew.The summary of the amount
reflected in the statement of financial position is as
follows;
R`000
ABSA 22 879
IDC 32 797
Other 3 102
Total 58 778
5. Related parties
In terms of a transaction being negotiated, a deposit
of R3 million has been paid to a related party for the
purchase of the entire issued share capital in a
property company that owns the head office.
Relationships
Ultimate holding company Shefa Equity
Holdings (Pty) Limited
R`000
Related party balances
Loan account - owning to related party 15 328
Brokrew Industrial (Pty) Limited
Related party transaction
Deposit paid to related party
Shefa Equity Holdings (Pty) Limited 3 000
OTHER OPERATIONS
There continue to be positive signs in the trading of the Group`s brick
manufacturing businesses, where improved uptake and market penetration has
taken place with the builder`s retail stores and confidence gained amongst
the smaller home builders and developers, the target markets for these
businesses. This division has shown a 19,1% increase in revenue, but more
importantly a 37% improvement in gross profit arising from streamlined
production activities and a decrease in waste due to minimising the clamp
facilities.
During the period, the coal division obtained six mining permits allowing
it to exploit two small reserves in Witbank. Although mining commenced in
May, this has been frustrated by flooding from underground reservoirs and
burning of the coal seam, neither of which was anticipated or discovered
when the initial prospecting of these reserves was done. Consequently the
yields and volume of coal mined were significantly lower than initially
forecast for the period resulting in a marginal contribution to the Group`s
earnings and cash flow.
There continues to be interest shown in the Group`s township development
land, however in the period under review this has been limited to
discussions regarding potential offers that will require further
investigation before final agreements can be negotiated.
The Group has also entered into negotiations with a related party to
acquire the shares of a company that owns the head office property which is
currently being rented. This should have a positive impact on operational
cash flows and return on assets.
The results of the greater Group for the period under review are affected
by the liquidation of Brokrew and the raising of liabilities taken over by
the Group resulting from cross sureties provided to Brokrew financiers, as
well as the profit realised as a result of the liquidation of the company.
However in terms of the continuing operations, revenue has increased by
34,3% from R16,1 million to R21,7 million mainly as a result of the
improved sales in the brick division and to a lesser extent to the coal
operations. The operating profit of R184k compared to an operating loss of
R1,96 million for the comparative period reflects the improved margins
realised in both the brick and the coal divisions.
In terms of the discontinued operations, significant entries have distorted
the results for the period and can be summarised as follows:
Profit realised on the loss of control in the subsidiary or R110,8 million
results from the deconsolidation of Brokrew and the write back of both
assets and liabilities at the date of liquidation.
The loss arising out of the discontinued operation of R22,6 million
represents the loss that has accrued to the Group for the current period
until the liquidation of Brokrew.
Kairos Industrial Holdings Ltd ("Kairos") has signed surety for certain of
the secured debts of Brokrew. As at the reporting date there is no clear
indication of what dividend will accrue to these secured creditors and
consequently Kairos has raised the full obligation in respect of these
debts in the results that have been reported.
The effects of the above translate into a net profit after taxation of
R36,3 million, which represents a profit per share of 16,02 cents, an
increase of 32,68 cents from the previous loss of 16,66 cents.
Headline loss per share of 30,24 cents was up 13,60 cents on the previous
loss per share of 16,64 cents.
The financial information on which this interim statement is based
has been reviewed by the group`s auditors.
BASIS OF PREPARATION
The unaudited reviewed Group interim results for the six months ended 31
August 2011 have been prepared in accordance with International Financial
Reporting Standards ("IFRS") except for IAS16, and the information required
by International Accounting Standard 34: Interim Financial Reporting. The
Group`s accounting policies comply fully with the Companies Act, No. 71 of
2008, as amended and the Listing Requirements of the JSE Limited and are
consistent with those applied in the annual financial statements for the
year ended 28 February 2011.
