| Thu 16 Aug 2001, 0:00 | | Kolosus Holdings Limited - Audited Group Results |
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KOLOSUS Holdings Limited
Registration number 78/00181/06
Audited group results for the year ended 30 April 2001
BACKGROUND TO THE BUSINESS
Kolosus Holdings has investments in red meat production packaging of canned,
processed food products, produces and markets a variety of leathers
including shoe, exotic and automotive leather. The business in size is
almost equally divided between food and leather.
OPERATIONS REVIEW
The group experienced poor results for the past year and has resulted in
losses of R130 million. These losses are due to significant operational and
logistical problems as well as the economic effects of the foot and mouth
disease, significant provisions for closure and rehabilitation costs and
diminution in the estimated values of certain assets.
Kolosus Automotive Leather (KAL) incurred the majority of the losses
suffered by the group. The required transfer of business from King Tanning
to KAL in Ladysmith created disruption and resulted in major losses both
from product returns and stock write downs. Unacceptable poor quality, low
returns on stock utilised, and poor efficiencies added to the losses
incurred. A new management team is now in place and the results for the
first quarter have shown a return to operating profit, with improvements in
all areas of production.
During the financial year Mossop Western continued to make losses and it was
accordingly rationalised. Its Parow plant was closed and merged successfully
with the Wellington Plant. Concentration is now on operating and material
efficiencies, which have been successful. Mossop has returned to
profitability and has made significant reductions in its working capital.
African Hide, in particular its Exotan and Zimbabwean divisions, made
excellent profits over the year.
The food business including fresh meat and the feedlots continued to be
affected by poor meat prices, high weaner prices and curtailment of export
contracts because of the foot and mouth disease. The fresh meat business
broke even for the year. The processed meat plant at Spekenham in the Cape
continued to show losses, despite the launch of new products and an updated
marketing approach. Two of the feedlots have been sold and Spekenham is in
the process of being sold. The fresh meat business has shown a welcome
return to profit in the first quarter of the new financial year.
The past year has destroyed shareholders' wealth and has also created severe
financial constraints as well as customer and supplier concerns. The company
however is not insolvent, has met all its obligations to date and has traded
within its bank facilities. The directors are confident that the new
management appointments made and the steps taken will result in a slow but
measured return to profitability and the generation of positive cash flow.
The group is showing signs of a return to profitability.
CHANGES IN GROUP ASSETS AND IMPAIRMENT PROVISION
During the year assets amounting to R13 m (2000: R35 m) were acquired.
Depreciation amounted to R25 m (2000:
R23 m). A provision for the impairment of assets of R17,5 m has been made in
terms of the required accounting statements.
SOLVENCY AND GOING CONCERN PRINCIPLES
The group remains solvent and with the return to profitability will generate
positive cash flows. The group is dependent on the continued financial
support of its financiers. Our financiers continue to provide facilities on
a basis which is consistent with that of the previous financial year.
COMMITMENTS AND CONTINGENT LIABILITIES
Kolosus has entered into a suretyship agreement with the KwaZulu Finance and
Investment Corporation in respect of future property rentals due by KAL.
These amounts are payable over 8 years amounting to R45,6 m (2000: R50,8 m).
Capital expenditure authorised but not contracted for amounts to R4,3 m
(2000: R5,4 m)
The Seton matter, in the mind of the Kolosus Board, has had an adverse
effect on the automotive leather industry in the RSA. The disputed legal
action instituted by Seton is having an impact on the activities of Kolosus.
The Directors are investigating avenues to bring a speedy and commercially
acceptable resolution to this matter.
In the meantime the alleged claim by Seton against Kolosus (originating from
a court order previously made against Silveroak, a former subsidiary of
Kolosus) is still pending. This alleged claim was previously disclosed at
approximately R100 m. Despite unfavourable views of the Silveroak's
liquidation Commissioner, which is not a judgement, no claim has been proven
against Kolosus. The existence of this alleged claim and its estimated
limits are therefore stated for the reason of prudent disclosure to
shareholders.
AUDIT OPINION
The provisional financial statements were audited by PricewaterhouseCoopers
Inc. Their audit report has been modified as follows:
Emphasis of Matter
Without qualifying our opinion, we draw attention to the following matters
which were discussed in the operations review of the group:
- Seton Claim
As disclosed in the financial results, there are contingent
liabilities with regard to legal action from Seton amounting to R100
million. At this stage of the proceedings it is not possible to determine
the outcome of these actions. No provision was made in the financial
statements for these claims.
- Going Concern
The financial statements have been prepared on a going concern basis.
The group incurred a net loss of R130 million (including provisions against
assets) during the year ended 30 April 2001 and the group is mainly financed
by short term borrowings. The group is dependent on the continued financial
support of its financiers. Because of these factors a risk exists that the
company and group may not be able to continue as a going concern. However
the financiers are currently continuing to provide short term facilities
(mainly overdraft facilities) on a basis which is consistent with that of
the previous financial year.
