| Wed 31 Aug 2005, 16:07 | | Labat - Provisional Results and further cautionary |
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Labat - Provisional Results and further cautionary announcement
Labat Africa Limited
(Incorporated in the Republic of South Africa)
Share code: LAB ISIN: ZAE000018354
(Registration number 1986/001616/06)
(`Labat` or `the company` or `the group`)
PROVISIONAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2005 AND FURTHER
CAUTIONARY ANNOUNCEMENT
GROUP CONSOLIDATED INCOME STATEMENT
Reviewed Restated Restated
12 months 12 months 12 months
28-Feb-05 29-Feb-04 28-Feb-03
R`000 R`000 R`000
Revenue 193 867 175 651 244 930
Continuing operations 130 814 95 856
Discontinued operations 63 053 79 795
Operating (loss)/income before
depreciation
and amortisation (2 882) 7 132 40 582
Continuing operations 3 851 3 075
Discontinued operations (6 733) 4 057
Depreciation and amortisation (22 693) (17 984) (12 118)
Continuing operations (20 613) (16 680)
Discontinued operations (2 080) (1 304)
Operating (loss)/profit before
interest and taxation (25 575) (10 852) 28 464
Continuing operations (16 762) (13 605)
Discontinued operations (8 813) 2 753
Interest paid (9 503) (11 518) (11 680)
Continuing operations (6 501) (6 388)
Discontinued operations (3 002) (5 130)
Interest received 541 931 1 291
Continuing operations 430 831
Discontinued operations 111 100
(Loss)/profit before taxation, sale
and
fair value adjustments (34 537) (21 439) 18 075
Continuing operations (22 879) (19 162)
Discontinued operations (11 658) (2 277)
Sale of investments and fair value
adjustments (27 650) (431) -
Impairment on discontinued operations (30 156) -
Negative goodwill on acquisition of
subsidiary 1 943 -
Revaluation surplus on property 2 906 -
Loss on sale of investment (2 343) (431)
(Loss)/profit before taxation (62 187) (21 870) 18 075
Taxation 3 923 6 896 11 902
Continuing operations (5 217) 6 054
Discontinued operations 9 140 842
(Loss)/profit after taxation (58 264) (14 974) 29 977
Minority interest (4 459) (569) (775)
Loss attributable to shareholders (62 723) (15 543) 29 202
Shares in issue throughout year (`000) 184 415 184 415 184 415
Basic loss per share (cents) (34,0) (8,4) 15,8
Headline loss per share (cents) (18,1) (7,4) 17,2
Note to the financial statements
Reconciliation of basic to headline
earnings
Basic earnings (62 723) (15 543) 29 202
Amortisation of goodwill - 1 384 1 325
Profit on sale of fixed assets (321)
Impairment of investments and assets 30 156 - -
Revaluation surplus (2 906) - -
Loss on sale of investments 2 343 431 -
Impairment of loan to share incentive
scheme 1 142
Headline earnings (33 451) (13 728) 31 669
GROUP CONSOLIDATED BALANCE SHEET
Reviewed Restated Restated
12 months 12 months 12 months
28-Feb-05 29-Feb-04 28-Feb-03
R`000 R`000 R`000
ASSETS
Property, plant and equipment 53 726 46 567 53 201
Intangible assets 34 984 46 157 26 646
Investments 2 638 2 886 7 629
Deferred taxation 22 220 21 980 13 912
Non-current assets 113 568 117 590 101 388
Cash 3 295 5 351 22 555
Inventories 22 196 26 337 35 417
Trade and accounts receivables 89 363 115 588 116 168
Current assets 114 854 147 276 174 140
Total assets 228 422 264 866 275 528
EQUITY AND LIABILITIES
Share capital and reserves 72 061 132 364 147 907
Outside shareholders 8 641 5 097 4 369
Total shareholders` funds 80 702 137 461 152 276
Long-term liabilities 20 308 18 680 23 502
Deferred taxation 3 472 11 600 12 117
Non-current liabilities 23 780 30 280 35 619
Bank overdraft 64 879 57 222 50 238
