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Withdrawal of Caut, Issue of Final Terms re Cannabis business, Acquisition of Medigrow Africa & Renewal of Caut
LABAT AFRICA LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1986/001616/06)
(“Labat” or “the Company”)
ISIN Code: ZAE 000018354 Share code: LAB
WITHDRAWAL OF DETAILED CAUTIONARY ANNOUNCEMENT DATED 13 SEPTEMBER 2019, THE ISSUE OF FINAL
TERMS ANNOUNCEMENT RELATING TO THE CANNABIS BUSINESS OF LABAT AFRICA, ANNOUNCEMENT OF THE
ACQUISITION OF MEDIGROW AFRICA AND RENEWAL OF CAUTIONARY ANNOUNCEMENT
1) Introduction
Shareholders are referred to the detailed cautionary announcements dated 5 September 2019 and
13 September 2019 respectively, with regard to the establishment of a fully integrated cannabis
business within the Labat Group of companies known as Labat Healthcare. Shareholders are
accordingly advised that Labat, as part of its business expansion, has now concluded or withdrawn
from the various agreements together with the forward looking financial information of the
businesses going forward. The Labat Healthcare Business will be a subsidiary of Labat Africa, which
consists of the following subsidiaries:
o Labat Pharmaceuticals;
o Labat Cannabis (90% owned);
o Labat Intellectual Property;
o Labat Hemp Processing; and
o Cannabis Wellness Warehouse.
2) Background
Labat has announced a number of transactions in line with its re–positioning strategy and its entry
into the cannabis market in Southern Africa and in the rest of the world. To this end Labat is pleased
to advise shareholders that a number of these agreements and discussions have been concluded.
The Company has decided not to pursue the subscription for a 70% shareholding in Zarenka Group
Proprietary Limited as announced on 13 September 2019.
2.1 Labat has concluded an agreement with The Highly Creative (Pty) Limited (THC), its partners,
management and promoters to obtain an additional cannabis licence to cultivate, harvest,
process and export cannabis from the Kingdom of Lesotho to other countries for medicinal and
pharmaceutical purposes as well as a detailed infrastructure plan, Intellectual Property and offtake
agreements. The purchase consideration will be settled through the issue of 75 million Labat
ordinary shares. All conditions precedent pertaining to this agreement have been met other than
the issue of shares for the acquisition, which is in process. THC is owned by Mr Mike Stringer (23%),
who will be the CEO of Labat Healthcare, Mr Stanton van Rooyen (38%), who will be the Chief
operating officer, Mr Dave Roughe (23%), Mr Sizwe Ngqame (3%), Mr Mbulelo Rakwena (3%),
Mr Dawood Asmal (3%) and the Incentive Trust (7%). The THC vendors are not related parties to
Labat as defined in the JSE Listings Requirements, although Mr Stanton van Rooyen is a major son
of a director of Labat.
2.2 Labat further concluded an agreement with ZCMA Holdings Limited (Medigrow Africa) to acquire
a 80% interest in one of their Lesotho based operations to cultivate, harvest, process and export
cannabis from the Kingdom of Lesotho for medicinal and pharmaceutical purposes for a
consideration of 20 million Labat ordinary shares. The controlling shareholder of ZCMA Holdings
Limited is Solid Oak Insurance Company PCC Limited.
2.3 Labat has finalised the agreement to acquire a 100% interest in Pac-Con in Kwazulu Natal, for a
combination of 5 million shares and R5 million in cash as previously announced. This pharmaceutical
facility is fully licenced and approved by the South African Health Products Regulatory Authority
(SAHPRA).
2.4 As previously announced, the finalisation of the 70% acquisition of Knuckle Genetics is in process.
2.5 The conclusion of Off Take agreement with UK based cannabis group New Frontier Holdings
Limited. New Frontier Holdings is the holding company for New Frontier Botanics.
3) The Terms of the Medigrow Africa and THC Acquisitions
The parties have agreed that Labat will acquire 80% interest of the operational entity – Healthy
Corporation (Pty) Limited from Medigrow Africa for a consideration of R20 million to be settled
through the issue of 20 million shares in Labat at an issue price of R1.00 per share.
The 100% interest in THC, which has access to licences in Lesotho and South Africa (research only)
as well as a detailed infrastructure plan, Intellectual Property and off take agreements, will be
settled through the issue of 75 million ordinary shares at an issue price of R1.00 per share. The various
shareholders and operators in THC will continue to provide to Labat Healthcare a range of services
to ensure the successful implementation of the plans. These include inter alia interest group
lobbying, additional off take agreements and amongst others investment in the Labat Group.