REVIEW OPINION
The auditors, Moore Stephens FFRS Inc. have reviewed the condensed
consolidated interim financial statements for the six months ended 31
August 2011 in terms of ISRE 2410. The auditors modified review report is
available for inspection at the Company`s registered offices. The review
report contains the following qualified review opinion paragraphs:
"The Brokrew Group of subsidiaries have been placed under liquidation on 30
August 2011. This resulted in all of the subsidiaries assets, including the
operating premises where the accounting records have been kept, being
placed under sequestration, which lead to a limitation of scope on the
review engagement. As a result we were not able to complete our review of
the accounting records of these subsidiaries, reflecting a loss for the
year of R22,563 million, nor could we assess the reasonableness of the
R110,764 million profit on loss of control of the subsidiaries included in
the interim financial information. We were also unable to assess the
correct re-measurement of the assets of the discontinued operations in
terms of IFRS 5. We therefore cannot determine the reasonableness of the
earnings and head-line earnings per share due to the significance of these
balances. Another result of these subsidiaries having been placed under
liquidation, are provisions amounting to R55,676 million that had to be
assumed by the Group, as they acted as guarantor on behalf of the
subsidiaries. Management made their best endeavour to estimate a provision
for the possible debt owing due to the guarantees provided, but we were
unable to satisfy ourselves as to the valuation and completeness of the
provision. Had we been able to complete our review of the accounting
records of the subsidiaries, matters might have come to our attention
indicating that adjustments might be necessary to the interim financial
information.
We draw attention to the fact that the abridged statement of financial
position indicates that the Group has an accumulated loss of R237,256
million (2011:R273,483 million) for the 6 months ended 31 August 2011 and,
as at that date, the group`s total liabilities exceeds its total assets by
R21,051 million (2011: R56,492 million). In addition to this we draw
attention to the directors` notes regarding other operations, prospects and
going concern and contingencies which indicate the existence of a material
uncertainty that may cast significant doubt on the Group`s ability to
continue as a going concern and therefore the Group might be unable to
realise its assets and discharge its liabilities in the normal course of
business. The interim results do not fully disclose this fact.
The group has elected to use the revaluation model in terms of IAS 16 for
plant and equipment. IAS 16 states that the assets should be revalued with
sufficient regularity to ensure that the carrying amount does not differ
materially from the fair value. During the review it came to our attention
that the plant and equipment were not revalued with sufficient regularity
as determined by IAS 16. Therefore, we could not satisfy ourselves as to
the accuracy and valuation of plant and equipment, depreciation and
revaluation reserve."
The auditors have reviewed the financial information in terms of section
3.18 of the Listings Requirements of the JSE.
REPORTABLE IRREGULARITY
The Group does not have an audit committee that consists of a minimum of
three independent non-executive directors, as required by section 34(2) and
84(1)(c)(ii) of the Companies Act No. 71 of 2008.
DIVIDEND
The Board has resolved that no interim dividend will be declared.
PROSPECTS AND GOING CONCERN
The liquidation of Brokrew, is indeed unfortunate and will place a
significant burden on the rest of the Group in terms of which the
additional liabilities of R56 million being assumed for cross suretyships
provided. The Group has confirmed monthly commitments which it will need to
service and will be reliant on the coal mining and brick manufacturing
operations to do so.
Detailed cash flow forecasts has been performed for the next twelve months
and the Group`s ability as going concern is almost entirely dependent on
the success of the coal mining division as the forecast for the brick
manufacturing division reflects only a small contribution to the Group
overhead. Whilst in the short term monthly revenues are secured as the
Group exploits its smaller reserves in terms of mining permits it has on
hand, the Group in the longer term will be reliant on the success of the
mining right application for its larger reserve. Although management is
relatively confident that the right will be awarded, the actual mining of
this reserve is fraught with challenges in regard to underground water
contamination and purification, cost of surface rights and the risk of
underground fires. These issues still need to be dealt with before any
benefits accrue from the reserve.
Interest has been shown from two parties in respect of the township
development land, however due to the complexity and size of these
developments and a shortage of services in the relevant municipality, it is
doubtful that there will be any meaningful contribution from these
properties in the short to medium term.
There is no doubt that the Group performance will remain under pressure for
some time and management will need to exploit every available opportunity
to secure its viability in the future.
The untimely liquidation of Brokrew also placed the planned delisting
procedures of the Group on hold, however this process has again proceeded
in all earnestness.
CONTINGENCIES AND SUBSEQUENT EVENTS
Arising from the cancellation of the Medupi Contract, the primary
contractor has attempted to call up the performance bond and advance
payment guarantee totaling R50 million. The Group has signed as co-surety
for this debt and together with its insurers, continues to defend this
action vigorously. No dates have been finalised and set down for the
hearings.
Brokrew was placed in final liquidation on the 29 November 2011. At a
boardroom bid on Wednesday, 14 December 2011, the liquidator accepted an
offer of R18 million for the business as a going concern including the land
and buildings. The sale is subject to confirmation on 22 December 2011.
For and on behalf of the board.
