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LAB - Labat Africa Limited - Audited Results For The Year Ended 28 February 2007
And Notice Of Annual General Meeting
LABAT AFRICA LIMITED
Incorporated in the Republic of South Africa
(Registration number 1986/001616/06)
Share code: LAB ISIN: ZAE000018354
("Labat" or "the group")
AUDITED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2007
GROUP CONSOLIDATED Audited Audited
INCOME STATEMENT
12 months 12 months
28 February 28 February
2007 2006
(R`000) (R`000)
Revenue 163 271 156 046
Continuing 163 271 144 885
operations
Discontinued - 11 161
operations
Operating income before 33 788 40 976
depreciation and
amortisation
Continuing 33 788 40 159
operations
Discontinued - 817
operations
Depreciation and (18 758) (20 158)
amortisation
Continuing (18 758) (19 686)
operations
Discontinued - (472)
operations
Operating profit before 15 030 20 818
interest and taxation
Continuing 15 030 20 473
operations
Discontinued - 345
operations
Net interest paid (5 212) (5 743)
Continuing (5 212) (5 737)
operations
Discontinued - (6)
operations
Profit before taxation, 9 818 15 075
sale and fair value
adjustments
Continuing 9 818 14 736
operations
Discontinued - 339
operations
Fair value adjustments (29 728) (5 746)
and exceptional items
Loss on discontinued - (5 746)
operation
Settlement costs on (7 500) -
third-party guarantee
Fair value adjustment (2 975) -
to financial asset
Impairment of goodwill (17 810) -
Impairment of (1 443)
investment
Loss/Profit before (19 910) 9 329
taxation
Taxation (32 206) (12 847)
Loss after taxation (52 116) (3 518)
Attributable to
Profit to minorities (12 812) (15 733)
Equity shareholders (64 928) (19 251)
Shares in issue 186 415 184 415
throughout the year
(000)
Basic loss per share (34.8) (10.4)
(cents)
Headline loss per share (20.5) (7.3)
(cents)
Reconciliation of basic
to headline loss
Loss attributable to (64 928) (19 251)
equity holders
Impairment of goodwill 17 810 -
Loss on sale of - 5 743
subsidiary
Impairment of 1 443 -
investment
Profit on sale of (10) (45)
assets
Settlement cost on 7 500 -
third-party guarantee
Headline loss (38 185) (13 553)
GROUP CONSOLIDATED BALANCE Audited Audited
SHEET
12 12
months months
28 28
February February
2007 2006
(R`000) (R`000)
ASSETS
Property, plant and 97 499 43 463
equipment
Goodwill 3 466 22 718
Other intangible assets 6 180 8 358
Deferred taxation 581 21 713
Other financial assets 1 714 -
Non-current assets 109 440 96 252
Other financial assets 350 9 696
Inventories 16 917 13 454
Trade and other 43 285 42 179
receivables
Cash and cash equivalents 40 530 12 212
Current assets 101 082 77 541
Total assets 210 522 173 793
EQUITY AND LIABILITIES
Share capital and reserves 24 512 49 147
Minority interest 13 111 16 549
Unexpended grant 37 256 -
Long-term liabilities 35 860 35 020
Deferred taxation 17 487 1 698
Non-current liabilities 53 347 36 718
Trade and other payables 57 041 53 770
Bank overdraft 1 395 5
Current portion of 15 896 11 143
financial liabilities
Taxation 7 964 6 461
Current liabilities 82 296 71 379
Total equity and 210 522 173 793
liabilities
Number of shares in issue 186 415 184 415
(`000)
Total net asset value per 13 27
share (cents)
CONSOLIDATED CASH FLOW Audited Audited
STATEMENT
12 12
months months
28 28
February February
2007 2006
(R`000) (R`000)
Net flow from operating (16 1 390
activities 159)
Net flow from investing (10 425) 1 844
activities
Net flow from financing 54 902 5 683
activities
Net increase in cash 28 318 8 917
Cash at beginning of year 12 212 3 295
Cash at end of year 40 530 12 212
STATEMENT OF CHANGES
IN EQUITY
Share Share Revaluation Distributable Capital
and
(R`000) capital premium Reserve reserves reserves
Balance at 1 March 1 864 49 065 2 420 (4 202) 49 147
2006
Loss for the year - - (64 928) (64 928)
Revaluation of plant - - 38 679 38 679
and equipment
Prior year adjustment 1 614 1 614
Balance at 28 1 864 49 065 41 099 (67 516) 24 512
February 2007
COMMENTARY
The group has continued with its restructuring programme and has finalised the
disposal of all non-core assets. The group now comprises two core businesses,
South African Micro-Electronic Systems (Proprietary) Limited ("SAMES") and Labat
Traffic Solutions (Proprietary) Limited ("LTS"). Each of these businesses is
being further strengthened in order to extract maximum shareholder value.
