Company founded by South African rugby boss becomes technically insolvent

Labat Africa, founded in 1995 by former rugby boss Brian van Rooyen and Victor Labat, has become technically insolvent.

Brian van Rooyen was elected president of the South African Rugby Union (SARU) in 2004 but was voted out two years later.

He has served as Labat’s CEO since its inception. The company was listed on the Johannesburg Stock Exchange (JSE) in 1999.

Since 1995, it has been a major South African government contractor providing consulting and related services, implementing many high-profile assignments.

However, the company has changed significantly over the years and has outlined a plan to reposition itself in 2019.

The Labat Africa Board has decided to transition the business from an investment holding company into a cannabis business.

The new strategy for Labat was to focus on healthcare, wellness and industrial hemp amidst legislative changes regarding cannabis globally.

The company has made a number of acquisitions in the cannabis space, as well as forming strategic partnerships. These include:

• Sweetwater Aquaponics – A GACP, GMP and SAHPRA-approved cannabis cultivation and processing facility.
• CannAfrica – A retail business that manufactures a wide range of CBD-infused health and wellness products.
• The Highly Creative – A company that owns IP such as Genetics, technology and processes as well as a R2.1 billion offtake agreement.
• Biodata – A research company with a focus on using cannabis as a treatment for patients with a variety of ailments.
• African Cannabis Enterprises (ACE Genetics) – A cannabis company which owns various genetics and currently trades in cannabis raw materials.
• Echo Life – A Miami-owned CBD health and wellness company.

Labat set itself a goal of becoming the market leader in the medicinal and industrial cannabis space.

In its latest annual report, the company said it has expanded its retail footprint and scaled its cannabis cultivation facilities.

Labat said it is positioning itself to consolidate the cannabis market in South Africa through strategic acquisitions, partnerships, and organic growth.

“By integrating fragmented market players into our ecosystem, we can maximise efficiencies, reduce redundancies, and create a unified market leader,” it said.

Labat becomes technically insolvent

Labat Africa’s latest financial results showed that the company has become technically insolvent.

A company is technically insolvent when its liabilities outweigh its assets. In this situation, the company has negative equity.

A technically insolvent company cannot settle all its liabilities if all its assets are liquidated. This means drastic measures are needed to improve the balance sheet.

Labat Africa’s short-form announcement audited results for the year ended 31 May 2024 showed that it had negative equity.

The company has total assets of R123.4 million and total liabilities of R142.8 million, leaving it with negative equity of R19.5 million.

It explained that it is in a negative equity position of R19,4 million due to:

• Signification adjustments to the carrying value of its intangible assets.
• The suspension of its shares from trading on the JSE, preventing it from issuing new shares.

The company’s income statement also showed challenges. Group revenue decreased 2% to R48.5 million compared to the prior year.

This decrease was due to the expiry of the Sasol contract during the year. Strong healthcare revenues partly offset it.

Gross profit for the year increased to R29.8 million, reflecting a 41% increase compared to the prior year.

Operating expenses increased to R47.7 million, up 5.8% from the prior year, and the company plans to cut costs to improve the situation.

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