WL van Deventer WA Lombard
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(R`000) Notes Reviewed Unaudited Audited
for the for the for the
6 months 6 months 12 months
ended ended ended
31 Aug 31 Aug 28 Feb
2011 2010 2011
Continuing
operations
Revenue 21 700 16 149 35 361
Cost of sales (13 906) (12 261) (23 803)
Gross profit 7 794 3 888 11 558
Other income 632 504 815
Operating costs (8 242) (6 358) (14 185)
Operating 184 (1 966) (1 812)
profit/(loss) before
accounting for the
following:
Investment revenue 57 37 230
Loan impairment (356) - -
Fair value adjustments 5 670 - -
Finance cost (846) (423) (1 271)
Profit on the loss of 1 110 764 - -
control of subsidiary
Surety obligation on 2 (55 676) - -
liquidation of
subsidiary
Profit/(loss) before 59 797 (2 352) (2 853)
taxation
Taxation (1 254) - 15
-?Normal - - -
-?Deferred (1 254) - 15
Net profit/(loss) for 58 543 (2 352) (2 838)
the period from
continuing operations
Discontinued
operations
Net loss for the 3 (22 563) (35 121) (34 583)
period from
discontinued
operations
Profit/(loss) for the 35 980 (37 473) (37 421)
period
Other comprehensive
income
Taxation related to - - -
components of other
comprehensive income
Gain on revaluation of 514 - (1 120)
property, plant and
equipment
Taxation thereon (144) - 158
Other comprehensive 370 - (962)
income for the period
Total comprehensive 36 350 (37 473) (38 383)
income/(loss) from
continuing operations
Total comprehensive
profit/(loss)
attributable to:
Owners of the parent 36 350 (37 473) (38 383)
Reconciliation of
headline loss
Profit/(loss) after 35 980 (37 473) (37 421)
taxation
Profit on disposal of - - 55
fixed assets/reversal
provision
Net profit from the (110 764) - -
loss of control in
subsidiary
Impairment - IFRS 5 re- 12 546 - -
measurement
Fair value adjustment (5 670) - -
Headline loss (67 908) (37 473) (37 366)
Weighted average number of 224 554 224 554 224 554
shares (000`s)
Headline loss per share (30,24) (16,69) (16,64)
(cents)
Profit/(loss) per 16,02 (16,69) (16,66)
ordinary share (cents)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(R`000) Notes Reviewed Unaudited Audited
as at as at as at
31 Aug 31 Aug 28 Feb
2011 2010 2011
ASSETS
Non-current assets 60 397 93 468 91 729
Investment Properties 34 313 28 913 28 913
Property, plant and 26 084 62 055 60 316
equipment
Intangible assets - 2 500 2 500
Current assets 13 288 38 797 35 070
Inventories 3 510 10 532 11 266
Current tax receivable - 54 84
Trade and other 3 928 25 114 17 837
receivables
Deposit - share 5 3 000 - -
purchase transaction
Mining and exploration - 331 -
assets
Cash and cash 2 850 2 766 5 883
equivalents
TOTAL ASSETS 73 685 132 265 126 799
EQUITY AND LIABILITIES
Stated capital and (21 051) (56 492) (57 401)
reserves
Non-current liabilities 6 152 69 491 70 771
Other financial 383 59 066 62 714
liabilities
Finance lease - 4 265 2 068
obligations
Deferred taxation 5 769 6 160 5 989
Current liabilities 88 584 119 266 113 429
Other financial 16 833 30 237 48 034
liabilities
Finance lease 145 8 184 3 213
obligations
Trade and other 10 934 66 581 45 736
payables
Provisions 4 58 778 5 670 6 838
Bank overdraft 1 894 8 594 9 608
TOTAL EQUITY AND 73 685 132 265 126 799
LIABILITIES
Weighted average shares
(000`s)
Shares in issue (000`s) 224 554 224 554 224 554
Net asset value per (9,37) (25,16) (25,56)
share (cents)
Net tangible asset (9,37) (26,27) (26,68)
value per share (cents)
STATEMENT OF CHANGES IN EQUITY
(R`000) Stated Revalua Convert-
Capital -tion ible
reserve instru-
ments
reserve
Balance as at 01 September 2009 200 741 12 935 460
Total comprehensive - 5 553 -
income/(loss) for the period
Realisation of revaluation - (1 418) -
reserve through use
Realisation of revaluation - (1 280) -
reserve through sale
Balance as at 01 March 2010 200 741 15 790 460
Total comprehensive
income/(loss) for the period
Realisation of revaluation - (169) -
reserve through use
Balance as at 01 September 2010 200 741 15 622 460
Total comprehensive - 963 -
income/(loss) for the period
Realisation of revaluation - (169) -
