Wrap Text
Reviewed Provisional Financial Results for the 12 Months ened 30 June 2012
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 2012
Condensed Consolidated statement of comprehensive income
Reviewed Audited
12 Months 12 Months
June 2012 June 2011
R’000 R’000
Revenue 304 383 314 994
Cost of sales (294 307) (270 092)
Gross profit 10 076 44 902
Other income 4 333 51 934
Operating expenses (100 528) (150 455)
EBITDA (86 119) (53 619)
Depreciation and amortisation (3 735) (5 897)
Investment income 2 035 2 261
Finance costs (22 323) (17 571)
Loss before taxation (110 142) (74 826)
Income tax (7 287) 2 038
Loss for the year from continuing
operations (117 429) (72 788)
Profit for the year from discontinuing
operations (102) (66 638)
Attributable to:
Equity holders of the parent (120 585) (105 449)
Non-controlling interest 3 054 (33 977)
Weighted average number of ordinary
shares in issue 415 443 104 091
Loss per ordinary share (cents) (basic
and diluted) (29.03) (101.30)
Loss per ordinary share from continuing
operations (28.27) (69.93)
Loss per ordinary share from
discontinuing operations (0.76) (31.38)
Reconciliation of headline earnings
Loss attributable to equity holders of
the parent (117 429) (105 449)
Adjusted for:
Impairment of goodwill 457 5 284
Impairment of loans receivable 3 598 59 724
Impairment of investment in associate 900 64
Profit on disposal on sale of business (819) (35 867)
Impairment on intangible asset 5 031 -
Profit/(loss) on disposal of property,
plant and equipment (1 267) 72
Headline loss attributable to ordinary
shareholders (109 531) (76 172)
Headline loss attributable to ordinary
shareholders from discontinuing
operations (3 155) (32 661)
Headline loss per share from continuing
operations (26.36) (41.80)
Headline loss per share from
discontinuing operations (0.76) (31.38)
Total headline loss per share from
continuing and discontinuing operations (27.12) (73.18)
Condensed consolidated statement of comprehensive income
Reviewed Audited
12 Months 12 Months
June 2012 June 2011
R’000 R’000
Loss for the year (117 531) (139 426)
Exchange difference on translating foreign
operations - 1 523
Loss on property revaluation - (2 177)
Realisation of revaluation reserve on
disposal 506 (13 520)
Taxation related to components of other
comprehensive income - 625
Total comprehensive loss for the year net
of taxation (117 025) (152 975)
Condensed consolidated statement of financial position
Reviewed Audited
12 Months 12 Months
June 2012 June 2011
R’000 R’000
Assets
Non-current assets
Property, plant and equipment 56 667 60 444
Goodwill - 457
Intangible assets 511 6 093
Investment in associates - 900
Other financial assets 22 285
Deferred taxation - 5 671
57 200 73 850
Current Assets
Inventories 56 959 106 298
Loan to associate - 3 189
Trade and other receivables 89 022 101 055
Other financial assets - 10 041
Construction contracts and receivables 15 193 7 745
Current taxation receivable 1 208 2 452
Prepayments 2 234 243
Cash and equivalents 31 101 10 505
195 717 241 528
Total Assets 252 917 315 377
Equity and liabilities
Equity
Share capital 142 825 112 876
Reserves 5 355 5 856
Accumulated loss (187 280) (67 201)
(39 100) 51 531
Liabilities
Non-current liabilities
Other financial liabilities 146 641 8 132
Operating lease liability 100 116
Deferred taxation 1 348 757
148 089 9 005
Current liabilities
Trade and other payables 112 140 138 214
Other financial liabilities 30 962 113 247
Current taxation payable 390 440
Bank overdraft 436 2 940
143 928 254 841
Total liabilities 292 017 263 846
Total equity and liabilities 252 917 315 377
Condensed consolidated statement of changes in equity
Reviewed Audited
12 Months 12 Months
June 2012 June 2011
R’000 R’000
Opening balance as previously reported 65 551 116 581
Prior period adjustment (14 020) -
Opening balance 51 531 116 581
Changes in equity
Loss for the year (120 078) (105 450)
Prior period adjustment (14 020)
Foreign currency revaluation reserve 5 (341)
Revaluation reserve (506) (8 849)
(Purchase)/Sale of treasury shares (52) 278
Non-controlling interest 0 9 312
Issue of shares 30 000 40 000
Total changes (90 181) (65 049)
Closing balance (39 100) 51 531
Comprising of:
Share capital 32 884 2 886
Share premium 109 940 109 990
Foreign currency translation reserve 5 -
Revaluation reserve 5 350 5 856
Retained income (187 280) (67 201)
Total equity (39 100) 51 531
Condensed consolidated cash flow statement
Reviewed Audited
12 Months 12 Months
June 2012 June 2011
R’000 R’000
Cash flows from operating activities
