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KIR - Kairos Industrial Holdings Limited - Consolidated Reviewed Interim

Release Date: 22/12/2011 12:07
Code(s): KIR
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KIR - Kairos Industrial Holdings Limited - Consolidated Reviewed Interim Results for the six months ended 31 August 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 reviewed interim results for the six months ended 31 august 2011 OVERVIEW OF RESULTS The Group has had an extremely poor first half of the year as is borne out in the results below. It has been mentioned in previous reports that the Group faced major challenges and constraints in achieving an acceptable result in the short term primarily due to the performance of its subsidiary, Brokrew Industrial (Pty) Limited ("Brokrew"). Brokrew`s cancellation of the Medupi Contract due to a dispute with its contractor, Kentz SA (Pty) Limited, has had damaging effects on its working capital, resulting from very material write-offs of both debtors and inventories. This position was exacerbated in July 2011 when the metal industries workers embarked on a nationwide strike for more than two weeks and Brokrew was forced to shut down all four of its factories. Resulting from the above the company`s working capital was severely depleted, affecting its ability to service orders on hand, and following delays in acquiring additional funding as anticipated at the time, Brokrew ceased trading during the first half of August which culminated in Brokrew being put into provisional liquidation on 30 August 2011. Arising from the above, management control of Brokrew was lost resulting in the disclosure of its trading for the period under review as discontinued operations and the deconsolidation of the Brokrew Group from the statement of financial position. EFFECT OF THE BROKREW LIQUIDATION The statements of comprehensive income and financial position reflect material amounts arising out of the liquidation of Brokrew and the transfer of liabilities resulting therefrom. The adjustments are notated in the abridged results and can be summarised as follows; 1. Profit realised resulting from the loss of control on the liquidated subsidiary R`000 Total assets R47 675 Total liabilities (R158 439) Profit realised (R110 764) 2. Kairos Industrial Holdings Limited ("KIH") signed as guarantor to the facilities of Brokrew in terms of various arrangements with financiers. The settlement of these debts post the liquidation of Brokrew will ultimately be the responsibility of KIH. The Group has felt it prudent to thus raise the full liability as the liquidation dividend from Brokrew is currently unknown. The details of these obligations are as follows; R`000 ABSA Bank Limited ("ABSA")* R22 879 Industrial Development Corporation of SA R32 797 Ltd ("IDC") Total R55 676 *In terms of an interim arrangement with ABSA, KIH will make twelve monthly instalments of R200 000 with the outstanding capital being payable on 30 November 2012. The Group has engaged with the IDC but to date no formal agreement for the debt restructure has been reached. 3. Abridged details of the discontinued operations Aug Aug Feb 2011 2010 2011
Revenue 48 748 74 502 152 345 Operating loss before (6 082) (30 843) (25 439) accounting for the following; Investment revenue 291 - 3 761 Fair value adjustments (271) - (984) Impairment - IRFS 5 re- (12 546) - - measurement Finance costs (3 872) (4 268) (12 898) Loss before taxation (22 480) (35 111) (35 560) Taxation (83) (10) (7) Loss - discontinued (22 563) (35 121) (35 567) operations 4. Provisions Included in KIH Group provisions for this reporting period are the liabilities that have been guaranteed by the Group. These liabilities resulted from the loan defaults by Brokrew.The summary of the amount reflected in the statement of financial position is as follows; R`000 ABSA 22 879 IDC 32 797 Other 3 102 Total 58 778 5. Related parties In terms of a transaction being negotiated, a deposit of R3 million has been paid to a related party for the purchase of the entire issued share capital in a property company that owns the head office. Relationships Ultimate holding company Shefa Equity Holdings (Pty) Limited R`000 Related party balances Loan account - owning to related party 15 328 Brokrew Industrial (Pty) Limited Related party transaction Deposit paid to related party Shefa Equity Holdings (Pty) Limited 3 000 OTHER OPERATIONS There continue to be positive signs in the trading of the Group`s brick manufacturing businesses, where improved