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Mvela - Unaudited Interim report for the six months ended 31 December 2004
Mvelaphanda Group Limited
(Formerly Rebserve Holdings Limited)
(Incorporated in the republic of South Africa)
(Registation number 1995/004153/06)
("Mvela" or "the company")
ISIN: ZAE000060737 Share code: MVG
Unaudited Interim report for the six months ended 31 December 2004
HIGHLIGHTS
* Creation of South Africa"s pre-eminent broad-based, black-controlled, owned
and managed diversified group
* Closing and successful implementation of the merger of the businesses and
assets of Mvelaphanda Holdings, with Rebserve
* Headline net attributable profit (excluding STC charge on special dividend) of
R110 million, equivalent to 52 cents per share
* Net profit before taxation up 16% to R150 million
* Steady operating performance from former Rebserve services businesses
Summarised Group Balance Sheet
Unaudited Unaudited Audited
31 December 31 December 30 June
2004 2003 2004
R"000 R"000 R"000
Assets
Non-current assets 2 418 485 709 909 701 102
Property, plant and 361 701 366 881 352 350
equipment
Goodwill 589 226 269 184 275 065
Investments and loans 1 421 289 25 041 29 510
Deferred taxation 46 269 48 803 44 177
Current assets 932 007 1 082 866 1 100 957
Liquid funds 232 099 482 492 440 789
Other current assets 699 908 600 374 660 168
TOTAL ASSETS 3 350 492 1 792 775 1 802 059
EQUITY AND LIABILITIES
Capital and reserves 2 361 429 951 719 1 003 458
Share capital and reserves 2 337 162 916 726 971 553
Amounts due to vendors 24 267 34 993 31 905
Outside shareholders" 956 3 955 614
interest
Non-current liabilities 280 190 151 277 85 297
Interest bearing 217 727 137 667 69 332
liabilities
Non-interest bearing 10 790 3 880 3 395
liabilities
Deferred taxation 51 673 9 730 12 570
Current liabilities 707 917 685 824 712 690
Interest bearing 67 994 99 435 73 490
liabilities
Non-interest bearing 639 923 586 389 639 200
liabilities
TOTAL EQUITY AND 3 350 492 1 792 775 1 802 059
LIABILITIES
Net asset value per share 585,8 534,1 565,0
(cents)
Net tangible asset value 439,6 356,2 388,6
per share (cents)
Summarised Group Income Statement
Unaudited Unaudited Audited
Six months Six months year
ended ended ended
31 31 30 June
December December
2004 % 2003 2004
R"000 change R"000 R"000
Revenue 1 714 302 (2) 1 743 467 3 487 126
Profit from 111 468 (15) 131 594 270 523
operations
Fair value gain
arising on
revaluation of 35 368 - -
investments
Net investment income 2 867 6 465 16 982
Income from 607 - 783
associates
Net profit before
taxation and
exceptional items 150 310 9 138 059 288 288
Exceptional items - (7 923) (17 229)
Net profit before 150 310 16 130 136 271 059
taxation
Taxation (53 447) (29 535) (67 079)
Normal, deferred and
capital
gains tax (31 785) (26 594) (60 502)
Secondary tax on (21 662) (2 941) (6 577)
companies
Net profit after 96 863 100 601 203 980
taxation
Net profit
attributable to
outside
shareholders (8 315) (7 570) (23 091)
Net profit
attributable to
ordinary
shareholders 88 548 93 031 180 889
Number of shares in
issue
(after share 402 947 177 615 177 250
buybacks) (000)
Weighted average
number
of shares in issue 211 909 177 615 177 250
(000)
Earnings per share 41,8 52,4 102,1
(cents)
Headline earnings per 41,8 56,8 111,8
share (cents)
Fully diluted
headline earnings
per share (cents) 41,8 56,7 111,5
Dividend/distribution
per share (cents) - 15,0 175,0
Summarised Group Cash Flow Statement
Unaudited Unaudited Audited
31 December 31 December 30 June
2004 2003 2004
R"000 R"000 R"000
Profit from operations 111 468 131 594 270 523
Non-cash items 47 722 53 158 103 422