Medigrow Africa has an interest in a number of licences in both Lesotho and other African countries,
which licences allow it to cultivate, harvest, manufacture, distribute, import and export cannabis
for medical, Pharmaceutical and Industrial use and for any other use, which is legal in the country
acquiring the products. Labat and Medigrow Africa are currently in discussions with a view to
bringing some of those licences into the Labat operations.
Medigrow Africa has a methodical and in depth detailed business plan, which outlines its growth
and implementation strategy. The Plan outlines its cloning programme, growth programme and
profiling channels. Medigrow Africa and THC (Pty) Limited has off-take arrangements with a
number of International companies.
Rationale for the Medigrow Africa acquisition
The Medigrow Africa agreement is in line with Labat strategy to give effect to the establishment of
a fully integrated cannabis business and will enable Labat to supply the international market with
a lower to mid-tier product for pharmaceutical purposes whilst the higher tetrahydrocannabinol
(THC) and cannabidiol (CBD) content is for the upper medicinal and medical research market.
The construction of the Labat facility in the Kingdom of Lesotho will start around 1 February 2020,
with production expected to commence on 1 May 2020. This will include, but is not limited to, inter
alia the setting up of a state of the art laboratory, nurseries, offices, greenhouses, recruitment of
staff.
The parties have stated that it is the intention to continue with negotiations to acquire a major stake
in Medigrow Africa’s worldwide operations. The parties have signed all documentation to ensure
the annual renewal of the licences and to this extent will ensure that all compliance matters are
adhered to.
Rationale for the THC acquisition
The founders of THC have been researching and securing the various opportunities within the
cannabis industry for well over a year. Mr Mike Stringer (Mike) has worked for thirty years in the API
industry and the last five years as CEO of a large API facility. He was key in developing the USA and
EU markets together with highly competent agents. Mike brings with the essential API experience –
regulatory, technical expertise and business development knowledge. He has worked for the last
ten (10) years actively on the regulatory side of the cannabis industry. He will be heading up Labat
Healthcare as Chief Executive Officer. The other members of THC will be actively involved in the
various operations in Labat Healthcare and these include but not limited to: The implementation of
the research facility in Johannesburg; Developing and creating an Industrial Hemp strategy;
Obtaining the various approvals and be involved in the lobbying for change of legislation;
Obtaining further Off-Take agreements; help facilitate the capital raise by placing Labat shares;
Interact with various national provincial and local government departments. The individuals and
organisations that form the core of THC will be involved in the operations of Labat Healthcare. THC
has negotiated a five year off take agreement with UK based cannabis group New Frontier
Holdings. The group operate in Wales and England, The offtake is estimated to be around R2 billion
for the duration of the contract.
4) Funding for Healthcare Acquistions
The Acquisitions will be financed by way of a new issue of Labat shares at R1.00 per Labat share.
5) Suspensive conditions of the various acquisition
Other than the issue of shares for the Medigrow acquisition, the suspensive conditions of the above
transactions have been met and these include, inter alia:
o The parties have executed the sale of shares agreement between Labat Africa and Medigrow
Africa.
o The parties have executed the sale of shares agreement between Labat Africa and THC.
o The Board has provided a certified extract of the Board resolution approving the Medigrow
Africa, THC, Pac-Con and Knuckle Genetics acquisition.
o All regulatory approvals, to the extent required, have been obtained.
o Medigrow Africa providing the share certificate to Labat for 100% of the issued share capital in
Healthy Corporation (Pty) Limited.
o Medigrow Africa and Link entering into a voting pool agreement for the benefit of the
company.
The Company will now proceed with the approval in connection with the admission to listing of the
Labat shares on the JSE, issued as payment of the Subscription Price.
6) Classification of the transactions
The Medigrow Africa, THC, Pac Con and Knuckle Genetics agreements are all classified as
Category 2 transactions in terms of the JSE Listings Requirements. None of the various groupings
and or parties and their associates are related parties to Labat as defined in the JSE Listings
Requirements. Aggregation does not apply. Accordingly, shareholder approval is not required.
7) Medigrow Africa, THC and Labat Healthcare Implementation Plans
These plans are backed by off-take commitments from international pharmaceutical groups. The
establishment of the site in Lesotho will be funded jointly by Labat and Medigrow Africa.
Medigrow Africa and Labat Cannabis has a strict Master Grower plan which will be implemented
by the Executive committee to the benefit of all shareholders. Each Drug Operator’s License allows
for 3 (three) hectares of cultivation per licence. Medigrow Africa has access to a team of master
growers with legally obtained cultivation experience.