uptake and market penetration has taken place with the builder`s retail stores and confidence gained amongst the smaller home builders and developers, the target markets for these businesses. This division has shown a 19,1% increase in revenue, but more importantly a 37% improvement in gross profit arising from streamlined production activities and a decrease in waste due to minimising the clamp facilities. During the period, the coal division obtained six mining permits allowing it to exploit two small reserves in Witbank. Although mining commenced in May, this has been frustrated by flooding from underground reservoirs and burning of the coal seam, neither of which was anticipated or discovered when the initial prospecting of these reserves was done. Consequently the yields and volume of coal mined were significantly lower than initially forecast for the period resulting in a marginal contribution to the Group`s earnings and cash flow. There continues to be interest shown in the Group`s township development land, however in the period under review this has been limited to discussions regarding potential offers that will require further investigation before final agreements can be negotiated. The Group has also entered into negotiations with a related party to acquire the shares of a company that owns the head office property which is currently being rented. This should have a positive impact on operational cash flows and return on assets. The results of the greater Group for the period under review are affected by the liquidation of Brokrew and the raising of liabilities taken over by the Group resulting from cross sureties provided to Brokrew financiers, as well as the profit realised as a result of the liquidation of the company. However in terms of the continuing operations, revenue has increased by 34,3% from R16,1 million to R21,7 million mainly as a result of the improved sales in the brick division and to a lesser extent to the coal operations. The operating profit of R184k compared to an operating loss of R1,96 million for the comparative period reflects the improved margins realised in both the brick and the coal divisions. In terms of the discontinued operations, significant entries have distorted the results for the period and can be summarised as follows: Profit realised on the loss of control in the subsidiary or R110,8 million results from the deconsolidation of Brokrew and the write back of both assets and liabilities at the date of liquidation. The loss arising out of the discontinued operation of R22,6 million represents the loss that has accrued to the Group for the current period until the liquidation of Brokrew. Kairos Industrial Holdings Ltd ("Kairos") has signed surety for certain of the secured debts of Brokrew. As at the reporting date there is no clear indication of what dividend will accrue to these secured creditors and consequently Kairos has raised the full obligation in respect of these debts in the results that have been reported. The effects of the above translate into a net profit after taxation of R36,3 million, which represents a profit per share of 16,02 cents, an increase of 32,68 cents from the previous loss of 16,66 cents. Headline loss per share of 30,24 cents was up 13,60 cents on the previous loss per share of 16,64 cents. The financial information on which this interim statement is based has been reviewed by the group`s auditors. BASIS OF PREPARATION The unaudited reviewed Group interim results for the six months ended 31 August 2011 have been prepared in accordance with International Financial Reporting Standards ("IFRS") except for IAS16, and the information required by International Accounting Standard 34: Interim Financial Reporting. The Group`s accounting policies comply fully with the Companies Act, No. 71 of 2008, as amended and the Listing Requirements of the JSE Limited and are consistent with those applied in the annual financial statements for the year ended 28 February 2011. REVIEW OPINION The auditors, Moore Stephens FFRS Inc. have reviewed the condensed consolidated interim financial statements for the six months ended 31 August 2011 in terms of ISRE 2410. The auditors modified review report is available for inspection at the Company`s registered offices. The review report contains the following qualified review opinion paragraphs: "The Brokrew Group of subsidiaries have been placed under liquidation on 30 August 2011. This resulted in all of the subsidiaries assets, including the operating premises where the accounting records