Working capital changes (66 363) (7 270) (17 407)
Cash generated from 92 827 177 482 356 538
operations
Net investment income 2 867 6 465 16 982
Taxation paid (45 715) (25 569) (42 641)
Dividends paid (195 152) - (26 668)
Cash available from
operating
activities (145 173) 158 378 304 211
Cash effects of investing (96 303) (84 680) (145 785)
activities
Cash effects of financing 32 786 (83 118) (209 549)
activities
Net movement in liquid (208 690) (9 420) (51 123)
funds
Net liquid funds at the
beginning
of the period 440 789 491 912 491 912
Net liquid funds at the end
of the period 232 099 482 492 440 789
Statement of changes in equity
Unaudited Unaudited Audited
31 December 31 December 30 June
2004 2003 2004
R"000 R"000 R"000
Balance at the beginning
of
the period 1 003 458 938 236 938 236
Acquisition of
subsidiaries and
businesses 1 464 575 (17 493) (26 944)
Net profit attributable to
ordinary
shareholders 88 548 93 031 180 889
Distribution/dividends (195 152) (62 055) (88 723)
Balance at the end of the 2 361 429 951 719 1 003 458
period
Reconciliation between net profit attributable to ordinary shareholders and
headline net profit attributable to ordinary shareholders
Unaudited Unaudited Audited
31 December 31 December 30 June
2004 % 2003 2004
R"000 change R"000 R"000
Net profit
attributable to
ordinary 88 548 93 031 180 889
shareholders
Goodwill amortised - 7 923 16 991
Impairment of a loan - - 238
account
Headline net profit
attributable to
ordinary
shareholders 88 548 (12) 100 954 198 118
Segmental information
Unaudited Unaudited Audited
31 December 31 December 30 June
2004 % 2003 2004
R"000 change R"000 R"000
TURNOVER
Facilities
management and
professional 590 723 590 261 1 269 351
services
Mining and 359 805 357 456 658 509
technical services
Food services 302 967 420 231 788 502
Support services 460 807 375 519 770 764
1 714 302 (2) 1 743 467 3 487 126
PROFIT FROM
OPERATIONS
Facilities
management and
professional 52 495 50 793 139 610
services
Mining and 10 785 27 718 36 336
technical services
Food services 13 728 24 885 36 206
Support services 34 460 28 198 58 371
111 468 (15) 131 594 270 523
Commentary
Implementation of the merger of the businesses and assets of Mvelaphanda
Holdings, with Rebserve ("the merger")
It was announced in the press on 19 November 2004 that the Competition Tribunal
had unconditionally approved the merger and that all other conditions precedent
to the merger had been fulfilled. The merger was implemented on 13 December
2004, on which date the company paid the special cash dividend of R1.10 per
share, comprising an effective return of capital, and issued the capitalisation
shares (equivalent in value to a further 50 cents per share), to its
shareholders. 213 775 000 Mvela shares (equating to 52.8% of the resultant
issued share capital) were issued/transferred to Mvelaphanda Holdings
(Proprietary) Limited, a black-owned company ("Mvela Holdings"), on 13 December
2004, and Mvela Holdings became the controlling shareholder of the company. The
company changed its name to Mvelaphanda Group Limited and has become a broad-
based, black-controlled, owned and managed diversified group. Mvela has combined
the stature and reputation of the Mvela Holdings brand and team, as well as the
prospect of substantial BEE deal flow, with the cash-generative base and proven
operational and transactional skills of the former Rebserve and its management,
all of whom have been retained by the group.
The merger has been accounted for from 13 December 2004, being the date upon
which all of the conditions precedent to the merger were fulfilled.