Cash used in operations (47 156) (14 432)
Interest income 1 642 300
Dividends received 93 -
Finance costs (8 428) (15 797)
Tax received/(paid) (65) 1 749
Net cash from operating activities (53 914) (28 180)
Cash flow from investing activities
Purchase of property, plant and equipment (16 079) (3 641)
Sale of property, plant and equipment 6 889 295
Purchase of other intangible assets (1 381) (4 548)
Sale of intangible assets 599 -
Sale of business 4 066 -
Loans advanced to group companies - (20 148)
Loans to group companies repaid 258 906
Sale of other financial assets - 8 386
Purchase of other financial assets - (12 985)
Net cash from investing activities (5 648) (31 735)
Cash flows from financing activities
Proceeds from share issue 30 000 40 000
Proceeds from other financial liabilities 231 839 3 497
Repayment of other financial liabilities (179 175) (4 408)
Net cash from financing activities 82 664 39 089
Total cash movement for the period 23 102 (20 826)
Cash at the beginning of the period 7 563 28 391
Total cash at end of the period 30 665 7 563
Condensed segmental information - primary segment report business
segments
For the twelve months ending 30 June 2012
Total
contin-
Water Pipe- uing Discon-
Utili- line Invest- oper- tinued
R’000 Trading ties services ment ations operations
Total
revenue 189 994 31 063 136 894 3 775 362 726 33 045
Inter-
segmental
revenue - - (53 567) (3 775) (57 343) -
External
revenue 189 994 31 063 83 327 - 304 383 33 045
Segment
results (30 991) 5 353 (20 902) (1 768) (48 309) 3 814
Other
income - - - - 2 573 -
Profit on
disposal
of Congo - - - - (1 007) -
Impairment
of other
financial - - - -
assets
Impairment
of loan to
associates - - - - (266) -
Bad debts - - - - (16 835) -
Impairment
of invest-
ment in
associate - - - - (900) -
Write-down
of
inventory - - - - (18 053) (6 969)
Finance
cost - - - - (22 323) -
Impairment
of
goodwill - - - - (456) -
Investment
income - - - - 2 034 -
Impairment
of loan to
associate - - - - (3 330)
Income tax
expense - - - - (7 286) -
Profit on
disposal
of assets - - - - 1 759 -
Impairment
of
intangible
assets - - - - (5 030) -
Net loss
for the
year - - - - (117 429) (3 155)
For the twelve months ending 30 June 2011
Total
Contin-
Water uing Discon-
Utili- Pipeline Invest- oper- tinued
R’000 Trading ties services ment ations operations
Total
revenue 238 369 16 328 61 390 4 060 320 147 50 455
Inter-
segmental
revenue (1 083) - - (4 060) (5 143) -
External
revenue 237 276 16 328 61 390 - 314 994 50 455
Segment
results (32 405) (4 255) 3 050 (1 027) (34 637) (65 061)
Impairment
of
goodwill - - - - (5 284) -
Profit on
disposal
of Angola - - - - 49 815 -
Impairment
of loan to
associate - - - - (839) -
Impairment
of other
financial
assets - - - - (59 788) -
Angola
write-down
of
inventory - - - - (8 781) -
Finance
Cost - - - - (17 572) (1 577)
Investment
income - - - - 2 260 -
Income tax
expense - - - - 2 038 -
Net loss
for the
year - - - - (72 788) (66 638)
BASIS OF PREPARATION
These condensed consolidated financial statements have been prepared
under the supervision of the Financial Director, Mr. R. Viljoen
CA(SA) in accordance with IAS 34 – Interim Financial Report, the AC
500 standards, the Listing Requirements of the JSE and the Companies
Act of South Africa (2008).
The accounting policies of the Group are consistent with those of the
previous annual financial statements.
AUDITOR’S REPORT
The condensed consolidated financial statements have been reviewed by
Greenwoods Chartered Accountants. Their unmodified review report is
available for inspection at the Group’s registered office.
PROFILE
RARE supplies a comprehensive range of services and products to the
fluid conveyance industry. Services include the design, manufacture,
installation and maintenance of pipelines for the mining sector and
for process plants across all sectors of industry.
The Company conducts business in three divisions, namely Trading,
Pipeline Services and Water Utilities Services.
The trading division includes the Kliprivier, Durban and Polokwane
branches.
FINANCIAL RESULTS
Revenue from continued operations is 3.37% lower than the previous
year, mainly due to the closure of unprofitable operations. A
decrease of 20% in Trading activities was mainly as a result of
inventory shortages due to funding constraints. Pipeline Services
turnover increased by 122% assisted by a large pipeline project in
Zambia and increased activity in the DRC. An improvement in Water
Affairs business resulted in a 90% increase in the turnover of the
Water Utilities division.