Trade and accounts payables 59 061 39 903 37 395
Current liabilities 123 940 97 125 87 633
Total equity and liabilities 228 422 264 866 275 528
Number of shares in issue (`000) 184 415 184 415 184 415
Total net asset value per share
(cents) 39 72 80
STATEMENT OF CHANGES IN EQUITY
Non-
distribu-
Share Share table
R`000 capital premium reserves
Balance at 1 March 2002 1 849 49 090
Share buyback (5) (235)
Prior year adjustment
Income for the year
Restatement
Amortisation of goodwill
- current year
Amortisation of goodwill
- prior years
Balance at 28 February 2003
as restated 1 844 48 855
Loss for the year ended
29 February 2004
Revaluation of investment 601
Restatement
Amortisation of goodwill
Amortisation of intangibles
Exchange rate gain
Reversal of revaluation surplus -601
Subsidiary previously
not consolidated
Balance at 29 February 2004
as restated 1 844 48 855
Loss for the year
Revaluation of property 2 420
Balance at 28 February 2005 1 844 48 855 2 420
Capital
Distributable and
R`000 reserves reserves
Balance at 1 March 2002 71 379 122 318
Share buyback (240)
Prior year adjustment (888) (888)
Income for the year 30 394 30 394
Restatement
Amortisation of goodwill
- current year (1 190) (1 190)
Amortisation of goodwill
- prior years (2 487) (2 487)
Balance at 28 February 2003
as restated 97 208 147 907
Loss for the year ended
29 February 2004 (13 646) (13 646)
Revaluation of investment 601
Restatement
Amortisation of goodwill (1 190) (1 190)
Amortisation of intangibles (469) (469)
Exchange rate gain 86 86
Reversal of revaluation surplus (601)
Subsidiary previously
not consolidated (324) (324)
Balance at 29 February 2004
as restated 81 665 132 364
Loss for the year (62 723) (62 723)
Revaluation of property 2 420
Balance at 28 February 2005 18 942 72 061
CASH FLOW STATEMENT
Reviewed Restated Restated
28-Feb-05 29-Feb-04 28-Feb-03
R`000 R`000 R`000
Net flow from operating activities 10 071 3 302 6 799
Net flow from investing activities (21 639) (23 233) (41 161)
Net flow from financing activities 9 512 2 727 17 305
Net decrease in cash (2 056) (17 204) (17 057)
Cash at beginning of year 5 351 22 555 39 612
Cash at end of year 3 295 5 351 22 555
SEGMENTAL ANALYSIS
2005 2004
R`000 R`000
Revenue by Segment 193 867 175 651
Technology 124 817 90 135
Retail 53 295 72 033
Services 15 755 13 483
Loss from operations before finance costs
and fair value adjustments by segment (25 575) (10 852)
Technology (11 635) (14 879)
Retail (4 146) 2 667
Services (7 448) (3 601)
Other operations* (2 346) 4 961
Operating assets by segment 161 400 162 070
Technology 63 812 56 018
Retail** 87 100 95 377
Services 10 173 10 506
Other operations 315 169
Liabilities by segment 45 071 26 394
Technology 28 795 11 289
Retail 5 449 9 358
Services 4 044 1 982
Other operations 6 783 3 765
*Other operations incorporate the company, group adjustments and eliminations
**Before fair value adjustment
Discontinued operations Retail Services
Assets 72 230 9 776
Liabilities 84 036 14 793
Operating loss before taxation (7 037) (4 621)
Cashflow from operations 454 (162)
Cashflow from investing activities 357 -
Cashflow from financing activities (644) 60
COMMENTARY
Accounting policies
These abridged group financial statements have been prepared in accordance with
the South African Statements of Generally Accepted Accounting Practice and are
consistent with those of the previous year with the further adoption of the
following South African Statements of Generally Accepted Accounting Practice:
* AC 140 (IFRS 3 revised 2004) Business Combinations.