have been kept, being placed under sequestration, which lead to a limitation of scope on the review engagement. As a result we were not able to complete our review of the accounting records of these subsidiaries, reflecting a loss for the year of R22,563 million, nor could we assess the reasonableness of the R110,764 million profit on loss of control of the subsidiaries included in the interim financial information. We were also unable to assess the correct re-measurement of the assets of the discontinued operations in terms of IFRS 5. We therefore cannot determine the reasonableness of the earnings and head-line earnings per share due to the significance of these balances. Another result of these subsidiaries having been placed under liquidation, are provisions amounting to R55,676 million that had to be assumed by the Group, as they acted as guarantor on behalf of the subsidiaries. Management made their best endeavour to estimate a provision for the possible debt owing due to the guarantees provided, but we were unable to satisfy ourselves as to the valuation and completeness of the provision. Had we been able to complete our review of the accounting records of the subsidiaries, matters might have come to our attention indicating that adjustments might be necessary to the interim financial information. We draw attention to the fact that the abridged statement of financial position indicates that the Group has an accumulated loss of R237,256 million (2011:R273,483 million) for the 6 months ended 31 August 2011 and, as at that date, the group`s total liabilities exceeds its total assets by R21,051 million (2011: R56,492 million). In addition to this we draw attention to the directors` notes regarding other operations, prospects and going concern and contingencies which indicate the existence of a material uncertainty that may cast significant doubt on the Group`s ability to continue as a going concern and therefore the Group might be unable to realise its assets and discharge its liabilities in the normal course of business. The interim results do not fully disclose this fact. The group has elected to use the revaluation model in terms of IAS 16 for plant and equipment. IAS 16 states that the assets should be revalued with sufficient regularity to ensure that the carrying amount does not differ materially from the fair value. During the review it came to our attention that the plant and equipment were not revalued with sufficient regularity as determined by IAS 16. Therefore, we could not satisfy ourselves as to the accuracy and valuation of plant and equipment, depreciation and revaluation reserve." The auditors have reviewed the financial information in terms of section 3.18 of the Listings Requirements of the JSE. REPORTABLE IRREGULARITY The Group does not have an audit committee that consists of a minimum of three independent non-executive directors, as required by section 34(2) and 84(1)(c)(ii) of the Companies Act No. 71 of 2008. DIVIDEND The Board has resolved that no interim dividend will be declared. PROSPECTS AND GOING CONCERN The liquidation of Brokrew, is indeed unfortunate and will place a significant burden on the rest of the Group in terms of which the additional liabilities of R56 million being assumed for cross suretyships provided. The Group has confirmed monthly commitments which it will need to service and will be reliant on the coal mining and brick manufacturing operations to do so. Detailed cash flow forecasts has been performed for the next twelve months and the Group`s ability as going concern is almost entirely dependent on the success of the coal mining division as the forecast for the brick manufacturing division reflects only a small contribution to the Group overhead. Whilst in the short term monthly revenues are secured as the Group exploits its smaller reserves in terms of mining permits it has on hand, the Group in the longer term will be reliant on the success of the mining right application for its larger reserve. Although management is relatively confident that the right will be awarded, the actual mining of this reserve is fraught with challenges in regard to underground water contamination and purification, cost of surface rights and the risk of underground fires. These issues still need to be dealt with before any benefits accrue from the reserve. Interest has been shown from two parties in respect of the township development land, however due to the complexity and size of these developments and a shortage of services in the relevant municipality, it