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Kolosus - Reviewed Financial Statements For The Year Ended 30 April 2003
Release Date: 14/08/2003 17:00:01 Code(s): KOS
Kolosus - Reviewed financial statements for the year ended 30 April 2003
Kolosus Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1978/000181/06)
Share code: KOS ISIN: ZAE000008504
("Kolosus" or "the Company")
Reviewed financial statements for
the year ended 30 April 2003
REVIEW OF OPERATIONS
In the previous annual report it was anticipated that trading conditions in the
ensuing financial year would allow the Group to achieve similar, if not better
profits to those achieved in the 2002 financial year. At the time of the
presentation of the financial statements for the six months ended 31 October
2002 a R3 million net profit was reported, and accordingly the Group appeared
well set to achieve better than its previous year"s figures. Conditions remained
favourable for the Group until the end of December 2002, and thereafter a
significant change in the trading environment occurred, which coincided with the
continued maintenance of high interest rates, and the substantial strengthening
of the rand. The uncertainty prior to the Iraq war and its subsequent successful
conclusion, if not finalisation, exacerbated the continued downturn in the world
economy. All these factors had a severe effect on the trading of the Kolosus
Group.
In particular the strong rand allowed for the importation of a large amount of
protein, particularly red meat from South America, and this significantly
depressed the prices realised from January/February 2003 onwards. This decline
in the selling price of red meat continued, and at a faster rate than the
decline of the purchase price of weaner stock and the net effect of this was a
significant stock write down in January 2003, and the continued writing down of
stock holding to the end of April 2003. These write downs effectively eliminated
the profit made to the end of December 2002, and created anticipated losses as
was indicated in the profit warning issued by the Group on 13 March 2003. Given
the positive conditions which had occurred up to December 2002, it is indeed
disappointing to record a trading loss at the end of April 2003.
AFRICAN HIDE TRADING (AHT)
The major cause for concern remains the AHT operation, which continued to make
losses in the current financial year. AHT is in difficult circumstances due to
the poor level of turnover in both it"s wet blue and ostrich business. In order
to achieve a turnaround it is necessary for a major cost reduction programme to
be implemented so that processing costs more appropriately line up with
projected throughput. Such a programme was commenced in April 2003, but due to
the long period of negotiations required, it is unlikely that the benefits of
any major cost reductions, particularly in respect of salaries and wages, will
begin to occur before August or September of the current year. Trading currently
remains difficult with turnover and margins under pressure.
KOLOSUS AUTOMOTIVE LEATHERS (KAL)
KAL has in the main traded reasonably profitably given the extent of its
turnover, which can be directly attributed to the negative impact of the
litigation surrounding the Seton claim, particularly the inability of marketing
initiatives to be positively achieved pending the settlement of this claim. The
business has done well under difficult circumstances, and its ability to
generate operating profits on its limited throughput is a significant sign of
its future potential. This will only however be realised over a period of 12 to
18 months as customers regain confidence in the Group.
MOSSOP WESTERN LEATHERS (MWL)
MWL has also achieved reasonable results during the past year, again in
difficult markets. The extent of continued importation of footwear, both legal
and possibly illegal, and particularly the strengthening of the rand, has also
played a significant role in curbing its momentum. Nevertheless, its management
has succeeded in showing operating profits for this period, and anticipate going
forward in a positive manner into the new year.
BULL BRAND FOODS (BBF)
BBF has weathered the storm of declining prices and its position has stabilised
after the stock write down previously mentioned. Despite these write downs its
feedlot and abattoir operations achieved annual operating profits as did its
canning operation, which has now returned to full trading profitability. Prices
however remain depressed, and operating profits, as is the normal cyclical
expectation, will be slow to materialise before October 2003.
BANKING FACILITIES
Towards the end of the financial year Daun & Cie AG ("DCAG") became the Group"s
financier by taking over the liabilities of the Consortium of Banks ("CoB")
under the same terms and conditions as the CoB provided to the Group. All
securities previously held by the CoB were transferred to DCAG, subject to DCAG
finalising its arrangements with the CoB.
IMPAIRMENTS OF FIXED ASSETS
Looking forward to the new year it is becoming abundantly clear that the cash
flows of the Group will be negatively impacted by economic circumstances such as
the strengthening of the rand, the general decline in economic activity world
wide and the time frames required to overcome the debilitating impact of past
litigation. These projected cash flows have resulted in the application of
accounting standards which have resulted in certain of the assets of the Group,
having to be written down in terms of these standards. The net effect of these
write downs is R37,5 million, which is of a non-cash flow nature.
SETON CLAIM
As the DCAG transaction is in place, all conditions precedent having been
fulfilled, the Group has provided fully for the Seton claim of R50 million,
which it is now proceeding to settle. As a result of this all previous
references to the contingent liability in respect of this claim now fall away.