* AC 128 (IAS 36 revised 2004) Impairment of Assets.
Operational performance
The group has had an extremely difficult year operationally as reflected in the
results. The results are once again overshadowed by the losses in South African
Micro-Electronic Systems (`SAMES`), our microchip manufacturing company.
International market difficulties and Rand strength has resulted in substantial
losses in this business. Our Traffic fining business Labat Traffic Solutions
(Pty) Limited (`LTS`) and the card manufacturing business Africard (`Africard`)
have performed very well.
Mainly as a result of the losses in SAMES the group suffered a headline loss of
R33,5 million for the year but we believe that the year ahead will be
substantially better .
Group strategy
The strategy of the Labat Group is constantly under review by the board of
directors. The main theme of that strategy is to streamline the group further
in order to focus on the group`s technology businesses. After disposing of some
non-core businesses, the group will henceforth concentrate on four main
businesses, viz SAMES, Africard, Labat Traffic Solutions and Labat Africa
Management Consulting. In each of these businesses the possibility of
partnering with credible international partners in order to expand the
technology base is being pursued aggressively.
Prospects
Accordingly, the group operations have been streamlined to concentrate on these
technology- based businesses. The disposal of the Retail and other non-core
businesses is the first step in that direction and is well underway. The
remaining businesses will be run on an autonomous basis and the need for a
costly head office structure will be largely eliminated.
SAMES is in the process of implementing a large international contract for the
supply of micro-chips and is therefore well-positioned to finally put the
difficulties of the past years behind. In addition, this contract will allow
SAMES to improve its technology base, initially to .85 micron and eventually to
.65 micron if so desired. This enhanced capacity will have the effect of
opening up additional markets for SAMES. In order to lessen its dependence on
dollar-based revenue, SAMES will enter the local markets by introducing a
revolutionary new pre-paid energy metering solution.
Labat Traffic has grown from a single contract for traffic fining services to
the current level of 12 major contracts and a national footprint. The focus in
the traffic business is consequently shifting from an aggressive roll out of
contracts won towards increasing the operational efficiencies of the existing
operations and this is going well. Total Computer Services (Pty) Limited, the
subsidiary providing back-office support, is also doing well.
Africard has been performing beyond expectations. We have been in negotiations
with a large international card company in order to increase the technology
base of Africard with a view to expanding the product offerings. We expect to
be able to offer shortly a full suite of smart cards to the market.
Our Management Consulting business continues to forge credible partnerships and
will soon be operating to its full potential.
These businesses all show good potential for growth which we are confident will
be realised in the medium to longer term. The group is therefore looking
forward to a challenging but profitable future and your directors are fully
committed to unlocking the potential which undoubtedly exists in the
businesses.
Suspension of listing
Shareholders attention is drawn to the fact that the company`s listing has been
suspended since 4 July 2004, as a result of its failure to publish its
provisional results within the time limit stipulated by the JSE Listings
Requirements. This delay was as a result of Labat, together with their
auditors, reviewing their annual financial statements for the year ended 29
February 2004 in relation to their compliance with the South African Statements
of Generally Accepted Accounting Practice (`GAAP`) as disclosed in an
announcement to shareholders on 6 June 2005. The suspension of the listing will
be lifted from the commencement of trade on 1 September 2005.
Restatement of annual financial statements for the year ended 29 February 2004:
Introduction
Based on the advice of the GAAP Monitoring Panel (`GMP`), the JSE Limited
requested that Labat withdraw and restate its 2004 Annual Financial Statements
(`2004 AFS`) in order to ensure compliance with GAAP. Labat, accordingly, have
withdrawn their 2004 AFS. Labat`s revised 2004 AFS and revised audit report
will be posted to shareholders together with Labat`s 2005 Annual financial
Statements. Details of the resultant restatement are set out hereunder
Goodwill
The treatment of goodwill on consolidation as a result of the acquisition in
1999 by Labat of SAMES and Labat Africa Management Consulting (Proprietary)
Limited, both wholly-owned subsidiaries of Labat, will be adjusted to comply
with GAAP.
