One might apply a bovine-based scatological contention to the latest statement issued by microcap technology group Labat. The company does a most unconvincing job of explaining its cardinal sin of declaring and later retracting a maiden dividend payment.
I am, at this point, not sure whether Labat’s board is devious, dangerously delinquent or just dysfunctional. Quite possibly it’s a combination of all three. In all my decades as a financial journalist — covering such bizarre iterations as Mouldmed, Tigon and Amalia Gold (to name but a few) — I have never seen such a reputation-ruining communication as Labat issued last week to its disgruntled shareholders.
Let me remind readers of what’s at stake here. It all started on June 23 when Labat’s board advised shareholders that “following a period of significant operational progress and value creation across the group”, the company had declared a maiden cash dividend of 1c a share. Whoop-de-doo or too good to be true?
Investors had a bit to work with, most notably that the last set of results, the unaudited interims to end-November 2025, reflected earnings of 3.64c a share and NAV of 25c a share. A trading update for the year to end-May this year, released in April, pencilled in headline earnings of 11.15c a share and NAV of 34.4c a share.
But on July 30, a day after the last day to register for the dividend, Labat issued a statement on Sens that pushed out the implementation timetable of the maiden dividend. This purportedly followed consultations between the board, management and the company’s external auditors.
Understandably, shareholders are miffed. The JSE has since (prudently) suspended trading in the share.
What will irk shareholders even more is that Labat’s board has now effectively nixed chances that the declared dividend will be paid at a later date. The board, according to a statement issued last week, now believes it inappropriate “to continue creating an expectation in the market that the dividend can be paid when the company is presently unable to provide a reasonable basis for such assurance”.
What the group betrays in the latest statement is a startling confession of ineptitude, which will not be reassuring to shareholders. One of the big reasons for the rethink on the dividend declaration, according to Labat, is not necessarily financial pressure, but the fact that after the dividend declaration another 900-million new shares were issued to fund a transaction.
The way Labat explains it is this. With the original 2.2-billion shares in issue, the board considered the company’s financial position (applying the required solvency and liquidity test) and was satisfied it could “lawfully make the proposed distribution”.
But the extra 900-million shares in issue, which markedly increased the dividend obligation, were not considered. Markedly? Well, I make it an extra R9m.
The quantum aside, this is surely a rookie error — and one that should not be made by a listed counter. Labat merely concedes that it failed to consider the additional share issue on the dividend obligation. Presumably in a bid to inject some positivity into the proceedings, the company said it was still committed to engaging constructively with the JSE to “establish a clear and practical pathway towards resolving the circumstances giving rise to the suspension”.
Because the JSE has urged Labat to make good on the dividend payment, the first step on that difficult pathway would be for Labat to publish its audited numbers to end-May asap. Shareholders will need reassurance that cash flows and balance sheets were intact at the end of May.
There should be no reason for these financials to be delayed further. We are not talking about a huge and convoluted corporation, so I can’t believe the audit process should drag on. Having seen this movie many times before, I’d be very surprised if Labat issued its year-end results this coming week. I’d also be surprised if the financial picture is as rosy as suggested by the most recent trading update.
It seems clear things have taken a really bad turn for the worse. Labat points out that after the JSE suspension, the company experienced a further material deterioration in its liquidity position. “Certain creditors and funding providers withdrew or reduced facilities, required repayment and/or otherwise restricted access to working capital.”
Here is the scary bit: “These developments placed additional pressure on the company’s ability to fund its ordinary operations and materially reduced its ability to incur further indebtedness for the purpose of satisfying the outstanding dividend claim.”
Holy cow! In the space of a few months Labat has moved from boom to gloom. A few months ago, the company boasted that its dividend “milestone” reflected the continued execution of the group’s strategic objectives and the growing contribution of its investments and operating businesses.
Now Labat hints at a nasty pinch, one in which preserving liquidity, rebuilding creditor confidence and strengthening the balance sheet are the order of the day. A dividend should clearly be the furthest thing from shareholders’ minds. Maybe calling an urgent shareholder meeting to tackle executives in an open forum is a more pressing imperative.