The strategy of Mvela is to grow shareholder value (as measured primarily by net
asset value or "stack-up" value) by utilising its BEE credentials and the solid
platform which has now been established through the combination of quality
investments with steady cash-generative businesses, in order to participate in
the continued transformation of the South African economy by actively pursuing
and implementing value-enhancing and/or BEE transactions.
Investments
The group"s investments comprise interests in a range of companies in the mining
and resources, financial services, property, healthcare and general industrial
sectors. The largest of these investments currently comprises the group"s 23%
interest in Mvelaphanda Resources Limited ("Resources"), and a 20% interest in
Batho Bonke (Proprietary) Limited ("Batho Bonke"), which owns preference shares
and options equating to an effective 10% stake in Absa Group Limited ("Absa").
Subject to the approval of the Competition Tribunal, these investments will be
supplemented by a material investment in Afrox Healthcare Limited ("Afrox
Healthcare").
The Competition Tribunal hearings on the acquisition of Afrox Healthcare by
Bidco, in which the group has an effective controlling interest together with
Brimstone Investment Corporation Limited, resumed on 10 February 2005, and a
decision and ruling in this regard is awaited. The group has committed to invest
R250 million into Bidco, R100 million of which will be disbursed from the
group"s own resources and R150 million of which will be funded by the Industrial
Development Corporation ("IDC") in terms of an approval granted by the IDC board
on 15 February 2005. The Afrox Healthcare business continues to perform well.
The unaudited interim results of Resources for the six months ended 31 December
2004 were published in the press on 4 February 2005. Resources reported a net
profit before other expenses and taxation of R64 million. Other expenses
incurred by Resources totalled R392 million mainly due to the revaluation of
certain financial instruments relating to Resources" interests in Gold Fields SA
and Trans Hex.
The value of the group"s investment in Batho Bonke has increased substantially
over the period as a result of the increase in the Absa share price from R50 in
July 2004 to R76 in December 2004.
The other investments held by the group performed in line with expectations.
These investments are carried at directors" valuation, which valuation is
largely in line with the value ascribed to the investments in terms of the
merger. Changes in the fair values of investments are accounted for in the
income statement.
Operations
Rebserve Limited, which holds the group"s business operations in the areas of
facilities management and professional services, mining and technical services,
food services and support services, and which comprises the major portion of the
group"s operating businesses, will be re-named Mvelaphanda Services Limited. The
businesses comprising the former Rebserve delivered a steady performance on the
whole, which performance was adversely affected by negative conditions in the
mining sector.
TFMC"s consistent performance since the inception of the Telkom contract, has
reinforced the attractiveness of these long term annuity-based contracts with
blue chip clients. Prospects for securing further such long term contracts
continue to improve, and good progress has been made towards concluding the
proposed strategic joint venture between the group and Propnet, as well as with
other opportunities being pursued by the group to provide facilities management
services to telecommunications service providers in Australia, Malaysia and the
UAE.
The strength of the rand against the US Dollar continues to negatively impact
the mining sector generally and trading conditions for the group"s businesses
operating in this sector remained extremely difficult. Continued pressure on
selling rates and margins, the reduction of volumes of work being outsourced by
the mines to contractors, and the process of attrition being applied by mining
houses to outsourcing contractors in response to declining profitability in the
mining sector, resulted in a reduced contribution to profits from the group"s
mining services businesses. These conditions were exacerbated by the severe
strikes in the platinum mining industry in September and October 2004, which
alone cost JIC Mining Services approximately R11 million in these two months in
operating losses as a result of disruptions in production and access to sites.
The recovery in the performance of Stamford Sales following the disappointing
second half of the 2004 financial year is under way. Progress has been made in
reducing costs and improving operational efficiencies.
The group"s security services businesses, Coin Security and Protea Security,
continued to perform well.
The performance of the other operating businesses was in line with expectations.