LEASE AND CAPITAL COMMITMENTS
Lease commitments comprise mainly the current lease agreement between Kolosus
Automotive Leathers and Ithala (formerly the KwaZulu National Development
Corporation) payable over 6 years. Rentals outstanding amount to R42 million at
the end of April 2003 (2002 : R47,6 million). Authorised capital expenditure
commitments for refurbishment and equipment on loan amounts to R13 million (2002
: R11,4 million). Capital expenditure amounted to R5,2 million (2002 : R5,7
million). Depreciation was R17,9 million (2002 : R21,9 million). Assets to the
value of R286 million (2002 : R248 million) have been securitised.
DIVIDENDS
The Board has not approved any declaration of dividends.
GOING CONCERN PRINCIPLE
It is important for shareholders to be informed that with the removal of the
Seton litigation, the undertaking from DCAG as financier that the Group"s
facilities will continue under the same terms and conditions as previously
provided by the CoB, and with a proposed rights issue pending, that the Group
remains a going concern. The potential going forward and the possible
rationalisations within the Group should enhance this position and accordingly
the directors can confirm that the financial statements have been produced on
the basis of the business being a going concern.
POST BALANCE SHEET EVENTS
The Board has authorised the disposal of the shares in African Hide Trading
(Pty) Limited to a fellow subsidiary within the DCAG Group in South Africa. This
transaction is still to be finalised.
FUTURE PROSPECTS
Shareholders are aware that DCAG under the management of Mr Claas Daun has
acquired 90% of the shares of the Kolosus Holdings Group, and that all
conditions precedent in respect thereof have been met. This transaction has been
unconditionally approved by the Securities Regulation Panel, and no offer to
minorities is necessary. Simultaneously with this transaction the Group is in
the process of settling the Seton claim via funds and shares to be supplied by
DCAG.
Forward plans are being finalised at this time and it is clear that the Kolosus
Group will undergo significant reorganisation in the future six months,
including a name change, a rationalisation, and a proposed rights issue. These
preliminary indications of the road ahead suggest a new era for the Group under
new shareholders, and properly capitalised. Perhaps of more importance are the
positive effects that these changes will have on trading with the removal of
pressure on customers and suppliers, arising out of their fear of what might
have happened had the Seton litigation continued indefinitely. The future will
be difficult and will require time, a great deal of hard work and focus in order
to achieve the potential arising from these changes.
The Group has incurred losses during the first quarter, and trading conditions
remain uncertain for the period ahead. The strengthening of the rand continues
to adversely affect all businesses but particularly the fresh meat and export
orientated businesses. A more favourable interest rate dispensation, a weaker
rand, and a general upswing in the economic circumstances are necessary to
create the conditions required for a return to profitability. Management in its
turn will place continued emphasis both on improvements in turnover and further
cost reductions, in order to achieve a turnaround.
CHAIRPERSON GROUP MANAGING DIRECTOR
P C T SCHOUTEN A C BISCHOF
8 August 2003
REVIEW REPORT OF THE INDEPENDENT AUDITORS
To the members of Kolosus Holdings Limited
We have reviewed the accompanying condensed consolidated preliminary balance
sheet of Kolosus Holdings Limited and its subsidiaries (the `Group") as of 30
April 2003 and the related condensed consolidated preliminary statements of
income and cash flows for the year then ended. This condensed consolidated
preliminary financial information is the responsibility of the company"s
directors. Our responsibility is to issue a report on this information based on
our review.
Scope
We conducted our review in accordance with the statements of South African
Auditing Standards applicable to review engagements. This statement requires
that we plan and perform the review to obtain moderate assurance that the
condensed consolidated preliminary financial information is free of material
misstatement. A review is limited primarily to enquiries of company personnel
and analytical procedures applied to financial data and thus provides less
assurance than an audit. We have not performed an audit and, accordingly, we do
not express an audit opinion.
Review opinion
Based on our review, nothing has come to our attention that causes us to believe
that the accompanying condensed consolidated preliminary financial information
has not been properly prepared, in all material respects, in accordance with the
concepts in the South African Statement of Generally Accepted Accounting
Practice applicable to Interim Financial Reporting (AC 127).
Emphasis of matters
Without qualifying our opinion, we draw attention to the following matters,
which were discussed in the director"s report:
* Going concern - The Group is mainly financed by short-term borrowings and
incurred a net loss, before impairment provisions and the Seton settlement
provision, amounting to approximately R34 million. The financial statements have
been prepared on a going concern basis, which is subject to the continued
financial support of its financiers, and the return to profitability and
positive cash flows. Because of these factors a risk exists that the company and
Group may not be able to continue as a going concern.
PricewaterhouseCoopers Inc.
Johannesburg
8 August 2003
ACCOUNTING POLICIES
The principal accounting policies adopted are consistent with the previous
financial statements. The financial information has been prepared in accordance
with and complies with South African Generally Accepted Accounting Practice (AC
127) and the Companies Act. These preliminary financial statements should be
read in conjunction with the 30 April 2002 annual financial statements.