is doubtful that there will be any meaningful contribution from these properties in the short to medium term. There is no doubt that the Group performance will remain under pressure for some time and management will need to exploit every available opportunity to secure its viability in the future. The untimely liquidation of Brokrew also placed the planned delisting procedures of the Group on hold, however this process has again proceeded in all earnestness. CONTINGENCIES AND SUBSEQUENT EVENTS Arising from the cancellation of the Medupi Contract, the primary contractor has attempted to call up the performance bond and advance payment guarantee totaling R50 million. The Group has signed as co-surety for this debt and together with its insurers, continues to defend this action vigorously. No dates have been finalised and set down for the hearings. Brokrew was placed in final liquidation on the 29 November 2011. At a boardroom bid on Wednesday, 14 December 2011, the liquidator accepted an offer of R18 million for the business as a going concern including the land and buildings. The sale is subject to confirmation on 22 December 2011. For and on behalf of the board. WL van Deventer WA Lombard CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (R`000) Notes Reviewed Unaudited Audited for the for the for the 6 months 6 months 12 months ended ended ended
31 Aug 31 Aug 28 Feb 2011 2010 2011 Continuing operations Revenue 21 700 16 149 35 361 Cost of sales (13 906) (12 261) (23 803) Gross profit 7 794 3 888 11 558 Other income 632 504 815 Operating costs (8 242) (6 358) (14 185) Operating 184 (1 966) (1 812) profit/(loss) before accounting for the following: Investment revenue 57 37 230 Loan impairment (356) - - Fair value adjustments 5 670 - - Finance cost (846) (423) (1 271) Profit on the loss of 1 110 764 - - control of subsidiary Surety obligation on 2 (55 676) - - liquidation of subsidiary Profit/(loss) before 59 797 (2 352) (2 853) taxation Taxation (1 254) - 15 -'Normal - - - -'Deferred (1 254) - 15 Net profit/(loss) for 58 543 (2 352) (2 838) the period from continuing operations Discontinued operations Net loss for the 3 (22 563) (35 121) (34 583) period from discontinued operations Profit/(loss) for the 35 980 (37 473) (37 421) period Other comprehensive income Taxation related to - - - components of other comprehensive income Gain on revaluation of 514 - (1 120) property, plant and equipment Taxation thereon (144) - 158 Other comprehensive 370 - (962) income for the period Total comprehensive 36 350 (37 473) (38 383) income/(loss) from continuing operations Total comprehensive profit/(loss) attributable to: Owners of the parent 36 350 (37 473) (38 383) Reconciliation of headline loss Profit/(loss) after 35 980 (37 473) (37 421) taxation Profit on disposal of - - 55 fixed assets/reversal provision Net profit from the (110 764) - - loss of control in subsidiary Impairment - IFRS 5 re- 12 546 - - measurement Fair value adjustment (5 670) - - Headline loss (67 908) (37 473) (37 366) Weighted average number of 224 554 224 554 224 554 shares (000`s) Headline loss per share (30,24) (16,69) (16,64) (cents) Profit/(loss) per 16,02 (16,69) (16,66) ordinary share (cents) CONSOLIDATED STATEMENT OF FINANCIAL POSITION (R`000) Notes Reviewed Unaudited Audited as at as at as at 31 Aug 31 Aug 28 Feb
2011 2010 2011 ASSETS Non-current assets 60 397 93 468 91 729 Investment Properties 34 313 28 913 28 913 Property, plant and 26 084 62 055 60 316 equipment Intangible assets - 2 500 2 500 Current assets 13 288 38 797 35 070 Inventories 3 510 10 532 11 266 Current tax receivable - 54 84 Trade and other 3 928 25 114 17 837 receivables Deposit - share 5 3 000 - - purchase transaction Mining and exploration - 331 - assets Cash and cash 2 850 2 766 5 883 equivalents TOTAL ASSETS 73 685 132 265 126 799 EQUITY AND LIABILITIES Stated capital and (21 051) (56 492) (57 401) reserves Non-current liabilities 6 152 69 491 70 771 Other financial 383 59 066 62 714 liabilities Finance lease - 4 265 2 068 obligations Deferred taxation 5 769 6 160 5 989 Current liabilities 88 584 119 266 113 429 Other financial 16 833 30 237 48 034 liabilities Finance lease 145 8 184 3 213 obligations Trade and other 10 934 66 581 45 736 payables Provisions 4 58 778 5 670 6 838 Bank overdraft 1 894 8 594 9 608 TOTAL EQUITY AND 73 685 132 265 126 799 LIABILITIES Weighted average shares (000`s) Shares in issue (000`s) 224 554 224 554 224 554 Net asset value per (9,37) (25,16) (25,56) share (cents) Net tangible asset (9,37) (26,27) (26,68) value per share (cents) STATEMENT OF CHANGES IN EQUITY (R`000) Stated Revalua Convert- Capital -tion ible reserve instru-