Previously the goodwill relating to these acquisitions had not been amortised.
The effect of amortising goodwill, is to reduce Labat`s attributable income by
R1,2 million in the 2004 financial year, R1,2 million in 2003 and R2,5 million
for the financial years prior to 2003. Accordingly goodwill has been reduced
by R4,9 million. In accordance with the revised statement of GAAP the
amortisation of goodwill will not be applicable for the financial year that
commenced on 1 March 2004. The balance of unamortised goodwill of R22,7
million at 29 February 2004 will be subject to an annual impairment assessment.
Intangible assets
The interest in software housed in Leading Edge Solutions (Pty) Ltd (`LES`) and
a master reseller agreement in Labat Software Solutions (Pty) Ltd (`LSS`) was
previously treated as an investment. These interests have been reclassified as
Intangible Assets in line with the inherent nature of the underlying assets and
have been amortised in line with the group amortisation policy. An additional
charge of R0,05 million has been taken to the income statement in 2004.
Revaluation of investments
The company has also reviewed the treatment of the revaluation of an investment
and will carry this investment at cost in line with the company`s stated
accounting policy and in line with AC 132 which relates to accounting for
subsidiaries. Previously the company had taken a revaluation surplus of R0,6
million directly to equity. This reserve will be reversed out of equity. There
is no income statement impact.
Exchange rate differences
An additional exchange gain of R0,09 million relating to the valuation of
Forward Exchange Contracts on hand at 29 February 2004 has been taken to
income.
Expenditure capitalised
Start-up expenditure in a new business was previously capitalised. This
expenditure has been consolidated and treated in terms of AC132 (Accounting for
Subsidiaries.) The effect is to increase group operating expenses by R0,03
million in 2004.
Cashflow statement
Previously the additions to fixed assets were reflected net of the proceeds of
disposals in the cashflow statement. The proceeds on disposal amounting to
R0,05 million will be shown as a separate line item to additions to fixed
assets. The additions to fixed assets amount to R8,6 million.
An amount of R14,9 million was disclosed as an increase in investments. In the
restated AFS this amount will be disclosed as a R2,0 million increase in Other
Investments and a R12,9 million Increase in Development Expenditure.
Statement of changes in equity
The effect of the restatement on Equity is to reduce total group Share Capital
and Reserves by R6,1 million from R138,5 million to R132,4 million. These
changes have been itemised in the Statement of Changes to Equity set out above.
Other matters
The 2004 AFS was found to be deficient in the level of disclosure contained
therein and included errors of description which will be corrected in the
restated annual financial statements. All other material matters have been
described above.
Net effect of the adjustments on the results for the year ended 29 February
2004
The net effect of the above adjustments on the results for the year ended
29 February 2004 is an increase of R1,9 million in the attributable earnings
for the year from the previously reported R13,6 million to R15,5 million, an
increase in the basic loss per share from 7,4 cents previously reported to 8,4
cents, an increase in the headline loss per share from 7,1 cents previously
reported to 7,4 cents; and a reduction in total net asset value per share from
75,1 cents previously reported to 71,8 cents.
Net effect of the adjustments on the results for the year ended 28 February 2003
The net effect on the results for the year ended 28 February 2003 is a decrease
of R1,2 million in the attributable earnings for the year from the previously
reported R30,4 million to R29,2 million, a decrease in the basic earnings per
share from 16,5 cents previously reported to 15,8 cents, the headline earnings
per share remains unchanged at 17,2 cents and a reduction in total net asset
value per share from 82,2 cents previously reported to 80,2 cents. Comparative
figures in the annual financial statements for the year ended 28 February
2005 will be appropriately restated to reflect these adjustments.
Discontinued operations
In line with the strategy outlined above it was decided to dispose of or close
various non-core businesses and as a consequence of this streamlining,
impairment provisions have been raised for those businesses that are deemed to
be non-core to Labat.
