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KIR - Kairos Industrial Holdings Limited - Audited Results for the year ended 28
February 2011
KAIROS INDUSTRIAL HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1987/002927/06)
Share code: KIR ISIN:ZAE000011284
("Kairos" or "the Group")
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Audited Audited
for the for the
year year
ended ended
28 Feb 28 Feb
(R`000) 2011 2010
Revenue 187 706 238 843
Cost of sales (182 354) (266 168)
Gross profit (loss) 5 352 (27 325)
Other income 916 1 767
Operating expenses (33 519) (61 980)
Operating loss (27 251) (87 538)
Investment revenue 3 991 3 785
Fair value adjustments - 5 203
Finance cost (14 169) (12 099)
Loss before taxation (37 429) (90 649)
Taxation 8 1 346
Net loss for the year (37 421) (89 303)
Gains and losses on property revaluation (1 120) 7 426
Taxation related to components of other
comprehensive income 158 (1 873)
Total comprehensive loss (38 383) (83 750)
Determination of headline loss
Loss after taxation (37 421) (89 303)
Profit on disposal of fixed assets 55 921
Fair value adjustment - (5 204)
Goodwill impairment - 2 309
Headline loss (37 366) (91 277)
Number of shares on which loss per share 224 554 224 554
is based (000`s)
Basic loss and diluted loss per share (16,66) (39,77)
(cents)
Headline loss and diluted headline loss (16,64) (40,65)
per share (cents)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited Audited
as at as at
28 Feb 28 Feb
(R`000) 2011 2010
ASSETS
Non-current assets 91 729 96 479
Investment properties 28 913 28 913
Property, plant and equipment 60 316 65 066
Intangible assets 2 500 2 500
Current assets 35 070 65 783
Inventories 11 266 33 860
Current tax receivable 84 84
Trade and other receivables 17 837 27 248
Mining and exploration assets - 331
Cash and cash equivalents 5 883 4 260
TOTAL ASSETS 126 799 162 262
EQUITY AND LIABILITIES
Stated capital 200 741 200 741
Reserve 14 950 16 249
Accumulated loss (273 092) (236 008)
Total equity (57 401) (19 018)
Non-current liabilities 70 771 44 216
Other financial liabilities 62 714 32 731
Finance lease obligation 2 068 5 325
Deferred taxation 5 989 6 160
Current liabilities 113 429 137 064
Other financial liabilities 48 034 32 438
Finance lease obligation 3 213 3 902
Trade and other payables 45 736 86 048
Provisions 6 838 6 248
Bank overdraft 9 608 8 428
TOTAL EQUITY AND LIABILITIES 126 799 162 262
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Audited Audited
for the for the
year year
ended ended
28 Feb 28 Feb
(R`000) 2011 2010
Net cash from operating activities (40 460) (22 999)
Net cash from investing activities - (6 062)
Net cash from financing activities 40 903 31 031
Total cash movement for the year 443 1 970
Cash at the beginning of the year (4 168) (6 138)
(3 725) (4 168)
Total cash at end of the year
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Convert-
ible
Revalua- instru-
Stated tion ments
(R`000) capital reserve reserve
Balance at March 1,2009 200 741 12 935 460
Changes in equity
Total comprehensive income loss - 5 553 -
for the year
Realisation of revaluation of - (1 280) -
assets sold
Realisation of revaluation - (1 419) -
reserve through use
Total changes - 2 854 -
Balance at March 1, 2010 200 741 15 789 460
Changes in equity
Total comprehensive loss
for the year - (962) -
Realisation of revaluation - (337) -
reserve through use
Balance at February 28, 2011 200 741 14 490 460
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Accumu-
Total lated Total
(R`000) reserves loss equity
Balance at March 01,2009 13 395 (149 404) 64 732
Changes in equity
Total comprehensive income loss 5 553 (89 303)
for the year (83 750)
Realisation of revaluation of (1 280) 1 280 -
assets sold
Realisation of revaluation (1 419) 1 419 -
reserve through use
Total changes 2 854 (86 604) (83 750)
Balance at March 01, 2010 16 249 (236 008) (19 018)
Changes in equity
Total comprehensive loss
for the year (962) (37 421) (38 383)
Realisation of revaluation (337) 337 -
reserve through use
Balance at February 28, 2011 14 950 (273 092) (57 401)
CONSOLIDATED SEGMENTAL REPORT
Property &
Brick Mining investment
(R`000) enterprises supplies divisions Group
2011
Revenue 31 194 156 512 - 187 706
Net (loss)/profit 978 (28 380) 151 (27 251)
before interest and
tax
Interest received 147 3 838 6 3 991
Finance cost (1 267) (12 773) (129) (14 169)
Income tax - - 8 8
(expense)/credit
Net (loss)/profit (142) (37 315) 36 (37 421)
for the year
Segment assets 34 377 47 332 42 590 124 299
Intangible assets - 2 500 - 2 500
Total assets 34 377 49 832 42 590 126 799
Total liabilities 12 567 162 553 9 080 184 200
Depreciation and 1 504 1 710 76 3 290
amortisation
Capital expenditure 96 47 47 190
Property &
Brick Mining investment
(R`000) enterprises supplies divisions Group
2010
Revenue 29 907 208 936 - 238 843
Net loss before (2 120) (77 405) (8 013) (87 538)
interest and tax
Fair value 1 203 - 4 000 5 203
adjustments
Interest received 139 3 617 29 3 785
Finance cost (2 005) (9 798) (297) (12 100)
Income tax 1 919 - (573) 1 346
(expense)/credit
Net loss for the (864) (83 586) (4 854) (89 304)
year
Segment assets 37 073 77 733 44 957 159 763
Intangible assets - 2 500 - 2 500
Total assets 37 073 80 233 44 957 162 263
Total liabilities 14 120 158 396 8 766 181 282
Depreciation and 2 324 2 550 76 4 950
amortisation
Capital expenditure 94 6 720 96 6 910
OVERVIEW OF RESULTS
These annual financial statements are presented on a going concern basis on the
assumption that the group`s funding requirements will be met. A number of
options are being considered to restructure the debt within the Group and as a
result the Group continues to trade under cautionary.