Financial performance
As a result of the merger, the results for the period under review are not
directly comparable with the results of the prior year or comparable period.
As the merger was implemented on 13 December 2004, the results of the businesses
and assets acquired by the company from Mvela Holdings have been accounted for
from 13 December 2004, with the exception of Resources. Results for Resources
have been accounted for from 31 December 2004, being the date of the last
financial reporting period for which Resources has published its results, and
the most practicable date from which to account for the results of Resources
relative to the implementation date of the merger.
The group"s net asset value at 31 December 2004, at book value, is R5.86 per
Mvela share. This represents a 42% increase from the pro forma comparative net
asset value (at book value) per Mvela share of R4.13 at 30 June 2004 (after
deducting the effect of the special cash dividend and capitalisation share issue
pursuant to the merger).
Headline net attributable profit for the period was R89 million, comprising R31
million of fair value gains arising on the revaluation of the group"s
investments, and R58 million of net attributable profit from trading operations.
Headline earnings per share was 41.8 cents per Mvela share. If the effects of
the STC charge as a result of the special cash dividend paid to shareholders
pursuant to the merger are excluded from the net attributable income, the
headline net attributable profit increases to R110 million, equivalent to 52.0
cents per Mvela share.
Headline earnings per share of 41.8 cents is below the headline earnings per
share for the comparable period as a result of the dilutive effect which the
merger has had on the group"s earnings per share (as was anticipated and
announced at the time of the merger). Specific items impacting negatively on
Mvela"s earnings per share in the period under review also include the STC paid
on the effective return of capital to Rebserve shareholders via the special cash
dividend (equivalent to 10.2 cents per Mvela share), the capitalisation share
issue of new Mvela shares and the issue of new Mvela shares to Mvela Holdings in
consideration for the acquisition of assets.
The pro forma headline earnings per Mvela share, calculated on the basis that
the merger had not been implemented, the new shares and treasury shares had not
been issued/transferred to Mvela Holdings, and the special cash dividend and the
capitalisation issue had not been paid, is 45.0 cents. This pro forma headline
earnings per share represents a 3% increase on the pro forma headline earnings
per share for the period 1 January 2004 to 30 June 2004 of 43.6 cents
(calculated on the basis that the once off gainshare payment received by TFMC in
respect of the Telkom contract in that period is excluded from earnings).
Revenue for the period under review was 2% below the comparable period.
Increases in revenue in the support services division were offset by the
decrease in turnover in the food distribution businesses as a result of the loss
by Stamford Sales of the KFC contract in the second half of the 2004 financial
year.
Profit from operations of R111 million was 10% above the pro forma comparable
amount for the six months ended 30 June 2004 of R101 million, which pro forma
amount is calculated after excluding the once off gainshare payment received by
TFMC in May 2004 in respect of the Telkom contract.
Net investment income (which comprises interest and dividends received and
interest paid) decreased in line with the decreased cash balances over the
period and decreased interest rates relative to the comparable period. Income
from associated companies does not include any amounts in respect of Resources
for the reasons stated above.
In line with the requirements of AC 140, goodwill is no longer carried at
amortised cost, but is carried at cost and is reviewed for impairment at least
annually. As a result of this change in accounting policy, there are no
exceptional items in the current year. Comparative amounts have not been
restated.
The group"s effective tax rate on operating activities was 23% and in line with
expectations. The taxation charge in the income statement includes an amount of
R22 million for STC as a result of the special dividend paid to shareholders
pursuant to the merger. This once off STC charge has reduced the group"s
headline earnings per share for the period under review by 10.2 cents per share.
The number of shares in issue (after share buy backs and shares held by the
Rebserve Share Incentive Scheme at 31 December 2004) increased from 177 249 768
shares at 30 June 2004 to 402 947 369 shares following the issue of new shares,
the transfer of the treasury shares held by a subsidiary and the capitalisation
share issue pursuant to the merger.