The gross profit margin was impacted by the following once off
expenses included in Cost of Sales:
- Impairment of inventory: R25m
- Impairment of import duty receivable : R5,1m
- Redundant inventory items with a carrying value of R23m was
sold at cost
Operating expenses from continued operations, excluding impairments
and bad debts, decreased by 27.31% to R63.05m (2011: R86.74m) due to
a continued focus on cost reduction.
The Rare Congo subsidiary was incorporated and disposed of during the
year as explained under Corporate Activities. Furthermore the
Polokwane and Centurion factories were closed as the units were no
longer deemed profitable.
The financial results were prepared on the basis that the two
factories were discontinued during the year. The prior year results
have been restated for comparative purposes.
During the financial year inventory with a carrying value of R25.0m
was impaired, this consisted of:
Discontinuing operations
Impairments of inventory held at factories during closure process :
R7m
Continuing operations
Net realisable value adjustments : R9.4m
Inventory count variances : R4.8m
Provision for slow moving stock : R3.8m
PRIOR PERIOD ERRORS
As announced on Thursday 28 September 2012, the Company restated the
following prior period errors:
Stock - R9m
The Company implemented a new information and accounting system ('the
2011 system') during the 2011 financial year. Notwithstanding
concerted efforts by previous management to integrate and effectively
implement the stock module of the 2011 system, certain system and
human errors occurred during the implementation leading to inaccurate
and overstated stock. Previous management resigned when the
differences and problems became evident.
An investigation concluded that stock was overstated and that some
amounts pertained to the stock figure at 30 June 2011. The
differences include double counting, input, production and
reconciliation errors amounting to R6.3m. Previous management
capitalised a portion of the overheads to stock based on their
assumptions and allocations. New management differed from said
assumptions applied resulting in a prior year adjustment amounting to
R2.7m.
The Company replaced the 2011 system with a new uncomplicated and
well supported system on 1 July 2012 (‘the ERP system’).
Unrecorded liability - R5m
Expenses relating to a contract in Ghana were not provided for in the
prior year.
OPERATIONAL REVIEW
Trading conditions remained tough on the back of a soft market and a
delay in the anticipated public sector spending.
Trading margins came under pressure as a result of stock buy-outs due
to funding constraints. Margins will improve as a result of an
improved inventory combination on the back of a secure funding
structure.
The Pipeline Services division designs, supplies, installs and
commissions pipe systems and pipelines. It operates within RSA with
cross border activities in Botswana, Zambia and Ghana. The client
base is primarily from the private sector. During the year the
Pipeline Services division was relocated from its former Centurion
offices to the Kliprivier head office in order to improve
efficiencies.
The three year maintenance contract which the Water Utilities
division held with the Department of Water Affairs has ended. Due to
margin constraints it was decided not to tender for the Water Affairs
contract again.
CORPORATE ACTIVITIES
R130m Capital Raising
The Company was recapitalised during December 2011 by raising equity
of R30 million. At the same time, Themba Siyolo was introduced as a
strategic BEE Partner resulting in the Company being 25% black owned.
As per the circular, send to shareholders on 10 September 2012, a
further R100m was raised, by way of a claw-back offer (the Claw-Back
Offer”) subsequent to year end but before the date of this report.
The rationale behind the second capital raising of R100m was to
further recapitalise the business following the introduction of a new
management team during April 2012 and the poor performance during the
first half of the year, largely as a result of substantial write offs
against old stock and debtors. This second capital raise also
resulted in an increase of the shareholding of Doculate Investments
(Pty) Ltd, under the control of the BEE partner, Themba Siyolo, thus
securing the unique position within the industry of being a majority
black owned listed company.
RARE Congo
RARE incorporated a 61% share of a subsidiary in the Democratic
Republic of Congo (“Rare Congo”) during the financial year. Although
the subsidiary was profitable, it required larger than envisaged
capital investments during the expansion during the startup phase.
This fact, together with the risks associated with doing business in
the Democratic Republic of Congo and RARE’s current financial
position, resulted in RARE disinvesting from Rare Congo during April
2012. The shares were sold to the minority partner at the Net Asset
Value thereof on the date of disposal.
EVENTS AFTER THE REPORTING PERIOD
Other than those mentioned above, no events occurred after year end
that require disclosure in terms of IAS10.
FUNDING
Debtors financing
RARE successfully refinanced its debtors facility during October 2011
and secured a new R90m facility until 1 July 2013, subject to certain
conditions and covenants. R60m of the outstanding debtor facility was
repaid on 3 September 2012, following the issue and application of
the proceeds from the R100m Claw-Back Offer.