FINANCIAL STATISTICS
Reviewed Audited
30 April 30 April
2003 2002
Number of shares in issue (million) 560,4 560,4
(Loss)/earnings per share basic (cents) (21,75) 1,34
(Loss)/earnings per share diluted (cents) (21,46) 1,32
(Loss)/earnings per share headline (cents) (5,71) 2,16
Net asset value per share (cents) 10,05 32,06
RECONCILIATION OF HEADLINE EARNINGS
Reviewed Audited
30 April 30 April
2003 2002
R`000 R"000
Net (loss)/profit (121 878) 7 530
Impairment of property, plant & equipment 37 503 132
Profit on sale of leased assets (4 200) -
Settlement of the Seton claim 50 100 -
Restructuring costs, discontinued and other
abnormal costs 6 449 4 445
(32 026) 12 107
ABRIDGED GROUP INCOME STATEMENT
Reviewed Audited
30 April 30 April
2003 2002
R`000 R"000
Sales 1 158 367 1 168 122
- continuing operations 1 158 367 1 117 303
- discontinued operations - 50 819
Cost of sales (1 052 191) (1 015 380)
Gross profit 106 176 152 742
Impairment of assets (37 503) (132)
Abnormal items (53 415) (4 445)
Distribution, administration and
other expenses (110 120) (115 026)
Operating (loss)/profit (94 862) 33 139
- continuing operations (94 862) 33 239
- discontinued operations - (100)
Finance costs (26 460) (26 311)
Share of associates (603) 1 715
(Loss)/profit before taxation (121 925) 8 543
Taxation 29 (992)
(Loss)/profit from ordinary
activities (121 896) 7 551
Minority interest 18 (21)
Net (loss)/profit (121 878) 7 530
GROUP SEGMENTAL REPORT
Reviewed Audited
30 April 30 April
2003 2002
R`000 R"000
Revenue
Foods 534 673 543 949
Leather 623 694 622 351
Investments - 1 822
Total 1 158 367 1 168 122
Results
Foods (5 113) 19 345
Leather (35 578) 19 323
Investments 3 835 (2 879)
Other (58 006) (2 650)
Total (94 862) 33 139
ABRIDGED GROUP STATEMENT OF CHANGES IN EQUITY
Reviewed Audited
30 April 30 April
2003 2002
R`000 R"000
Share capital 5 604 5 604
Share premium 515 718 515 718
Non-distributable reserves 13 488 13 488
Accumulated loss (478 486) (355 150)
Balance at beginning of period (355 150) (365 916)
(Loss)/profit for the period (121 878) 7 530
Currency translation differences 483 1 295
Hedging reserve (1 941) 1 941
56 324 179 660ABRIDGED CASH FLOW
STATEMENT
Reviewed Audited
30 April 30 April
2003 2002
R`000 R"000
Operating (loss)/profit (94 862) 33 139
Depreciation 17 878 21 971
Surplus on disposal of fixed
assets/investments (4 948) (828)
Impairment of assets 36 333 5 080
Provision for Seton claim 50 100 -
Increase in provision for
post retirement
medical benefit obligation 3 000 -
Retrenchment provision 5 114 -
Foreign exchange differences 31 (124)
Non-cash flow items (1 623) -
11 023 59 238
Changes in working capital 24 091 (7 530)
Finance costs (26 460) (26 311)
Taxation paid (916) (1 221)
Net cash flow from operating
activities 7 738 24 176
Net cash inflow from fixed
asset acquisitions
and investment activities 9 688 19 910
Net cash inflow/(outflow) from
financing activities 35 468 (18 708)
Net cash flow 52 894 25 378
Cash and cash equivalents at
beginning of year (43 919) (69 297)
Cash and cash equivalents at
end of year 8 975 (43 919)
ABRIDGED GROUP BALANCE SHEET
Reviewed Audited
30 April 30 April
2003 2002
R`000 R"000
Assets
Non-current assets 70 702 131 770
Fixed assets 54 705 100 302
Investment properties 6 325 17 318
Investment and loans 2 520 6 571
Long-term debtors 7 152 7 579
Current assets 333 415 347 158
Inventories 205 163 221 188
Receivables and prepayments 119 277 125 970
Cash and cash equivalents 8 975 -
Total assets 404 117 478 928
Equity and liabilities
Capital and reserves 56 324 179 660
Share capital 5 604 5 604
Share premium 515 718 515 718
Reserves (464 998) (341 662)
Minority interest 44 453
Non-current liabilities 13 279 15 165
Long term interest bearing borrowings 422 3 778
Retirement benefit obligation 12 857 11 387
Current liabilities 334 470 283 650
Trade and other payables 114 551 113 824
Bank overdrafts and short term borrowings 155 275 160 370
Provisions 60 186 5 718
Taxation liabilities 4 458 3 738
Total equity and liabilities 404 117 478 928