The directors have now agreed, under protest, with the auditors, RAIN, to
process the following transactions:
The audited financial statements contain the following changes to the reviewed
results published on SENS on 13 June 2007:
- the deferred tax asset of R21,3 million in SAMES has been written off;
- The deferred tax asset has been written off as a result of the uncertainty
regarding the dispute with SARS explained in the paragraph dealing with the
audit opinion. The income statement effect of the change is to increase the
taxation charge and reduce the retained income in the current year by R21,3
million and the deferred tax assets on the balance sheet by R21,3 million.
- the goodwill relating to SAMES in the books of Labat of R17,809,488 has
been written off;
- At acquisition goodwill of R17,8 million raised on consolidation of SAMES
into the accounts of Labat has been written off. This has the effect of reducing
current year retained income by R17,8 million and goodwill on the balance sheet
by R17,8 million.
- the surplus on the revaluation of the SAMES plant and equipment of R54,5
million less a deferred tax liability raised of R15,8 million is taken directly
to the balance sheet instead of through the income statement as previously
treated;
- There is a difference of opinion regarding the treatment of the surplus on
the revaluation of the plant and equipment. There is no debate concerning the
validity of the surplus but only about its treatment. Consequently R42,7
million was previously taken to the income statement, R8,4 million to non-
distributable reserves and R3,4 million to deferred tax liability. The effect of
the auditors` current treatment of taking the revaluation surplus fully to the
balance sheet is to reduce the current year retained income by R42,7 million, to
increase the non-distributable reserves by R30,3 million and to increase the
deferred tax liability by R12,4 million.
R`000
Profit for the year (as 17 095
previously disclosed)
Less reversal of deferred tax (21 247)
asset
Less impairment of goodwill (17 810)
Less Revaluation surplus taken (42 720)
to balance sheet
Other finalising audit (246)
adjustments
Loss as currently disclosed (64 928)
The directors disagree with the treatment of these transactions and reserve
their right to get alternative advice to confirm their views and based on such
opinions received, to change the accounts for the year to 28 February 2007, if
required. The directors have engaged independent experts and are reviewing the
validity of each of these transactions. The directors are still awaiting
confirmation from SARS that the R190 million tax losses in SAMES will not be
disallowed. It is the opinion of Labat`s legal counsel that SARS has no basis
in law to disallow the tax losses.
None of the transactions outlined in parts 1-3 above are of a cash nature and
have no effect on the fundamentals of the underlying businesses.
INCOME STATEMENT
Revenue
The group revenue from continuing operations has increased by R18,4 million from
R144,9 million to R163,3 million. This represents an increase of 12,7% in very
competitive markets.
EBITDA
Margins came under severe pressure during the year and because of this, the
group EBITDA from continuing operations has been reduced by R6,4 million from
R40,2 million to R33,8 million. Delayed implementation of a major SAMES contract
has impacted negatively on cost recovery for this contract and consequently has
had an adverse effect on the budgeted EBITDA line.
BALANCE SHEET
The balance sheet has been substantially re-structured and net bank debt has
been eliminated. Group net cash resources have increased by R28,3 million from
R12,2 million to R40,5 million.
LTS
The business continues to do well and expects to grow revenues and profits in
the year ahead. In line with the strategy of expanding and enhancing the
service offering to its customers, LTS rolled out its new windows-based, back
office system of Total Computer Solutions (Proprietary) ("TCS") Limited in July
2007. This roll-out has substantially enhanced LTS` product offering and has
created a significant challenge to competitors. New initiatives to collect a
substantial backlog of fines have been initiated with the help of outside
contractors. It is expected that these initiatives will add substantially to the
bottom line.
As part of Labat`s ongoing restructuring process aimed at unlocking value to
shareholders, Labat has concluded various linked and inter-conditional
agreements with Mvelaphanda Holdings (Proprietary) Limited ("Mvela"), in terms
of which Mvela, in line with its intention to facilitate an increase in the BEE
profile of LTS, will acquire all of the minority shareholding in LTS. This
transaction is subject to certain suspensive conditions being met and will
result in a significant increase in the BEE profile of LTS. In a linked
transaction, LTS will repurchase 21,54% of Mvela`s shareholding in LTS` issued
share capital, effectively increasing Labat`s shareholding in LTS by 14%. The
board of Labat, together with its strategic partner Mvela, have entered into
negotiations with a view to constitute TCS as a wholly-owned subsidiary of LTS
in line with its intention to position LTS for a separate listing on JSE
Limited. The conclusion of these negotiations is expected in due course at which
time the necessary required announcements will be made.