Labat has now obtained two licences in the Kingdom of Lesotho. The first licence, being 02/002/06-
2019, shall be immediately utilised which allows for three (3) hectares of cultivation as per the Drug
Operators Licence numbers. The roll-out and expansion plan over the next 18 months by Labat
Healthcare and Healthy Corporation (Pty) Limited and THC is to incorporate the licences in Lesotho,
together with the licenses in other African countries to the extent Labat shall acquire all the licences
over the period and cultivate under one umbrella. Labat Healthcare is awaiting its final approval
for a South Africa cultivation permit.
8) Strategy, Repositioning and Rebranding
Shareholders are reminded that Labat is an investment holding company and has, over the years,
invested in a number of different businesses, grown the businesses and then either unbundled these
into their own listing or sold them to a strategic partner. Labat intends to continue with this model
Labat intends to grow the group within four strategic segments, namely Energy; Logistics, ICT and
Healthcare. More detailed information is available on Labat Africa’s website at: www.labat.co.za.
The Board will continue to assess the merits of unbundling segments of the group into their own
listings or aligning with strategic partners as well as the merits of a dual listing.
9) Financial Information
THC and Medigrow Africa are new businesses and do not have any historical financial information.
The Pac-Con business will be upgraded and expanded under the supervision of Mr Mike Stringer.
The financial information for Pac-Con has been extracted from the latest available audited annual
financial statements for the year ended 29 February 2019, which were audited by Blue Sky
Accounting and Tax Services and reflected a net asset value of R1 408 989 plus a loan account of
R5 567 455 and a profit (loss) after taxation of R54 687.00.
After the repositioning of the group and due to the absence of historical financial information, the
Board has prepared five year projections, which include both the existing Labat business and the
new Health Care operations. These detailed projections and assumptions, together with the re-
positioning strategy, are available on the Company’s’ website.
INCOME STATEMENT Year 1 Year 2 Year 3 Year 4 Year 5
Revenue R1.4b R2.3b R3.1b R3.6b R4.1b
Gross Profit R271m R550m R847m R1.02m R1.2b
Operating Profit R165m R418m R701m R859m R1 030m
Net Profit Before Tax R124m R393m R707m R918m R1.2b
Net Profit After Tax R95m R302m R556m R723m R903m
Earnings Per Share 18 Cents 54 Cents 99 Cents 126 Cents 155 Cents
Fully diluted shares 450 000 000 500 000 000 500 000 000 500 000 000 500 000 000
Shareholders are advised that the above forecasts have not been audited or reviewed by the
Company’s auditors. However, the Company is embarking on a roadshow and will be presenting
forward looking information to prospective investors. In the interest of transparency and equal
access to information, a decision has been taken to publish the roadshow information pack on the
Company’s website at www.labat.co.za.
The above forecasts have been prepared using the accounting policies of Labat but exclude any
assumptions around IFRS 9, IFRS 15 and IFRS 16.
Year 1 assumes a full year of operations commencing 1 March 2020. Key assumptions are set out
below, including segment assumptions for year 1:
Labat H/O Healthcare Energy ICT Logistics Total
YEAR 1 R’000 R’000 R’000 R’000 R’000 R’000
Revenue R10 125 R218 714 R1 037 127 R116 675 R57 987 R1 440 627
Gross Profit R10 125 R128 913 R62 030 R71 994 R7 621 R280 683
Operating
(loss)/Profit (R2 705) R84 279 R17 123 R48 265 R3 020 R149 982
Net Profit
Before Tax (R3 200) R71 800 R7 194 R59 482 R3 020 R123 908
Net Profit
After Tax (R2 304) R57 088 (R5 179) R42 827 R2 174 R94 606
The Healthcare segment includes the cannabis and hemp businesses, which are only expected to
start generating revenue from March 2020. The key assumptions of Labat Healthcare are outlined
in the investor pack of the Labat Healthcare business and is available on the company’s website.
The energy business comprises Force Fuel as well as the AutoGas business. Additional guarantees,
working capital facilities and capital expansion funding are being sought to increase volumes and
national and regional footprint to levels achieved in previous years.
The ICT segment includes the existing Sames business and the recent acquisitions of Remote Mobile
Technologies are currently performing well above the expectations and anticipate significant
future growth.
10) Subscription for shares for cash and renewal of cautionary announcement
Shareholders are reminded that the subscription of shares for cash under the general authority of
Labat that negotiations are still underway to conclude the transaction on the terms announced on
the 12 September 2019. The Company is still engaged with various International parties that could
bolster the operations here and abroad. Accordingly, shareholders are reminded to continue to
exercise caution until a further announcement is made.
JOHANNESBURG
22 November 2019
Sponsor
Arbor Capital Sponsors Proprietary Limited
Date: 22/11/2019 03:57:00
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