Financial highlights
The Group consolidated revenue for the financial year under review decreased by
21.4% to R187,7 million from R238,8 million reported in the previous year. As
detailed in the interim report further write-offs were taken in a Group
subsidiary, Brokrew Industrial (Pty) Limited, clearing out the work in progress
and finished inventory destined for the Medupi Contract, totaling R17,1 million.
This has been one of the major contributors to the poor performance of the
Group.
Investment revenues of R4,0 million were slightly ahead of the previous year`s
R3,8 million. The debt levels have increased over the financial year resulting
from the IDC loan of R30 million and as a result financing costs have increased
to R14,2 million from the previous year`s R12,1 million.
The resultant Group loss for the year was R37,4 million, a significant
improvement on the previous year`s loss of R89,3 million.
As a result of the above losses, the net asset value per share decreased from
(8,47) cents per share to (25,56) cents per share.
The headline loss per share decreased to 16,64 cents from the previous year`s
loss per share of 40,65 cents. The ordinary loss per share for the year was
16,66 cents. (2010: 39,77 cents per share).
REVIEW OF ACTIVITIES OF OPERATIONAL SUBSIDIARIES
Major operations
Witbank Brickworks (1961) (Pty) Ltd
The year under review has seen an encouraging improvement in the brick making
operations. Although revenues remained flat in comparison to that of the
previous year, the company has seen a healthy improvement in its margins. There
is no doubt that the market in which the company operates still remains severely
affected by the stringent lending policies of the banks, together with
recessionary pressures that hamper growth in the secondary market for additions
and alterations to existing domestic housing. Developers in the residential
sector continue to decline in number with many projects being put on hold or
cancelled in entirety as a result of the drop in market demand.
Much has been expected from the Eskom Kusile facility which has not yet come to
fruition. Financial constraints and rising costs have prompted Eskom to postpone
all miscellaneous projects which were earmarked as the primary source for the
demand on clay bricks.
An exciting development is the association that the company has formed with
Thermo Char, an operation that refines coal to produce char for the ferro-chrome
industry and who has installed their plant on the company`s premises. This
process produces significant heat and the spin-off is that, at no cost, Witbank
Brickworks utilises this heat to dry its bricks before they are fired in the
kilns. There has been a major saving in coal consumption, one of the major input
costs in the production of bricks, and an encouraging improvement to the quality
of the bricks, as a direct result of this relationship.
A further positive note is that the market continues to show a tendency towards
lower end products because of the advantages of lower prices, and the company
has managed to penetrate this area. In the past this business put a strain on
the company`s results because of margin pressures, but due to strategic
decisions taken in the last three years the company has managed to lower its
cost base and as a result is achieving the desired margins.
As a result of the above, revenue of R31,2 million was marginally better than
that of the previous year, however the operating profit of R0,978 million
improved significantly from the previous year`s operating loss of R2,1 million.
Economic conditions are more conducive to growth now than at any time in the
previous few years and the board believes that the group is well positioned to
exploit the resulting opportunities. Nevertheless, there are threats to the
macro economic environment in the form of looming inflationary pressures, the
strength of the rand and the rising oil price.
Considering the above, the board is cautiously optimistic that conditions should
improve for the brick manufacturing businesses for the ensuing year.
Brokrew Industrial (Pty) (Ltd)
The company has again had a very poor trading year. The results of its
operations continue to be severely affected by the cancellation of the Medupi
Contract and as noted above, the write-off of related work in progress and
finished goods adversely knocked the statement of comprehensive income by R17,1
million. The entire contract has now been written off and there should be no
further effect to the statement of comprehensive income in future reporting
periods.