In order to achieve the merger, the group paid out approximately R220 million in
cash by way of the special dividend to shareholders, costs and other items
directly related to the merger. Interest bearing debt includes approximately R90
million of debt assumed by the group pursuant to or relating to investments
acquired in terms of the merger.
Accounting policies
The results for the six months ended 31 December 2004 have been prepared in
accordance with South African statements of Generally Accepted Accounting
Practice. The accounting policies used are consistent in all respects with the
accounting policies applied in the financial statements for the year ended 30
June 2004, other than the accounting policies for Investments and Goodwill set
out below:
Investments
Investments in special purpose entities, as envisaged by AC412, Consolidation -
Special Purpose Entities, which are not under the control of the company, are
treated as "available-for-sale" investments in accordance with AC125 and AC133,
Financial Instruments. Other unlisted investments are also classified as
"available-for-sale" in terms of AC133, Financial Instruments: Recognition and
Measurement, although these are held and structured as non current investments.
Unlisted investments are initially recorded at cost on acquisition. After
initial recognition, investments, which are classified as "available-for-sale"
, are measured at fair value.
Fair value methods and assumptions
The fair value of financial instruments not traded in an organised financial
market, is determined using a variety of methods and assumptions that are based
on market conditions and risk existing at balance sheet date, including
independent appraisals and discounted cash flow methods. The fair value
determined is adjusted for any transaction costs necessary to realise the assets
or settle the liabilities.
Goodwill
With effect from 1 July 2004 Mvela adopted the provisions of AC140: Business
Combinations. In terms of this accounting statement goodwill arising from a
business combination for which the agreement date is after 31 March 2004 is not
amortised, but is carried at cost less accumulated impairment losses. Goodwill
which arose on acquisitions before 31 March 2004 is no longer amortised and has
been retained at the previous carrying amount, subject to being tested for
impairment at least annually. Comparative figures have not been restated.
Dividends
As stated in the circular to shareholders dated 30 July 2004, it is the policy
of the group to pay a single annual dividend, subject to cash flow requirements
of the group.
Prospects
The group has a strong pipeline of BEE-related dealflow and expects to implement
significant value-enhancing BEE and/or other transactions during 2005. Progress
has been made in relation to the contemplated capital raising programme in order
to fund Mvela"s BEE deal flow and a number of proposals in this regard are
presently under consideration.
The former Rebserve operations, which are being rebranded where appropriate
under the Mvelaphanda name, are starting to benefit from the group"s strong BEE
credentials. This is evidenced by the winning of new services contracts, and a
strong increase in the level of enquiries and negotiations to provide services
to new clients, and all of which factors are adding impetus to the prospect of
concluding a major new facilities management contract in the short term.
The group is confident of its ability to consolidate and expand on its
reputation as the pre-eminent BEE partner of choice, in the buoyant BEE
transactional environment presently being experienced in South Africa, to the
benefit of all stakeholders.
T M G Sexwale S M Levenberg
Chairman Chief Executive Officer
25 February 2005
Sandton
Executive Directors:
TMG Sexwale (Chairman), MSM Xayiya (Deputy Chairman),
SM Levenberg (Chief Executive), YZ Cuba, PJA Mphafudi, BC Till, MJ Willcox
Non-Executive Directors:
BD Hopkins, OA Mabandla, LM Mojela, D Moshapalo, MZ Nxumalo, RM Patel,
CD Stein
Registered Office:
Hunts End, 36 Wierda Road West, Wierda Valley, Sandton, 2196
Telephone 27 11 290-4200 Telefax 27 11 783-0027
Sponsor:
Deutsche Securities SA (Pty) Ltd
Transfer Secretaries:
Computershare Investor Services 2004 (Proprietary) Limited, 70 Marshall Street,
Johannesburg, 2001
A copy of these results are available on the Mvelaphanda Group website at:
www.mvelagroup.co.za
Date: 28/02/2005 11:00:21 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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