Stock financing
During the financial year, China Construction Bank notified RARE of
its intention to exit from its ‘on demand facility’, in an orderly
fashion. The outstanding balance amounted to R25m at year end. The
balance will be reduced as and when their Letters of Credit mature.
It is estimated that the full outstanding balance will be settled by
February 2013. RARE secured third party funding to replace said stock
facility on commercial terms during the current financial year.
Short term loan financing
The Company secured a R50m short term facility during the financial
year to finance working capital shortages at the time. R40m of the
outstanding short term facility was repaid on 3 September 2012
following the issue and application of the proceeds from the R100m
Claw-Back Offer. The facility becomes due and payable on 1 July 2013.
Additional capital raising
Refer ‘Corporate activities’ above.
RESTRUCTURING PLAN
Termination of unprofitable divisions
During the year under review a number of operations were right sized
and/or closed. The Polokwane and Centurion factories were closed and
the administrative activities of the Pipeline Services Division were
consolidated at the Kliprivier office.
Overheads
A concerted effort was made to reduce overheads during the year under
review. The Company will continue to interrogate each cost item to
ensure that the overheads structure is aligned to the level of income
generation. Based on current activities, overhead costs are expected
to be reduced by more than 10% during the 2013 financial year.
Human Resources and Manpower
The new management team (‘the new team’) lead by Wally van Coller
(Chief Executive Officer) and Renier Viljoen (Financial Director)
assumed the reins of the business during April 2012. The new team
embarked on an intensive review of all the positions within the
Company and key positions were complemented with outside talent. The
team will continue to bolster company talent, specifically the sales
and technical resources.
Sales
A critical review of our market and client base was performed. The
intention is to grow sales generically with a focus on clients with
appropriate credit ratings within the private sector.
Cash flow management
Cash flow management plays a critical part in the success of the
business. There is an increased focus on debtors’ collection and a
review of all existing product lines in order to reduce and/or
discontinue stock items so as to match new sales objectives as
closely as possible.
Logistics and stock management
The current logistics costs are still too high. The entire supply
chain is being interrogated in order to improve efficiencies. There
is a renewed focus on proper and effective stock management by means
of an increase in the frequency of stock counts. The ERP system that
has been implemented will aid in this goal. The Company previously
used the ERP system for some 10 years and this has a proven track
record at RARE as well as superior support from the supplier.
Project Management
Project management, particularly in the Pipeline Services Division,
is a critical component for the timely and profitable execution of
project work. RARE is working on strengthening its relationship with
technology partners so as to supplement increased efficiencies and
reduced delivery times of project installations.
Systems and processes
As mentioned above RARE has implemented a new ERP package after the
2011 system failed to meet requirements in terms of reporting and
accuracy of information. The ERP system was successfully implemented
on 1 July 2012.
GOING CONCERN
The directors have considered the operational budget and cash flow
forecasts for the ensuing year which are based on the current
expected economic and market conditions, as well as the funding lines
in place, as further detailed in ‘Funding’ above. The directors
believe that RARE and its subsidiaries have adequate financial
resources to continue as a going concern during the ensuing year.
Accordingly, the directors have adopted the going concern basis in
the preparation of the annual financial statements.
PROSPECTS
RARE will continue to consolidate and right size the business and
cost structures. The Company intends to leverage and expand its
existing technologies and, where possible, obtain new technologies in
order to obtain a competitive edge in the market.
CHANGES TO THE BOARD OF DIRECTORS AND BOARD COMMITTEES
Pierre Willemse and David Scheepers resigned as executive directors
from the board with effect from 20 March 2012.
Alwyn Martin resigned from the board with effect from 10 April 2012.
Wally van Coller and Renier Viljoen were appointed as Chief Executive
and Financial Director, respectively, with effect from 13 April 2012.
Themba Siyolo was appointed as a non-executive director on 13
December 2011.
Themba Siyolo succeeded Theunie Lategan as chairman of the board.
Theunie Lategan remains on the board as a Non-Executive director.
Renier Viljoen was appointed as company secretary with effect from 24
August 2011.
On behalf of the board
T Siyolo W van Coller
Chairman CEO
CORPORATE INFORMATION
Directors:
T Siyolo (Chairman), W van Coller (CEO), R Viljoen (FD), H Odendaal
(Independent Non-executive), S Potgieter (Non-executive), T Lategan
(Independent Non-executive) P du Plessis (Lead 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)
Company Secretary: R Viljoen
Designated Advisor: PSG Capital Proprietary Limited
Johannesburg
28 September 2012
Date: 28/09/2012 05:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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