It was mentioned in the last report that the company had to provide guarantees
for performance and advance payments to the primary contractor on the Medupi
Contract totaling R50,4 million which the primary contractor had attempted to
call up. This remains outstanding and a court date has been set down in
September 2011 to address the matter. The company, together with its insurers,
will continue to defend this action vigorously. The performance guarantee of R34
million has been noted as a contingent liability in the annual financial
statements.
The Board notes the unfortunate passing away of the CE of Brokrew Industrial, Mr
De Wet Mulder, in February of this year. During his period of ill health, the
Board appointed a new managing director and under his strategic direction, we
are confident that the company will return to profitability in the not too
distant future.
During the year, the standards division, responsible for the manufacture of
galvanised ventilation ducting for the mining industry, performed extremely well
and ahead of budget. The strength in commodities over the year, and specifically
gold and platinum, resulted in the mining houses` continued demand for this
product for the ventilation of their shafts. The division continues to have a
healthy order book and with its vendor licences with the majority of mines in
South Africa and supplier agreements in place, continues to enjoy a dominant
position in that specific market.
The major effect to the company`s poor results stemmed from the operations of
the specials division, that part of the company that provides heavy duty steel
fabrication for industry in general on a project basis. With the cancellation of
the Medupi Contract, a project that was earmarked for at least three years, this
division was immediately left with a vacuum in its workload, no immediate order
book and significant overheads, including a large labour force. Significant
costs have been incurred in regard to the termination and retrenchment of staff
throughout the division. It must be noted however that this has been a lengthy
process and significant losses accumulated within this division for the first
six months of the financial year.
The losses encountered in the specials division could not be off-set by the
profitable trading of the standards division and the company realised an
operating loss for the year of R27,5 million. (2010: Loss R94,4 million). What
remains comforting is that there has been a visible improvement in the
operations of the company with the loss for the latter six months being
restricted to R600 000.
The company is certainly not out of the woods yet and continues to face major
challenges in respect of its cash flow and restructuring of the statement of
financial position. The pre-requisites to a successful turnaround of the company
will be the restructuring of the legacy unsecured debt resulting from the Medupi
Contract and the injection of further working capital to sustain the operations
of the company. Management has prioritized these two aspects and are very close
to resolving both of these issues. I am also pleased to report that the Group
continues to have the support from its major bankers, being ABSA Bank Ltd and
the Industrial Development Corporation of South Africa, the latter of which has
approved the granting of a further working capital loan of R20 million to the
company.
Minor operations
Coal Reserves
The exploration subsidiary, Kairos Coal & Exploration (Pty) Ltd commenced and
completed mining a further coal reserve during this financial year. Again, as
with the first reserve, this was not a significant deposit, however it
contributed to the earnings of the Group.
Prospecting has been completed on two further reserves with geological reports
having been issued. Mining permits in respect of the smaller reserve have been
received after the financial year end and mining of this reserve will commence
during the forthcoming financial year. The company will pursue the mining right
for the final reserve. I would advise, however, that there are significant risks
attached to this coal reserve. The first being, the success of actually
obtaining the mining rights to the reserve and secondly, because of the numerous
risks associated with the reserve, the actual viability of commencing mining the
reserve.
Township Development
As reported in the interim report, the Group has commenced evaluating a new
proposal for the township development and as such there has been no further
activity during the current financial year. These developments are certainly of
a longer term nature and not core to the current operations of the Group. As a
result the Board will continue to proceed cautiously, reviewing alternate
proposals to ensure that the timing is right to maximise earnings in the future.
GOING CONCERN
We draw attention to the fact that at 28 February 2011, the group had
accumulated losses of R273,092 million (2010: R236,008 million) and that the
group`s total liabilities exceeded its total assets by R57,401 million (2010:
R19,018 million).
The annual financial statements have been prepared on the basis of accounting
policies applicable to a going concern. This basis presumes that funds will be
available to finance future operations and that the realisation of assets and
settlement of liabilities, contingent obligations and commitments will occur in
the ordinary course of business.
The ability of the company to continue as a going concern is dependent on a
number of factors. The most significant of these is that the directors continue
to procure funding for the ongoing operations of the group. The directors are
currently finalising an additional working capital facility of R20 million with
the Industrial Development Corporation of South Africa ("IDC"). This loan has
been approved by the IDC for the benefit of Brokrew Industrial (Pty) Ltd and the
funds will become available on satisfying the conditions precedent set out in
the various agreements. The loan from the IDC of R20 million will allow Brokrew
to step up its production in the Standards Division and to erode the backlog of
the substantial overdue order book.