SAMES
Difficult trading conditions in the industry have prevailed during the current
year. The implementation of a major contract, on which much of the business`
revenue growth was dependent, was delayed by a further 9 months and is only now
being gradually implemented. This has seriously affected SAMES` revenue and has
contributed to an EBITDA loss of R2,2 million for SAMES. However, this is a
substantial improvement on the previous year where the EBITDA loss was R15,8
million.
The business is being restructured to respond to significant changes in the
industry. There will be an increase in emphasis on design rather than production
going forward. Like many other South African industries, SAMES is being affected
by low cost Chinese manufacturing and will have to change its core business
model to survive in the long term. Associated businesses around the core
technology are being acquired and developed and these will eventually replace
the existing business. SAMES faces many challenges and will need to continue
with bold initiatives in order to grow.
Despite the many challenges the directors are confident that the business can be
turned around and is a going concern.
AUDIT OPINION
The results for the year ended 28 February 2007 have been audited by the group`s
auditors, RAIN, and their audit opinion is available at the group`s registered
office for inspection. Without qualifying their audit opinion, the auditors have
drawn attention to the following:
"Emphasis of Matters
Going Concern
A subsidiary in the group, South African Micro-electronic Systems (Pty) Ltd
("SAMES"), has incurred substantial operating losses resulting in negative cash
flows and the inability to pay its creditors on due dates. The going concern
status of this subsidiary is subject to the successful implementation of the
turnaround strategy mentioned in note 30.
Liquidation of Subsidiary
Tal Burton Management and Consulting Services (Pty) Ltd (previously Labat Africa
Management Consulting (Pty) Ltd, a non-trading subsidiary in the group, was
placed in provisional liquidation on 19 June 2007 by order of the High Court of
South Africa upon the application of a creditor. Labat Africa Limited
subsequently negotiated a settlement on behalf of this subsidiary which included
the creditor agreeing not to oppose an application by the subsidiary for the
rescission of the liquidation order.
Significant uncertainty regarding Litigation
The South African Revenue Services (SARS) has disallowed an assessed loss of
R190 m relating to SAMES, resulting in an estimated tax liability of R36,1m.
The directors do not believe that this is a valid tax liability and have
objected to the assessment.
We also draw attention to note 31 to the annual financial statements which
states that various claims and counter claims have been made by and against the
company. The ultimate outcome of these matters cannot presently be determined.
Reportable Irregularity
We have in terms of Section 45 of the Auditing Professions Act, brought to the
attention of the Independent Regulatory Board for Auditors, a reportable
irregularity relating to a subsidiary, SAMES, trading whilst factually insolvent
and being unable to make provident fund contributions as required by the
Provident Fund Act, and Pay As You Earn payments as required by the Income Tax
Act, due to severe cash flow constraints."
POSTING OF LABAT`S ANNUAL REPORT AND ANNUAL GENERAL MEETING
Shareholders are advised that the Annual Report for the year ended 28 February
2007 will be posted to shareholders on Tuesday, 11 September 2007, and will
contain modifications to the reviewed results published on SENS on 13 June 2007,
as set out above.
Notice is hereby given that the annual general meeting of shareholders of Labat
will be held at 15:00 on Friday, 5 October 2007 in the boardroom of the company,
23 Kroton Avenue, Weltevreden Park, 1709 to transact the business stated in the
notice of the annual general meeting, which is contained in the Annual Report.
RENEWAL OF CAUTIONARY
Shareholders are advised that the full impact of the transactions are still
being determined and, further, that Labat is still engaged in negotiations
which, if successfully concluded, may have a material effect on the price of
Labat shares. Accordingly, shareholders are advised to continue exercising
caution when trading in Labat shares on JSE Limited until a further announcement
is made.
For and on behalf of the board
B G VAN ROOYEN
Chairman
6 September 2007
Directors: B G van Rooyen, D J O`Neill, V J Labat*, Dr T van der Walt*
* Non-executive
Registered Office
23 Kroton Avenue
Weltevreden Park, 1709
Private Bag X09-248
Weltevreden Park, 1715
Transfer secretaries
Computershare Investor Services 2004 (Proprietary) Limited
70 Marshall Street
Johannesburg
2001
P O Box 61051
Marshalltown, 2107
Auditors
RAIN
3rd Floor
30 Melrose Boulevard
Melrose Arch
2196
Sponsor
Merchant Sponsors (Proprietary) Limited
Date: 06/09/2007 16:05:33 Supplied by www.sharenet.co.za
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