reserve through use
Balance as at 01 March 2011 200 741 14 490 460
Total comprehensive income for - 370 -
the period
Realisation of revaluation - (167) -
reserve through use
Realisation of revaluation - (6 669) -
reserve through loss of control
Balance as at 31 August 2011 200 741 8 024 460
(R`000) Total Accumu- Total
Reserves lated share-
losses holders
equity
Balance as at 01 September 13 395 (157 258) 56 878
2009
Total comprehensive 5 553 (81 450) (75 897)
income/(loss) for the period
Realisation of revaluation (1 418) 1 418 -
reserve through use
Realisation of revaluation (1 280) 1 280 -
reserve through sale
Balance as at 01 March 2010 16 250 (236 010) (19 019)
Total comprehensive - (37 473) (37 473)
income/(loss) for the period
Realisation of revaluation (169) 169 -
reserve through use
Balance as at 01 September 16 082 (273 315) (56 492)
2010
Total comprehensive - 223 223
income/(loss) for the period
Realisation of revaluation (169) 169 -
reserve through use
Balance as at 01 March 2011 14 950 (273 092) (57 401)
Total comprehensive income for 370 35 980 36 350
the period
Realisation of revaluation (167) 167 -
reserve through use
Realisation of revaluation (6 669) 6 669 -
reserve through loss of
control
Balance as at 31 August 2011 8 484 (230 276) (21 051)
SEGMENTAL ANALYSIS
(R`000) Brick Mining & Property & Group
enterprises supplies investment
divisions
Six months to
August 2011
Continuing
operations
Turnover 17 811 3 889 - 21 700
Net profit/(loss) 2 150 754 (2 720) 184
before interest
and tax
Interest received - 57 - 57
Finance cost (846) - - (846)
Surety obligation - - (55 676) (55 676)
on subsidiary
liquidation
Profit on loss of - - 110 764 110 764
control
Revaluation of PPE 370 - - 370
Fair value - - 5 670 5 670
adjustments
Loan impairments - - (356) (356)
Income tax (550) - (704) (1 254)
(expense)/credit
Net profit for the 1 124 811 56 978 58 913
period
Discontinued
operations
-Operations - (22 563) - (22 563)
Net profit/(loss) 1 124 (21 752) 56 978 36 350
for the period
Total assets 36 139 1 765 35 781 73 685
Total liabilities 13 786 3 175 77 775 94 736
Depreciation and 519 4 15 538
amortisation
Capital - - 85 85
expenditure
(R`000) Brick Mining & Property & Group
enterprises supplies investment
divisions
Six months to
August 2010
Turnover 15 039 75 612 - 90 651
Net (loss)/profit (298) (31 220) (1 291) (32 809)
before interest
and tax
Interest received - 31 6 37
Finance cost (419) (4 190) (82) (4 691)
Income tax - - (10) (10)
(expense)/credit
Net loss for the (717) (35 379) (1 377) (37 473)
period
Segment assets 49 280 48 489 31 996 129 765
Intangible assets - 2 500 - 2 500
Total assets 49 280 50 989 31 996 132 265
Total liabilities 11 377 169 255 8 125 188 757
Depreciation and 1 464 1 412 71 2 947
amortisation
Capital 96 160 26 282
expenditure
ABRIDGED GROUP CASH FLOW STATEMENT
R`000 Reviewed Unaudited Audited
for the for the for the
6 months 6 months 12 months
ended ended ended
31 Aug 31 Aug 28 Feb
2011 2010 2011
Cash inflows/(outflows) from 9 902 (28 983) (40 460)
operating activities
Cash inflows/(outflows) from (85) (120) -
investment activities
Cash(outflows)/inflows from (5 136) 27 443 40 903
financing activities
Net movement in cash and cash 4 681 (1 660) 443
equivalents
(Overdraft)/Cash and cash (3 725) (4 168) (4 168)
equivalents at beginning of the
period
Cash and cash 956 (5 828) (3 725)
equivalents/(overdraft) at end
of the period
Registered office
1111 Church Street, Hatfield, Pretoria 0083
PO Box 11328, Hatfield 0028, Pretoria?
Tel: +27 (0) 12 342 1980
Fax: +27 (0) 12 3421976
E-mail: info@kairos.co.za
Sponsor Bridge
Bridge Capital Advisors (Pty) Limited, 27 Fricker Road, Illovo Boulevard,
Illovo 2196
Share transfer secretaries
Computershare Investor Services (Pty) Limited, 70 Marshall Street,
Johannesburg 2001
Directors
VD Mazibuku (non-executive chairman), WL van Deventer (chief executive), WA
Lombard, DC Jacobs
Visit us at www.kairos.co.za
Date: 22/12/2011 12:07:01 Produced by the JSE SENS Department.
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