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Labat - Provisional Results and further cautionary announcement

Release Date: 31/08/2005 15:00
Code(s): LAB
Wrap Text

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 Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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