POST BALANCE SHEET EVENTS
The group has concurred with its financier's requests that in addition to
existing arrangements further of its assets be secured and an additional
facility be granted. This has been done with regard to the assets of Kolosus
Foods (Pty) Ltd. Total assets secured in this regard will amount to R195 m.
Existing assets secured amount to R49,6 m.
BMW has confirmed to the group that it is terminating its contract with KAL.
The BMW decision is regrettable as it is based on perceptions rather than
recent pricing or quality performance. Competing original equipment
manufacturers however have expressed the view that they will continue to
support the group and may even increase their requirements. Negotiations are
continuing to try and persuade BMW to change their view.
FUTURE PROSPECTS
The first quarter of the new financial year has shown a major turnaround
from the previous three quarters. The group has budgeted to make modest
profits in the year ahead and there are initial signs that this is
occurring. The underlying businesses are sound with good markets and
management. The Directors view the future with confidence.
For and on behalf of the Board of Directors
J C Nell
16 August 2001
GROUP INCOME STATEMENT
Audited Audited
12 months 12 months
30 April 30 April
2001 2000
R'000 R'000
Sales 1 284 543 1 347 377
- continuing operations 1 126 051 1 319 289
- discontinued operations 158 492 28 088
Cost of sales (1 170 821) (1 165 232)
Gross profit 113 722 182 145
Sales and administrative expenses (131 947) (149 499)
Impairment charge (17 500) -
Abnormal stock write-offs
and rework costs (54 123) -
Abnormal items (9 608) (5 978)
Loss on sale of discontinuing
operations (215) -
Operating profit/(loss) (99 671) 26 668
Finance costs (30 933) (25 154)
Share of result of associates 849 389
Profit/(loss) before tax (129 755) 1 903
Taxation (272) (397)
Profit/(loss) from ordinary activities (130 027) 1 506
Minority interest (200) (155)
Net profit/(loss) (130 227) 1 351
GROUP CASH FLOW STATEMENT
Audited Audited
12 months 12 months
30 April 30 April
2001 2000
R'000 R'000
Operating profit/(loss)
before interest (99 671) 26 668
Depreciation 24 573 22 596
Goodwill amortisation 900 -
Impairment of investments 540 -
Surplus on disposal of fixed assets (1 730) (1 511)
Foreign exhange differences 628 -
Impairment charge 17 500 -
(57 260) 47 753
Changes in working capital 69 670 (41 094)
Finance costs (30 933) (25 154)
Taxation paid (2 937) (2 653)
Net cash flow from operating activities (21 460) (21 148)
Net cash outflow from fixed asset
acquisitions and investment activities (12 178) (32 850)
(Increase)/decrease in interest-bearing
borrowings and bank (33 638) (53 998)
GROUP BALANCE SHEET
Audited Audited
30 April 30 April
2001 2000
R'000 R'000
Assets
Non-current assets 173 354 204 612
Fixed assets 157 758 187 376
Investments and loans 7 590 9 584
Long-term debtors 8 006 7 652
Current assets 427 438 455 502
Inventories 232 113 288 810
Receivables and prepayments 142 524 145 886
Cash and cash equivalents 52 801 20 806
Total assets 600 792 660 114
Equity and liabilities
Capital and reserves 168 894 301 072
Share capital 5 604 5 604
Share premium 515 718 515 718
Reserves (352 428) (220 250)
Minority interest 432 155
Non-current liabilities 33 304 45 248
Long-term interest-bearing liabilities 19 817 30 229
Retirement benefit obligation 13 344 15 000
Deferred tax liabilities 143 19
Current liabilities 398 162 313 639
Trade and other payables 141 025 125 484
Current tax liabilities 4 493 7 282
Short-term interest-bearing
borrowings 119 120 144 833
Bank overdrafts 122 098 20 340
Provisions 11 426 15 700
Total equity and liabilities 600 792 660 114
Number of shares in issue (million) 560,4 560,4
Earnings/(loss) per share
- basic (cents) (23) 0,24
Earnings/(loss) per share
- diluted (cents) (22) 0,23
Net asset value per share (cents) 30,1 53,7
GROUP STATEMENT OF CHANGES IN EQUITY
Audited Audited
12 months 12 months
30 April 30 April
2001 2000
R'000 R'000
Share capital 5 604 5 604
Share premium 515 718 515 718
Non-distributable reserves 13 488 13 679
Balance at the beginning of the period 13 679 13 679
General reserve (191) -
Accumulated loss (365 916) (233 929)
Balance at the beginning of the period (233 929) (234 780)
Profit/(loss) for the period (130 227) 1 351
Currency translation differences (1 760) (500)
168 894 301 072