ments reserve Balance as at 01 September 2009 200 741 12 935 460 Total comprehensive - 5 553 - income/(loss) for the period Realisation of revaluation - (1 418) - reserve through use Realisation of revaluation - (1 280) - reserve through sale Balance as at 01 March 2010 200 741 15 790 460 Total comprehensive income/(loss) for the period Realisation of revaluation - (169) - reserve through use Balance as at 01 September 2010 200 741 15 622 460 Total comprehensive - 963 - income/(loss) for the period Realisation of revaluation - (169) - reserve through use Balance as at 01 March 2011 200 741 14 490 460 Total comprehensive income for - 370 - the period Realisation of revaluation - (167) - reserve through use Realisation of revaluation - (6 669) - reserve through loss of control Balance as at 31 August 2011 200 741 8 024 460 (R`000) Total Accumu- Total Reserves lated share- losses holders equity Balance as at 01 September 13 395 (157 258) 56 878 2009 Total comprehensive 5 553 (81 450) (75 897) income/(loss) for the period Realisation of revaluation (1 418) 1 418 - reserve through use Realisation of revaluation (1 280) 1 280 - reserve through sale Balance as at 01 March 2010 16 250 (236 010) (19 019) Total comprehensive - (37 473) (37 473) income/(loss) for the period Realisation of revaluation (169) 169 - reserve through use Balance as at 01 September 16 082 (273 315) (56 492) 2010 Total comprehensive - 223 223 income/(loss) for the period Realisation of revaluation (169) 169 - reserve through use Balance as at 01 March 2011 14 950 (273 092) (57 401) Total comprehensive income for 370 35 980 36 350 the period Realisation of revaluation (167) 167 - reserve through use Realisation of revaluation (6 669) 6 669 - reserve through loss of control Balance as at 31 August 2011 8 484 (230 276) (21 051) SEGMENTAL ANALYSIS (R`000) Brick Mining & Property & Group enterprises supplies investment divisions Six months to August 2011 Continuing operations Turnover 17 811 3 889 - 21 700 Net profit/(loss) 2 150 754 (2 720) 184 before interest and tax Interest received - 57 - 57 Finance cost (846) - - (846) Surety obligation - - (55 676) (55 676) on subsidiary liquidation Profit on loss of - - 110 764 110 764 control Revaluation of PPE 370 - - 370 Fair value - - 5 670 5 670 adjustments Loan impairments - - (356) (356) Income tax (550) - (704) (1 254) (expense)/credit Net profit for the 1 124 811 56 978 58 913 period Discontinued operations -Operations - (22 563) - (22 563) Net profit/(loss) 1 124 (21 752) 56 978 36 350 for the period Total assets 36 139 1 765 35 781 73 685 Total liabilities 13 786 3 175 77 775 94 736 Depreciation and 519 4 15 538 amortisation Capital - - 85 85 expenditure (R`000) Brick Mining & Property & Group enterprises supplies investment divisions
Six months to August 2010 Turnover 15 039 75 612 - 90 651 Net (loss)/profit (298) (31 220) (1 291) (32 809) before interest and tax Interest received - 31 6 37 Finance cost (419) (4 190) (82) (4 691) Income tax - - (10) (10) (expense)/credit Net loss for the (717) (35 379) (1 377) (37 473) period Segment assets 49 280 48 489 31 996 129 765 Intangible assets - 2 500 - 2 500 Total assets 49 280 50 989 31 996 132 265 Total liabilities 11 377 169 255 8 125 188 757 Depreciation and 1 464 1 412 71 2 947 amortisation Capital 96 160 26 282 expenditure ABRIDGED GROUP CASH FLOW STATEMENT R`000 Reviewed Unaudited Audited for the for the for the 6 months 6 months 12 months
ended ended ended 31 Aug 31 Aug 28 Feb 2011 2010 2011 Cash inflows/(outflows) from 9 902 (28 983) (40 460) operating activities Cash inflows/(outflows) from (85) (120) - investment activities Cash(outflows)/inflows from (5 136) 27 443 40 903 financing activities Net movement in cash and cash 4 681 (1 660) 443 equivalents (Overdraft)/Cash and cash (3 725) (4 168) (4 168) equivalents at beginning of the period Cash and cash 956 (5 828) (3 725) equivalents/(overdraft) at end of the period Registered office 1111 Church Street, Hatfield, Pretoria 0083 PO Box 11328, Hatfield 0028, Pretoria' Tel: +27 (0) 12 342 1980 Fax: +27 (0) 12 3421976 E-mail: info@kairos.co.za Sponsor Bridge 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 Mazibuku (non-executive chairman), WL van Deventer (chief executive), WA Lombard, DC Jacobs Visit us at www.kairos.co.za Date: 22/12/2011 12:07:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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