Retail disposal
Shareholders are advised to refer to the announcement that was published on 18
February 2005 with regard to the disposal of Acme Stores (Pty) Ltd (`Retail
Disposal`) and the update and further cautionary published on 6 June 2005.
Following the publication of these provisional results the circular setting
out, inter alia, details of the Retail Disposal (`Retail Circular`) will be
re-submitted to the JSE and the approval process resumed, resulting in the
Retail Circular being dispatched to share- holders during the course of
September 2005.
In line with the group`s strategy to focus primarily on its key technology
interests, the shares in the company LES which operates in the services sector
were sold at 28 February 2005 to the management of that company.
The main objective of LSS was to be a master reseller of the SSA (GT) suite of
products in Southern Africa. The relationship with SSA (GT) never realised its
full potential and has culminated in the cancellation of the master reseller
agreement.
Further cautionary announcement
Upon the anticipated lifting of Labat`s suspension following this publication,
shareholders are advised to exercise caution when dealing in their Labat shares
until the Retail Circular approval process is completed and the Retail Circular
has been posted.
Group borrowings
The group has increased borrowings by R9.5 million. These borrowings relate
mainly to the investment in fixed assets to expand the operations in LTS and
the acquisition of Africard. The effect on earnings of this increase in
borrowings is expected to be negated by the reduction in borrowings as a result
of the Retail Disposal and the debt restructuring that is being negotiated with
the Groups Bankers. The effect of this disposal and debt restructuring will be
to reduce overdraft borrowings from R65,0 million at 28 February 2005 to a
forecast nil overdraft borrowings at end November 2005.
Operating leases
The adjustments in terms of IAS 17 (AC 105) are not included in the results as
published. The directors have estimated that these adjustments net of deferred
tax amount to a debit of R0,3 million in 2005, R0,1 million in 2004, R0,4
million in 2003 and R1,4 million in the years prior to 2003. These estimates
are being audited. The directors do not expect any material changes to these
estimates.
Going concern
The company is exposed to significant risks which can affect both the
attainment of the company`s objectives and impact on it`s financial
performance. These risks include, inter alia;
* exchange rate fluctuations;
* the non- recovery in international markets;
* risks of new entrants into existing markets; and
* technology risks.
The company has entered into negotiations with Nedbank Limited to restructure
the group debt and has also been approved for funding for SAMES in terms of the
Department of Trade and Industries Industrial Participation Programme. The
ability of two subsidiaries to continue as a going concern is dependant upon
the successful outcome of the negotiations with Nedbank Limited and the above
fund-raising initiatives. The directors are confident these negotiations will
be successfully concluded.
Reviewed results
The provisional accounts have been reviewed by the group`s auditors,
RAIN-Chartered Accountants. The review opinion has a qualification and emphasis
of matter paragraphs which is quoted below:-
Qualification
`In terms of Circular 7/2005 - Operating Leases, issued 2 August 2005,
operating leases with fixed rental escalations are now required to be expensed
on a straight line basis over the lease term, compared with previously being
charged against income on the basis of cash flows. The financial information
for the year ended 28 February 2005 has not been adjusted to comply with this
new interpretation. Had the adjustment been done, net profit after tax for the
2005 year would have decreased by an estimated R311,000 and opening retained
income would have reduced by an estimated R1,843,000. `
Emphasis of matter
Without further qualifying our opinion, we draw attention to the fact that the
group has entered into negotiations with its bankers to restructure group debt
and that funding has been approved for one of its subsidiaries in terms of a
Department of Trade and Industry program. The ability of two subsidiaries in
the group to continue as going concerns is dependent upon the successful
conclusion of these initiatives. Should these initiatives not be successful,
the impact on the going concern ability of the group is uncertain.
A copy of their review opinion is available for inspection at Labat`s
registered office.
For and on behalf of the board
Brian van Rooyen
Executive Chairman
Sponsor
Brait Sponsors (Pty) Limited
31 August 2005
Date: 31/08/2005 03:00:28 PM