The Group continues to trade under cautionary in respect of various proposals to
restructure the debt of its subsidiary, Brokrew and we are able to report that a
significant component of the creditors in this subsidiary has accepted the
proposals tabled to them. We note that these proposals have been sanctioned by
the Group`s financiers, both the IDC and ABSA Bank Ltd.
The Board is satisfied that the restructure of Brokrew and the forecasts
provided by management reflect that the business can be rescued. The turnaround
strategy, although a lengthy process, has sufficient integrity and credibility
and there are encouraging plans to return Brokrew to solvency.
We record that Witbank Brickworks (1961) (Pty) Ltd has returned to marginal
profitability and that there has been an improvement in the business climate in
which they operate. Their forecast for the year reflects that they will be able
to trade within the limits of the facilities that have been approved by their
bankers.
Mining activities have commenced on certain smaller portions of the reserves
available to Kairos Coal & Exploration (Pty) Ltd and the directors report that
the prospects, although small, will be sufficient to ensure that there is a
reasonable contribution from the coal revenues to service the liabilities and
obligations of the company for the forthcoming 12 months. Prospecting has been
completed on two further reserves with geological reports having been issued.
Mining permits in respect of the smaller reserve have been received after the
financial year end and mining of this reserve will commence during the
forthcoming financial year.
CHANGE IN DIRECTORATE
Mr de Wet Mulder passed away on the 3 February 2011.
Mr PW van der Merwe was appointed as an executive director with effect from 24
May 2011.
EVENTS AFTER THE REPORTING PERIOD
No other material events have taken place since the financial year end.
DIVIDENDS
No dividends have been declared for the current financial year. The board will
review this policy as soon as the company returns to profitability.
AUDITORS
Moore Stephens FRRS Incorporated, Chartered Accountants (SA) ("Moore Stephens")
were re-appointed as auditors to the holding company and its subsidiaries. Their
audit report is available for inspection at the Group`s registered office. The
salient extracts of the report are set out below:
BASIS FOR A QUALIFIED OPINION
Moore Stephens reports that the group has elected to use the revaluation model
in terms of IAS 16 for plant and equipment, which states that the assets should
be revalued with sufficient regularity to ensure that the carrying amount does
not differ materially from the fair value and during the audit it came to their
attention that the assets were not revalued with sufficient regularity as
determined by IAS 16.
The group`s records did not permit the application of adequate alternative audit
procedures to satisfy Moore Stephens as to the accuracy and valuation of plant
and equipment, depreciation and revaluation reserve.
EMPHASIS OF MATTER
Moore Stephens reports that without further qualifying their opinion, they draw
attention to the note on going concern which indicates that the Group has an
accumulated loss of R273,092 million (2010:R236,008 million) for the year ended
28 February 2011 and, as at that date, the group`s total liabilities exceeded
its total assets by R57,401 million (2010:R19,018 million). These conditions
indicate the existence of a material uncertainty which may cast significant
doubt in the group`s ability to continue as a going concern.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Moore Stephens report that in accordance with their responsibilities in terms of
section 44(2)and 44(3) of the Auditing Profession Act, they have identified
certain unlawful acts or omissions committed by persons responsible for
management which constitute reportable irregularities in terms of the Auditing
Profession Act, and have reported such matters to the Independent Regulatory
Board of Auditors.
The reportable irregularity pertains to:
The group not having an audit committee that consists of a minimum of two
independent non executive directors, as required by section 269A(3) of the
Companies Act of South Africa, 1973.
BASIS OF PREPARATION
The audited condensed consolidated annual financial statements have been
prepared in accordance with International Financial Reporting Standards
("IFRS"), the Companies Act of South Africa, 1973 and the Listings Requirements
of the JSE Limited. The accounting policies and methods of measurement and
recognition applied in the preparation of these audited condensed consolidated
annual financial results are consistent with those applied in the group`s most
recent audited annual financial statements for the previous year ended 28
February 2010.
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the 23rd annual general meeting of members of Kairos
will be held at the Southern Sun Garden Court, Pretorius Street, Hatfield,
Pretoria on Friday 24 June 2011 at 11h00.
Registered office 1111 Church Street, Hatfield 0083, Pretoria
PO Box 11328, Hatfield 0028, Pretoria
Tel: +27 (0) 12 342 1980 Fax: +27 (0) 12 342 1976
E-mail: info@kairos.co.za
31 May 2011
Sponsor: Bridge Capital Advisors (Pty) Limited, 27 Fricker Road, Illovo
Boulevard, Illovo 2196
Share transfer secretaries: Computershare Investor Services (Pty) Limited, 70
Marshall Street, Johannesburg 2001
Directors
VD Mazibuko (non-executive chairman), WL van Deventer (chief executive),
WA Lombard, PW van der Merwe
WWW.KAIROS.CO.ZA
Date: 31/05/2011 15:05:00 Supplied by www.sharenet.co.za
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